EVERGREEN ASSET MANAGEMENT
2500 WESTCHESTER AVENUE
PURCHASE, N.Y. 10577
September 11, 1996
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C.
Attention: File Room
Re: EVERGREEEN INVESTMENT TRUST
File No. 811-4154
EVERGREEN FOUNDATION TRUST
File No. 811-5953
EVERGREEN AMERICAN RETIREMENT FUND
File No. 811-5434
Commissionioners:
Please be advised that the final Annual Report for the above referenced
Trusts which include Evergreen American Retirement Fund, Evergreen Balanced
Fund, Evergreen Foundation Fund and Evergreen Tax Strategic Foundation Fund were
submitted to your office on September 11, 1996, via electronic transmission
(Edgar).
Any questions or comments about this documemt should be directed to the
undersigned at (914) 641-2206.
Very Truly Yours,
/s/ James P. Wallin
James P. Wallin
Vice President and
Assistant General Counsel
<PAGE>
EVERGREEN
BALANCED FUNDS
(Photos of Statue of Liberty, stocks and bonds, statue and dam)
SEMIANNUAL
REPORT
JUNE 30, 1996
(Evergreen Funds tree logo)
<PAGE>
EVERGREEN BALANCED FUNDS
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
Economic Overview......................................................... 1
(Photo of AMERICAN RETIREMENT A Report From Your Portfolio Manager...................................... 3
Statue of Liberty) FUND Statement of Investments.................................................. 5
Statement of Assets and Liabilities....................................... 9
Statement of Operations................................................... 10
Statement of Changes in Net Assets........................................ 11
Financial Highlights...................................................... 12
(Photo of stocks BALANCED A Report From Your Portfolio Manager...................................... 14
and bonds) FUND Statement of Investments.................................................. 15
Statement of Assets and Liabilities....................................... 18
Statement of Operations................................................... 19
Statement of Changes in Net Assets........................................ 20
Financial Highlights...................................................... 21
(Photo of FOUNDATION A Report From Your Portfolio Manager...................................... 23
statue) FUND Statement of Investments.................................................. 25
Statement of Assets and Liabilities....................................... 30
Statement of Operations................................................... 31
Statement of Changes in Net Assets........................................ 32
Financial Highlights...................................................... 33
(Photo of dam) TAX STRATEGIC A Report From Your Portfolio Managers..................................... 35
FOUNDATION FUND Statement of Investments.................................................. 37
Statement of Assets and Liabilities....................................... 42
Statement of Operations................................................... 43
Statement of Changes in Net Assets........................................ 44
Financial Highlights...................................................... 45
Combined Notes to Financial Statements.................................... 47
Trustees and Officers.........................................Inside Back Cover
</TABLE>
<PAGE>
EVERGREEN BALANCED FUNDS
ECONOMIC OVERVIEW
BY EVERGREEN ASSET MANAGEMENT CHAIRMAN
STEPHEN A. LIEBER
Throughout the first half of 1996, there has been (Photo of
an increasing and unusually intense investment Stephen A. Lieber)
markets preoccupation with the risk of inflation.
Such concern is, at first glance, remarkable
considering that the inflation rate,
as measured by the Producer Price Index and the Consumer Price Index, remained
approximately constant through the entire six months, and still is 2.8% on the
Consumer Price Index. Further, inflation at this approximate rate has been
relatively constant for over five years. However, a most widely held economic
view is that the economy cannot enjoy significant growth within a stable, low
inflation environment. Thus, each sign of growth, and particularly of employment
and wage strength, is viewed as a trend which implies a resurgence of inflation.
This broad apprehension is not merely the anxiety of a society which has, in the
past decades, seen the erosion of financial assets caused by inflation; it is
also a reaction to recent economic forecasts which underestimated the economy's
growth rate.
The recently published semi-annual survey of over 50 business economists by
Blue Chip Economic Indicators published by Capitol Publication in Alexandria,
Virginia, contrasts economic trends at mid-year with expectations six months
before. At the beginning of the year, most of these "blue chip" economists
anticipated a slowing of the economy with increased unemployment. The opposite
happened. Economic growth accelerated to an expected 4.2% for the June quarter,
and official unemployment statistics show that unemployment has gone from 5.6%
to 5.4%. Many influential economists expect that, as the economy approaches full
employment, a wage price spiral will ensue which will touch off inflation. The
fear of such a spiral has strongly impacted the financial markets. Consequently,
the real rate of return (the rate of return on long-term U.S. Treasury
obligations, net of the inflation rate) has risen from 3%, to a recent peak of
4.3%. Rising real returns have also accounted for a sizable strengthening of the
dollar, as compared with other currencies, up 11% on the yen and 7% on the
German mark and 9% on the pound sterling.
The jump in interest rates tended to accelerate a flight of domestic savings
into equities for growth, as the bond alternative seemed threatened by inflation
and, thus, bond prices were in a declining trend. A flood of savings into the
equity markets, stimulated by the increasing prevalence of 401K retirement plans
using mutual funds, also increased the divergence between the trajectories of
stock prices and bond prices. Several sectors of the stock market, particularly
in technology enterprises, moved to levels of valuation seldom seen and, most
infrequently, if ever, sustained. With this massive increase of public savings
participation in the stock market, it became increasingly argued that the
"wealth effect" in the rising stock market was stimulating consumer purchases
beyond expected levels, and might itself be a source of accelerating growth and,
ultimately, inflation.
In the midst of widespread debate about the impact and durability of growth
trends, press discussion began to question the theory that low unemployment
rates trigger inflation.
Recently, this questioning has been advanced to explain why the Federal
Reserve did not raise interest rates at mid-year, despite the strength of the
economy. It promises to be the subject of much public debate. But, there will
also be much debate over the sustainability of economic growth through the
balance of the year. There is now some doubt that consumer spending will be
sustained, given the fact that credit card losses have been increasing since
December. Credit card issuers, who are suffering from an extraordinary loss
rate, will have to cut back too easy credit in the interests of their own
prudent financial management. Consumer buying strength was also supported by tax
refunds in the second quarter. There will be no recurrence of this flow of funds
for the balance of the year. It is also noted that if the "wealth effect" played
a role, then any sustained fall in the stock market is likely to reduce that
source of consumer spending.
1
<PAGE>
EVERGREEN BALANCED FUNDS
ECONOMIC OVERVIEW -- (CONTINUED)
On the external side, the strength of the dollar suggests both a reduction in
export competitiveness, and a decline in U.S. competitiveness against imports.
The Chairman of Chrysler Corporation has already publicly decried the rally of
the dollar, suggesting that it will increase imports and put pressure on the
pricing of domestic manufacturers. Former Federal Reserve Chairman, Paul Volker
has publicly stated that it is important that the dollar not rise further.
Finally, the fact that interest rates have risen over the first half of the year
suggests that they will be a slowing influence in the months ahead. Historical
studies indicate that it usually takes about six months for higher interest
rates to begin to dampen business and consumer borrowing. The sum of these
factors suggests that the recently improved growth rate of the economy may prove
unsustainable in the near-term.
The stock market, at this writing, has gone through its first broad scale
contraction since the beginning of the year. The major fall, to-date, was in the
shares of technology and, especially, computer related companies which
encountered a slowdown in domestic demand, together with a decline in European
demand. This caused a reappraisal of the values of many of the major companies
in the related industries. It has resulted in sizable declines, often 50% or
more, for the shares of smaller companies which had been boosted through widely
disseminated projections of extraordinarily high profits growth rates. This
setback may bring a reappraisal by individual investors and institutional
investors alike of the valuation structure of the stock market. We anticipate
that it will concentrate renewed focus on companies with well-established
franchises and well-supported growth programs, in contrast to newly competitive
and highly promotional businesses. Recognition that much of recent technological
leadership is turning into a hard fought, commodity-like competitive business,
should lead to an increasing number of mergers and combinations. With an
underlying high level of consumer income and extremely good corporate liquidity,
we expect few major corporate profits disappointments in the near-term.
Businesses which may have over-expanded in dreams of endless demand have, in
many cases, already been forced to cut back. Others, demand for whose parts or
services has been well sustained, but who are holding back on enlarged working
capital and capital investments, are already increasing their stock buy-back
programs. These factors of management restraint, high levels of liquidity,
conservative expansion planning, readiness for business combinations and
corporate buy-backs will, we believe, sustain an environment of opportunity for
equity investors in the months ahead.
The fixed income markets should benefit from these same factors. A slowed
growth trend should reduce the fear of inflation and, thus, the real return
premium over the inflation rate.
2
<PAGE>
EVERGREEN AMERICAN RETIREMENT FUND
(Photo of Statue of Liberty)
A REPORT FROM YOUR
PORTFOLIO MANAGER
IRENE D. O'NEILL
Although becoming increasingly volatile, the equity markets (Photo of
continued to climb during the first half of 1996. Most Irene D.
industry groups held in Evergreen American Retirement Fund's O'Neill)
portfolio contributed to performance in the first half.
Healthcare was the Fund's best performing industry group and
the increase was driven by the performance of several
individual stocks. Shares of ADAC Laboratories moved up as new
product introductions produced an earnings recovery. Shared
Medical Systems is benefiting from being in the right place at
the right time. The shift to managed care is forcing
hospitals to upgrade their computer systems in order to reduce
costs. Zeneca Group is riding a crest of new drug
introductions which are expected to spur earnings growth. Also contributing to
the strength in the healthcare industry was the acquisition offer made by Aetna
for U.S. Healthcare in April. The Fund purchased this stock in April 1995 at
$33.25 per share when the company announced disappointing earnings, and sold the
stock at the end of second quarter 1996 for $55.00 per share. Stocks in the
broadcasting and entertainment sector also performed well during the quarter.
Acquisitions of several television and radio broadcasters at increasing
multiples of cashflow occurred during the period. This raised the potential
values of the remaining independent companies. The convertible preferred stocks
of Evergreen Media and Granite Broadcasting, which are held in the portfolio,
both appreciated reflecting these higher valuations. The electric utility sector
benefited from the performance of TNP Enterprises. The shares of TNP have
responded to the anticipation of accelerating earnings in 1997 and continued
rapid dividend growth.
Consistent with the Fund's investment style, our search for new ideas
emphasizes value stocks. As a result, we continue to focus on companies that are
restructuring some aspect of their business or operations. Often these changes
are initiated by companies which have recently installed new management. In
identifying such potential investments, we look for companies that are selling
cheaply based on their earnings potential, assuming the benefits of the
turnaround are realized. Among the stocks added to the portfolio during the
first half that meet this description are: Goulds Pumps, Lance, Reader's Digest,
and West Company. During the six-month period under review, the Fund increased
its exposure to the energy sector with purchases of convertible issues in two
oil field services companies. Advances in drilling technology, rising rates for
drilling rigs, and ongoing consolidation in the industry we believe should
result in improving earnings for Nabors Industries and Key Energy Group. Toward
the end of the six months, the Fund's exposure to electric utilities was
increased. Although these stocks are interest rate sensitive, their above market
dividend yields can be defensive in a market downturn.
Fierce winter storms early in the New Year resulted in weaker than
anticipated economic reports at the start of the first quarter. As this weather
subsided, however, consumer spending for both durables and nondurables began to
pick up. The second quarter was one of renewed vigor for the United States
economy. Real Gross Domestic Product (GDP) grew 4.2% in the quarter, up sharply
from 2.2% in the first quarter. With inventories now at low levels relative to
sales, the inventory correction that began in 1995 appears to have run its
course. As a result, the pace of manufacturing may pick up. High levels of
demand in the auto and housing sectors are stimulating the economy. Job growth
accelerated from the first to the second quarter and the unemployment rate has
dipped from 5.8% in January to 5.4% in June. The fixed income markets had a
bumpy ride in the first half, reacting quite negatively to each month's strong
employment gains. The yield
3
<PAGE>
EVERGREEN AMERICAN RETIREMENT FUND
(Photo of Statue of Liberty)
A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
on the thirty-year U.S. Treasury bond rose from 5.97% at the end of December
1995, to 6.9% on June 28. Because of our concern that strong growth would raise
inflation fears, and therefore interest rates, the Fund maintained a relatively
short average maturity of approximately four years in the fixed income portfolio
during first half 1996. Fixed income purchases during the period were
concentrated in Federal Agency issues with maturities ranging from two to ten
years. This strategy benefited the Fund's performance during the half. Although
inconclusive thus far, economic statistics that have been reported for July
suggest the pace of growth may be softening. Whether the Federal Reserve will
need to raise interest rates later this year to head off inflation, particularly
in wages, is uncertain.
With the direction of the U.S. economy unclear at this point, the stock and
bond markets are likely to remain volatile. Through a diversified and balanced
portfolio, Evergreen American Retirement Fund will continue to focus on
income-producing securities which are both defensive and have the potential for
capital growth.
The total returns at net asset value (NAV) for the six months ended June 30,
1996, for the Fund's Class A shares, Class B shares, and Class C shares were
5.9%, 5.4%, and 5.5%, respectively*. The six-month total return ended June 30,
for the Fund's Class Y, no-load, shares was 5.9%*.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
* CLASS A SHARES ARE SUBJECT TO A MAXIMUM 4.75% FRONT END SALES CHARGE, CLASS
B SHARES ARE SUBJECT TO A MAXIMUM 5% CONTINGENT DEFERRED SALES CHARGE, AND
CLASS C SHARES ARE SUBJECT TO A 1% CONTINGENT DEFERRED SALES CHARGE WITHIN
THE FIRST YEAR OF PURCHASE. SALES CHARGES ARE NOT REFLECTED IN THE FIGURES
ABOVE, AND IF REFLECTED, PERFORMANCE WOULD BE LOWER.
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.
4
<PAGE>
EVERGREEN AMERICAN RETIREMENT FUND
(Photo of Statue of Liberty)
STATEMENT OF INVESTMENTS
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- 52.9%
AUTOMOTIVE EQUIPMENT &
MANUFACTURING -- .4%
14,700 Federal-Mogul Corp................. $ 270,113
BANKS -- 5.4%
20,000 BancorpSouth, Inc.................. 430,000
10,000 Bank of New York Co., Inc. (The)... 512,500
16,000 Cape Cod Bank & Trust Co........... 359,500
15,000 Citizens Banking Corp.............. 438,750
13,000 Comerica, Inc...................... 580,125
4,000 First Union Corp. **............... 243,500
5,000 Fleet Financial Group, Inc......... 217,500
53,000 Hibernia Corp. Cl. A............... 576,375
16,000 Susquehanna Bancshares, Inc........ 428,000
3,786,250
BUSINESS EQUIPMENT &
SERVICES -- 2.2%
5,500* AirTouch Communications............ 155,375
15,000 Dun & Bradstreet Corp. (The)....... 937,500
8,000 Reynolds & Reynolds Co. (The), Cl.
A.................................. 426,000
1,518,875
CHEMICAL & AGRICULTURAL
PRODUCTS -- 1.9%
2,000 Dow Chemical Co. (The)............. 152,000
8,000 Eastman Chemical Co................ 487,000
4,000 Imperial Chemical Industries, Plc,
ADR................................ 196,500
5,000 Praxair, Inc....................... 211,250
15,600 Stepan Co.......................... 282,750
1,329,500
CONSUMER PRODUCTS &
SERVICES -- 2.7%
3,000 Colgate-Palmolive Co............... 254,250
25,000 Jostens, Inc....................... 493,750
2,000 Minnesota Mining & Manufacturing
Co................................. 138,000
30,000 Russ Berrie & Co., Inc............. 551,250
11,000 Tambrands, Inc..................... 449,625
1,886,875
DIVERSIFIED COMPANIES -- 4.6%
53,500 Hanson Plc, ADR.................... 762,375
5,000 Harris Corp........................ 305,000
12,000 Tenneco, Inc....................... 613,500
50,000 Tomkins Plc, ADR................... 762,500
11,000 W. R. Grace & Co................... 779,625
3,223,000
<CAPTION>
SHARES VALUE
</TABLE>
<TABLE>
<C> <S> <C>
ELECTRICAL EQUIPMENT &
SERVICES -- 1.0%
1,000 Emerson Electric Co................ $ 90,375
5,828 Hubbell, Inc....................... 386,105
6,000 Thomas & Betts Corp................ 225,000
701,480
ENERGY -- 6.4%
8,000 Amoco Corp......................... 579,000
4,000 Atlantic Richfield Co.............. 474,000
7,700 Exxon Corp......................... 668,937
3,000 Kerr-McGee Corp.................... 182,625
5,000 Mobil Corp......................... 560,625
4,000 PanEnergy Corp..................... 131,500
10,775 Seitel, Inc........................ 294,966
6,000 Texaco, Inc........................ 503,250
20,000 Williams Cos., Inc. (The).......... 990,000
5,000 YPF Sociedad Anonima, ADR.......... 112,500
4,497,403
FINANCE & INSURANCE -- 3.4%
5,000 Associates First Capital Corp...... 188,125
20,000 GCR Holdings, Ltd.................. 530,000
8,000 Hartford Steam Boiler Inspection &
Insurance Co. (The)................ 393,000
10,000 ITT Hartford Group, Inc............ 532,500
20,000 Lasalle Re Holdings, Ltd........... 450,000
1,500 Provident Cos., Inc................ 55,500
3,000 Transamerica Corp.................. 243,000
2,392,125
FOOD & BEVERAGE PRODUCTS -- 1.7%
18,000 H.J. Heinz Co...................... 546,750
40,000 Lance, Inc......................... 660,000
1,206,750
HEALTHCARE PRODUCTS &
SERVICES -- 4.4%
7,000 Bristol-Myers Squibb Co............ 630,000
14,000 Shared Medical Systems Corp........ 899,500
5,000 Warner-Lambert Co.................. 275,000
30,000 West Co., Inc. (The)............... 900,000
5,333 Zeneca Group Plc, ADR.............. 358,644
3,063,144
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES -- 1.5%
30,000 Goulds Pumps, Inc.................. 768,750
15,000 Graco, Inc......................... 303,750
1,072,500
</TABLE>
5
<PAGE>
EVERGREEN AMERICAN RETIREMENT FUND
(Photo of Statue of Liberty)
STATEMENT OF INVESTMENTS -- (CONTINUED)
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- CONTINUED
METAL PRODUCTS & SERVICES -- 1.4%
42,000 Lindberg Corp...................... $ 430,500
5,000 Phelps Dodge Corp.................. 311,875
10,000 Quanex Corp........................ 236,250
978,625
PAPER & PACKAGING -- .5%
12,000 Westvaco Corp...................... 358,500
PUBLISHING, BROADCASTING &
ENTERTAINMENT -- 1.6%
2,130* ADT Ltd............................ 40,204
2,460 Cox Communications, Inc............ 53,198
8,000 McGraw-Hill Cos., Inc.............. 366,000
13,000 Reader's Digest Assn., Inc. (The).. 552,500
2,803 Times Mirror Co.................... 121,930
1,133,832
REAL ESTATE -- .5%
10,000 Post Properties, Inc............... 353,750
RETAILING & WHOLESALE -- 1.4%
8,000 J.C. Penney Co., Inc............... 420,000
5,000 Marsh Supermarkets, Inc............ 60,000
8,000 Mercantile Stores Co., Inc......... 469,000
949,000
TEXTILE & APPAREL -- 1.4%
23,000 Kellwood Co........................ 422,625
10,000 Oxford Industries, Inc............. 161,250
6,600 VF Corp............................ 393,525
977,400
TRANSPORTATION -- 1.1%
3,191 Burlington Northern Santa Fe....... 258,072
7,000 Union Pacific Corp................. 489,125
747,197
UTILITIES -- ELECTRIC -- 7.6%
18,200 Commonwealth Energy System......... 468,650
20,000 Eastern Utilities Associates....... 392,500
30,000 Houston Industries, Inc............ 738,750
10,000 Illinova Corp...................... 287,500
22,000 PP&L Resources, Inc................ 516,121
20,000 Public Service Enterprise Group,
Inc................................ 547,500
22,000 Southern Co........................ 541,750
10,000 Texas Utilities Co................. 427,500
40,000 TNP Enterprises, Inc............... 1,135,000
8,000 Unicom Corp........................ 223,000
5,278,271
<CAPTION>
SHARES VALUE
<C> <S> <C>
UTILITIES -- GAS -- .7%
25,000 CMS Energy Corp.................... $ 468,750
UTILITIES -- TELEPHONE -- 1.1%
2,521 AT&T Corp.......................... 156,302
10,000 Frontier Corp...................... 306,250
10,000 U.S. West, Inc..................... 318,750
781,302
TOTAL COMMON STOCKS
(COST $29,380,669)............... 36,974,642
CONVERTIBLE PREFERRED STOCKS -- 9.4%
BANKS -- .3%
7,000 ONBANCorp, Inc.
6.75%, Series B.................... 183,750
BUILDING, CONSTRUCTION &
FURNISHINGS -- .4%
7,000 Southdown, Inc.
$2.875, Series D................... 310,625
CONSUMER PRODUCTS &
SERVICES -- .7%
5,000 SCI Finance LLc
$3.125, Series A................... 483,125
ENERGY -- .4%
5,000 Valero Energy Corp.
$3.125............................. 262,500
FINANCE & INSURANCE -- 1.9%
8,000 Integon Corp.
$3.875............................. 462,000
15,000 Merrill Lynch & Co., Inc.
7.25%, STRYPES due 6/15/99
(exchangeable for SunAmerica Common
Stock)............................. 849,375
1,311,375
HEALTHCARE PRODUCTS &
SERVICES -- .4%
10,000 FHP International Corp.
5.00%, Series A.................... 255,000
PAPER & PACKAGING -- .3%
10,000 James River Corp. Virginia
9.00%, Series P.................... 252,500
PUBLISHING, BROADCASTING &
ENTERTAINMENT -- 3.9%
15,000 AMC Entertainment, Inc.
$1.75.............................. 714,375
5,000 Evergreen Media Corp.
$3.00.............................. 443,125
10,300 Granite Broadcasting Corp.
$1.938............................. 688,652
</TABLE>
6
<PAGE>
EVERGREEN AMERICAN RETIREMENT FUND
(Photo of Statue of Liberty)
STATEMENT OF INVESTMENTS -- (CONTINUED)
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
CONVERTIBLE PREFERRED STOCKS -- CONTINUED
PUBLISHING, BROADCASTING &
ENTERTAINMENT -- CONTINUED
20,000 Merrill Lynch & Co., Inc.
6.00%, STRYPES due 6/15/99
(exchangeable for Cox Communi-
cations Class A Common Stock)...... $ 442,500
10,000 TCI Communications, Inc.
$2.125, Series A................... 441,250
1,197 Times Mirror Co.
$1.374, Series B................... 32,169
2,762,071
UTILITIES -- GAS -- .4%
10,000 MCN Corp. PRIDES
8.75%.............................. 255,000
UTILITIES -- TELEPHONE -- .7%
5,000 Philippine Long Distance Telephone
Co. GDS
7.00%, Series III.................. 272,500
5,000 Sprint Corp.
8.25%.............................. 201,250
473,750
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $5,455,146)................ 6,549,696
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<C> <S> <C>
CONVERTIBLE DEBENTURES -- 4.9%
BUILDING, CONSTRUCTION &
FURNISHINGS -- .7%
$ 450,000 Medusa Corp.
6.00%, 11/15/03.................... 468,000
ELECTRICAL EQUIPMENT &
SERVICES -- .4%
250,000 Analog Devices, Inc.
3.50%, 12/1/00..................... 285,000
ENERGY -- 2.3%
500,000 Key Energy Group, Inc.
7.00%, 7/1/03...................... 500,000
1,000,000 Nabors Industries, Inc.
5.00%, 5/15/06..................... 1,115,000
1,615,000
FINANCE & INSURANCE -- .5%
100,000 Equitable Cos., Inc. (The)
6.125%, 12/15/24................... 113,750
200,000 Trenwick Group, Inc.
6.00%, 12/15/99.................... 218,250
332,000
PRINCIPAL
AMOUNT VALUE
CONVERTIBLE DEBENTURES -- CONTINUED
PUBLISHING, BROADCASTING &
ENTERTAINMENT -- .6%
$1,000,000 Jacor Communications, Inc.
Zero Coupon, 6/12/11............... $ 462,500
RETAILING & WHOLESALE -- .3%
200,000 Big B, Inc.
6.50%, 3/15/03..................... 194,000
UTILITIES -- GAS -- .1%
100,000 Enserch Corp.
6.375%, 4/1/02..................... 99,500
TOTAL CONVERTIBLE DEBENTURES
(COST $3,272,390)................ 3,456,000
CORPORATE BONDS -- 6.4%
BANKS -- 1.4%
1,000,000 NationsBank Corp.
6.50%, 8/15/03..................... 964,131
CONSUMER PRODUCTS & SERVICES -- .7%
500,000 Pepsico, Inc.
6.875%, 5/15/97.................... 503,832
FINANCE & INSURANCE -- 2.9%
1,000,000 American General Finance Corp.
7.125%, 12/1/99.................... 1,013,919
1,000,000 Ford Motor Credit Co.
5.625%, 12/15/98................... 979,981
1,993,900
TELECOMMUNICATION SERVICES &
EQUIPMENT -- 1.4%
1,000,000 GTE Southwest, Inc.
5.82%, 12/1/99..................... 973,360
TOTAL CORPORATE BONDS
(COST $4,501,740)................ 4,435,223
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 22.1%
U.S. GOVERNMENT AGENCY NOTES &
BONDS -- 15.6%
700,000 Federal Agricultural Mortgage Corp.
Medium Term Note
7.03%, 5/26/98..................... 710,390
Federal Home Loan Bank
2,000,000 5.65%, 12/29/00.................... 1,927,764
1,000,000 6.195%, 2/5/03..................... 957,812
2,000,000 6.075%, 7/2/97..................... 2,002,400
2,000,000 6.455%, 7/8/98..................... 2,000,000
435,000 7.03%, 5/15/00..................... 434,767
</TABLE>
7
<PAGE>
EVERGREEN AMERICAN RETIREMENT FUND
(Photo of Statue of Liberty)
STATEMENT OF INVESTMENTS -- (CONTINUED)
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- CONTINUED
GOVERNMENT AGENCY NOTES &
BONDS -- CONTINUED
$1,000,000 Federal Home Loan Mortgage Corp.
6.91%, 6/20/05..................... $ 967,199
Federal National Mortgage Assn.
1,000,000 6.25%, 8/12/03..................... 951,093
1,000,000 6.41%, 3/8/06...................... 959,518
10,910,943
TREASURY NOTES & BONDS -- 6.5%
1,500,000 U.S. Treasury Bond
7.125%, 2/15/23.................... 1,515,467
3,000,000 U.S. Treasury Note
7.50%, 12/31/96.................... 3,030,933
4,546,400
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS
(COST $15,656,590)............... 15,457,343
SHORT-TERM INVESTMENTS -- 10.1%
COMMERCIAL PAPER -- 8.2%
850,000 Abbott Laboratories
5.32%, 7/30/96..................... 846,357
550,000 American Home Products Corp.
5.36%, 7/16/96..................... 548,772
850,000 Equitable of Iowa Cos.
5.38%, 7/18/96..................... 847,841
300,000 Gannett Co., Inc.
5.33%, 7/26/96..................... 298,890
H.J. Heinz Co.
100,000 5.30%, 7/2/96...................... 99,985
850,000 5.35%, 7/22/96..................... 847,347
Pearson, Inc.
500,000 5.34%, 7/10/96..................... 499,332
260,000 5.35%, 7/18/96..................... 259,343
200,000 PHH Corp.
5.30%, 7/8/96...................... 199,794
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENTS -- CONTINUED
COMMERCIAL PAPER -- CONTINUED
Sandoz Corp.
$ 200,000 5.35%, 8/6/96...................... $ 198,930
400,000 5.40%, 7/15/96..................... 399,160
100,000 Svenska Handelsbanken, Inc.
5.32%, 7/17/96..................... 99,764
200,000 Tampa Electric Co.
5.33%, 7/22/96..................... 199,378
400,000 Xerox Corp.
5.35%, 7/29/96..................... 398,336
5,743,229
GOVERNMENT AGENCY NOTES &
BONDS -- 1.9%
1,300,000 Federal Home Loan Bank
5.29%, 7/29/96..................... 1,294,651
TOTAL SHORT-TERM INVESTMENTS
(COST $7,037,880)................ 7,037,880
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS --
(COST $65,304,415)....... 105.8% 73,910,784
OTHER ASSETS AND
LIABILITIES -- NET......... (5.8) (4,025,898)
NET ASSETS --.............. 100.0% $69,884,886
</TABLE>
* Non-income producing securities.
** At June 30, 1996 the Fund owned 4,000 shares of common stock of First Union
at a cost of $106,108. During the period ended June 30, 1996 the Fund earned
$4,160 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.
The following abbreviations are used in this portfolio:
ADR -- American Depositary Receipts
GDS -- Global Depositary Shares
PRIDES -- Provisionally Redeemable Income Debt Exchangeable for Stock
STRYPES -- Structured Yield Product Exchangeable for Stock
See accompanying notes to financial statements.
8
<PAGE>
EVERGREEN AMERICAN RETIREMENT FUND
(Photo of Statue of Liberty)
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $65,304,415)............................................................. $73,910,784
Cash........................................................................................................... 80,666
Receivable for investments sold................................................................................ 788,125
Dividends and interest receivable.............................................................................. 461,514
Receivable for Funds shares sold............................................................................... 434,633
Prepaid expenses............................................................................................... 42,184
Total assets............................................................................................. 75,717,906
LIABILITIES:
Payable for investments purchased.............................................................................. 5,718,718
Accrued Advisory fee........................................................................................... 39,203
Distribution fee payable....................................................................................... 29,145
Payable for Fund shares repurchased............................................................................ 23,385
Accrued expenses............................................................................................... 19,459
Withholding tax liability...................................................................................... 3,110
Total liabilities........................................................................................ 5,833,020
NET ASSETS........................................................................................................ $69,884,886
NET ASSETS CONSIST OF:
Paid-in capital................................................................................................ $61,067,340
Undistributed net investment income............................................................................ 15,101
Accumulated net realized gain on investment transactions....................................................... 196,076
Net unrealized appreciation of investments..................................................................... 8,606,369
Net assets............................................................................................... $69,884,886
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($5,264,302/394,954 shares of benefical interest outstanding)................................... $ 13.33
Sales charge -- 4.75% of offering price........................................................................ .66
Maximum offering price................................................................................... $ 13.99
Class B Shares ($23,337,246/1,757,203 shares of beneficial interest outstanding)............................... $ 13.28
Class C Shares ($742,202/55,802 shares of beneficial interest outstanding)..................................... $ 13.30
Class Y Shares ($40,541,136/3,040,387 shares of beneficial interest outstanding)............................... $ 13.33
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
EVERGREEN AMERICAN RETIREMENT FUND
(Photo of Statue of Liberty)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $6,041)............................................. $ 654,623
Interest........................................................................................... 666,464
Total investment income...................................................................... 1,321,087
EXPENSES:
Advisory fee....................................................................................... $217,003
Distribution fee-Class A Shares.................................................................... 4,515
Distribution fee-Class B Shares.................................................................... 53,734
Shareholder services fee-Class B Shares............................................................ 17,911
Distribution fee-Class C Shares.................................................................... 1,564
Shareholder services fee-Class C Shares............................................................ 521
Custodian fee...................................................................................... 31,252
Professional fees.................................................................................. 22,450
Transfer agent fee................................................................................. 16,250
Registration and filing fees....................................................................... 14,320
Trustees' fees and expenses........................................................................ 10,465
Reports and notices to shareholders................................................................ 8,327
Insurance.......................................................................................... 721
Miscellaneous...................................................................................... 6,464
405,497
Less: Fee waivers and expense reimbursements....................................................... (17,302)
Net expenses................................................................................. 388,195
Net investment income................................................................................. 932,892
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investment transactions....................................................... 262,822
Net increase in unrealized appreciation of investments............................................. 2,096,441
Net gain on investments............................................................................... 2,359,263
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................................. $3,292,155
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN AMERICAN RETIREMENT FUND
(Photo of Statue of Liberty)
STATEMENT OF CHANGES IN NET ASSETS
<S> <C> <C>
SIX MONTHS
ENDED
JUNE 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................................................... $ 932,892 $ 1,556,941
Net realized gain on investment transactions............................................ 262,822 460,019
Net change in unrealized appreciation of investments.................................... 2,096,441 6,860,189
Net increase in net assets resulting from operations................................. 3,292,155 8,877,149
DISTRIBUTIONS TO SHAREHOLDERS:
FROM NET INVESTMENT INCOME:
Class A Shares.......................................................................... (66,479) (15,368)
Class B Shares.......................................................................... (222,639) (56,118)
Class C Shares.......................................................................... (6,348) (987)
Class Y Shares.......................................................................... (622,325) (1,498,372)
Total distributions from net investment income....................................... (917,791) (1,570,845)
IN EXCESS OF NET INVESTMENT INCOME:
Class A Shares.......................................................................... -- (12)
Class B Shares.......................................................................... -- (44)
Class C Shares.......................................................................... -- (1)
Class Y Shares.......................................................................... -- (1,166)
Total distributions in excess of net investment income............................... -- (1,223)
FROM NET REALIZED GAINS ON INVESTMENTS:
Class A Shares.......................................................................... (14,558) --
Class B Shares.......................................................................... (56,946) --
Class C Shares.......................................................................... (1,243) --
Class Y Shares.......................................................................... (149,674) --
Total distributions from net realized gains on investments........................... (222,421)
Total distributions to shareholders............................................... (1,140,212) (1,572,068)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold............................................................... 25,743,032 9,254,552
Proceeds from reinvestment of distributions............................................. 1,010,336 1,339,655
Payment for shares redeemed............................................................. (4,632,181) (9,463,471)
Net increase resulting from Fund share transactions.................................. 22,121,187 1,130,736
Net increase in net assets........................................................... 24,273,130 8,435,817
NET ASSETS:
Beginning of period..................................................................... 45,611,756 37,175,939
End of period (including undistributed net investment income of $15,101 and $0,
respectively)......................................................................... $ 69,884,886 $45,611,756
</TABLE>
11
<PAGE>
EVERGREEN AMERICAN RETIREMENT FUND --
CLASS A, B AND C SHARES
(Photo of Statue of Liberty)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED JANUARY 3, 1995* ENDED JANUARY 3, 1995* ENDED
JUNE 30, 1996 THROUGH JUNE 30, 1996 THROUGH JUNE 30, 1996
(UNAUDITED) DECEMBER 31, 1995 (UNAUDITED) DECEMBER 31, 1995 (UNAUDITED)
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period....... $12.82 $10.65 $12.80 $10.65 $12.81
Income from investment operations:
Net investment income..................... .21 .41 .17 .35 .16
Net realized and unrealized gain on
investments.............................. .54 2.22 .52 2.20 .54
Total from investment operations........ .75 2.63 .69 2.55 .70
Less distributions to shareholders from:
Net investment income..................... (.19) (.46) (.16) (.40) (.16)
Net realized gains on investments......... (.05) -- (.05) -- (.05)
Total distributions..................... (.24) (.46) (.21) (.40) (.21)
Net asset value, end of period............. $13.33 $12.82 $13.28 $12.80 $13.30
TOTAL RETURN**............................. 5.9% 24.9% 5.4% 24.1% 5.5%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted).......................... $5,264 $1,335 $23,337 $4,839 $742
Ratios to average net assets:
Expenses+................................. 1.32%# 1.37%# 2.07%# 2.12%# 2.07%#
Net investment income+.................... 3.31%# 3.73%# 2.56%# 2.97%# 2.56%#
Portfolio turnover rate.................... 7% 49% 7% 49% 7%
Average commission rate paid per share..... $ .0638 N/A $ .0638 N/A $ .0638
<CAPTION>
JANUARY 3, 1995*
THROUGH
DECEMBER 31, 1995
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period....... $10.65
Income from investment operations:
Net investment income..................... .36
Net realized and unrealized gain on
investments.............................. 2.19
Total from investment operations........ 2.55
Less distributions to shareholders from:
Net investment income..................... (.39)
Net realized gains on investments......... --
Total distributions..................... (.39)
Net asset value, end of period............. $12.81
TOTAL RETURN**............................. 24.0%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted).......................... $110
Ratios to average net assets:
Expenses+................................. 2.10%#
Net investment income+.................... 2.96%#
Portfolio turnover rate.................... 49%
Average commission rate paid per share..... N/A
</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 operating expenses and net investment income (loss) to
average net assets, exclusive of any applicable state expense limitations,
would have been the following:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SIX MONTHS JANUARY 3, SIX MONTHS JANUARY 3, SIX MONTHS
ENDED 1995* ENDED 1995* ENDED
JUNE 30, 1996 THROUGH JUNE 30, 1996 THROUGH JUNE 30, 1996
(UNAUDITED) DECEMBER 31, 1995 (UNAUDITED) DECEMBER 31, 1995 (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Expenses..................... 1.38% 10.96% 2.13% 4.20% 2.13%
Net investment income
(loss)..................... 3.25% (5.86%) 2.50% .89% 2.50%
<CAPTION>
JANUARY 3,
1995*
THROUGH
DECEMBER 31, 1995
<S> <C>
Expenses..................... 103.52%
Net investment income
(loss)..................... (98.46%)
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
EVERGREEN AMERICAN RETIREMENT FUND --
CLASS Y SHARES
(Photo of Statue of Liberty)
FINANCIAL HIGHLIGHTS -- (CONTINUED)
<TABLE>
<CAPTION>
CLASS Y SHARES
SIX MONTHS
ENDED
JUNE 30, 1996 YEAR ENDED DECEMBER 31,
(UNAUDITED) 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period............................................ $12.83 $10.67 $11.60 $10.95 $10.52
Income (loss) from investment operations:
Net investment income.......................................................... .23 .47 .60 .56 .66
Net realized and unrealized gain (loss) on investments......................... .53 2.16 (.93) .96 .55
Total from investment operations............................................. .76 2.63 (.33) 1.52 1.21
Less distributions to shareholders from:
Net investment income.......................................................... (.21) (.47) (.60) (.60) (.61)
Net realized gains on investments.............................................. (.05) -- -- (.24) (.17)
In excess of net realized gains on investments................................. -- -- -- (.03) --
Total distributions.......................................................... (.26) (.47) (.60) (.87) (.78)
Net asset value, end of period.................................................. $13.33 $12.83 $10.67 $11.60 $10.95
TOTAL RETURN*................................................................... 5.9% 25.1% (2.9%) 14.1% 11.8%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)...................................... $40,541 $39,327 $37,176 $37,336 $23,781
Ratios to average net assets:
Expenses....................................................................... 1.07%+# 1.26% 1.28% 1.36% 1.51%
Net investment income.......................................................... 3.54%+# 3.96% 5.40% 5.13% 6.23%
Portfolio turnover rate......................................................... 7% 49% 136% 92% 151%
Average commission rate paid per share.......................................... $.0638 N/A N/A N/A N/A
<CAPTION>
1991
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period............................................ $9.59
Income (loss) from investment operations:
Net investment income.......................................................... .60
Net realized and unrealized gain (loss) on investments......................... 1.15
Total from investment operations............................................. 1.75
Less distributions to shareholders from:
Net investment income.......................................................... (.60)
Net realized gains on investments.............................................. (.22)
In excess of net realized gains on investments................................. --
Total distributions.......................................................... (.82)
Net asset value, end of period.................................................. $10.52
TOTAL RETURN*................................................................... 18.8%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)...................................... $15,632
Ratios to average net assets:
Expenses....................................................................... 1.50%
Net investment income.......................................................... 5.91%
Portfolio turnover rate......................................................... 97%
Average commission rate paid per share.......................................... N/A
</TABLE>
* Total return is calculated on net asset value per share 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 operating expenses and net investment income to average net assets would
have been the following:
<TABLE>
<CAPTION>
CLASS Y
SIX MONTHS
ENDED
JUNE 30, 1996
(UNAUDITED)
<S> <C>
Expenses.............................................................. 1.13%
Net investment income................................................. 3.48%
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
EVERGREEN BALANCED FUND
(Photo of stocks and bonds)
A REPORT FROM YOUR
PORTFOLIO MANAGER
DEAN HAWES
For the first half of 1996, investment returns in the (Photo of
Evergreen Balanced Fund slowed sharply from 1995's spectacular Dean Hawes)
year. The continued strong gains that were posted by stocks
during the first half of 1996 were partially negated by
persistently rising interest rates and, thus, a negative bond
market. The equity performance of the Fund was better during
the first four months of the fiscal half-year than during the
latter two. Large cyclical stocks, which the Fund has
emphasized, performed poorly in May and June, after a strong
showing during the prior four months. As the second quarter
began, investors shifted from large cyclical stocks to smaller
capitalization and lower
quality issues, especially technology-related. At this point
in the market cycle, we prefer not to increase the Fund's risk profile by
purchasing companies in this volatile and aggressive sector of the market. For
now, we would rather err on the side of conservation.
As the first half progressed, the equity portion of the portfolio continued
to move toward a modestly less aggressive position. Stocks were liquidated to
reduce the Fund's equity exposure from 55% to 50% of net assets. The equities
remain broadly diversified and somewhat conservative. A full market weighting in
utility stocks and an overweighting in energy stocks, relative to the S&P 500
Reinvested Index*, are being maintained. Both sectors have historically
demonstrated high dividend yields relative to the overall market; they should
hold up in a sloppy market environment. In addition, the Fund realized some
gains by reducing its exposure to the financial sector by roughly 20% since the
end of 1995. This group's strong outperformance, relative to the S&P 500,
coupled with a now more adverse interest rate environment made this shift seem
prudent. In recent weeks, larger capitalization, higher quality stocks have
begun to outperform their smaller capitalization, more speculative brethren. The
Fund, we believe, is well positioned should this recent shift continue.
A number of changes were made in the fixed income segment of the portfolio
during the quarter. During the past six months, yield spreads on corporate
securities have narrowed and corporates have become less attractive to own. In
the quarter, the overweighting of corporates (relative to that of the Fund's
benchmark index, the Lehman Brothers Government/Corporate Index) was reduced
from 31% to 27%. The Treasury position was increased as a percent of the
portfolio from 53% to 63%. This corporate reduction and a reduction in the fixed
income cash position funded the Treasury increase. Treasury purchases included
5.5% due November 1998, 7.75% due February 2001, and 8% due January 1997. The
Fund's duration relative to the Lehman Brothers Government/Corporate Index
duration at quarter-end was 5.26 years.
We look for the economy to slow as the year progresses. The ebb and flow
pattern our economy has been exhibiting will likely persist. Two-year Treasury
yields have risen 150 basis points since mid-February to 6.3%. Rate increases of
this magnitude have never failed to slow the economy. As the second quarter
ended, loan growth was slowing, credit card delinquencies were rising, consumer
debt was at a record high, and rising mortgage rates were slowing housing
activity. The stage is being set for slower growth during the second half of
1996. Should economic data not continue to confirm that this is occurring, the
Fed will assuredly push interest rates higher.
* AN UNMANAGED INDEX OF COMMON STOCKS IN INDUSTRY, TRANSPORTATION, FINANCE, AND
PUBLIC UTILITIES, DENOTING GENERAL MARKET PERFORMANCE AS MONITORED BY STANDARD
& POOR'S CORP. AN INVESTMENT CAN NOT BE MADE IN AN INDEX.
14
<PAGE>
EVERGREEN BALANCED FUND
(Photo of stocks and bonds)
STATEMENT OF INVESTMENTS
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- 50.4%
BANKS -- 4.0%
120,000 BankAmerica Corp.................. $ 9,090,000
190,000 CoreStates Financial Corp......... 7,315,000
125,000 First Chicago NBD Corp............ 4,890,625
180,000 National City Corp................ 6,322,500
120,000 NationsBank Corp.................. 9,915,000
37,533,125
BUILDING, CONSTRUCTION &
FURNISHINGS -- .3%
100,000 Masco Corp........................ 3,025,000
CHEMICAL & AGRICULTURAL
PRODUCTS -- 2.1%
130,000 Dow Chemical Co. (The)............ 9,880,000
120,000 Du Pont (E. I.) De Nemours........ 9,495,000
19,375,000
CONSUMER PRODUCTS &
SERVICES -- 4.9%
210,000 American Brands, Inc.............. 9,528,750
122,500 CPC International, Inc............ 8,820,000
80,000 Eastman Kodak Co.................. 6,220,000
115,000 General Motors Corp............... 6,023,125
125,000 Philip Morris Cos., Inc........... 13,000,000
150,000 Sunbeam-Oster Co., Inc............ 2,212,500
45,804,375
DIVERSIFIED COMPANIES -- 3.3%
150,000 General Electric Co............... 12,975,000
115,000 Motorola, Inc..................... 7,230,625
140,000 Textron Inc....................... 11,182,500
31,388,125
ELECTRICAL EQUIPMENT &
SERVICES -- 3.5%
150,000 Emerson Electric Co............... 13,556,250
115,000 Hewlett-Packard Co................ 11,456,875
110,000 Intel Corp........................ 8,078,125
33,091,250
ENERGY -- 7.9%
75,000 Atlantic Richfield Co............. 8,887,500
182,000 Chevron Corp...................... 10,738,000
145,000 Exxon Corp........................ 12,596,875
150,000 Kerr-McGee Corp................... 9,131,250
110,000 Mobil Corp........................ 12,333,750
140,000 Texaco, Inc....................... 11,742,500
100,000 Ultramar Corp..................... 2,900,000
200,000 Unocal Corp....................... 6,750,000
75,079,875
<CAPTION>
SHARES VALUE
<C> <S> <C>
FINANCE & INSURANCE -- 2.2%
92,703 Allstate Corp. (The).............. $ 4,229,574
75,000 Beneficial Corp................... 4,209,375
220,000 Providian Corp.................... 9,432,500
50,900 UNUM Corp......................... 3,168,525
21,039,974
FOOD & BEVERAGE PRODUCTS -- 1.6%
110,350 American Stores Co................ 4,551,938
250,400 McCormick & Co., Inc.............. 5,540,100
100,000 McDonald's Corp................... 4,675,000
14,767,038
HEALTHCARE PRODUCTS &
SERVICES -- 3.7%
300,000* Beverly Enterprises, Inc.......... 3,600,000
110,000 Bristol-Myers Squibb Co........... 9,900,000
150,000 Mallinckrodt Group Inc............ 5,831,250
165,000 Schering-Plough Corp.............. 10,353,750
200,000* Tenet Healthcare Corp............. 4,275,000
54,300* Value Health, Inc................. 1,282,837
35,242,837
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES -- .5%
350,000 Hanson Plc, ADR................... 4,987,500
MANUFACTURING -- DISTRIBUTING --
2.3%
10,700 Briggs & Stratton Corp............ 440,038
155,000* Cabletron Systems, Inc............ 10,636,875
250,000 Weyerhaeuser Co................... 10,625,000
21,701,913
METAL PRODUCTS & SERVICES -- .7%
100,000 Phelps Dodge Corp................. 6,237,500
OFFICE EQUIPMENT &
SUPPLIES -- .9%
180,000 Pitney Bowes Inc.................. 8,595,000
PAPER & PACKAGING -- .9%
230,000 International Paper Co............ 8,481,250
REAL ESTATE -- 1.0%
280,000 Healthcare Realty Trust, Inc...... 6,650,000
100,500 Highwoods Properties, Inc......... 2,776,313
9,426,313
RETAILING & WHOLESALE -- 1.9%
200,000 Dillard Department Stores, Inc.
Cl. A............................. 7,300,000
125,000 May Department Stores Co.......... 5,468,750
20,000 Payless Shoesource, Inc........... 635,000
</TABLE>
15
<PAGE>
EVERGREEN BALANCED FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Photo of stocks and bonds)
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- CONTINUED
RETAILING & WHOLESALE -- CONTINUED
100,000 Sears, Roebuck & Co............... $ 4,862,500
18,266,250
TRANSPORTATION -- 2.0%
150,000 Conrail, Inc...................... 9,956,250
100,000 Norfolk Southern Corp............. 8,475,000
18,431,250
UTILITIES -- 6.7%
130,000 AT&T Corp......................... 8,060,000
148,000 Bell Atlantic Corp................ 9,435,000
268,200 Carolina Power & Light Co......... 10,191,600
150,000 General Public Utilities Corp..... 5,287,500
260,000 GTE Corp.......................... 11,635,000
160,000 SBC Communications, Inc........... 7,880,000
450,000 Southern Co....................... 11,081,250
63,570,350
TOTAL COMMON STOCKS
(COST $350,036,881)............. 476,043,925
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<C> <S> <C>
CORPORATE BONDS -- 12.3%
BANKS -- 2.0%
$ 3,000,000 Boatmen's Bancshares, Inc. 6.75%,
3/15/03........................... 2,941,395
5,000,000 First Chicago Corp.,
9.875%, 8/15/00................... 5,541,565
10,000,000 NationsBank Corp.
7.625%, 4/15/05................... 10,201,280
18,684,240
BUSINESS EQUIPMENT &
SERVICES -- .2%
1,400,000 Waste Management Inc.
8.75%, 5/1/18..................... 1,534,782
CHEMICAL & AGRICULTURAL
PRODUCTS -- .6%
5,000,000 Dow Chemical Co.
8.625%, 4/1/06.................... 5,309,800
CONSUMER PRODUCTS &
SERVICES -- 1.3%
5,000,000 General Mills, Inc.,
9.00%, 12/20/02................... 5,488,865
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS -- CONTINUED
CONSUMER PRODUCTS &
SERVICES -- CONTINUED
Philip Morris Cos., Inc.,
$ 1,405,000 8.75%, 12/1/96.................... $ 1,421,170
5,000,000 8.65%, 5/15/98.................... 5,195,260
12,105,295
ENERGY -- .9%
4,000,000 Atlantic Richfield Co.,
9.00%, 4/1/21..................... 4,603,484
4,400,000 Texaco, Inc.
7.90%, 2/13/97.................... 4,453,684
9,057,168
FINANCE & INSURANCE -- 3.0%
145,796 CIT Group Holdings, Inc. 4.70%,
6/15/18........................... 144,849
5,500,000 Dean Witter, Discover & Co. 6.75%,
10/15/13.......................... 5,001,981
5,500,000 General Electric Capital Corp.,
8.75%, 3/14/03.................... 6,003,613
2,750,000 International Bank For
Reconstruction &
Development Co.,
7.95%, 5/15/16.................... 2,938,886
5,000,000 Merrill Lynch, Pierce, Fenner &
Smith Inc.,
7.00%, 4/27/08.................... 4,827,670
4,250,000 Norwest Financial, Inc.,
7.10%, 11/15/96................... 4,270,910
5,000,000 Smith Barney Holdings, Inc.,
5.50%, 1/15/99.................... 4,872,400
28,060,309
FOOD & BEVERAGE PRODUCTS -- .5%
4,250,000 PepsiCo, Inc.,
7.625%, 11/1/98................... 4,357,113
HEALTHCARE PRODUCTS &
SERVICES -- .5%
5,000,000 Baxter International
7.25%, 2/15/08.................... 4,881,200
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES -- .8%
7,000,000+ Jet Equipment Trust
9.41%, 6/15/10.................... 7,670,628
MANUFACTURING --
DISTRIBUTING -- .5%
4,300,000 Stanley Works,
7.375%, 12/15/02.................. 4,398,801
</TABLE>
16
<PAGE>
EVERGREEN BALANCED FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Photo of stocks and bonds)
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
MORTGAGE BACKED SECURITIES -- 1.1%
$ 893,460 Fleet Financial Home Equity Trust
6.70%, 1/16/06.................... $ 895,765
10,000,018 Resolution Trust Corp.,
7.50%, 9/25/22.................... 10,038,727
10,934,492
SOVEREIGN GOVERNMENT -- .5%
5,000,000 Ontario Province Canada,
7.75%, 6/4/02..................... 5,218,795
UTILITIES -- .4%
3,600,000 Union Electric Co.,
8.00%, 12/15/22................... 3,642,138
TOTAL CORPORATE BONDS
(COST $113,310,645)............. 115,854,761
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 30.3%
GOVERNMENT NATIONAL MORTGAGE
ASSN. -- 2.0%
3,177,390 8.50%, 5/15/21.................... 3,270,700
2,143,206 8.50%, 7/15/21.................... 2,206,146
4,205,309 8.50%, 6/15/22.................... 4,328,806
2,362,961 9.00%, 9/15/21.................... 2,475,183
3,892,739 9.00%, 10/15/21................... 4,077,613
2,384,094 9.50%, 2/15/21.................... 2,550,223
18,908,671
U.S. TREASURY BONDS -- 13.5%
900,000 7.25%, 5/15/16.................... 922,217
10,000,000 7.25%, 8/15/22.................... 10,250,000
20,000,000 7.625%, 2/15/07................... 20,743,720
20,000,000 8.75%, 5/15/17.................... 23,737,500
32,400,000 8.875%, 8/15/17................... 38,890,076
10,000,000 9.125%, 5/15/09................... 11,387,500
17,500,000 9.125%, 5/15/18................... 21,546,875
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
127,477,888
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- CONTINUED
U.S. TREASURY NOTES -- 14.8%
$10,000,000 5.50%, 11/15/98................... $ 9,846,860
8,000,000 6.375%, 7/15/99................... 8,020,000
10,000,000 6.50%, 4/30/99.................... 10,059,360
10,000,000 7.125%, 2/29/00................... 10,231,250
10,000,000 7.25%, 8/31/96.................... 10,034,360
25,000,000 7.50%, 2/15/05.................... 26,296,875
10,000,000 7.75%, 11/30/99................... 10,415,610
10,000,000 7.75%, 2/15/01.................... 10,506,250
20,000,000 8.00%, 1/15/97.................... 20,262,500
10,000,000 8.00%, 8/15/99.................... 10,462,500
10,000,000 8.125%, 2/15/98................... 10,315,610
3,500,000 8.875%, 11/15/98.................. 3,703,438
140,154,613
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS
(COST $288,027,706)............. 286,541,172
TOTAL LONG-TERM INVESTMENTS
(COST $751,375,232)............. 878,439,858
REPURCHASE AGREEMENT -- 6.6%
62,299,000 Donaldson, Lufkin & Jenrette
Securities Corp., 5.40%,
dated 6/28/96, due 7/1/96**
(COST $62,299,000)............... 62,299,000
TOTAL INVESTMENTS --
(COST $813,674,232)..... 99.6% 940,738,858
OTHER ASSETS AND
LIABILITIES -- NET...... .4 3,798,725
NET ASSETS................ 100.0% $944,537,583
</TABLE>
* Non-income producing securities.
** Collateralized by:
$36,942,000 U.S. Treasury Bond, 7.25%, 5/15/16 value including accrued
interest -- $38,340,088
$25,419,000 U.S. Treasury Note, 5.75%, 10/31/97 value including accrued
interest -- $25,825,043
+ Restricted Security which is not registered under the
Securities Act of 1933. (Note 7)
ADR -- American Depositary Receipts
See accompanying notes to financial statements.
17
<PAGE>
EVERGREEN BALANCED FUND
STATEMENT OF ASSETS AND LIABILITIES
(Photo of stocks and bonds)
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $813,674,232)........................................................... $940,738,858
Dividends and interest receivable............................................................................. 8,689,623
Receivable for Fund shares sold............................................................................... 552,948
Prepaid expenses.............................................................................................. 27,923
Total assets............................................................................................ 950,009,352
LIABILITIES:
Due to custodian bank......................................................................................... 2,305,395
Payable for Fund shares repurchased........................................................................... 2,566,180
Accrued Advisory fee.......................................................................................... 389,084
Accrued expenses.............................................................................................. 196,211
Withholding tax liability..................................................................................... 14,899
Total liabilities....................................................................................... 5,471,769
NET ASSETS....................................................................................................... $944,537,583
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................... $761,098,454
Undistributed net investment income........................................................................... 247,117
Accumulated net realized gain on investment transactions...................................................... 56,127,386
Net unrealized appreciation of investments.................................................................... 127,064,626
Net assets.............................................................................................. $944,537,583
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($43,062,637/3,248,357 shares of beneficial interest outstanding)................................. $13.26
Sales charge -- 4.75% of offering price.......................................................................... .66
Maximum offering price........................................................................................ $13.92
Class B Shares ($107,419,414/8,094,541 shares of beneficial interest outstanding)................................ $13.27
Class C Shares ($217,572/16,492 shares of beneficial interest outstanding)....................................... $13.19
Class Y Shares ($793,837,960/59,873,126 shares of beneficial interest outstanding)............................... $13.26
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
EVERGREEN BALANCED FUND
STATEMENT OF OPERATIONS
(Photo of stocks and bonds)
YEAR ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $29,933)............................................... $ 7,529,437
Interest...................................................................................... 15,349,581
Total investment income................................................................. 22,879,018
EXPENSES:
Advisory fee.................................................................................. $2,391,622
Administrative personnel and service fees..................................................... 239,097
Distribution fee -- Class A Shares............................................................ 52,779
Distribution fee -- Class B Shares............................................................ 405,096
Shareholder services fee -- Class B Shares.................................................... 135,032
Distribution fee -- Class C Shares............................................................ 798
Shareholder services fee -- Class C Shares.................................................... 266
Transfer agent fee............................................................................ 143,072
Custodian fee................................................................................. 107,637
Reports and notices to shareholders........................................................... 56,589
Registration and filing fees.................................................................. 52,079
Professional fees............................................................................. 15,965
Trustees' fees and expenses................................................................... 11,744
Insurance..................................................................................... 5,072
Miscellaneous................................................................................. 4,338
Total expenses.......................................................................... 3,621,186
Net investment income............................................................................ 19,257,832
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investment transactions.................................................. 56,127,386
Net decrease in unrealized appreciation of investments........................................ (45,176,966)
Net gain on investments.......................................................................... 10,950,420
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................. $ 30,208,252
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
EVERGREEN BALANCED FUND
(Photo of stocks and bonds)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
JUNE 30, 1996 ENDED
(UNAUDITED) DECEMBER 31, 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................................................ $ 19,257,832 $ 40,717,357
Net realized gain on investment transactions......................................... 56,127,386 33,813,027
Net change in unrealized appreciation of investments................................. (45,176,966) 154,935,970
Net increase in net assets resulting from operations................................. 30,208,252 229,466,354
DISTRIBUTIONS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME:
Class A Shares....................................................................... (840,390) (1,620,476)
Class B Shares....................................................................... (1,745,206) (3,381,480)
Class C Shares....................................................................... (4,438) (8,000)
Class Y Shares....................................................................... (17,033,537) (35,087,211)
Total distributions from net investment income................................. (19,623,571) (40,097,167)
NET REALIZED GAIN ON INVESTMENTS:
Class A Shares....................................................................... -- (1,423,252)
Class B Shares....................................................................... -- (3,696,589)
Class C Shares....................................................................... -- (10,158)
Class Y Shares....................................................................... -- (28,740,172)
Total distributions from net realized gain on investments...................... -- (33,870,171)
Total distributions to shareholders............................................ (19,623,571) (73,967,338)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold............................................................ 110,328,666 170,978,316
Proceeds from reinvestment of distributions.......................................... 13,995,957 66,166,480
Payment for shares redeemed.......................................................... (159,641,971) (343,286,923)
Net decrease resulting from Fund share transactions............................ (35,317,348) (106,142,127)
Net increase (decrease) in net assets.......................................... (24,732,667) 49,356,889
NET ASSETS:
Beginning of period.................................................................. 969,270,250 919,913,361
End of period (including undistributed net investment income of $247,117 and
$612,856, respectively)............................................................ $ 944,537,583 $ 969,270,250
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
EVERGREEN BALANCED FUND -- CLASS A AND B SHARES
(Photo of stocks and bonds)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
SIX MONTHS JUNE 10, SIX MONTHS
ENDED 1991* ENDED
JUNE 30, THROUGH JUNE 30, YEAR ENDED
1996 YEAR ENDED DECEMBER 31, DECEMBER 31, 1996 DECEMBER 31,
(UNAUDITED) 1995 1994 1993 1992 1991 (UNAUDITED) 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning
of period................. $13.12 $11.17 $12.07 $11.41 $11.02 $10.00 $13.13 $11.18
Income (loss) from
investment operations:
Net investment income...... .26 .51 .43 .42 .42 .30 .21 .42
Net realized and unrealized
gain (loss) on
investments............... .15 2.40 (.71) .75 .43 1.08 .15 2.40
Total from investment
operations.............. .41 2.91 (.28) 1.17 .85 1.38 .36 2.82
Less distributions to
shareholders from:
Net investment income...... (.27) (.50) (.43) (.42) (.42) (.35) (.22) (.41)
Net realized gain on
investments............... -- (.46) (.19) (.09) (.04) (.01) -- (.46)
In excess of net investment
income.................... -- -- -- -- -- -- -- --
Total distributions....... (.27) (.96) (.62) (.51) (.46) (.36) (.22) (.87)
Net asset value, end
of period................. $13.26 $13.12 $11.17 $12.07 $11.41 $11.02 $13.27 $13.13
TOTAL RETURN+............... 3.1% 26.5% (2.4%) 10.4% 7.9% 11.8% 2.7% 25.6%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted)........... $43,063 $41,849 $41,010 $35,032 $17,408 $334 $107,419 $108,983
Ratios to average net
assets:
Expenses................... .88%++ .88% .89% .91% .91% .92%++ 1.63%++ 1.62%
Net investment income...... 3.91%++ 4.05% 3.69% 3.61% 3.93% 4.38%++ 3.15%++ 3.30%
Portfolio turnover rate..... 16% 37% 35% 19% 12% 19% 16% 37%
Average commission rate paid
per share................. $.0602 N/A N/A N/A N/A N/A $.0602 N/A
<CAPTION>
JANUARY 26,
1993*
THROUGH
DECEMBER 31,
1994 1993
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning
of period................. $12.08 $11.54
Income (loss) from
investment operations:
Net investment income...... .36 .34
Net realized and unrealized
gain (loss) on
investments............... (.71) .65
Total from investment
operations.............. (.35) .99
Less distributions to
shareholders from:
Net investment income...... (.36) (.34)
Net realized gain on
investments............... (.19) (.09)
In excess of net investment
income.................... -- (.02)
Total distributions....... (.55) (.45)
Net asset value, end
of period................. $11.18 $12.08
TOTAL RETURN+............... (3.0%) 8.7%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted)........... $100,052 $65,475
Ratios to average net
assets:
Expenses................... 1.48% 1.41%++
Net investment income...... 3.12% 3.09%++
Portfolio turnover rate..... 35% 19%
Average commission rate paid
per share................. N/A N/A
</TABLE>
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charge or contingent deferred
sales charge is not reflected.
++ Annualized.
21
<PAGE>
EVERGREEN BALANCED FUND -- CLASS C AND Y SHARES
(Photo of stocks and bonds)
FINANCIAL HIGHLIGHTS -- (CONTINUED)
<TABLE>
<CAPTION>
CLASS C SHARES CLASS Y SHARES
SIX MONTHS SEPTEMBER 2, SIX MONTHS
ENDED 1994* ENDED
JUNE 30, YEAR THROUGH JUNE 30,
1996 ENDED DECEMBER 31, 1996 YEAR ENDED DECEMBER 31,
(UNAUDITED) 1995 1994 (UNAUDITED) 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period............................ $13.11 $11.17 $12.00 $13.12 $11.17 $12.07 $11.41 $11.02
Income (loss) from investment
operations:
Net investment income.............. .15 .41 .18 .28 .54 .46 .45 .46
Net realized and unrealized gain
(loss) on investments............. .15 2.40 (.61) .14 2.40 (.71) .75 .42
Total from investment
operations...................... .30 2.81 (.43) .42 2.94 (.25) 1.20 .88
Less distributions to shareholders
from:
Net investment income.............. (.22) (.41) (.21) (.28) (.53) (.46) (.45) (.45)
Net realized gain on investments... -- (.46) (.19) -- (.46) (.19) (.09) (.04)
Total distributions............... (.22) (.87) (.40) (.28) (.99) (.65) (.54) (.49)
Net asset value, end of period...... $13.19 $13.11 $11.17 $13.26 $13.12 $11.17 $12.07 $11.41
TOTAL RETURN+....................... 2.3% 25.5% (3.6%) 3.2% 26.8% (2.2%) 10.7% 8.2%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's
omitted).......................... $218 $300 $195 $ 793,838 $818,137 $778,657 $760,147 $520,232
Ratios to average net assets:
Expenses........................... 1.61%++ 1.62% 1.64%++ .63%++ .62% .64% .66% .66%
Net investment income.............. 3.15%++ 3.31% 3.23%++ 4.15%++ 4.30% 3.93% 3.86% 4.20%
Portfolio turnover rate............. 16% 37% 35% 16% 37% 35% 19% 12%
Average commission rate paid
per share......................... $ .0602 N/A N/A $.0602 N/A N/A N/A N/A
<CAPTION>
APRIL 1,
1991*
THROUGH
DECEMBER 31,
1991
<S> <C>
PER SHARE DATA:
Net asset value, beginning of
period............................ $10.00
Income (loss) from investment
operations:
Net investment income.............. .36
Net realized and unrealized gain
(loss) on investments............. 1.03
Total from investment
operations...................... 1.39
Less distributions to shareholders
from:
Net investment income.............. (.36)
Net realized gain on investments... (.01)
Total distributions............... (.37)
Net asset value, end of period...... $11.02
TOTAL RETURN+....................... 15.0%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's
omitted).......................... $247,472
Ratios to average net assets:
Expenses........................... .68%++
Net investment income.............. 4.86%++
Portfolio turnover rate............. 19%
Average commission rate paid
per share......................... N/A
</TABLE>
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Contingent deferred sales charge is not
reflected.
++ Annualized.
22
<PAGE>
EVERGREEN FOUNDATION FUND
(Photo of a statue)
A REPORT FROM YOUR
PORTFOLIO MANAGER
STEPHEN A. LIEBER
Evergreen Foundation Fund provided a -0.1% total return (Photo of
(Class Y, no-load shares) for the six months ended June 30, Stephen A.
1996*. The large rise in interest rates during that time, led Lieber)
to the investment results of the Fund, being both below
previous trend lines and our expectations. The total returns
at net asset value (NAV) for the Fund's Class A shares, Class
B shares and Class C shares for the six months ended June 30,
were -.2%, -.6%, and -.6%, respectively*.
The Fund's comparatively strong increases in stock values,
9.0%, were more than offset by declines in bond values. The
bond fall was purely an issue of interest rate levels, not a
matter of quality, since all obligations held by the Fund are
United States Government or its Agencies. The
Fund's strategy at the beginning of the year did not anticipate the 130 point
basis rise in long-term interest rates during the six months. We subsequently
modified interest rate exposure by reducing the total in bonds from 48.2% of net
assets at the beginning of the year, to 37.2% at the end of June, while the
percentage of stocks and convertibles was raised to 45.3% from 42.2%. Another
factor restraining the performance was a holding of a sizable cash equivalent
position, 17.5% at the end of the six months. This cash position was held in
order to be able to take advantage of buying opportunities during expected
periods of volatile declines in stock prices, such as already seen in July.
The divergence between the trends of fixed income and equity markets which had
marked the first quarter of 1996, began to diminish during the second quarter.
While bond yields remain substantially the same from the beginning of the
quarter to the end, during the period there was considerable volatility with the
long-term treasury bond fluctuating from a low yield of 6.85%, to a high of
7.2%. Early in June, the stock market began to show some leveling off from the
steady, even heady, pace of advances led by so-called growth momentum issues.
The plurality of daily new highs recorded in the markets as compared with new
lows, characteristic of a booming market, tapered off. Cyclical companies, which
had begun to be newly favored in the first quarter, lost their luster as
aluminum, copper and paper prices fell during the quarter. The stock market
continued to reflect the impact of large flows of new investment money into
equities, particularly through mutual funds. The record amounts of monies in the
hands of mutual fund managers, together with the pressures on those managers for
investment performance, led to increasing trends of volatility. Overall, the
many shifting trends within the equity market made it seem increasingly evident
that the previous strong upward drive in stock prices was losing sustainability.
Investor concentration focused on inflationary potentials indicated by expected
economic figures, which led to the very strong negative reaction to the better
employment and wage figures released early in July.
The asset allocation of the Fund was shifted to a somewhat less defensive
position with regard to both the interest rate cycle and the equity markets
during the six months. A variety of holdings were initiated or added to during
the six months. Utilizing substantial cash reserves, we concentrated on
purchasing the shares of high quality growth companies during periods of either
general market weakness or sector weakness. The technology sector included
purchases of Intel Corp. in March, and Microsoft Corp. in January, with gains on
these purchases of 25.5% and 45.2%, respectively, at June 30. Pharmaceutical
company sector purchases of American Home Products Corp. in March, and Pfizer,
Inc. in April, produced appreciation of 17.6% and 9.0%, respectively. In the
financial area, purchases of First Colony Corp. in May, Capstead Mortgage Corp.
in January, and Merrill Lynch & Co., Inc. in February, brought appreciation of
15.1%, 12.6%, and 10.4%, respectively. General Electric Co. shares had a
moderate set-back which provided the opportunity for purchase of additional
shares, and resulted in an 11.0% increase by the end of the period. This
strategy of selective purchasing included retaining a sizable cash position in
expectation of further opportunities as a result of market volatility.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
* CLASS A SHARES ARE SUBJECT TO A MAXIMUM 4.75% FRONT END SALES CHARGE, CLASS
B SHARES ARE SUBJECT TO A MAXIMUM 5% CONTINGENT DEFERRED SALES CHARGE, AND
CLASS C SHARES ARE SUBJECT TO A 1% CONTINGENT DEFERRED SALES CHARGE WITHIN
THE FIRST YEAR OF PURCHASE. SALES CHARGES ARE NOT REFLECTED IN FIGURES
ABOVE, AND IF REFLECTED, PERFORMANCE WOULD BE LOWER. 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.
23
<PAGE>
EVERGREEN FOUNDATION FUND
(Photo of a statue)
A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
Sales of whole or partial positions were also made at points where we felt
issues had risen to vulnerable levels. Thus, the Fund's position in Borders
Group, Inc. was sold out entirely, with a gain of 129.6% in eleven months. Part
of the position in Kimberly-Clark Corp. was sold with a 51.1% gain in four
months, and part of the Bankers Trust New York Corp. position was sold with a
47.8% gain in fourteen months. The majority of the position in Texas Instruments
Inc. was sold with a 42.5% gain in one year, and the entire position in J. P.
Morgan & Co., Inc. was sold with a 34.6% gain in twenty-two months. Losses were
also realized when companies failed to meet our expectations. Micron Technology,
Inc. was sold with a 26.2% loss in four months, a portion of Applied Materials,
Inc., with a 13.3% loss in eight months, and part of our holdings of American
Greetings Corp., with a 5.2% loss in eighteen months.
The Fund's top first-half performers, Lincare Holdings, Inc., Cisco Systems,
Inc., and TNP Enterprises, Inc., provided appreciation of 56.7%, 51.6%, and
51.1%, respectively. Nine issues provided appreciation of 30% or more, and
twenty-five issues provided appreciation of 20% or more. Those holdings
providing appreciation of 20% or more included: Nautica Enterprises, Inc., and
U.S. HealthCare, Inc. The loss side showed two small holdings, Grupo Sidek, S.A.
de C.V. and Broderbund Software, Inc., with significant depreciation of 44%
each. Eight holdings declined in value 15% or more.
Merger and acquisitions continued to have a favorable impact on the Fund,
with three such transactions completed and four initiated. Newly announced
merger and acquisitions included: Debartolo Realty Corp., with appreciation of
9.3% through June 30, 1996, U.S. HealthCare, Inc., a gain of 38.5%, Caremark
International Inc., a gain of 68.8%, and Family Bancorp, a gain of 59.0%.
Overall, we see these merger and acquisitions as demonstrating that we had
purchased stocks which met our goal of purchasing undervalued stocks.
New holdings were initiated in thirty-three companies during the six months.
They represent a number of industries; each was selected for its own unique
opportunities, such as Tupperware Corp. as a freshly motivated, newly
independent company, or Monsanto Co. as a vigorous exploiter of its unique
opportunities in agricultural genetics and pharmaceutical products, or Sun
Microsystems, Inc. in its high-powered graphical workstations. New holdings also
included American Re Corp., Applied Power Inc., Corning Inc., Lucent
Technologies Inc., Mobil Corp., Pacific Greystone Corp., Pioneer Hi-Bred
International, Inc., and Wyle Electronics. Increases were made in a variety of
holdings including: Chrysler Corp., Columbia/HCA Healthcare Corp., General
Electric Co., Hewlett-Packard Co., PHH Corp., Post Properties, Inc., and
Snap-On, Inc.
Looking ahead, we can expect major and minor trends of the economy to be
re-evaluated with each successive set of statistics. The broadest concern will
be with the inflation trend and, in particular, with the issue of whether or not
there is an accelerating cost of labor which could cause a basic increase in the
price structure. Our anticipation is that even though the economy will sustain a
high level of employment, shifts in that employment from the manufacturing
sector to the service sector, and pressures on the manufacturing sector from
lower labor cost foreign competitors will tend to keep a fairly stable
wage-price structure. Yet, with still widespread fear of inflation and a Federal
Reserve policy of readiness to increase interest rates if it sees rising
inflation, we expect an overall, more cautious approach to valuation. We look
forward to periods of hesitation for the markets in general, and for industry
and company valuation. Such hesitations could provide many new opportunities for
the purchase of shares, we believe to be undervalued, of outstanding companies
which have strong business franchises and the greatest ability to lead, rather
than follow the competition. A careful weighing of the total return potentials
of the high-quality bond market opportunities versus those of quality equities
will also be made in assessing the implications of the changing trends in the
economy.
The fixed income holdings had more than neutralized our equity appreciation
and gains during the first half of the year, but we believe the Fund is well
situated for the expected trends of the second half of the year. Already, at
this writing in July, we have seen that the large cash equivalent position
provided ample funds for excellent purchase opportunities of shares of growth
companies on an undervalued basis, especially during periods of sharp sell-offs
in the stock market. The recent "steady as you go" attitude evidenced by Federal
Reserve Chairman Greenspan during his Humphrey-Hawkins testimony to the Senate
and the House, suggests that our fixed income positioning may well prove
appropriate for the balance of 1996.
We greatly appreciate the patience and loyalty of our shareholders in this
period of performance below the Fund's historical leadership achievement. We
look forward to rewarding that patience.
24
<PAGE>
EVERGREEN FOUNDATION FUND
STATEMENT OF INVESTMENTS
(Photo of a statue)
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- 44.7%
AUTOMOTIVE EQUIPMENT &
MANUFACTURING -- 1.2%
265,000 Chrysler Corp..................... $ 16,430,000
BANKS -- 4.7%
16,600 AmSouth Bancorp................... 599,675
40,000 Bancfirst Corp.................... 860,000
252,700 Bank of Boston Corp............... 12,508,650
121,029 Bankers Trust New York Corp....... 8,941,017
50,000 Barnett Banks, Inc................ 3,050,000
65,000 Baybanks, Inc..................... 7,003,750
93,375 BSB Bancorp, Inc.................. 2,427,750
57,000 Cape Cod Bank & Trust Co.......... 1,280,719
20,000 CB Bancshares, Inc................ 622,500
82,500 Central Fidelity Banks, Inc....... 1,876,875
48,500 Crestar Financial Corp............ 2,588,688
52,500 Family Bancorp.................... 1,305,938
90,138 First Chicago NBD Corp............ 3,526,649
3,000 First Empire State Corp........... 723,000
181,800 First of America Bank Corp........ 8,135,550
7,500 First Security Corp............... 180,000
58,500 First Union Corp. **.............. 3,561,187
70,801 Hibernia Corp. Cl. A.............. 769,961
25,000 Mississippi Valley Bancshares,
Inc............................... 800,000
92,000 Seacoast Banking Corp. of
Florida Cl. A..................... 2,024,000
46,100 Standard Federal Bank............. 1,774,850
32,500 U.S. Trust Corp................... 1,641,250
66,202,009
BUILDING, CONSTRUCTION &
FURNISHINGS -- .9%
103,800 Armstrong World Industries,
Inc............................... 5,981,475
149,300 Continental Homes
Holding Corp...................... 3,209,950
20,000* M/I Schottenstein Homes, Inc...... 185,000
35,000 Macerich Co. (The)................ 735,000
95,000 Miles Homes, Inc.................. 190,000
222,000 Pacific Greystone Corp............ 2,802,750
13,104,175
BUSINESS EQUIPMENT &
SERVICES -- .6%
64,000 International Business
Machines Corp..................... 6,336,000
40,000 Lucent Technologies............... 1,515,000
70,000 Wackenhut Corp. (The) Cl. B....... 1,286,250
9,137,250
<CAPTION>
SHARES VALUE
<C> <S> <C>
CHEMICAL & AGRICULTURAL
PRODUCTS -- 1.5%
85,000 A. Schulman, Inc.................. $ 2,082,500
30,000 Air Products & Chemicals, Inc..... 1,732,500
40,000 H.B. Fuller Co.................... 1,450,000
142,500 Monsanto Co....................... 4,631,250
40,000 Nalco Chemical Co................. 1,260,000
65,000 Pioneer Hi-Bred International,
Inc............................... 3,436,875
110,000 PPG Industries, Inc............... 5,362,500
20,000 Praxair, Inc...................... 845,000
20,800,625
COMMUNICATION SYSTEM &
SERVICES -- .8%
98,333* 360 Communications Co............. 2,359,992
220,000 Sprint Corp....................... 9,240,000
11,599,992
CONSUMER PRODUCTS &
SERVICES -- 3.3%
55,000 American Greetings Corp. Cl.A..... 1,505,625
20,000* Broderbund Software, Inc.......... 645,000
23,311 Consolidated Products, Inc........ 384,632
105,000 CPC International, Inc............ 7,560,000
148,800 Goodyear Tire & Rubber Co.
(The)............................. 7,179,600
80,000 H. & R. Block, Inc................ 2,610,000
100,000 International Flavors &
Fragrances, Inc................... 4,762,500
88,800 Kimberly-Clark Corp............... 6,859,800
68,100 Nautica Enterprises, Inc.......... 1,957,875
100,000 Procter & Gamble Co. (The)........ 9,062,500
95,000 Tupperware Corp................... 4,013,750
46,541,282
DIVERSIFIED COMPANIES -- 1.7%
222,000 General Electric Co............... 19,203,000
70,000 W. R. Grace & Co.................. 4,961,250
24,164,250
ELECTRICAL EQUIPMENT &
SERVICES -- 5.9%
173,400 AMP, Inc.......................... 6,957,675
45,000* Applied Materials, Inc............ 1,372,500
216,511 Avnet, Inc........................ 9,120,526
50,000* Cisco Systems, Inc................ 2,831,250
200,400 Hewlett-Packard Co................ 19,964,850
337,200 Intel Corp........................ 24,763,125
20,000 Intel Corp.
warrants exp. 3/14/98............. 725,000
80,000* Microsoft Corp.................... 9,610,000
</TABLE>
25
<PAGE>
EVERGREEN FOUNDATION FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Photo of a statue)
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- CONTINUED
ELECTRICAL EQUIPMENT &
SERVICES -- CONTINUED
100,000* Sun Microsystems, Inc............. $ 5,887,500
39,000 Texas Instruments, Inc............ 1,945,125
30,000 Wyle Electronics.................. 993,750
84,171,301
ENERGY -- .5%
30,000 Exxon Corp........................ 2,606,250
35,000 Mobil Corp........................ 3,924,375
43,103 Seitel, Inc....................... 1,179,945
7,710,570
FINANCE & INSURANCE -- 7.1%
120,000 Allstate Corp. (The).............. 5,475,000
52,300 AMBAC, Inc........................ 2,726,137
80,000 American International
Group, Inc........................ 7,890,000
30,000 American Re Corp.................. 1,346,250
148,350 Countrywide Credit
Industries, Inc................... 3,671,662
10,000 Federal Home Loan
Mortgage Corp..................... 855,000
788,000 Federal National Mortgage Assn.... 26,398,000
81,500 First Colony Corp................. 2,526,500
65,000 Hartford Steam Boiler Inspection &
Insurance Co. (The)............... 3,193,125
80,000 John Alden Financial Corp......... 1,770,000
139,200 John Nuveen Co. (The)............. 3,462,600
170,000 Marsh & McLennan Cos., Inc........ 16,405,000
28,100 MBIA, Inc......................... 2,188,288
150,700 Merrill Lynch & Co., Inc.......... 9,814,337
139,600 MGIC Investment Corp.............. 7,835,050
200,000 North American Mortgage Co........ 3,475,000
40,300 Raymond James Financial, Inc...... 911,788
99,943,737
FOREST PRODUCTS -- .4%
53,000 Union Camp Corp................... 2,583,750
45,000 Willamette Industries, Inc........ 2,677,500
5,261,250
HEALTHCARE PRODUCTS &
SERVICES -- 5.5%
140,000 Abbott Laboratories............... 6,090,000
94,000 Alza Corp......................... 2,573,250
1,750 Alza Corp.
warrants exp. 12/31/99............ 219
140,000 American Home Products Corp....... 8,417,500
50,000 Bristol-Myers Squibb Co........... 4,500,000
<CAPTION>
SHARES VALUE
<C> <S> <C>
HEALTHCARE PRODUCTS &
SERVICES -- CONTINUED
175,000 Caremark International, Inc....... $ 4,418,750
120,000 Columbia / HCA Healthcare Corp.... 6,405,000
49,275 Guidant Corp...................... 2,426,794
102,000 Johnson & Johnson................. 5,049,000
92,762 Lilly (Eli) & Co.................. 6,029,530
65,000* Lincare Holdings, Inc............. 2,551,250
70,000* Living Centers of America, Inc.... 2,406,250
57,600 McKesson Corp..................... 2,743,200
129,758 Merck & Co., Inc.................. 8,385,611
60,000 Pfizer, Inc....................... 4,282,500
86,000 Schering-Plough Corp.............. 5,396,500
9,200 Shared Medical Systems Corp....... 591,100
44,900 Superior Surgical Manufacturing
Co., Inc.......................... 533,187
1,750 Therapeutic Discovery Corp........ 16,406
47,500 U.S. Healthcare Corp.............. 2,612,500
50,000 Warner-Lambert Co................. 2,750,000
78,178,547
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES -- 1.9%
8,000 Aluminum Co. of America........... 459,000
31,500 Applied Power, Inc................ 882,000
92,000 Corning, Inc...................... 3,530,500
190,000 Deere & Co........................ 7,600,000
106,500 PHH Corp.......................... 6,070,500
100,000 Snap-on, Inc...................... 4,737,500
6,000* Strattec Security Corp............ 106,500
45,000 Timken Co. (The).................. 1,743,750
40,000 Trinity Industries, Inc........... 1,360,000
26,489,750
PUBLISHING, BROADCASTING &
ENTERTAINMENT -- .4%
60,493 Disney Walt Co. (The)............. 3,803,497
2,500* Lin Television Corp............... 90,000
25,000 Time Warner, Inc.................. 981,250
2,000 Washington Post Co. (The)......... 648,000
5,522,747
REAL ESTATE -- 4.7%
30,000* Alexander's, Inc.................. 2,178,750
23,400 Arbor Property Trust.............. 172,575
91,700 Bay Apartment Communities, Inc.... 2,372,737
50,009 Bradley Real Estate, Inc.......... 725,131
35,000 Cali Realty Corp.................. 848,750
163,600 Capstead Mortgage Corp............ 4,560,350
</TABLE>
26
<PAGE>
EVERGREEN FOUNDATION FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Photo of a statue)
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- CONTINUED
REAL ESTATE -- CONTINUED
36,500 Carr Realty Corp.................. $ 876,000
40,000 Chelsea GCA Realty, Inc........... 1,270,000
184,900 Columbus Realty Trust............. 3,582,437
305,300 Crown American Realty Trust....... 2,366,075
35,000 CWM Mortgage Holdings, Inc........ 595,000
120,000 DeBartolo Realty Corp............. 1,935,000
105,200 Essex Property Trust, Inc......... 2,261,800
165,000 Factory Stores of America, Inc.... 1,505,625
90,000 FelCor Suite Hotels, Inc.......... 2,745,000
100,200 Gables Residential Trust.......... 2,354,700
120,000 Glimcher Realty Trust............. 2,025,000
147,000 Grupo Sidek, SA de CV ADR......... 183,750
28,000 Highwoods Properties, Inc......... 773,500
308,216 Horizon Group, Inc................ 6,318,428
30,000 JP Realty, Inc.................... 641,250
140,000 Kranzco Realty Trust.............. 1,977,500
15,000 Liberty Property Trust............ 298,125
65,000 Mills Corp. (The)................. 1,137,500
33,100 Oasis Residential, Inc............ 724,063
40,000 Patriot American Hospitality,
Inc............................... 1,185,000
140,000 Post Properties, Inc.............. 4,952,500
90,000 Public Storage, Inc............... 1,856,250
65,000 Security Capital Industrial
Trust............................. 1,145,625
111,992 Security Capital Pacific Trust.... 2,435,826
100,000 Sovran Self Storage, Inc.......... 2,650,000
50,000 Spieker Properties, Inc........... 1,362,500
98,500 Starwood Lodging Trust+........... 3,582,937
22,900 Storage USA, Inc.................. 738,525
57,900 Tanger Factory Outlet
Centers, Inc...................... 1,346,175
50,000 Taubman Centers, Inc.............. 556,250
25,000 Urban Shopping Centers, Inc....... 593,750
66,834,384
RETAILING & WHOLESALE -- 1.2%
30,000 Fingerhut Cos., Inc............... 468,750
120,000 Lowe's Cos., Inc.................. 4,335,000
195,600 Mercantile Stores Co., Inc........ 11,467,050
35,000 Walgreen Co....................... 1,172,500
17,443,300
TEXTILE & APPAREL -- .0%(A)
22,500 Kellwood Co....................... 413,438
TRANSPORTATION -- .7%
35,000 Burlington Northern Santa Fe...... 2,830,625
<CAPTION>
SHARES VALUE
TRANSPORTATION -- CONTINUED
<C> <S> <C>
34,000 Caliber System, Inc............... $ 1,156,000
35,000 Conrail, Inc...................... 2,323,125
17,000 Roadway Express, Inc.............. 240,125
40,000 Union Pacific Corp................ 2,795,000
9,344,875
UTILITIES -- 1.7%
90,000 Bell Atlantic Corp................ 5,737,500
325,000 GTE Corp.......................... 14,543,750
100,000 Public Service Enterprise
Group, Inc........................ 2,737,500
32,000 TNP Enterprises, Inc.............. 908,000
23,926,750
TOTAL COMMON STOCKS
(COST $529,492,907)............. 633,220,232
CONVERTIBLE PREFERRED STOCKS -- .1%
ELECTRICAL EQUIPMENT &
SERVICES -- .1%
100,000 Westinghouse Electric Corp........ 1,744,000
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $1,568,800)............... 1,744,000
<CAPTION>
PRINCIPAL
AMOUNT
<C> <S> <C>
CONVERTIBLE DEBENTURES -- .3%
BUILDING, CONSTRUCTION &
FURNISHINGS -- .0%(A)
$ 500,000 Engle Homes, Inc.
7.00%, 3/1/03..................... 440,000
CONSUMER PRODUCTS &
SERVICES -- .1%
1,770,000 Bell Sports Corp.
4.25%, 11/15/00................... 1,336,350
ENVIRONMENTAL SERVICES -- .0%(A)
300,000 Roy F. Weston, Inc.
7.00%, 4/15/02.................... 267,000
HEALTHCARE PRODUCTS &
SERVICES -- .1%
750,000 Maxxim Medical, Inc.
6.75%, 3/1/03..................... 810,937
200,000 Regency Health Services, Inc.
6.50%, 7/15/03.................... 198,000
1,008,937
</TABLE>
27
<PAGE>
EVERGREEN FOUNDATION FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Photo of a statue)
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CONVERTIBLE DEBENTURES -- CONTINUED
RETAILING & WHOLESALE -- .1%
$ 800,000 Big B, Inc.
6.50%, 3/15/03.................... $ 776,000
TOTAL CONVERTIBLE DEBENTURES
(COST $4,421,000)............... 3,828,287
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 37.3%
GOVERNMENT AGENCY NOTES &
BONDS -- 1.2%
Tennessee Valley Authority
8,000,000 7.25%, 7/15/43.................... 7,432,264
10,000,000 7.85%, 6/15/44.................... 9,781,530
17,213,794
MORTGAGE BACKED SECURITY -- .1%
1,000,000 Federal National Mortgage Assn.
8.10%, 8/12/19.................... 1,083,140
U.S. TREASURY BONDS -- 31.4%
150,000,000 6.25%, 8/15/23.................... 135,937,500
100,000,000 7.125%, 2/15/23................... 101,031,100
49,000,000 7.25%, 5/15/16.................... 50,209,614
7,000,000 7.625%, 11/15/22.................. 7,490,000
10,000,000 8.00%, 11/15/21................... 11,131,250
50,000,000 8.125%, 8/15/19................... 56,093,750
25,000,000 8.125%, 5/15/21................... 28,171,875
30,000,000 8.375%, 8/15/08................... 32,831,250
10,000,000 8.50%, 2/15/20.................... 11,659,360
7,000,000 10.00%, 5/15/10................... 8,454,684
1,000,000 10.625%, 8/15/15.................. 1,380,311
444,390,694
U.S. TREASURY NOTES -- 4.6%
30,000,000 5.75%, 8/15/03.................... 28,556,250
15,000,000 6.50%, 8/15/05.................... 14,779,665
13,000,000 7.25%, 5/15/04.................... 13,463,125
8,000,000 7.25%, 8/15/04.................... 8,285,000
65,084,040
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS
(COST $553,655,067)............. 527,771,668
SHORT-TERM INVESTMENTS -- 18.8%
COMMERCIAL PAPER -- 15.0%
15,600,000 Abbott Laboratories
5.32%, 7/30/96.................... 15,533,145
33,700,000 American Home Products Corp.
5.40%, 8/9/96..................... 33,502,855
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM INVESTMENTS -- CONTINUED
COMMERCIAL PAPER -- CONTINUED
$16,200,000 Equitable Life Assurance Society
of the U.S.
5.40%, 8/2/96..................... $ 16,122,240
4,000,000 Equitable of Iowa Cos.
5.38%, 7/18/96.................... 3,989,838
770,000 Gannett Co., Inc.
5.33%, 7/26/96.................... 767,150
2,100,000 Golden Managers Acceptance Corp.
5.35%, 7/17/96.................... 2,095,007
2,000,000 H.J. Heinz Co.
5.30%, 7/2/96..................... 1,999,706
750,000 IES Utilities, Inc.
5.35%, 7/8/96..................... 749,220
11,300,000 National Rural Utilities
Cooperative Finance Corp.
5.35%, 8/9/96..................... 11,234,507
8,200,000 Pearson, Inc.
5.34%, 7/10/96.................... 8,189,053
6,000,000 PepsiCo, Inc.
5.34%, 8/21/96.................... 5,954,610
7,000,000 Pfizer, Inc.
5.33%, 8/5/96..................... 6,963,726
1,700,000 PHH Corp.
5.30%, 7/8/96..................... 1,698,248
15,850,000 President + Fellows Harvard Co.
5.34%, 7/25/96.................... 15,793,574
20,000,000 RTZ America, Inc.
5.39%, 8/9/96..................... 19,883,217
4,800,000 Sandoz Corp.
5.35%, 8/6/96..................... 4,774,320
19,500,000 South Carolina Electric & Gas Co.
5.36%, 7/30/96.................... 19,415,803
11,500,000 Tampa Electric Co.
5.33%, 7/22/96.................... 11,464,245
20,000,000 Transamerica Corp.
5.38%, 8/19/96.................... 19,853,544
1,100,000 University of Chicago
5.31%, 7/15/96.................... 1,097,728
10,000,000 Virginia Electric & Power Co.
5.38%, 8/2/96..................... 9,952,178
1,000,000 Xerox Corp.
5.30%, 7/10/96.................... 998,675
212,032,589
GOVERNMENT AGENCY NOTES &
BONDS -- 3.8%
16,000,000 Federal Farm Credit Bank
5.25%, 7/22/96.................... 15,951,000
10,000,000 Federal Home Loan Bank
5.26%, 7/29/96.................... 9,959,089
</TABLE>
28
<PAGE>
EVERGREEN FOUNDATION FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Photo of a statue)
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM INVESTMENTS -- CONTINUED
GOVERNMENT AGENCY NOTES & BONDS -- CONTINUED
Federal Home Loan Mortgage Corp.
$15,525,000 5.25%, 7/15/96.................... $ 15,493,303
12,150,000 5.29%, 7/31/96.................... 12,096,439
53,499,831
TOTAL SHORT-TERM INVESTMENTS
(COST $265,532,420)............. 265,532,420
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS --
(COST $1,354,670,194)... 101.2% 1,432,096,607
OTHER ASSETS AND
LIABILITIES -- NET..... (1.2) (16,332,755)
NET ASSETS............... 100.0% $1,415,763,852
</TABLE>
* Non-income producing securities.
** At June 30, 1996 the Fund owned 58,500 shares of common stock of First Union
at a cost of $2,358,441. During the period ended June 30, 1996 the Fund
earned $60,840 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.
+ Consists of one share Starwood Lodging Trust and one share Starwood Lodging
Corp. common stock.
(a) Less than one tenth of one percent.
ADR -- American Depositary Receipts
See accompanying notes to financial statements.
29
<PAGE>
EVERGREEN FOUNDATION FUND
STATEMENT OF ASSETS AND LIABILITIES
(Photo of a statue)
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $1,354,670,194)....................................................... $1,432,096,607
Cash........................................................................................................ 449,971
Dividends and interest receivable........................................................................... 13,400,262
Receivable for Fund shares sold............................................................................. 3,191,156
Receivable for investments sold............................................................................. 238,972
Prepaid expenses............................................................................................ 34,170
Total assets.......................................................................................... 1,449,411,138
LIABILITIES:
Payable for investments purchased........................................................................... 27,471,200
Payable for Fund shares repurchased......................................................................... 3,813,495
Accrued Advisory fee........................................................................................ 924,038
Accrued expenses............................................................................................ 742,205
Distribution fee payable.................................................................................... 696,348
Total liabilities..................................................................................... 33,647,286
NET ASSETS..................................................................................................... $1,415,763,852
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................. $1,329,320,488
Undistributed net investment income......................................................................... 1,250,715
Accumulated net realized gain on investment transactions.................................................... 7,766,236
Net unrealized appreciation of investments.................................................................. 77,426,413
Net assets............................................................................................ $1,415,763,852
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($163,461,991/11,038,535 shares of beneficial interest outstanding).......................... $ 14.81
Sales charge -- 4.75% of offering price..................................................................... .74
Maximum offering price................................................................................ $ 15.55
Class B Shares ($484,864,978/32,856,608 shares of beneficial interest outstanding).......................... $ 14.76
Class C Shares ($21,369,858/1,448,410 shares of beneficial interest outstanding)............................ $ 14.75
Class Y Shares ($746,067,025/50,325,115 shares of beneficial interest outstanding).......................... $ 14.82
</TABLE>
See accompanying notes to financial statements.
30
<PAGE>
EVERGREEN FOUNDATION FUND
STATEMENT OF OPERATIONS
(Photo of a statue)
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends.................................................................................... $ 7,226,330
Interest..................................................................................... 23,974,084
Total investment income................................................................ 31,200,414
EXPENSES:
Advisory fee................................................................................. $5,153,512
Distribution fee -- Class A Shares........................................................... 179,799
Distribution fee -- Class B Shares........................................................... 1,519,709
Shareholder services fee -- Class B Shares................................................... 506,570
Distribution fee -- Class C Shares........................................................... 62,486
Shareholder services fee -- Class C Shares................................................... 20,829
Transfer agent fee........................................................................... 398,800
Registration and filing fees................................................................. 349,440
Custodian fee................................................................................ 308,600
Reports and notices to shareholders.......................................................... 109,200
Professional fees............................................................................ 24,635
Insurance.................................................................................... 23,746
Trustees' fees and expenses.................................................................. 6,552
Miscellaneous................................................................................ 18,200
Net expenses........................................................................... 8,682,078
Net investment income........................................................................... 22,518,336
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investment transactions................................................. 7,917,880
Net decrease in unrealized appreciation of investments....................................... (30,899,740)
Net loss on investments......................................................................... (22,981,860)
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................ $ (463,524)
</TABLE>
See accompanying notes to financial statements.
31
<PAGE>
EVERGREEN FOUNDATION FUND
(Photo of a statue)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
JUNE 30, 1996 ENDED
(UNAUDITED) DECEMBER 31, 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................................................... $ 22,518,336 $ 22,897,807
Net realized gain on investment transactions........................................ 7,917,880 9,385,074
Net change in unrealized appreciation of investments................................ (30,899,740) 121,111,375
Net increase (decrease) in net assets resulting from operations.................. (463,524) 153,394,256
DISTRIBUTIONS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME:
Class A Shares...................................................................... (2,581,164) (1,908,188)
Class B Shares...................................................................... (5,948,680) (4,488,521)
Class C Shares...................................................................... (251,958) (170,820)
Class Y Shares...................................................................... (12,757,668) (16,164,235)
Total distributions from net investment income................................... (21,539,470) (22,731,764)
NET REALIZED GAIN ON INVESTMENTS:
Class A Shares...................................................................... (248,128) (993,303)
Class B Shares...................................................................... (702,923) (2,824,116)
Class C Shares...................................................................... (28,507) (113,415)
Class Y Shares...................................................................... (1,179,030) (7,827,124)
Total distributions from net realized gain on investments........................ (2,158,588) (11,757,958)
Total distributions to shareholders.............................................. (23,698,058) (34,489,722)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold........................................................... 524,953,549 652,779,207
Proceeds from reinvestment of distributions......................................... 22,258,571 32,843,419
Payment for shares redeemed......................................................... (144,975,542) (98,358,101)
Net increase from Fund share transactions........................................ 402,236,578 587,264,525
Net increase in net assets....................................................... 378,074,996 706,169,059
NET ASSETS:
Beginning of period................................................................. 1,037,688,856 331,519,797
End of period (including undistributed net investment income of $1,250,715 and
$271,849, respectively)........................................................... $1,415,763,852 $ 1,037,688,856
</TABLE>
See accompanying notes to financial statements.
32
<PAGE>
EVERGREEN FOUNDATION FUND --
CLASS A, B AND C SHARES
(Photo of a statue)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SIX MONTHS JANUARY 3, SIX MONTHS JANUARY 3, SIX MONTHS
ENDED 1995* ENDED 1995* ENDED
JUNE 30, THROUGH JUNE 30, THROUGH JUNE 30,
1996 DECEMBER 31, 1996 DECEMBER 31, 1996
(UNAUDITED) 1995 (UNAUDITED) 1995 (UNAUDITED)
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period...... $15.12 $12.24 $15.07 $12.24 $15.07
Income (loss) from investment operations:
Net investment income.................... .28 .44 .23 .36 .24
Net realized and unrealized gain (loss)
on investments.......................... (.32) 3.14 (.32) 3.09 (.34)
Total from investment operations....... (.04) 3.58 (.09) 3.45 (.10)
Less distributions to shareholders from:
Net investment income.................... (.24) (.47) (.19) (.39) (.19)
Net realized gain on investments......... (.03) (.23) (.03) (.23) (.03)
Total distributions.................... (.27) (.70) (.22) (.62) (.22)
Net asset value, end of period............ $14.81 $15.12 $14.76 $15.07 $14.75
TOTAL RETURN+............................. (.2%) 29.7% (.6%) 28.7% (.6%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................... $163 $107 $485 $296 $21
Ratios to average net assets:
Expenses................................. 1.26%++ 1.33%++# 2.01%++ 2.07%++ 2.01%++
Net investment income.................... 3.67%++ 3.73%++# 2.93%++ 2.99%++ 2.94%++
Portfolio turnover rate................... 5% 28% 5% 28% 5%
Average commission rate paid per share.... $.0659 N/A $.0659 N/A $.0659
<CAPTION>
JANUARY 3,
1995*
THROUGH
DECEMBER 31,
1995
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period...... $12.24
Income (loss) from investment operations:
Net investment income.................... .34
Net realized and unrealized gain (loss)
on investments.......................... 3.09
Total from investment operations....... 3.43
Less distributions to shareholders from:
Net investment income.................... (.37)
Net realized gain on investments......... (.23)
Total distributions.................... (.60)
Net asset value, end of period............ $15.07
TOTAL RETURN+............................. 28.5%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................... $11
Ratios to average net assets:
Expenses................................. 2.23%++#
Net investment income.................... 2.83%++#
Portfolio turnover rate................... 28%
Average commission rate paid per share.... N/A
</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 operating expenses and net investment income to average net assets would
have been the following:
<TABLE>
<CAPTION>
JANUARY 3, 1995*
THROUGH
DECEMBER 31, 1995
CLASS A CLASS C
SHARES SHARES
<S> <C> <C>
Expenses................................................................... 1.34% 2.37%
Net investment income...................................................... 3.72% 2.69%
</TABLE>
See accompanying notes to financial statements.
33
<PAGE>
EVERGREEN FOUNDATION FUND --
CLASS Y SHARES
(Photo of a statue)
FINANCIAL HIGHLIGHTS -- (CONTINUED)
<TABLE>
<CAPTION>
CLASS Y SHARES
SIX MONTHS
ENDED
JUNE 30, 1996 YEAR ENDED DECEMBER 31,
(UNAUDITED) 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.................................. $15.13 $12.27 $13.12 $11.98 $10.75
Income (loss) from investment operations:
Net investment income................................................ .30 .51 .42 .31 .27
Net realized and unrealized gain (loss) on investments............... (.32) 3.07 (.57) 1.55 1.83
Total from investment operations................................... (.02) 3.58 (.15) 1.86 2.10
Less distributions to shareholders from:
Net investment income................................................ (.26) (.49) (.42) (.31) (.24)
Net realized gain on investments..................................... (.03) (.23) (.28) (.41) (.63)
Total distributions................................................ (.29) (.72) (.70) (.72) (.87)
Net asset value, end of period........................................ 14.82 $15.13 $12.27 $13.12 $11.98
TOTAL RETURN+......................................................... (.1%) 29.7% (1.1%) 15.7% 20.0%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in millions).............................. $ 746 $623 $332 $240 $64
Ratios to average net assets:
Expenses............................................................. 1.01%++ 1.07% 1.14% 1.20% 1.40%
Net investment income................................................ 3.90%++ 3.89% 3.51% 2.81% 2.93%
Portfolio turnover rate............................................... 5% 28% 33% 60% 127%
Average commission rate paid per share................................ $.0659 N/A N/A N/A N/A
<CAPTION>
1991
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period.................................. $8.95
Income (loss) from investment operations:
Net investment income................................................ .33
Net realized and unrealized gain (loss) on investments............... 2.77
Total from investment operations................................... 3.10
Less distributions to shareholders from:
Net investment income................................................ (.33)
Net realized gain on investments..................................... (.97)
Total distributions................................................ (1.30)
Net asset value, end of period........................................ $10.75
TOTAL RETURN+......................................................... 36.4%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in millions).............................. $11
Ratios to average net assets:
Expenses............................................................. 1.20%
Net investment income................................................ 2.86%
Portfolio turnover rate............................................... 178%
Average commission rate paid per share................................ N/A
</TABLE>
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized.
++ Annualized.
See accompanying notes to financial statements.
34
<PAGE>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
(Photo of a dam)
A REPORT FROM YOUR
PORTFOLIO MANAGERS
STEPHEN A. LIEBER
JAMES T. COLBY, III
Evergreen Tax Strategic Foundation Fund had a 3.6%* total (Photos of
return (Class Y, no-load shares) for the first six months of Stephen A.
1996. As a balanced fund, with a substantial portion of its Lieber
assets committed to tax exempt bonds there was considerable and
divergence between the underlying performance of the Fund's James T.
equity portfolio and that of its bond portfolio. Equities Colby, III)
alone provided a 12.8% return in the period, whereas the fixed
income portion of the portfolio provided a 4.8% decline. The
equity portfolio significantly outperformed the stock market,
as measured by the 10.1% return for the Standard & Poor's 500
Reinvested Index**. The total returns at net asset value (NAV)
for the six months ended June 30 for the Fund's Class A shares,
Class B shares, and Class C shares were 3.4%, 3.2%, and 3.1%,
respectively.
The equity performance was largely sustained by a number of
issues which outperformed the market as measured by the
averages. Twenty holdings provided appreciation equal to or
greater than that of the S&P 500, ranging from 10.1% to 56.7%.
These represented varied industries, ranging from Lincare
Holdings, Inc., a provider of health care services, 56.7%, to
Intel Corp., the major manufacturer of microprocessors, 29.6%.
In the pharmaceutical industry were American Home Products
Corp., 33.1%, and Eli Lilly & Co., 18.1%. Technology leaders
were Harman International Industries, Inc. and Lucent
Technologies Inc., 41.2% and 40.1%, respectively.
The preponderance of equities advanced. There were two notable declines,
North American Mortgage, -32.7%, and Cadmus Communications Corp., -26.1%; the
first negatively impacted by rising interest rates, and the second by a fire in
one of its plants and, subsequent, reorganization difficulties.
The primary emphasis of new purchases made during the first six months was to
acquire the shares of growth companies which we judged to be undervalued.
Because of considerable volatility of the market, together with some changes in
industry outlooks, there were a number of attractive value opportunities. New
names added to the portfolio included: AMP Inc., Abbott Laboratories, Bio-Rad
Laboratories, Inc., Comerica Inc., Corning Inc., Delta Air Lines, Inc., Donna
Karan International Inc., Dover Corp., Sprint Corp., Fisher Scientific
International, Inc., FlightSafety International, Inc., GTE Corp., General
Electric Co., Goodyear Tire & Rubber Co., Harman International Industries, Inc.,
Hughes Supply, Inc., International Business Machines Corp., International
Flavors & Fragrances Inc., Interstate Hotels Co., Eli Lilly & Co., Lucent
Technologies Inc., Park Electrochemical Corp., Pioneer-Hi-Bred International,
Inc., Pulte Corp., Revlon Inc., St. Jude Medical
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
* CLASS A SHARES ARE SUBJECT TO A MAXIMUM 4.75% FRONT END SALES CHARGE,
CLASS B SHARES ARE SUBJECT TO A MAXIMUM 5% CONTINGENT DEFERRED SALES
CHARGE, AND CLASS C SHARES ARE SUBJECT TO A 1% CONTINGENT DEFERRED SALES
CHARGE WITHIN THE FIRST YEAR OF PURCHASE. SALES CHARGES ARE NOT REFLECTED
IN FIGURES ABOVE, AND IF REFLECTED, PERFORMANCE WOULD BE LOWER.
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.
** AN UNMANAGED INDEX OF COMMON STOCKS IN INDUSTRY, TRANSPORTATION, FINANCE,
AND PUBLIC UTILITIES, DENOTING GENERAL MARKET PERFORMANCE AS MONITORED BY
STANDARD & POOR'S CORP. AN INVESTMENT CAN NOT BE MADE IN AN INDEX.
35
<PAGE>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
(Photo of a dam)
Inc., Walgreen Co., Wyle Electronics, and 360 Communications Co. A highly
diversified list of equities provided opportunities in a number of dynamic
sectors of the economy which, we believe, will sustain growth even in the event
of a slowing business environment.
We sold a limited number of equities during this period, with the largest
gain, 130.1%, in shares of Southern Energy Homes, Inc. purchases in 1994. The
only loss taken in the portfolio during this period was in bonds of Washoe
County of Nevada, sold as part of a program to improve portfolio yields.
The Fund's tax exempt bond portfolio changed complexion only slightly during
the first six months of 1996, with a bias toward longer maturities and longer
duration. Municipal bonds and short-term securities, which accounted for nearly
52.1% of assets, posted negative returns as interest rates rose more than 1%
since the beginning of the year. With traders clearly pricing a possible Fed
rate increase into market levels, the volatility for investors of long bonds
during 1996 offered only scant opportunities to find a haven on the yield curve.
Underlying the fragile market psychology are the well documented increases in
employment payrolls and hourly wages which, in the minds of market participants
and Fed Chairman Alan Greenspan, presage an increase in inflationary pressures.
Thus, it has seemed a wise strategy to also retain slightly larger cash
positions and invest in shorter maturities when appropriate.
The good news was that the very end of the second quarter was quite good for
tax exempts as the seasonal reinvestment of maturities and coupon payments
resulted in a decidedly stronger finish for our market. And with "tax reform"
concerns diminished, tax exempts are poised to perform reasonably well during
the second half of 1996. The technical imbalance of maturing or redeemed bonds
versus new issuance will continue to create a price support for the market in
general. That having been said, we expect the municipal curve to continue to
flatten, which will result in a reduction of ratios of municipals to treasuries.
Simply put, we believe municipal prices should continue to improve versus
taxables. Should all this come to pass, the Fund should perform well in a
neutral or declining interest rate scenario. The opportunity, however, to craft
a durable and solid performing portfolio and lock in good rates still lies
before us since relatively modest retail demand for bonds has kept municipals
the best choice for investors looking to maximize their after-tax returns. For
the next six months, we expect to seek out bonds providing higher current
income. We also will continue to add bonds which carry the highest credit
quality ratings since risk for return spreads remain unusually narrow due to the
aforementioned technical conditions. Naturally, a careful monitoring of Federal
Reserve policy, as well as economic activity, will serve to direct our future
activities. At quarter-end, the average maturity and duration of the Fund's bond
holdings were essentially neutral versus those of the Lehman Municipal Insured
Bond Index*** of 12.3 years and 8.36 years, respectively. Average quality of all
bond holdings remain AAA; 84.6% are triple A rated and 68% are insured triple
A+. The reason for the difference being that there are other natural triple A
rated bonds in the portfolio in addition to the insured bonds.
We greatly appreciate the patience and loyalty of our shareholders in this
period of performance below the Fund's historical leadership achievement. We
look forward to rewarding that patience.
*** AN UNMANAGED INDEX OF SELECTED SECURITIES. AN INVESTMENT CAN NOT BE MADE
IN AN INDEX.
+ THESE BONDS ARE INSURED AS TO PAYMENT OF PRINCIPAL AND INTEREST. THE FUND
ITSELF IS NOT INSURED, NOR IS THE VALUE OF ITS SHARES GUARANTEED.
36
<PAGE>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
STATEMENT OF INVESTMENTS
(Photo of a dam)
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- 47.9%
AUTOMOTIVE EQUIPMENT &
MANUFACTURING -- 1.1%
7,000 Chrysler Corp....................... $ 434,000
BANKS -- 7.1%
19,000 Bank of Boston Corp................. 940,500
5,000 Barnett Banks, Inc.................. 305,000
2,500 Baybanks, Inc....................... 269,375
5,000 Comerica, Inc....................... 223,125
1,900 First Empire State Corp............. 457,900
11,000 First of America Bank Corp.......... 492,250
1,500 First Union Corp. **................ 91,312
4,837 SouthTrust Corp..................... 136,041
2,915,503
BUILDING, CONSTRUCTION &
FURNISHINGS -- .2%
3,200 Pulte Corp.......................... 85,600
BUSINESS EQUIPMENT &
SERVICES -- 1.0%
2,000 International Business Machines
Corp................................ 198,000
5,000 Lucent Technologies................. 189,375
387,375
CHEMICALS & AGRICULTURAL
PRODUCTS -- .4%
3,000 Pioneer Hi-Bred International,
Inc................................. 158,625
CONSUMER PRODUCTS & SERVICES -- 2.4%
10,000 Adidas AG ADS....................... 420,000
5,000 Goodyear Tire & Rubber Co. (The).... 241,250
4,000 International Flavors &
Fragrances, Inc..................... 190,500
5,000* Revlon, Inc. Cl. A.................. 145,625
997,375
DIVERSIFIED COMPANIES -- 1.3%
6,000 Dover Corp.......................... 276,750
3,000 General Electric Co................. 259,500
536,250
ELECTRICAL EQUIPMENT &
SERVICES -- 6.0%
6,000 AMP, Inc............................ 240,750
9,000 Harman International
Industries, Inc..................... 443,250
9,000 Hewlett-Packard Co.................. 896,625
12,000 Intel Corp.......................... 881,250
2,461,875
<CAPTION>
SHARES VALUE
<C> <S> <C>
FINANCE & INSURANCE -- 5.2%
3,000 American International Group,
Inc................................. $ 295,875
10,000 Countrywide Credit Industries,
Inc................................. 247,500
12,000 Federal National Mortgage Assn...... 402,000
3,000 Inter-Regional Financial
Group, Inc.......................... 78,000
10,000 John Alden Financial Corp........... 221,250
4,000 Marsh & McLennan Cos., Inc.......... 386,000
5,000 North American Mortgage Co.......... 86,875
7,000 PHH Corp............................ 399,000
2,116,500
HEALTHCARE PRODUCTS &
SERVICES -- 4.0%
7,000 Abbott Laboratories................. 304,500
4,000 American Home Products Corp......... 240,500
8,250* Bio-Rad Laboratories, Inc. Cl. A.... 295,969
3,000 Lilly (Eli) & Co.................... 195,000
5,000* Lincare Holdings, Inc............... 196,250
5,000 Merck & Co., Inc.................... 323,125
2,000* St. Jude Medical, Inc............... 67,000
1,622,344
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES -- 3.4%
2,000 Aluminum Co. of America............. 114,750
10,000 Cadmus Communications Corp.......... 153,750
7,500* Chemfab Corp........................ 105,000
5,000 Corning, Inc........................ 191,875
3,000 Fisher Scientific International,
Inc................................. 112,500
5,000 FlightSafety International, Inc..... 271,250
5,000 Furon Co............................ 123,750
5,000 Park Electrochemical Corp........... 100,000
4,600 Snap-on, Inc........................ 217,925
1,390,800
PAPER & PACKAGING -- .8%
6,000 Avery Dennison Corp................. 329,250
REAL ESTATE -- 5.3%
1,000* Alexander's, Inc.................... 72,625
8,000 Capstead Mortgage Corp.............. 223,000
6,400 Continental Homes Holding Corp...... 137,600
20,000 Crown American Realty Trust......... 155,000
40,000 CWM Mortgage Holdings, Inc.......... 680,000
5,000 Gables Residential Trust............ 117,500
15,000* Interstate Hotels Co................ 333,750
8,000 Irvine Apartment
Communities, Inc.................... 161,000
</TABLE>
37
<PAGE>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Photo of a dam)
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- CONTINUED
REAL ESTATE -- CONTINUED
7,000 Patriot American
Hospitality, Inc................... $ 207,375
3,485 Security Capital Pacific Trust..... 75,799
2,163,649
RETAILING & WHOLESALE -- 4.7%
8,000 Avnet, Inc......................... 337,000
10,000 Hughes Supply, Inc................. 347,500
7,000 Lowe's Cos., Inc................... 252,875
8,000 Mercantile Stores Co., Inc......... 469,000
5,000 Walgreen Co........................ 167,500
10,000 Wyle Electronics................... 331,250
1,905,125
TEXTILE & APPAREL -- .7%
10,000* Donna Karan International, Inc..... 280,000
THRIFT INSTITUTIONS -- .2%
15,000* Suncoast Savings & Loan Assn....... 89,297
TRANSPORTATION -- 1.6%
2,000 Burlington Northern Santa Fe....... 161,750
6,000 Delta Air Lines, Inc............... 498,000
659,750
UTILITIES -- ELECTRIC -- .7%
9,900 TNP Enterprises, Inc............... 280,912
UTILITIES -- TELEPHONE -- 1.8%
10,000* 360 Communications Co.............. 240,000
8,000 GTE Corp........................... 358,000
3,000 Sprint Corp........................ 126,000
724,000
TOTAL COMMON STOCKS
(COST $16,398,151)............... 19,538,230
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
MUNICIPAL OBLIGATIONS -- 57.8%
LONG TERM -- 46.3%
ALASKA -- .5%
$ 210,000 Municipality of Anchorage GO School
and GO Refunding School Bonds,
Series 1995
6.00%, 10/1/14 (FGIC).............. $ 216,105
ARIZONA -- 3.8%
500,000 City of Tucson GO Refunding Bonds,
Series 1995
5.70%, 7/1/08 (FGIC)............... 513,995
1,000,000 City of Tucson Senior Lien Street
and Highway User RRB,
Series 1996
6.00%, 7/1/10 (MBIA)............... 1,045,400
1,559,395
CALIFORNIA -- 2.9%
500,000 California Educational Facilities
Authority RB (Carnegie Institution
Project), Series A
5.60%, 10/1/23..................... 470,720
250,000 Contra Costa County Water District
Water RB, Series G
5.75%, 10/1/14 (MBIA).............. 249,135
500,000 San Francisco Bay Area Rapid
Transit District Sales Tax RB
5.50%, 7/1/20 (FGIC)............... 476,955
1,196,810
COLORADO -- 4.9%
500,000 Arapahoe County Public Highway
Authority; Capital Improvement
Trust Fund Highway RB (E-470
Project)
6.15%, 8/31/26 (MBIA).............. 511,570
1,000,000 City and County of Denver Airport
System RB, Series 1995C (AMT)
5.60%, 11/15/25 (MBIA)............. 942,370
500,000 School District No.1 in the City
and County of Denver GO Refunding
Bonds, Series 1994A
6.50%, 6/1/10 (MBIA)............... 550,745
2,004,685
CONNECTICUT -- .6%
250,000 State of Connecticut Health &
Educational Facilities Authority;
Kent School Issue RB, Series B
5.40%, 7/1/23 (MBIA)............... 236,438
</TABLE>
38
<PAGE>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Photo of a dam)
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
MUNICIPAL OBLIGATIONS -- CONTINUED
FLORIDA -- 2.5%
$ 500,000 City of Palm Bay Utility System RRB
(Palm Bay Utility Corp. Project),
Series 1994
5.00%, 10/1/15 (MBIA).............. $ 452,310
250,000 City of Pensacola Sales & Excise
Tax RRB, Series 1995
5.50%, 10/1/12 (MBIA).............. 245,942
300,000 Dade County Aviation RRB, Series
1995A
6.10%, 10/1/11 (AMBAC)............. 312,117
1,010,369
ILLINOIS -- 2.6%
300,000 Illinois State Toll Highway
Authority; Toll Highway Priority
RB, 1992 Series A
6.20%, 1/1/16 (FGIC)............... 305,952
675,000 Regional Transit Authority of
Illinois RB, Series A
6.70%, 11/1/21 (FGIC).............. 748,345
1,054,297
INDIANA -- 1.4%
500,000 Indiana Transportation Finance
Authority; Highway RB, Series 1992A
6.80%, 12/1/16 (MBIA).............. 559,360
MASSACHUSETTS -- 1.3%
250,000 Massachusetts Housing Finance
Agency; Housing RRB, Series 1994A
5.95%, 10/1/08 (AMBAC)............. 255,967
250,000 Massachusetts Bay Transportation
Authority; General Transportation
System Bonds, Series 1994A
7.00%, 3/1/08...................... 284,515
540,482
MICHIGAN -- 1.5%
300,000 Caledonia Community Schools County
of Kent, Allegan and Barry
Refunding Bonds, (GO-Unlimited
Tax), Series 1993
5.50%, 5/1/22...................... 285,306
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
MICHIGAN -- CONTINUED
$ 300,000 Michigan Municipal Bond Authority;
Local Government Loan Program RB,
Series 1994G
6.55%, 11/1/08 (AMBAC)............. $ 326,745
612,051
MISSOURI -- 2.5%
1,000,000 Missouri Housing Development
Commission Single Family Mortgage
RB (Homeownership Loan Program),
1996 Series B
6.25%, 9/1/15...................... 1,006,670
NEVADA -- 2.4%
1,000,000 Clark County Las Vegas McCarran
Int'l Airport; Passenger Facility
Charge RB, 1992 Series A
6.00%, 7/1/22 (AMBAC).............. 994,780
NEW YORK -- 9.1%
1,000,000 New York City Municipal Water
Finance Authority; Water and Sewer
System RB, 1994 Series B
5.50%, 6/15/19..................... 948,810
500,000 New York City Municipal Water
Finance Authority; Water and Sewer
System RB, Series C
6.20%, 6/15/21 (AMBAC)............. 510,310
245,000 New York State Medical Care
Facilities Finance Agency (Mental
Health Services Facilities
Improvement RB), Series 1992B
6.25%, 8/15/10 (AMBAC)............. 254,298
250,000 Port Authority of New York and New
Jersey Consolidated Bonds,
Ninety-Seventh Series, (AMT)
7.00%, 7/15/05 (FGIC).............. 280,605
500,000 Port Authority of New York and New
Jersey Consolidated Bonds, One
Hundred Fourth Series
5.20%, 7/15/16 (AMBAC)............. 465,260
250,000 State of New York Mortgage Agency;
Homeowner Mortgage RB, Series 44
(AMT)
6.60%, 4/1/03...................... 259,215
1,000,000 State of New York Mortgage Agency;
Homeowner Mortgage RB, Series 56
(AMT)
5.88%, 10/1/19..................... 1,003,840
3,722,338
</TABLE>
39
<PAGE>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Photo of a dam)
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
<C> <S> <C>
AMOUNT VALUE
MUNICIPAL OBLIGATIONS -- CONTINUED
NORTH DAKOTA -- 2.5%
$ 1,000,000 Mercer County Pollution Control RRB
(Basin Electric Power
Cooperative-Antelope Valley Unit 1
and Common Facilities),
Second 1995 Series
6.05%, 1/1/19 (AMBAC).............. $ 1,006,170
OHIO -- 1.9%
700,000 Beavercreek Local School District;
School Improvement Bonds (GO-
Unlimited Tax), Series 1996
6.60%, 12/1/15 (FGIC).............. 781,319
TENNESSEE -- 1.9%
300,000 City of Bristol Health and
Educational Facilities Board;
Hospital RRB, Series 1993
6.75%, 9/1/07 (FGIC)............... 337,650
400,000 Metropolitan Government of
Nashville and Davidson County Water
and Sewer RRB
6.50%, 1/1/10 (FGIC)............... 438,984
776,634
TEXAS -- 1.5%
500,000 City of Houston Water Conveyance
Systems Contract; Certificates of
Participation,
Series 1993H
7.50%, 12/15/10 (AMBAC)............ 598,575
UTAH -- 1.3%
500,000 Salt Lake City Hospital RB (IHC
Hospitals, Inc. Project)
6.30%, 2/15/15..................... 518,930
PUERTO RICO -- 1.2%
500,000 Puerto Rico Housing Bank & Finance
Agency Affordable Housing Mortgage
Subsidy Program; Single Family
Mortgage RB, Portfolio I, (AMT)
5.85%, 4/1/09...................... 504,120
TOTAL LONG TERM
(COST $18,905,872)............... 18,899,528
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT TERM -- 11.5%
CALIFORNIA -- 2.2%
$ 900,000 Irvine Ranch Water District
Certificates of Participation
(Irvine Ranch Water District 1986
Capital Improvement Project)
3.50% -- VRDN (LOC: The Mitsubishi
Bank, Ltd.)........................ $ 900,000
GEORGIA -- .2%
100,000 Hapeville Development Authority
Industrial Development RB
(Hapeville Hotel Ltd. Partnership
Project), Series 1985
3.60% -- VRDN (LOC: Swiss Bank
Corp.)............................. 100,000
LOUISIANA -- .5%
200,000 Parish of East Baton Rouge
Pollution Control RRB (Exxon
Corp.), Series 1989
3.60% -- VRDN...................... 200,000
NEW YORK -- 3.9%
400,000 City of New York 1995 GO,
1994 Series A, Subseries A-5
3.60% -- VRDN (LOC:
Kredietbank N.V., N.Y. Branch)..... 400,000
1,200,000 New York City Municipal Water
Finance Authority; Water and Sewer
System RB, 1993 Series C
3.60% -- VRDN (FGIC)............... 1,200,000
1,600,000
NORTH CAROLINA -- 2.5%
1,000,000 Raleigh-Durham Airport Authority
RRB (American Airlines Project),
Series 1995C
3.60% -- VRDN (LOC: Royal Bank of
Canada)............................ 1,000,000
</TABLE>
40
<PAGE>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Photo of a dam)
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
MUNICIPAL OBLIGATIONS -- CONTINUED
WYOMING -- 2.2%
$ 900,000 Lincoln County Pollution Control RB
(Exxon Project), Series 1987B (AMT)
3.70% -- VRDN...................... $ 900,000
TOTAL SHORT TERM
(COST $4,700,000)................ 4,700,000
TOTAL MUNICIPAL OBLIGATIONS
(COST $23,605,872)............... 23,599,528
MUTUAL FUNDS -- .0% (a)
<CAPTION>
SHARES
<C> <S> <C>
10,001 Lehman Tax Free Money Market Fund
(at net asset value)
(cost $10,001)..................... 10,001
TOTAL INVESTMENTS --
(COST $40,014,024).......... 105.7% 43,147,759
OTHER ASSETS AND
LIABILITIES -- NET.......... (5.7) (2,316,385)
NET ASSETS --................. 100.0% $40,831,374
</TABLE>
* Non-income producing securities.
** At June 30, 1996 the Fund owned 1,500 shares of common stock of First Union
at a cost of $57,890. During the period ended June 30, 1996 the Fund earned
$1,560 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.
(a) Less than one tenth of one percent.
The following abbreviations are used in this portfolio:
Lieber & Company by First Union.
ADS -- American Depositary Shares
AMT -- Subject to alternative minimum tax.
GO -- General Obligations
LOC -- Letter of Credit
RB -- Revenue Bonds
RRB -- Refunding Revenue Bonds
VRDN -- Variable Rate Demand Notes are payable on demand at par on no more
than seven calendar days' notice given by the Fund to the issuer or other
parties not affiliated with the issurer. 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 June 30, 1996.
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.
41
<PAGE>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
STATEMENT OF ASSETS AND LIABILITIES
(Photo of a dam)
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $40,014,024)............................................................. $43,147,759
Cash........................................................................................................... 2,460
Dividends and interest receivable.............................................................................. 334,417
Receivable for Fund shares sold................................................................................ 242,312
Prepaid expenses............................................................................................... 26,106
Unamortized organization expenses.............................................................................. 22,953
Total assets............................................................................................. 43,776,007
LIABILITIES:
Payable for investment purchased............................................................................... 2,722,734
Accrued expenses............................................................................................... 162,168
Distribution fee payable....................................................................................... 25,650
Accrued advisory fee........................................................................................... 24,055
Payable for Fund shares purchased.............................................................................. 10,026
Total liabilities........................................................................................ 2,944,633
NET ASSETS........................................................................................................ $40,831,374
NET ASSETS CONSIST OF:
Paid-in capital................................................................................................ $37,460,512
Undistributed net investment income............................................................................ 23,297
Accumulated net realized gain on investment transactions....................................................... 213,830
Net unrealized appreciation of investments..................................................................... 3,133,735
Net assets............................................................................................... $40,831,374
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($6,614,626/529,829 shares of beneficial interest outstanding).................................. $12.48
Sales charge -- 4.75% of offering price........................................................................ .62
Maximum offering price...................................................................................... $13.10
Class B Shares ($17,606,427/1,411,232 shares of beneficial interest outstanding)............................... $12.48
Class C Shares ($2,159,521/173,213 shares of beneficial interest outstanding).................................. $12.47
Class Y Shares ($14,450,800/1,155,034 shares of beneficial interest outstanding)............................... $12.51
</TABLE>
See accompanying notes to financial statements.
42
<PAGE>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
STATEMENT OF OPERATIONS
(Photo of a dam)
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest........................................................................................... $ 486,996
Dividends (net of foreign withholding taxes of $68)................................................ 191,572
Total investment income...................................................................... 678,568
EXPENSES:
Advisory fee....................................................................................... $143,181
Distribution fee -- Class A Shares................................................................. 6,040
Distribution fee -- Class B Shares................................................................. 47,635
Shareholder services fee -- Class B Shares......................................................... 15,878
Distribution fee -- Class C Shares................................................................. 4,619
Shareholder services fee -- Class C Shares......................................................... 1,539
Registration and filing fees....................................................................... 47,773
Custodian fee...................................................................................... 42,595
Transfer agent fee................................................................................. 30,960
Reports and notices to shareholders................................................................ 30,455
Professional fees.................................................................................. 10,428
Trustees' fees and expenses........................................................................ 6,479
Amortization of organization expenses.............................................................. 3,936
Insurance.......................................................................................... 3,337
Miscellaneous...................................................................................... 2,795
Total expenses............................................................................... 397,650
Less: Fee waivers and expense reimbursements....................................................... (95,025)
Net expenses................................................................................. 302,625
Net investment income................................................................................. 375,943
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments................................................................... 213,830
Net increase in unrealized appreciation of investments............................................. 598,110
Net gain on investments............................................................................... 811,940
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................................. $1,187,883
</TABLE>
See accompanying notes to financial statements.
43
<PAGE>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
(Photo of a dam)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
1996 DECEMBER
(UNAUDITED) 31, 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income........................................................................ $ 375,943 $ 456,792
Net realized gain on investments............................................................. 213,830 671,486
Net change in unrealized appreciation of investments......................................... 598,110 2,607,309
Net increase in net assets resulting from operations................................... 1,187,883 3,735,587
DISTRIBUTIONS TO SHAREHOLDERS:
FROM NET INVESTMENT INCOME:
Class A Shares............................................................................... (62,143) (34,215)
Class B Shares............................................................................... (114,961) (72,776)
Class C Shares............................................................................... (12,612) (4,715)
Class Y Shares............................................................................... (162,930) (346,086)
Total distributions to shareholders from net investment income......................... (352,646) (457,792)
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)
Total distributions to shareholders from net realized gain on
investments......................................................................... -- (782,461)
Total distributions to shareholders.................................................... (352,646) (1,242,426)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold.................................................................... 17,316,185 10,412,208
Proceeds from reinvestment of distributions.................................................. 322,024 1,158,751
Payment for shares redeemed.................................................................. (884,605) (1,396,543)
Net increase resulting from Fund share transactions.......................................... 16,753,604 10,174,416
Net increase in net assets............................................................. 17,588,841 12,667,577
NET ASSETS:
Beginning of period.......................................................................... 23,242,533 10,574,956
End of period (including undistributed net investment income of $23,297 and $0,
respectively).............................................................................. $40,831,374 $23,242,533
</TABLE>
See accompanying notes to financial statements.
44
<PAGE>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
CLASS A, B AND C SHARES
(Photo of a dam)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
CLASS A SHARES CLASS B SHARES SHARES
SIX MONTHS JANUARY 17, SIX MONTHS JANUARY 6, SIX MONTHS
ENDED 1995* ENDED 1995* ENDED
JUNE 30, THROUGH JUNE 30, THROUGH JUNE 30,
1996 DECEMBER 31, 1996 DECEMBER 31, 1996
(UNAUDITED) 1995 (UNAUDITED) 1995 (UNAUDITED)
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.............. $12.20 $10.44 $12.19 $10.31 $12.19
Income from investment operations:
Net investment income........................... .13 .29 .09 .22 .09
Net realized and unrealized gain on
investments................................... .28 2.24 .29 2.37 .29
Total from investment operations............ .41 2.53 .38 2.59 .38
Less distributions to shareholders from:
Net investment income........................... (.13) (.31) (.09) (.25) (.10)
Net realized gain on investments................ -- (.46) -- (.46) --
Total distributions......................... (.13) (.77) (.09) (.71) (.10)
Net asset value, end of period.................... $12.48 $12.20 $12.48 $12.19 $12.47
TOTAL RETURN**.................................... 3.4% 24.8% 3.1% 25.6% 3.1%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)......... $ 6,615 $2,702 $17,606 $6,559 $ 2,160
Ratios to average net assets #:
Expenses+....................................... 1.63% 1.75% 2.38% 2.50% 2.35%
Net investment income+.......................... 2.53% 2.79% 1.78% 2.03% 1.79%
Portfolio turnover rate........................... 31% 110% 31% 110% 31%
Average commission rate paid per share............ $.0646 N/A $.0646 N/A $.0646
<CAPTION>
MARCH 3,
1995*
THROUGH
DECEMBER 31,
1995
<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%
Average commission rate paid per share............ N/A
</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 (loss) to average net assets, exclusive
of any applicable state expense limitations, would have been the following:
<TABLE>
<CAPTION>
CLASS C
CLASS A SHARES CLASS B SHARES SHARES
SIX MONTHS JANUARY 17, SIX MONTHS JANUARY 6, SIX MONTHS
ENDED 1995* ENDED 1995* ENDED
JUNE 30, THROUGH JUNE 30, THROUGH JUNE 30,
1996 DECEMBER 31, 1996 DECEMBER 31, 1996
(UNAUDITED) 1995 (UNAUDITED) 1995 (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Expenses........................................ 2.20% 5.02% 2.95% 3.65% 2.91%
Net investment income (loss).................... 1.96% (.48%) 1.21% .88% 1.23%
<CAPTION>
MARCH 3,
1995*
THROUGH
DECEMBER 31,
1995
<S> <C>
Expenses........................................ 18.91%
Net investment income (loss).................... (14.34%)
</TABLE>
See accompanying notes to financial statements.
45
<PAGE>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
CLASS Y SHARES
(Photo of a dam)
FINANCIAL HIGHLIGHTS -- (CONTINUED)
<TABLE>
<CAPTION>
CLASS Y SHARES
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
1996 DECEMBER 31,
(UNAUDITED) 1995 1994
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period........................................................ $ 12.22 $ 10.27 $ 10.31
Income from investment operations:
Net investment income..................................................................... .17 .35 .27
Net realized and unrealized gain on investments........................................... .26 2.39 .08
Total from investment operations...................................................... .43 2.74 .35
Less distributions to shareholders from:
Net investment income..................................................................... (.14) (.33) (.27)
Net realized gain on investments.......................................................... -- (.46) (.12)
Total distributions................................................................... (.14) (.79) (.39)
Net asset value, end of period.............................................................. $ 12.51 $ 12.22 $ 10.27
TOTAL RETURN**.............................................................................. 3.6% 27.3% 3.4%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)................................................... $14,451 $13,485 $10,575
Ratios to average net assets #:
Expenses.................................................................................. 1.40%+ 1.50% 1.49%
Net investment income..................................................................... 2.74%+ 3.06% 2.87%
Portfolio turnover rate..................................................................... 31% 110% 245%
Average commission rate paid per share...................................................... $.0646 N/A N/A
<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%
Average commission rate paid per share...................................................... N/A
</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>
CLASS Y SHARES
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
1996 DECEMBER 31,
(UNAUDITED) 1995 1994
<S> <C> <C> <C>
Expenses..................................................................................... 1.99% 2.23% 2.41%
Net investment income (loss)................................................................. 2.15% 2.33% 1.95%
<CAPTION>
NOVEMBER 2,
1993*
THROUGH
DECEMBER 31,
1993
<S> <C>
Expenses..................................................................................... 3.10%
Net investment income (loss)................................................................. .54%
</TABLE>
See accompanying notes to financial statements.
46
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS
The Evergreen Balanced Funds (the "Funds") are separate series of open-end
management companies registered under the Investment Company Act of 1940, as
amended (the "Act"). The Balanced Funds consist of Evergreen American Retirement
Fund ("ART"), Evergreen Balanced Fund ("Balanced"), Evergreen Foundation Fund
("Foundation") and Evergreen Tax Strategic Foundation Fund ("Tax Strategic")
known collectively as the Funds.
ART's investment objectives, in order of priority, are conservation of
capital, reasonable income and capital growth. Balanced's investment objective
is to achieve long-term total return through capital appreciation, dividends and
interest income. Foundation's investment objectives, in order of priority, are
reasonable income, conservation of capital and capital appreciation. 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.
NOTE 2 -- 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 quarterly for each of the Funds. Distributions from net realized
capital gains on investments, if any, will be distributed at least annually.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from amounts available under generally accepted
accounting principles. To the extent these differences are permanent in nature,
such amounts are reclassified within the components of net assets.
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.
47
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- continued
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 incurred
in connection with its organization are being deferred and amortized over a
period of benefit not to exceed 60 months from the date it 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 3 -- 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 Balanced's
average daily net assets pursuant to the Fund's investment advisory agreement.
Pursuant to an agreement with ART's, Foundation's and Tax Strategic'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 ART's, Foundation's and Tax Strategic's average daily net
assets, respectively, in accordance with the following schedules:
<TABLE>
<CAPTION>
FOUNDATION AND
TAX STRATEGIC ART
<S> <C> <C> <C>
First $750 million 0.875% First $750 million 0.75%
Next $250 million 0.750% Over $750 million 0.70%
Over $1 billion 0.700%
</TABLE>
For ART and Tax Strategic, Evergreen Asset voluntarily waived advisory fees
of $13,902 and $83,686, respectively, and voluntarily reimbursed other expenses
amounting to $3,400 and $11,339, respectively. Evergreen Asset can modify or
terminate voluntary waivers and reimbursements at any time.
Lieber & Company, an affiliate of First Union, is the investment
sub-adviser to ART, Foundation and Tax Strategic 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 the six-month period
ended June 30, 1996, ART, Foundation and Tax Strategic incurred brokerage
commissions of $24,237, $330,192 and $14,062 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 ART, Foundation and
Tax Strategic with administrative services as part of their advisory agreements
and accordingly, these Funds do not pay a separate administration fee. Furman
Selz LLC ("Furman Selz") is each of the Funds' sub-administrator. As
sub-administrator, Furman Selz provides the officers of the Funds. For these
Funds, Furman Selz' fee is paid by Evergreen Asset and is not a fund expense.
48
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES -- continued
Evergreen Asset is Balanced's administrator and Furman Selz is its
sub-administrator. Evergreen Asset's and Furman Selz' fees for Balanced 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>
At June 30, 1996, assets for which Evergreen Asset was the administrator
for which either Evergreen Asset or First Union was investment adviser totalled
approximately $15.2 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. Under the terms of the Plans, the Funds may 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, ART, Foundation and Tax Strategic have
entered into distribution agreements with Evergreen Funds Distributor, Inc.
("EFD"), a subsidiary of Furman Selz, whereby ART, Foundation and Tax Strategic
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, Balanced entered into a distribution agreement
with EFD whereby it 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.
Balanced has entered into a shareholder services agreement with FUBS, and
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.
49
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES -- continued
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 six-month period ended June 30, 1996:
<TABLE>
<CAPTION>
FRONT-END
SALES
CHARGES
<S> <C>
ART $ 15,270
Balanced 4,440
Foundation 208,285
Tax Strategic 11,677
</TABLE>
NOTE 4 -- SHARES OF BENEFICIAL INTEREST
The Funds have an unlimited number of $0.0001 par value shares of
beneficial interest 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 the date of purchase. Class C shares
are sold with a contingent deferred sales charge of 1% for shares redeemed
during the first year after the date of purchase. Class Y shares are sold
without a sales charge and are available only to investment advisory clients of
First Union and its affiliates, certain institutional investors or Class Y
shareholders of record of certain other funds managed by First Union and its
affiliates as of December 30, 1994. The classes have identical voting, dividend,
liquidation and other rights, except that Class A, Class B and Class C shares
bear distribution expenses (see Note 3) and have exclusive voting rights with
respect to their distribution plans.
50
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 4 -- SHARES OF BENEFICIAL INTEREST -- continued
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996 YEAR ENDED*
ART (UNAUDITED) DECEMBER 31, 1995
CLASS A SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold........................................................ 323,545 $ 4,231,760 103,126 $ 1,278,749
Shares issued on reinvestment of distributions..................... 5,746 75,569 1,195 14,909
Shares redeemed.................................................... (38,472) (505,254) (186) (2,372)
Net increase....................................................... 290,819 3,802,075 104,135 1,291,286
CLASS B
Shares sold........................................................ 1,417,567 18,524,331 380,412 4,651,965
Shares issued on reinvestment of distributions..................... 20,208 264,851 4,314 53,311
Shares redeemed.................................................... (58,750) (770,248) (6,548) (80,579)
Net increase....................................................... 1,379,025 18,018,934 378,178 4,624,697
CLASS C
Shares sold........................................................ 46,709 610,161 8,507 104,262
Shares issued on reinvestment of distributions..................... 543 7,137 70 878
Shares redeemed.................................................... (27) (363) -- --
Net increase....................................................... 47,225 616,935 8,577 105,140
CLASS Y
Shares sold........................................................ 181,677 2,376,780 280,323 3,219,576
Shares issued on reinvestment of distributions..................... 50,417 662,779 106,983 1,270,557
Shares redeemed.................................................... (256,106) (3,356,316) (808,529) (9,380,520)
Net decrease....................................................... (24,012) (316,757) (421,223) (4,890,387)
Total net increase resulting from Fund share transactions.......... 1,693,057 $ 22,121,187 69,667 $ 1,130,736
</TABLE>
* The Fund share activity for Class A, Class B and Class C shares reflects the
period from January 3, 1995 (commencement of class operations) through
December 31, 1995.
51
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 4 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996 YEAR ENDED
BALANCED (UNAUDITED) DECEMBER 31, 1995
CLASS A SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold..................................................... 333,680 $ 4,419,764 174,514 $ 2,180,996
Shares issued on reinvestment of distributions.................. 61,095 807,609 228,390 2,924,585
Shares redeemed................................................. (337,209) (4,488,892) (883,230) (10,834,925)
Net increase (decrease)......................................... 57,566 738,481 (480,326) (5,729,344)
CLASS B
Shares sold..................................................... 322,782 4,288,941 331,882 4,113,278
Shares issued on reinvestment of distributions.................. 126,088 1,669,367 528,256 6,788,533
Shares redeemed................................................. (655,292) (8,712,566) (1,507,091) (18,590,977)
Net decrease.................................................... (206,422) (2,754,258) (646,953) (7,689,166)
CLASS C
Shares sold..................................................... 7,994 106,071 6,207 78,623
Shares issued on reinvestment of distributions.................. 276 3,643 1,346 17,328
Shares redeemed................................................. (14,688) (193,106) (2,122) (27,063)
Net increase (decrease)......................................... (6,418) (83,392) 5,431 68,888
CLASS Y
Shares sold..................................................... 7,645,239 101,513,890 13,282,634 164,605,419
Shares issued on reinvestment of distributions.................. 870,014 11,515,338 4,419,582 56,436,034
Shares redeemed................................................. (11,013,773) (146,247,407) (25,032,555) (313,833,958)
Net decrease.................................................... (2,498,520) (33,218,179) (7,330,339) (92,792,505)
Total net decrease resulting from Fund share
transactions.................................................. (2,653,794) ($35,317,348) (8,452,187) ($106,142,127)
</TABLE>
52
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 4 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996 YEAR ENDED*
(UNAUDITED) DECEMBER 31, 1995
FOUNDATION SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold.................................................... 5,393,344 $ 80,433,754 7,433,192 $103,904,500
Shares issued on reinvestment of distributions................. 185,830 2,733,506 194,159 2,828,216
Shares redeemed................................................ (1,625,724) (24,121,261) (542,266) (7,709,611)
Net increase................................................... 3,953,450 59,045,999 7,085,085 99,023,105
CLASS B
Shares sold.................................................... 14,644,393 217,440,830 19,717,460 275,013,438
Shares issued on reinvestment of distributions................. 434,848 6,374,690 487,710 7,076,078
Shares redeemed................................................ (1,884,249) (27,826,395) (543,554) (7,846,692)
Net increase................................................... 13,194,992 195,989,125 19,661,616 274,242,824
CLASS C
Shares sold.................................................... 820,231 12,147,477 761,087 10,573,728
Shares issued on reinvestment of distributions................. 17,027 249,604 19,172 277,286
Shares redeemed................................................ (142,574) (2,108,930) (26,533) (379,480)
Net increase................................................... 694,684 10,288,151 753,726 10,471,534
CLASS Y
Shares sold.................................................... 14,400,609 214,931,488 18,505,940 263,287,541
Shares issued on reinvestment of distributions................. 876,174 12,900,771 1,558,776 22,661,839
Shares redeemed................................................ (6,108,700) (90,918,956) (5,965,644) (82,422,318)
Net increase................................................... 9,168,083 136,913,303 14,099,072 203,527,062
Total net increase resulting from Fund share
transactions................................................. 27,011,209 $402,236,578 41,599,499 $587,264,525
</TABLE>
* The Fund share activity for Class A, Class B and Class C shares reflect the
period from January 3, 1995 (commencement of class operations) through
December 31, 1995.
53
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 4 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995*
TAX STRATEGIC SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold.............................................................. 315,622 $ 3,875,747 215,649 $ 2,527,734
Shares issued on reinvestment of distributions........................... 4,731 58,249 8,759 105,291
Shares redeemed.......................................................... (11,982) (147,138) (2,950) (36,239)
Net increase............................................................. 308,371 3,786,858 221,458 2,596,786
CLASS B
Shares sold.............................................................. 901,706 11,061,113 550,703 6,364,106
Shares issued on reinvestment of distributions........................... 8,731 107,452 21,721 260,033
Shares redeemed.......................................................... (37,202) (459,330) (34,427) (407,693)
Net increase............................................................. 873,235 10,709,235 537,997 6,216,446
CLASS C
Shares sold.............................................................. 134,258 1,648,137 39,093 457,822
Shares issued on reinvestment of distributions........................... 925 11,385 1,561 18,761
Shares redeemed.......................................................... (2,624) (31,642) -- --
Net increase............................................................. 132,559 1,627,880 40,654 476,583
CLASS Y
Shares sold.............................................................. 59,790 731,188 92,229 1,062,541
Shares issued on reinvestment of distributions........................... 11,736 144,938 66,375 774,666
Shares redeemed.......................................................... (19,968) (246,495) (84,665) (952,606)
Net increase............................................................. 51,558 629,631 73,939 884,601
Total net increase resulting from Fund share transactions................ 1,365,723 $16,753,604 874,048 $10,174,416
</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.
NOTE 5 -- INVESTMENT TRANSACTIONS
The cost of purchases and proceeds from sales of investments, excluding
short-term securities for the six-month period ended June 30, 1996 were as
follows:
<TABLE>
<CAPTION>
PURCHASES SALES
<S> <C> <C>
ART.............. $ 12,270,649 $ 3,391,262
Balanced......... 194,227,927 147,297,437
Foundation....... 224,120,264 54,433,246
Tax Strategic.... 25,233,651 9,681,255
</TABLE>
On June 30, 1996, 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>
ART.............. $ 9,535,917 $ 992,343 $ 8,543,574 $ 65,367,210
Balanced......... 136,277,318 9,212,692 127,064,626 813,674,232
Foundation....... 118,733,501 41,366,660 77,366,841 1,354,729,766
Tax Strategic.... 3,656,334 522,599 3,133,735 40,014,024
</TABLE>
54
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 6 -- 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.
NOTE 7 -- RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon
registration under federal securities laws or in transactions exempt from such
registration. The Funds' restricted securities are valued at the price provided
by dealers in the secondary market or, if no market prices are available, at the
fair value as determined by the Funds' pricing committee.
At June 30, 1996, Balanced owned, Jet Equipment Trust 9.91%, 6/15/10 which
is a restricted security. This security was acquired on December 9, 1994 at an
acquisition cost of $7,000,000.
55
<PAGE>
(This Page Left Blank Intentionally)
56
<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
* These individuals are not trustees for Balanced.
+ Trustee Emeritus
<PAGE>
This brochure must be preceded or
accompanied by a prospectus of an
Evergreen fund contained herein. The
prospectus contains more complete
information, including fees and expenses,
and should be read carefully before
investing or sending money.
NOT May lose value
FDIC
INSURED No bank guarantee
Evergreen Funds Distributor, Inc.
44140 Evergreen(SM) is a Service Mark of Evergreen Asset Management 539223
Corp. Copyright 1996, Evergreen Asset Management Corp. 8/96
