Evergreen
Growth and Income
Funds
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1996 Annual Report
Evergreen Keystone
(logo) FUNDS (logo)
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EVERGREEN GROWTH AND INCOME FUNDS
Table of Contents
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A Review of the Past Year and Prospects for the Future.................... 1
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Growth and Income A Report From Your Portfolio Manager...................................... 3
Fund Results to Date........................................................... 6
Statement of Investments.................................................. 7
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Statement of Assets and Liabilities....................................... 11
Statement of Operations................................................... 12
Statement of Changes in Net Assets........................................ 13
Financial Highlights...................................................... 14
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Small Cap Equity A Report From Your Portfolio Manager...................................... 16
Income Fund Results to Date........................................................... 19
Statement of Investments.................................................. 20
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Statement of Assets and Liabilities....................................... 22
Statement of Operations................................................... 23
Statement of Changes in Net Assets........................................ 24
Financial Highlights...................................................... 25
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Utility A Report From Your Portfolio Manager...................................... 27
Fund Results to Date........................................................... 28
Statement of Investments.................................................. 29
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Statement of Assets and Liabilities....................................... 31
Statement of Operations................................................... 32
Statement of Changes in Net Assets........................................ 33
Financial Highlights...................................................... 34
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Value A Report From Your Portfolio Managers..................................... 36
Fund Results to Date........................................................... 37
Statement of Investments.................................................. 38
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Statement of Assets and Liabilities....................................... 40
Statement of Operations................................................... 41
Statement of Changes in Net Assets........................................ 42
Financial Highlights...................................................... 43
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Combined Notes to Financial Statements.................................... 46
Independent Auditors' Report.............................................. 56
Trustees and Officers.........................................Inside Back Cover
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EVERGREEN GROWTH AND INCOME FUNDS
A Review of the Past Year
and Prospects for the Future
by Stephen A. Lieber, Chairman
Evergreen Asset Management Corp.
President Clinton's Inaugural Address listed many of (photo of Stephen
his hopes for the future of our nation. One of these A. Lieber)
hopes, "a nation that balances its budget but never
loses the balance of its values" speaks to a central
theme of the investment markets as we enter 1997. The hope of investors is for
sustained healthy growth, with the long-range promise of building a nation
economically strong enough to meet the challenges of supporting an increasingly
elderly and retired population. Optimism, reflected in consumer surveys and
business surveys, is high at the start of the year, as 1996 proved to provide
a stronger and better balanced economy than had been widely anticipated at the
beginning of the year. Even in the fourth quarter, expectations of a slowdown
were not realized, as growth in that period was apparently at about a 3.5%
annual rate, up from the 2.1% Gross Domestic Product gain in the third quarter.
Industrial output rose at an estimated 0.8% per month in the fourth quarter,
while the core inflation rate of the Producers Price Index, as well as the
Consumers Price Index, rose at a rate of only 0.1% per month. Thus, the core
inflation rate was contained at just 2.6% in 1996, down from 3.0% in 1995.
From the consumers' point of view, apart from a spurt in food and energy prices
at year-end, prices of general merchandise were indicated to be somewhat lowered
by a combination of widespread discounting and increased imports, made cheaper
by the rise of the dollar.
A healthy employment situation encouraged the confidence of the American
consumer and industry throughout the year. The greatest concern, in contrast to
normal uncertainties over employment, was that the slack in the economy was
diminishing, so that the cost of labor might be raised and, thus, stimulate
inflation. During the summer, the unemployment total was but 5.1% of the work
force and, at year-end, had increased very moderately to 5.3%. With
manufacturers reluctant to add to staff, hours worked increased by 3.2%. These
positive factors did not strain the nation's economic potential because
manufacturing capacity was indicated to be increasing month by month, with the
year-over-year gain in December, 4.5%. The lack of inflationary pressures was
particularly impressive given the extraordinary short-term impacts on purchasing
power from the price of oil which rose 40% during the year, and weather-related
agricultural developments which increased the price of food. Doubtless adding to
demand was the so-called wealth effect, induced by yet another significantly
rising stock market, and an ever broader participation by American families in
its investments. The wealth effect was manifested in higher year-end demand for
luxury goods, whose retailers and vendors often showed outstanding sales
results.
Looking ahead in 1997, there is a widespread expectation that the economy
will reflect the improved consumer and industrial sentiment, but that it will
have less external stimulus than it had at the beginning of 1996. In contrast
with the monetary stimulus provided by last January's reduction in the Federal
funds rate, there is virtually no expectation at this time that the Federal
Reserve will soon reduce interest rates, and considerable concern that if the
economy sustains its strength, it may well increase rates, thus creating a
dragging force on the economy. Improvement in the balance of payments as a
stimulus is not expected, as exports are already slowing as a result of the 6%
increase of the dollar in 1996, which, in turn, is bringing in more cheaper
imports to compete with American manufacturers. Credit ease for the consumer is
not expected after several months of larger-than-normal credit card losses
reported by the banking and financial industries. In fact, credit in this
consumer area is tightening, with an estimated decline of 15% in the number of
credit card solicitations by banks in the fourth quarter, and a more than 40%
increase in credit card write-offs. Finally, borrowing costs are almost one full
percent higher than they were a year ago when the Federal Reserve reduced the
federal funds rate.
1
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EVERGREEN GROWTH AND INCOME FUNDS
A Review of the Past Year and
Prospects for the Future -- (continued)
Investors are challenged by the fact that prices of stocks have increased
over the past year as corporate profitability rose, and optimism over future
profit rates was well sustained. Today's consensus expectations for corporate
profits is for an increase of up to 10% in 1997. If price pressures continue
from international competition, if domestic productivity and technology drives
prices down in many sectors of growing production, as has been the case, and
sales volumes grow at single digits or less, these profits expectations are
unlikely to be met. In contrast, those companies which produced the products or
services which will be the growth leaders of 1997, have high promise of
achieving new levels of profitability and sustaining long-term growth trends.
They will be the focus of investment. Companies driving for higher profitability
and stronger returns on invested capital through restructuring and reallocation
of assets, should become more prominent in the investment spectrum as they
enhance their profits outlook through these efficiencies. Another class of
promising investments is the specialty business, especially smaller
entrepreneurial and innovative ones where growth rates can be enhanced through
the synergies of merger and acquisition with larger entities. Given the very
strong cash reserves built up through this recent period of high corporate
profitability, we anticipate an acceleration of the merger and acquisition drive
by large companies looking for broader or new lines of business growth. Many
companies which find excess of liquid capital in terms of their near-term
business opportunities, may well choose to continue the recent pattern of
accelerating corporate stock buy-backs, with the aim of increasing the profits
available to continuing shareholders. In summary, there should be powerful
forces providing selective opportunities for sustained and important profit
gains for many corporations.
The savings rate of the American people had generally remained modest, but an
increasing portion is moving into the equity markets. With the advantages of
tax-deferred programs, ranging from IRAs to 401(k)s, and the shift of retirement
plans into equity-related programs, the use of mutual funds has become the
predominant mode of investment saving for individuals. In a benign environment,
such trends could well be expected to continue. Interruptions are only likely to
come through major and, often sudden, market adversities caused by unexpected
problems in the short run, and in the longer run, only from the recurrence of
inflation and significant rises in the income available from fixed income
investment alternatives.
The U.S. economic horizon looks clear and healthy at this time. It may well
be further encouraged by a decline in interest rates which could occur if growth
remains moderate, inflation well-controlled, and investors gain confidence that
cooperation between the Administration and the Congress will address their
long-term budget fears. Thus, we can conclude as we did a year ago that, "the
real return driven demand in a low inflation environment should support new
opportunities in both bonds and equities."
2
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EVERGREEN GROWTH AND INCOME FUND
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A REPORT FROM YOUR
PORTFOLIO MANAGER
EDMUND H. NICKLIN
Nineteen-ninety-six marked the tenth anniversary for (photo of Edmund
Evergreen Growth and Income Fund. American industry has H. Nicklin)
undergone many changes in the decade that the Fund has been in
operation -- most of them positive. In 1986, the poor
competitive position of Midwestern manufacturers gave rise to
the epithet "Rust Belt", suggesting these firms belonged to an
earlier era. Also in the mid-1980s, the manufacture of
semiconductors, a key building block for intelligent
electronics, was dominated by Japanese companies. There was
concern that the U.S. semiconductor industry might not survive
the competition. Today, Midwestern manufacturing companies are
competitive with any in the world. American semiconductor manufacturers
are competitive in the production of memory chips and dominant in
the development and production of microprocessors. As the competitive position
of American companies has improved during the last decade, operating earnings,
as measured by the S&P 500 Reinvested Index*, have increased at an average
compound rate of 9.5% per annum. Real Gross Domestic Product (GDP) contracted
only in 1991, and this might have been avoided if not for Iraq's invasion of
Kuwait. The stock market, as measured by the S&P 500, more than kept pace rising
at an average compound rate of 15.3%* per annum for the ten years ended December
31, 1996, -- truly a decade of resurgence and growth for the U.S. economy.
While the Fund's average annual compound return for the ten years ended
December 31, 1996, was 14.6%** (Class Y, no load shares), it was the last half
of the decade when the Fund performed best. The five-year average annual
compound return ended December 31, for the Fund (Class Y shares) was 16.9% as
compared with 15.2% for the S&P 500 and 14.2% for the S&P MidCap 400. The
ten-year average annual compound returns ended December 31 for the S&P 500 and
the S&P MidCap 400 were 15.3% and 16.1%, respectively. The Fund's 12-month total
return ended December 31 was 23.8%, as compared with the returns of 23.0% and
19.2% for the S&P 500 and S&P MidCap 400, respectively. For the period since
inception of Class A shares on January 3, 1995, through December 31, 1996, the
average annual compound rate of return was 25.1%**. The 12-month total return
ended December 31, for the Fund's Class A shares was 17.6%. (Please see page 6
for additional performance information.)
For the five-year period ended December 31, 1996, Lipper Analytical Services,
Inc., an independent mutual Funds performance monitor ranked Evergreen Growth
and Income Fund (Class Y, no-load shares) #20 among the 212 Growth and Income
Funds they tracked during that time***. For the 12-month and ten-year periods
ended December 31, Lipper ranked the Fund #115 out of 522 funds and #22 out of
122 funds, respectively. The overall risk-adjusted performance for the Fund's
Class Y shares at December 31, 1996, was sufficient to earn a Morningstar's
five-star rating,
FIGURES REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS.
* THE S&P 500 REINVESTED INDEX IS AN UNMANAGED INDEX OF COMMON STOCKS IN
INDUSTRY, TRANSPORTATION, FINANCE, AND PUBLIC UTILITIES, DENOTING GENERAL
MARKET PERFORMANCE AS MONITORED BY STANDARD & POOR'S CORP. THE S&P MIDCAP
400 IS AN UNMANAGED REINVESTED INDEX OF SELECTED MID-CAP SECURITIES. AN
INVESTMENT CAN NOT BE MADE IN AN INDEX.
** PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN
DISTRIBUTIONS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE.
INVESTORS' SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CLASS A SHARES ARE SUBJECT TO A MAXIMUM 4.75% FRONT END SALES
CHARGE. THE FUND ALSO OFFERS CLASS B SHARES WHICH ARE SUBJECT TO A MAXIMUM
5% CONTINGENT DEFERRED SALES CHARGE, AND CLASS C SHARES WHICH ARE SUBJECT TO
A 1% CONTINGENT DEFERRED SALES CHARGE WITHIN THE FIRST YEAR OF PURCHASE.
PERFORMANCE FOR THESE CLASSES OF SHARES MAY BE DIFFERENT.
*** SOURCE: LANA -- LIPPER ANALYTICAL SERVICES NEW APPLICATIONS. LIPPER AVERAGE
DOES NOT INCLUDE SALES CHARGES AND INCLUDED, PERFORMANCE COULD BE LOWER.
3
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EVERGREEN GROWTH AND INCOME FUND
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A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
the highest rating awarded by Morningstar+. The Fund was rated among 1,825 other
domestic equity funds. During the year, the Fund experienced substantial asset
growth as a result of its performance, the addition of many new shareholders and
its merger with another fund in January 1996. I would like to take this
opportunity to welcome all new shareholders and express my appreciation for
their confidence.
PORTFOLIO HIGHLIGHTS
The economic environment in 1996 was surprisingly good after the slowdown that
occurred late in 1995. In February, the Federal Reserve Open Market Committee
(FOMC) voted to reduce the Fed Funds rate 25 basis points in an effort to ensure
the continuation of the economic recovery. This was the last interest rate
adjustment in 1996. During the year, economic growth accelerated throughout the
first half, slowed in the third quarter and re-accelerated in the final quarter.
The strong first half, combined with rapid job growth and low unemployment,
produced an inflation scare in July, which provided a one month minor correction
in the stock market. Evidence of economic slowing during the third quarter
allowed the equity markets to recover from July lows and advance through the
final quarter. After the July decline, smaller and mid-capitalization issues
never regained momentum and lagged behind larger capitalization issues, as
measured by the S&P 500. Indeed 5 companies -- Coca Cola, Intel, International
Business Machines, General Electric and Microsoft -- accounted for nearly one
quarter of the price gain for the S&P 500 in 1996. Despite the narrowness of the
equity market's advance and the focus of the Fund on medium-capitalization
companies, returns for the year were satisfactory.
Most of the Fund's 22 industry group classifications contributed positively to
1996 performance, but energy provided the largest industry gain. Within the
category, Forcenergy, Inc., provided the greatest appreciation, exceeding 200%
for the year. This small exploration and production company, operating in the
Gulf of Mexico, increased its reserves through exploratory drilling successes on
acquired properties. Oryx Energy Co., a medium-sized independent, provided a
gain of approximately 80% from higher oil and natural gas prices along with
exploration success. The increased exploration activity, resulting from higher
hydrocarbon prices, allowed Atwood Oceanics, Inc., an operator of semi-
submersible drilling rigs, to raise "day rates" for the use of its equipment
which led to a 64% increase in its share price. Oil prices appear to have moved
to a higher level that should prove sustainable unless Iraq's full production
capability is allowed to reach the world market. Other industry groups that
performed well included banks, thrifts, finance and insurance companies,
consumer products and services companies, and electrical equipment and services
companies. The latter group saw a dramatic turnaround in second half 1996
because the slowdown that negatively impacted the suppliers of electronic
components for the computer industry was judged to be an inventory correction
and not a permanent reduction in demand growth. The clear exception is memory
chips for which excess worldwide productive capacity was installed.
The industry classifications that provided the poorest performance in 1996
included transportation, retailing and wholesale, utilities, and healthcare
products and services. The poorest individual company performance was registered
by Laboratory Corp. of America, a clinical laboratory testing firm that saw its
earnings decline significantly due to reduced pricing levels and further
membership gains by managed care.
+ THE FUND RECEIVED 5 STARS FROM MORNINGSTAR FOR ITS RISK-ADJUSTED PERFORMANCE
FOR EACH THE 1-, 3-, AND 5-YEAR PERIODS ENDED 12/31/96. THE FUND RECEIVED 4
STARS FOR ITS RISK-ADJUSTED PERFORMANCE FOR THE 10-YEAR PERIOD ENDED
12/31/96. THE FUND WAS RATED WITH 2,959, 1,826, 1,058, AND 598 DOMESTIC
EQUITY FUNDS, RESPECTIVELY, FOR THE 1-. 3-, 5-, AND 10-YEAR PERIODS ENDED
12/31/96. MORNINGSTAR PROPRIETARY RATINGS REFLECT HISTORICAL RISK-ADJUSTED
PERFORMANCE AS OF DECEMBER 31, 1996. RATINGS ARE SUBJECT TO CHANGE EVERY
MONTH. MORNINGSTAR RATINGS ARE CALCULATED FROM THE FUND'S THREE-, FIVE-, AND
TEN-YEAR AVERAGE ANNUAL RETURNS IN EXCESS OF 90-DAY TREASURY BILL RETURNS
WITH APPROPRIATE FEE ADJUSTMENTS AND A RISK FACTOR THAT REFLECTS FUND
PERFORMANCE BELOW 90-DAY T-BILL RETURNS. TEN PERCENT OF THE FUNDS IN AN
INVESTMENT CATEGORY RECEIVE 5 STARS, 22.5% RECEIVE FOUR STARS, 35% RECEIVE
THREE STARS, 22.5% RECEIVE TWO STARS, AND 10% RECEIVE ONE STAR.
4
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EVERGREEN GROWTH AND INCOME FUND
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A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
Merger and acquisitions, along with restructurings, continued at a high level
in 1996 and significantly benefited Fund performance. Nine portfolio companies
were acquired or merged in 1995, while eleven mergers were completed or
announced in 1996. Consolidation continued in 1996 in banking and broadcasting
with two portfolio companies in each being acquired. Narrowing the business
focus of companies has been a key strategy for domestic companies in the 1990s.
It is based on the thesis that investors can allocate capital across industries
more effectively than company managements and boards of directors. Examples of
this trend in 1996 were W. R. Grace merging its healthcare division with
Fresenius AG of Germany, Morton International merging its airbag manufacturing
business with Autoliv AB of Sweden and Union Pacific Corporation spinning off
its oil and gas company to shareholders. All of these restructurings were
beneficial to the Fund as they eliminated an imbedded "conglomerate discount".
ECONOMIC OUTLOOK
As noted earlier, the economy in 1996 exhibited a pronounced quarterly ebb and
flow. The economy accelerated from its lackluster growth in late 1995 before
real GDP growth slowed in the third quarter and re-accelerated in the fourth to
a rate economists now estimate may approach 4%. Short-term interest rates
remained stable for the remainder of 1996 after the FOMC easing in February. The
30-year Treasury bond yield started 1996 at 6%, rose 125 basis points by June
and then reacted to evidence of economic slowing in the third quarter to finish
1996 at 6.6%. The primary concern for the domestic financial markets as 1997
begins is economic growth above the Fed's target of 2.5%. Growth above this
level for an extended period would reduce current low unemployment to critical
levels thereby creating the potential for wage increases that exceed
productivity growth. Given the importance of wage increases to inflation
statistics, if this were to occur it would undoubtedly cause long-term interest
rates to rise and eventually cause the Federal Reserve to raise short-term
interest rates to retain the gains won against inflation in the preceding
decade. The increase in long-term and short-term interest rates would negatively
impact the equity markets.
Currently, the usual early indicators of inflation are not signaling its
imminent arrival. The price of gold has declined through 1996, even though
energy costs have risen substantially. The various non-energy commodity indexes
also exhibit no sign of impending inflation. The preferred scenario for 1997 for
investors would be a continuation of the economic performance achieved in 1996
which would provide interest rate stability. Fiscal policy restraint is likely
in 1997, which would provide additional support for the bond market. Voters in
the November 1996, elections expressed a preference for divided Federal
government to force ideological balance and a desire for cooperation between the
legislative and executive branches. A compromise that reduces the growth of
Medicare spending would rein in one of the fastest growing entitlement programs
in the Federal budget, setting the stage for a broader compromise on balancing
the Federal budget within the next few years, increasing fiscal restraint. Such
action would help to stabilize or even decrease interest rates.
Interest rate stability plus earnings growth provide the basics for the equity
markets to move forward in 1997. However, the upside for the S&P 500 seems
limited. Operating earnings for the Index increased approximately 6% during
1996. It seems unlikely that earnings growth for the S&P 500 in 1997 will exceed
1996 growth given recent U.S. dollar appreciation and the age of the economic
recovery suggesting modest upside for the Index in 1997. The stock market
advance in second half 1996 was dominated by large capitalization companies,
smaller market capitalization companies did not participate proportionately.
This could reverse during 1997 if appreciation of the U.S. dollar versus major
foreign currencies causes earnings growth for large capitalization companies to
moderate, but does not slow export growth to a degree that negatively impacts
U.S. economic growth. Smaller companies would receive a relative benefit as few
have meaningful overseas exposure.
Even with stable interest rates supporting equity values and individual
security selection focused on relatively undervalued medium and
smaller-capitalization issues, the time tested portfolio strategy used by
Evergreen Growth and Income Fund will be important for performance in 1997.
5
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EVERGREEN GROWTH AND INCOME FUND
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RESULTS TO DATE
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN GROWTH AND INCOME FUND
The graphs below compare a $10,000 investment in the Evergreen Growth and
Income Fund (Class A, Class B, Class C and Class Y Shares) with a similar
investment in the S&P 500 Index ("Index") and Lipper Growth and Income Funds
Average.
(four graphs appear here, copy and plot points below)
CLASS A
1-YEAR TOTAL RETURN=17.6%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION=25.1%
(Customer to supply plot points)
CLASS B
1-YEAR TOTAL RETURN
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION=25.8%
(Customer to supply plot points)
CLASS C
1-YEAR TOTAL RETURN=21.6%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION=27.4%
(Customer to supply plot points)
CLASS Y
1-YEAR TOTAL RETURN=23.8%
AVERAGE ANNUAL COMPOUND RETURN:
5-YEAR=16.9%
10-YEAR=14.6%
(Customer to supply plot points)
*Commencement of class operations.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS
ARE NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY
INSURED.
For the purposes of the graphs and the accompanying tables, it has been
assumed that (a) the maximum sales charge of 4.75% was deducted from the initial
$10,000 investment in Class A Shares; (b) the maximum applicable contingent
deferred sales charge was deducted from the value of the investment in Class B
and Class C Shares, assuming full redemption on December 31, 1996; (c) all
recurring fees (including investment advisory fees) were deducted; and (d) all
dividends and distributions were reinvested.
The Index is unmanaged and includes the reinvestment of income, but does
not reflect the payment of transaction costs and advisory fees associated with
an investment in the Fund.
6
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EVERGREEN GROWTH AND INCOME FUND
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STATEMENT OF INVESTMENTS
DECEMBER 31, 1996
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SHARES VALUE
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COMMON STOCKS -- 82.0%
BANKS -- 5.3%
80,000 Bank of New York Co., Inc. (The)... $ 2,700,000
180,600 BSB Bancorp, Inc................... 4,831,050
101,250 Central Fidelity Banks, Inc........ 2,607,187
25,000 Citizens Banking Corp.............. 1,550,000
45,000 Cullen/Frost Bankers, Inc.......... 1,496,250
105,000 First Security Corp................ 3,543,750
210,000 Hibernia Corp. Cl. A............... 2,782,500
100,800 Liberty Bancorp, Inc............... 5,014,800
83,700 Norwest Corp....................... 3,640,950
65,000 Peoples Heritage Financial Group... 1,820,000
55,000 State Street Boston Corp........... 3,547,500
45,000 Summit Bancorp..................... 1,968,750
55,100 Susquehanna Bancshares, Inc........ 1,907,838
13,800 Wells Fargo & Co................... 3,722,550
41,133,125
BUILDING, CONSTRUCTION &
FURNISHINGS -- 1.5%
320,000* Furniture Brands
International, Inc................. 4,480,000
113,000* Lone Star Industries, Inc.......... 4,166,875
80,000 Medusa Corp........................ 2,750,000
11,396,875
BUSINESS EQUIPMENT &
SERVICES -- 10.8%
245,000 Air Express International Corp..... 7,901,250
48,000* Cisco Systems, Inc................. 3,054,000
100,000 Computer Associates
International, Inc................. 4,975,000
120,000* Compuware Corp..................... 6,015,000
133,000 Equifax, Inc....................... 4,073,125
426,900 Harper Group, Inc. (The)........... 10,138,875
440,000* Metromail Corp..................... 8,030,000
10,000* MSC Industrial Direct Co., Inc..... 370,000
78,000* Oracle Systems Corp................ 3,256,500
380,000 Pittston Brink's Group............. 10,260,000
305,000 Pittston Burlington Group.......... 6,100,000
275,000* Platinum Technology................ 3,746,875
180,000* Policy Management Systems Corp..... 8,302,500
280,000 Reynolds & Reynolds Co. (The), Cl.
A.................................. 7,280,000
50,000 Wackenhut Corp. (The) Cl. B........ 762,500
84,265,625
CHEMICAL & AGRICULTURAL
PRODUCTS -- 4.9%
65,000 Air Products & Chemicals, Inc...... 4,493,125
39,500 Du Pont (E. I.) De Nemours......... 3,727,813
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SHARES VALUE
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CHEMICAL & AGRICULTURAL
PRODUCTS -- CONTINUED
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265,000 Engelhard Corp..................... $ 5,068,125
165,000 Grace (W.R.) & Co.................. 8,538,750
42,300 H.B. Fuller Co..................... 1,988,100
79,000 Pioneer Hi-Bred International,
Inc................................ 5,530,000
198,000 Praxair, Inc....................... 9,132,750
38,478,663
COMMUNICATION SYSTEMS &
SERVICES -- 1.3%
160,000* AirTouch Communications............ 4,040,000
84,000* Aspect Telecommunications Corp..... 5,334,000
11,950* Associated Group, Inc. (The) Cl.
A.................................. 367,462
11,950* Associated Group, Inc. (The) Cl.
B.................................. 355,513
10,096,975
CONSUMER PRODUCTS &
SERVICES -- 4.3%
48,000 Campbell Soup Co................... 3,852,000
90,000 Carnival Corp...................... 2,970,000
45,000 Colgate-Palmolive Co............... 4,151,250
45,000 CPC International, Inc............. 3,487,500
52,000 Gillette Co. (The)................. 4,043,000
72,000 Harley-Davidson, Inc............... 3,384,000
85,000 Mattel, Inc........................ 2,358,750
50,000 Philip Morris Cos., Inc............ 5,631,250
105,000 UST, Inc........................... 3,399,375
33,277,125
DIVERSIFIED COMPANIES -- 1.9%
35,100 General Electric Co................ 3,470,513
35,000* ITT Corp........................... 1,518,125
195,000 ITT Industries, Inc................ 4,777,500
125,000 Morton International, Inc.......... 5,093,750
14,859,888
ELECTRICAL EQUIPMENT &
SERVICES -- 5.8%
57,000* 3Com Corp.......................... 4,182,375
80,000* Adaptec, Inc....................... 3,200,000
42,000* Applied Materials, Inc............. 1,509,375
191,000 AVX Corp........................... 4,106,500
165,000 Baldor Electric Co................. 4,063,125
108,100 Belden Inc......................... 3,999,700
15,000* Berg Electronics Corp.............. 440,625
70,000 Dallas Semiconductor Corp.......... 1,610,000
36,000 Intel Corp......................... 4,713,750
210,000* KLA Instruments Corp............... 7,455,000
29,300* Lam Research Corp.................. 824,062
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7
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EVERGREEN GROWTH AND INCOME FUND
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STATEMENT OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1996
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SHARES VALUE
COMMON STOCKS -- CONTINUED
ELECTRICAL EQUIPMENT &
SERVICES -- CONTINUED
<C> <S> <C>
42,000* LSI Logic.......................... $ 1,123,500
225,000 Sensormatic Electronics Corp....... 3,768,750
154,800* Unitrode Corp...................... 4,547,250
45,544,012
ENERGY -- 6.5%
25,000 Anadarko Petroleum Corp............ 1,618,750
52,000* Atwood Oceanics, Inc............... 3,302,000
45,000 Coastal Corp. (The)................ 2,199,375
165,000* Denbury Resources, Inc............. 2,392,500
160,200* Forcenergy, Inc.................... 5,807,250
31,570 Halliburton Co..................... 1,902,093
25,000 Kerr-McGee Corp.................... 1,800,000
95,000 Murphy Oil Corp.................... 5,284,375
400,000* Oryx Energy Co..................... 9,900,000
150,000* Santa Fe Energy Resources, Inc..... 2,081,250
311,900 Southwestern Energy Co............. 4,717,487
56,500 Tosco Corp......................... 4,470,562
63,520 Union Pacific Resource
Group, Inc......................... 1,857,960
87,000 Williams Cos., Inc. (The).......... 3,262,500
50,596,102
FINANCE & INSURANCE -- 4.7%
15,000 Associates First Capital Corp...... 661,875
85,000 Federal Home Loan
Mortgage Corp...................... 9,360,625
290,000 Federal National Mortgage Assn..... 10,802,500
100,000 ITT Hartford Group, Inc............ 6,750,000
115,000 LaSalle Re Holdings, Ltd........... 3,363,750
61,000 Meadowbrook Insurance
Group, Inc......................... 1,281,000
106,000 Price (T.) Rowe & Associates,
Inc................................ 4,611,000
36,830,750
FOOD RETAILING &
DISTRIBUTION -- .1%
50,000* Dominick's Supermarkets, Inc....... 1,087,500
FOREST PRODUCTS -- .1%
40,000 Deltic Timber Corp................. 865,000
HEALTHCARE PRODUCTS &
SERVICES -- 12.2%
110,000 Abbott Laboratories................ 5,582,500
65,000* Amgen, Inc......................... 3,534,375
110,000* Elan Corp, plc..................... 3,657,500
<CAPTION>
SHARES VALUE
<C> <S> <C>
</TABLE>
HEALTHCARE PRODUCTS &
SERVICES -- CONTINUED
<TABLE>
<C> <S> <C>
30,000 HBO & Co........................... $ 1,781,250
178,500* Health Management
Associates, Inc.................... 4,016,250
190,000* Health Systems International,
lnc................................ 4,702,500
55,000* HealthCare COMPARE Corp............ 2,330,625
103,000* HEALTHSOUTH Corp................... 3,978,375
24,000 Johnson & Johnson.................. 1,194,000
130,000* Laboratory Corp. of America
Holdings........................... 373,750
240,000* Lincare Holdings, Inc.............. 9,840,000
235,000* Living Centers of America, Inc..... 6,521,250
25,000 Mallinckrodt, Inc.................. 1,103,125
60,000 Manor Care, Inc.................... 1,620,000
152,700 McKesson Corp...................... 8,551,200
42,350* MedPartners, Inc................... 889,350
49,600 Pfizer, Inc........................ 4,110,600
113,000 Schering-Plough Corp............... 7,316,750
12,500 Shared Medical System Corp......... 615,625
25,000* Spacelabs Medical, Inc............. 512,500
138,000* Sybron International Corp.......... 4,554,000
120,000* Tenet Healthcare Corp.............. 2,625,000
95,000* Vencor, Inc........................ 3,004,375
34,000 Warner-Lambert Co.................. 2,550,000
40,020* Wellpoint Health Networks, Inc..... 1,375,687
305,000 West Co., Inc. (The)............... 8,616,250
94,956,837
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES -- 4.7%
104,000 AGCO Corp.......................... 2,977,000
150,000 Borg-Warner Automotive, Inc........ 5,775,000
65,500 Danaher Corp....................... 3,053,937
51,000 Dover Corp......................... 2,562,750
55,000 Ingersoll Rand Co.................. 2,447,500
53,200 J & L Specialty Steel, Inc......... 605,150
33,500 Magna Group, Inc................... 1,867,625
55,000 Santa Fe Pacific Gold Corp......... 845,625
300,000* Strattec Security Corp.**.......... 5,475,000
185,000 Sundstrand Corp.................... 7,862,500
15,000 Tecumseh Products Co. Cl. A........ 860,625
25,000 Vulcan Materials Co................ 1,521,875
22,500 York International Corp............ 1,257,188
37,111,775
</TABLE>
8
<PAGE>
EVERGREEN GROWTH AND INCOME FUND
(photo of building)
STATEMENT OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS -- CONTINUED
<C> <S> <C>
INFORMATION SERVICES &
TECHNOLOGY -- .7%
63,436 First Data Corp.................... $ 2,315,414
88,000* Medic Computer Systems, Inc........ 3,547,500
5,862,914
LEISURE & TOURISM -- .9%
60,000* Choice Hotels Holdings, Inc........ 1,057,500
275,000 Gaylord Entertainment Co. Cl. A.... 6,290,625
7,348,125
PAPER & PACKAGING -- .3%
75,000 Westvaco Corp...................... 2,156,250
PUBLISHING, BROADCASTING &
ENTERTAINMENT -- 7.5%
49,805 Comcast Corp....................... 887,152
39,000 Disney Walt Co. (The).............. 2,715,375
42,000* Evergreen Media Corp. Cl. A........ 1,050,000
229,800* EZ Communications, Inc. Cl. A...... 8,416,425
410,000* Jacor Communications, Inc.......... 11,223,750
175,000* Jacor Communications, Inc. Warrants
exp. 2001.......................... 350,000
100,000* Katz Media Group, Inc.............. 1,125,000
40,000 Knight-Ridder, Inc................. 1,530,000
215,000* Lin Television Corp................ 9,083,750
15,000 McGraw-Hill Cos., Inc.............. 691,875
43,000 Scripps, (E.W.), Inc............... 1,505,000
185,000 TCA Cable TV, Inc.................. 5,573,125
160,000 Time Warner, Inc................... 6,000,000
50,000* U S WEST Media Group............... 925,000
35,000* Univision Communications,
Inc. Cl. A......................... 1,295,000
8,276* Viacom Inc. Cl. A.................. 285,522
2,800 Washington Post Co. (The).......... 938,350
184,500* Young Broadcasting Inc. Cl. A...... 5,396,625
58,991,949
RETAILING & WHOLESALE -- .6%
109,800* Carson Pirie Scott & Co............ 2,772,450
12,500 Mercantile Stores Co., Inc......... 617,188
20,000 Sears, Roebuck & Co................ 922,500
4,312,138
THRIFT INSTITUTIONS -- 2.1%
126,500 Washington Mutual, Inc............. 5,479,031
300,000 Webster Financial Corp............. 11,025,000
16,504,031
TRANSPORTATION -- 2.6%
45,000 Burlington Northern Santa Fe....... 3,886,875
<CAPTION>
SHARES VALUE
<C> <S> <C>
</TABLE>
TRANSPORTATION -- CONTINUED
<TABLE>
<C> <S> <C>
190,000 Kansas City Southern
Industries, Inc.................... $ 8,550,000
130,000 Union Pacific Corp................. 7,816,250
20,253,125
UTILITIES -- 3.2%
62,000 AT&T Corp.......................... 2,697,000
65,000 Century Telephone Enterprises,
Inc................................ 2,006,875
64,000 Commonwealth Energy System......... 1,504,000
70,000 Houston Inds., Inc................. 1,583,750
50,000 Illinova Corp...................... 1,375,000
108,000 MCI Communications Corp............ 3,530,250
40,000 Texas Utilities Co................. 1,630,000
300,000 TNP Enterprises, Inc............... 8,212,500
45,000 Unicom Corp........................ 1,220,625
60,000* WorldCom, Inc...................... 1,563,750
25,323,750
TOTAL COMMON STOCKS
(COST $463,898,577)........... 641,252,534
PREFERRED STOCK -- 0.0% (A)
HEALTHCARE PRODUCTS &
SERVICES -- 0.0% (A)
130,000* Fresenius National Med Care,
Inc. Cl. D
(COST $22,740)..................... 16,900
CONVERTIBLE PREFERRED STOCK -- .1%
PUBLISHING, BROADCASTING &
ENTERTAINMENT -- .1%
6,407* TCI Pacific Communications, Inc.
5.00%, 7/31/06
(COST $622,947).................... 585,440
<CAPTION>
PRINCIPAL
AMOUNT
<C> <S> <C>
CORPORATE BONDS -- .2%
ENERGY -- .1%
Columbia Gas Systems, Inc. (The)
$ 106,000 6.39%, 11/28/00.................... 105,042
101,000 6.61%, 11/28/02.................... 100,110
101,000 6.80%, 11/28/05.................... 99,429
101,000 7.05%, 11/28/07.................... 100,316
101,000 7.32%, 11/28/10.................... 99,452
</TABLE>
9
<PAGE>
EVERGREEN GROWTH AND INCOME FUND
(photo of building)
STATEMENT OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS -- CONTINUED
ENERGY -- CONTINUED
<C> <S> <C>
Columbia Gas Systems, Inc. (The)
$ 101,000 7.42%, 11/28/15.................... $ 98,059
101,000 7.62%, 11/28/25.................... 98,527
700,935
PUBLISHING, BROADCASTING &
ENTERTAINMENT -- .1%
Time Warner, Inc.
206,000 6.46%, 2/15/97..................... 206,037
123,000 7.975%, 8/15/04.................... 125,654
247,000 8.11%, 8/15/06..................... 253,530
247,000 8.18%, 8/15/07..................... 253,774
92,000 Viacom Inc.
8.00%, 7/7/06...................... 88,170
927,165
TOTAL CORPORATE BONDS
(COST $1,595,465)............. 1,628,100
SHORT-TERM INVESTMENTS -- 17.9%
COMMERCIAL PAPER -- 15.3%
14,000,000 A.H. Robins Co., Inc.
5.55%, 2/6/97...................... 13,922,300
9,100,000 Bell Atlantic Financial Services
5.50%, 1/30/97..................... 9,059,682
7,300,000 BellSouth Telecommunications Inc.
5.40%, 2/4/97...................... 7,262,770
12,000,000 Cargill Financial Services Corp.
5.37%, 1/8/97...................... 11,987,470
4,000,000 Cortez Capital Corp.
5.58%, 2/24/97..................... 3,966,520
Eiger Capital Corp.
1,300,000 5.43%, 1/10/97..................... 1,298,235
12,000,000 5.45%, 1/13/97..................... 11,978,200
2,100,000 5.50%, 1/16/97..................... 2,095,188
4,200,000 Equitable of Iowa Cos.
5.47%, 1/7/97...................... 4,196,171
Golden Managers Acceptance Corp.
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
$ AMOUNT $ VALUE
<C> <S> <C>
SHORT-TERM INVESTMENTS -- CONTINUED
COMMERCIAL PAPER -- CONTINUED
1,100,000 5.45%, 1/8/97..................... 1,098,834
800,000 5.45%, 1/22/97.................... 797,457
14,600,000 Great Lakes Chemical Corp.
5.65%, 2/7/97..................... 14,515,219
600,000 Receivables Capital Corp.
5.70%, 1/27/97.................... 597,530
6,100,000 Swiss Re Financial Products Corp.
5.40%, 1/16/97.................... 6,086,275
7,300,000 Three Rivers Funding Corp.
5.72%, 1/21/97.................... 7,276,802
15,000,000 Unifunding, Inc.
5.55%, 2/7/97..................... 14,914,437
8,600,000 Virginia Electric & Power Co.
5.40%, 1/10/97.................... 8,588,390
119,641,480
U.S. GOVERNMENT AGENCY NOTE --
2.6%
20,000,000 Federal National Mtge. Assn.
5.28%, 1/14/97.................... 19,961,867
TOTAL SHORT-TERM INVESTMENTS
(COST $139,603,347).......... 139,603,347
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS --
(COST $605,743,076)... 100.2% 783,086,321
OTHER ASSETS AND
LIABILITIES -- NET.... (.2) (1,634,959)
NET ASSETS............... 100.0% $781,451,362
</TABLE>
* Non-income producing securities.
** Investment in a non-controlled affiliate. The Fund owns over 5% of
outstanding voting securities. The Fund has a cost basis of $4,482,537 in
this issue at December 31, 1996.
(a) Less than one-tenth of a percent.
See accompanying notes to financial statements.
10
<PAGE>
EVERGREEN GROWTH AND INCOME FUND
(photo of building)
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $605,743,076)........................................................... $783,086,321
Cash.......................................................................................................... 155,991
Receivable for Fund shares sold............................................................................... 5,655,181
Dividends and interest receivable............................................................................. 679,076
Prepaid expenses.............................................................................................. 12,606
Total assets............................................................................................ 789,589,175
LIABILITIES:
Payable for investments purchased............................................................................. 6,164,255
Payable for Fund shares repurchased........................................................................... 730,200
Accrued advisory fee.......................................................................................... 646,373
Distribution fee payable...................................................................................... 352,781
Accrued expenses.............................................................................................. 244,204
Total liabilities....................................................................................... 8,137,813
NET ASSETS....................................................................................................... $781,451,362
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................... $604,158,549
Distribution in excess of net investment income............................................................... (6,087)
Distributions in excess of net realized gain on investment transactions....................................... (44,345)
Net unrealized appreciation of investments.................................................................... 177,343,245
Net assets.............................................................................................. $781,451,362
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($84,818,171 / 3,764,617 shares of beneficial interest outstanding)............................ $ 22.53
Sales charge -- 4.75% of offering price....................................................................... 1.12
Maximum offering price.................................................................................. $ 23.65
Class B Shares ($244,835,641 / 10,915,374 shares of beneficial interest outstanding).......................... $ 22.43
Class C Shares ($9,611,274 / 428,489 shares of beneficial interest outstanding)............................... $ 22.43
Class Y Shares ($442,186,276 / 19,608,041 shares of beneficial interest outstanding).......................... $ 22.55
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
EVERGREEN GROWTH AND INCOME FUND
(photo of building)
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $3,984)....................................... $ 6,484,943
Interest..................................................................................... 4,585,041
Total investment income................................................................ 11,069,984
EXPENSES:
Advisory fee................................................................................. $5,287,338
Distribution fee -- Class A Shares........................................................... 122,222
Distribution fee -- Class B Shares........................................................... 934,314
Shareholder services fee -- Class B Shares................................................... 311,235
Distribution fee -- Class C Shares........................................................... 36,055
Shareholder services fee -- Class C Shares................................................... 12,018
Transfer agent fee........................................................................... 329,132
Registration and filing fees................................................................. 219,285
Custodian fee................................................................................ 184,341
Professional fees............................................................................ 48,605
Reports and notices to shareholders.......................................................... 34,721
Insurance.................................................................................... 13,443
Trustees' fees and expenses.................................................................. 11,987
Miscellaneous................................................................................ 4,589
Total expenses......................................................................... 7,549,285
Less: Fee waivers............................................................................ (5,000)
Net expenses........................................................................... 7,544,285
Net investment income........................................................................... 3,525,699
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investment transactions................................................. 11,660,346
Net increase in unrealized appreciation of investments....................................... 102,653,116
Net gain on investments......................................................................... 114,313,462
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................ $117,839,161
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
EVERGREEN GROWTH AND INCOME FUND
(photo of building)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income..................................................................... $ 3,525,699 $ 1,291,809
Net realized gain on investment transactions.............................................. 11,660,346 5,206,584
Net change in unrealized appreciation of investments...................................... 102,653,116 28,342,991
Net increase in net assets resulting from operations................................ 117,839,161 34,841,384
DISTRIBUTIONS TO SHAREHOLDERS:
FROM NET INVESTMENT INCOME:
Class A Shares............................................................................ (346,965) (93,250)
Class B Shares............................................................................ (65,442) (104,385)
Class C Shares............................................................................ (2,714) (5,584)
Class Y Shares............................................................................ (3,093,315) (1,088,590)
Total distributions from net investment income...................................... (3,508,436) (1,291,809)
IN EXCESS OF NET INVESTMENT INCOME:
Class A Shares............................................................................ (602) (518)
Class B Shares............................................................................ (114) (580)
Class C Shares............................................................................ (5) (31)
Class Y Shares............................................................................ (5,366) (6,050)
Total distributions in excess of net investment income.............................. (6,087) (7,179)
FROM NET REALIZED GAIN ON INVESTMENTS:
Class A Shares............................................................................ (1,255,570) (468,664)
Class B Shares............................................................................ (3,652,416) (1,156,785)
Class C Shares............................................................................ (141,822) (48,338)
Class Y Shares............................................................................ (6,629,223) (3,524,196)
Total distributions from net realized gain on investments........................... (11,679,031) (5,197,983)
IN EXCESS OF NET REALIZED GAIN ON INVESTMENTS:
Class A Shares............................................................................ (4,767) --
Class B Shares............................................................................ (13,868) --
Class C Shares............................................................................ (538) --
Class Y Shares............................................................................ (25,172) --
Total distributions in excess of net realized gain on investments................... (44,345) --
Total distributions to shareholders................................................. (15,237,899) (6,496,971)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold................................................................. 470,077,641 131,253,002
Proceeds from acquisition of FFB Lexicon Capital Appreciation Fund........................ 159,432,723 --
Proceeds from reinvestment of distributions............................................... 13,005,089 5,712,264
Payment for shares redeemed............................................................... (171,525,826) (30,906,224)
Net increase resulting from Fund share transactions................................. 470,989,627 106,059,042
Net increase in net assets.......................................................... 573,590,889 134,403,455
NET ASSETS:
Beginning of year......................................................................... 207,860,473 73,457,018
End of year (including distribution in excess of net investment income of $6,087 at
December 31, 1996)...................................................................... $781,451,362 $207,860,473
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
EVERGREEN GROWTH AND INCOME FUND --
CLASS A, B AND C SHARES
(photo of building)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C
JANUARY 3, JANUARY 3, SHARES
YEAR 1995* YEAR 1995* YEAR
ENDED THROUGH ENDED THROUGH ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period....... $18.63 $14.48 $18.59 $14.48 $18.58
Income from investment operations:
Net investment income..................... .12 .13 .00** .05 .00**
Net realized and unrealized gain on
investments.............................. 4.26 4.64 4.20 4.61 4.21
Total from investment operations........ 4.38 4.77 4.20 4.66 4.21
Less distributions to shareholders from:
Net investment income..................... (.13) (.14) (.01) (.07) (.01)
Net realized gain on investments.......... (.35) (.48) (.35) (.48) (.35)
Total distributions..................... (.48) (.62) (.36) (.55) (.36)
Net asset value, end of period............. $22.53 $18.63 $22.43 $18.59 $22.43
TOTAL RETURN+.............................. 23.5% 33.0% 22.6% 32.2% 22.6%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in millions)... $85 $19 $245 $46 $10
Ratios to average net assets:
Expenses.................................. 1.41% 1.55%++# 2.17% 2.24%++# 2.17%
Net investment income (loss).............. .70% .99%++# (.06%) .30%++# (.06%)
Portfolio turnover rate.................... 14% 17% 14% 17% 14%
Average commission rate paid per share..... $.0566 N/A $.0566 N/A $.0566
<CAPTION>
JANUARY 3,
1995*
THROUGH
DECEMBER 31,
1995
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period....... $14.48
Income from investment operations:
Net investment income..................... .06
Net realized and unrealized gain on
investments.............................. 4.60
Total from investment operations........ 4.66
Less distributions to shareholders from:
Net investment income..................... (.08)
Net realized gain on investments.......... (.48)
Total distributions..................... (.56)
Net asset value, end of period............. $18.58
TOTAL RETURN+.............................. 32.2%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in millions)... $2
Ratios to average net assets:
Expenses.................................. 2.15%++#
Net investment income (loss).............. .35%++#
Portfolio turnover rate.................... 17%
Average commission rate paid per share..... N/A
</TABLE>
* Commencement of class operations.
** Less than one cent per share.
+ 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
SHARES SHARES
JANUARY 3, JANUARY 3,
1995* 1995*
THROUGH THROUGH
DECEMBER 31, DECEMBER 31,
1995 1995
<S> <C> <C>
Expenses................................................................................ 1.64% 2.26%
Net investment income (loss)............................................................ .90% .28%
<CAPTION>
CLASS C
SHARES
JANUARY 3,
1995*
THROUGH
DECEMBER 31,
1995
<S> <C>
Expenses................................................................................ 4.94%
Net investment income (loss)............................................................ (2.44%)
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
EVERGREEN GROWTH AND INCOME FUND --
CLASS Y SHARES
(photo of building)
FINANCIAL HIGHLIGHTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of year............................................... $18.64 $14.52 $15.41 $14.18
Income from investment operations:
Net investment income........................................................... .18 .18 .14 .14
Net realized and unrealized gain on investments................................. 4.25 4.59 .12 1.91
Total from investment operations.............................................. 4.43 4.77 .26 2.05
Less distributions to shareholders from:
Net investment income........................................................... (.17) (.17) (.14) (.14)
Net realized gain on investments................................................ (.35) (.48) (1.01) (.68)
Total distributions........................................................... (.52) (.65) (1.15) (.82)
Net asset value, end of year..................................................... $22.55 $18.64 $14.52 $15.41
TOTAL RETURN..................................................................... 23.8% 32.9% 1.7% 14.4%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of year (in millions)........................................... $442 $141 $73 $77
Ratios to average net assets:
Expenses........................................................................ 1.16% 1.27% 1.33% 1.26%
Net investment income........................................................... .93% 1.11% .96% .99%
Portfolio turnover rate.......................................................... 14% 17% 29% 28%
Average commission rate paid per share........................................... $.0566 N/A N/A N/A
<CAPTION>
1992
<S> <C>
PER SHARE DATA:
Net asset value, beginning of year............................................... $12.99
Income from investment operations:
Net investment income........................................................... .15
Net realized and unrealized gain on investments................................. 1.65
Total from investment operations.............................................. 1.80
Less distributions to shareholders from:
Net investment income........................................................... (.15)
Net realized gain on investments................................................ (.46)
Total distributions........................................................... (.61)
Net asset value, end of year..................................................... $14.18
TOTAL RETURN..................................................................... 13.8%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of year (in millions)........................................... $64
Ratios to average net assets:
Expenses........................................................................ 1.33%
Net investment income........................................................... 1.18%
Portfolio turnover rate.......................................................... 30%
Average commission rate paid per share........................................... N/A
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
EVERGREEN SMALL CAP EQUITY INCOME FUND
(photo of building)
A Report From Your
Portfolio Manager
Nola M. Falcone
We are happy to announce that Evergreen Small Cap Equity (photo of
Income Fund completed its third full calendar year on December Nola M. Falcone)
31, 1996, with a total return of 22.3%* (Class Y, no-load
shares) -- notable when you compare it with the Russell 2000
Index** which was up 16.5% and the Wilshire Small Cap Value
Index** which was up 15.4% during that time. For the three
years ended December 31, the Fund's average annual compound
rate of return of 16.2% (Class Y shares) compares well with
the average annual compound return of the Russell 2000, 13.7%
and the Wilshire Small Cap Value Index, 13.6%. For the period
since its inception on October 1, 1993, through December
31, 1996, the Fund's average annual compound return was 15.7%
(Class Y shares). As of December 31, the Fund (Class Y shares)
received its first rating by Morningstar, Inc., -- four stars+. The Fund was
rated against 1,825 other domestic equity funds. For the Fund's Class A shares,
the 12-month total return ended December 31, was 16.2%. The average annual
compound rate of return for the period since the inception of Class A shares on
January 3, 1995, through December 31, 1996, was 22.7%. (Please see page 19 for
additional performance information.)
This Fund was designed to benefit from investment in small entrepreneurial
growth companies which we believe are undervalued, and attempts to reduce risk
by seeking to provide a yield greater than that of the S&P 500 Reinvested
Index++. The majority of our investments are in companies under $500 million
market capitalization. The median market cap of the portfolio as of December 31,
1996, was $296.6 million. So far, the volatility of the Fund's performance is
lower than that of the market, as indicated by its beta which was .87 at fiscal
year-end. Beta is a measure of the risk of a Fund's portfolio. It illustrates
the volatility of the net asset value per share of a mutual fund as compared
with the market as a whole as measured by the S&P 500 which is assigned a beta
of 1. Generally, a beta of less than 1 indicates a fund would fluctuate less
than market and greater than 1 indicates a fund would fluctuate more than the
market. A beta is subject to change.
Figures represent past performance which is no guarantee of future results.
* Performance figures include reinvestment of income dividend and capital gain
distributions. Investment return and principal value will fluctuate.
Investors' shares, when redeemed, may be worth more or less than their
original cost.
Class A shares are subject to a maximum 4.75% front end sales charge. The
Fund also offers Class B shares which are subject to a maximum 5% contingent
deferred sales charge, and Class C shares which are subject to a 1%
contingent deferred sales charge within the first year of purchase.
Performance for these classes of shares may be different.
** Unmanaged reinvested indexes of selected securities
+ Morningstar proprietary ratings reflect historical risk-adjusted performance
as of December 31, 1996. Ratings are subject to change every month.
Morningstar ratings are calculated from the Fund's three-, five-, and
ten-year average annual returns in excess of 90-day Treasury bill returns
with appropriate fee adjustments and a risk factor that reflects fund
performance below 90-day T-Bill returns. Ten percent of the funds in an
investment category receive 5 stars, 22.5% receive four stars, 35% receive
three stars, 22.5% receive two stars, and 10% receive one star.
++ The S&P 500 is an unmanaged index of common stocks in industry,
transportation, finance, and public utilities, denoting general market
performance as monitored by Standard & Poor's Corp. An investment can not be
made in an index.
16
<PAGE>
EVERGREEN SMALL CAP EQUITY INCOME FUND
(photo of building)
A Report From Your
Portfolio Manager -- (continued)
Investment Strategy
Our basic themes have focused in five major areas -- 1) the strong merger and
acquisition prospects within many industries; 2) the restructuring of companies
in order to compete more effectively; 3) value timing opportunities in stocks
which have become temporarily depressed; 4) energy-related issues; and 5) real
estate issues. Nationally, mergers and acquisitions continued at a record pace
in 1996 -- $659 billion, up 27% from $519 billion in 1995. This is staggering
when compared with those of the early 1980's which averaged around $82.5
billion. We have tried to capitalize on this trend by buying undervalued issues
that not only have good growth potential but were undervalued relative to the
takeover multiples we were seeing offered in consolidating industries. Our
observation has been that the entrepreneurial companies in which we invest,
particularly those still under the aegis of their founders, are often candidates
for acquisitions by larger firms seeking to diversify and improve earnings. It
is often easier to buy growth or create margin investment from synergistic
combinations than build internally.
During the year, four takeover offers were made for companies held in our
portfolio. An acquisition offer for United Cities Gas Co. was made by Atmos
Energy Corp.; Crestar offered to buy Citizens Bancorp, which takeover was
finalized in January 1997, for a gain of 106.7% since our purchase in April
1995; West Coast Bancorp, Inc., received an offer from F.N.B. Corp.; and Liberty
Bancorp, Inc., received an offer from Banc One Corp. As we continued to see
consolidation and takeovers, we invested the largest segment of the portfolio in
banks which, in turn, proved to be one of the best performing sectors of the
portfolio. We also added a number of gas distributors when we began to see
industry consolidation heat up as deregulation prompted electric utilities to
look for ways to improve their earnings. Managements of electric utilities began
to realize the synergies they could achieve by acquiring gas utilities in their
geographic areas. One of our strongest performers, Petrolite Corp., agreed with
its largest owner, William Barnickle, to sell the company to recognize the
inherent value. Barnickle started a proxy fight after Petrolite rejected offers
from two companies that valued the company around $40 per share. As a result of
this announcement, the stock has moved up to $48.00. Our original purchase price
in September 1995, was $27.50.
As stated earlier, we also focus on issues that should begin to benefit from
recent restructuring efforts. A good illustration is that of Woodward Governor
Co., a strong performer this year. Woodward Governor Co., which designs and
manufactures controls and accessory products for aerospace and industrial
companies, had been restructuring for the past few years prior to our purchase.
We believed these restructuring efforts would help earnings and margins,
particularly since Woodward Governor Co., would be a beneficiary of an increased
order pattern from the aerospace industry. At the time of our purchase, the
stock was very undervalued on a cash flow and earnings basis given its positive
outlook. Subsequent to our purchase on March 20, 1996, at $86 per share, the
stock has moved up 65% to $133.00 per share. Another restructuring issue which
we have purchased in the year included Lance, Inc., a snack food company, which
has now the advantages of a new very strong Board of Directors plus new
computerized systems and more consumer-driven response systems. We also added
Goulds Pumps, Inc., whose restructuring efforts should lead to stronger revenues
and better margins and earnings. During the year we realized gains in issues
whose improved earnings benefited from restructuring. These included Shared
Medical Systems Corp., +131.3% for a little over two years and Lindberg Corp.,
+110.5% held two years, eight months.
Value timing opportunities included our purchase of Oneida Limited which we
purchased upon the sale of their underperforming wire division. We believe their
basic tableware lines have potential for growth and the company now may be a
possible takeover candidate. In addition, we purchased Luby's Cafeterias, Inc.,
after it was removed from the S&P 500 and American List Corp., after
disappointing earnings reports. Further
17
<PAGE>
EVERGREEN SMALL CAP EQUITY INCOME FUND
(photo of building)
A Report From Your
Portfolio Manager -- (continued)
analysis of the two companies' fundamentals and discussions with management led
us to believe that the market had overreacted to short-term concerns and that
growth in earnings seemed achievable.
Our interest in the energy field was sparked by our observation of the
development of improved technologies and the growth from independent companies,
which developed as the major oil companies went through massive restructuring
efforts during the last few years and created an availability of talent and
exploration and production properties. We have watched this phenomenon with
interest and purchased convertibles from independent energy companies which were
issued this year. Our largest investment was in Key Energy Group, Inc. 7%
Convertible Debentures due 07/01/03. At fiscal year-end, these bonds, purchased
in June 1996, have an unrealized gain of 27.5%. Key Energy Group, Inc., is
primarily in the well servicing business where demand has been growing in
response to better oil and gas prices recently. They also have been successful
in exploration and production in West Texas. We also purchased the common stock
of Offshore Logistics, Inc., and Penn Virginia Corp.
The portfolio's real estate holdings also proved to be very successful this
year, led by the gain of Bradley Real Estate, Inc., which took over Tucker
Properties Corp.; followed by CBL & Associates Properties, Inc. All of the
holdings that we had in the real estate area provided positive returns.
Complementing our theme investing is our search for special situations or
very undervalued individual issues. Some of the purchases this year included
Robbins & Meyers, Inc. 6 1/2% Convertible Debentures due 09/01/03, BGS Systems,
Inc., a software company which is designed to enable customers to make more
efficient use of their computer system, and Russ Berrie & Co., Inc., a gift and
toy company.
The Fund's performance was hampered during the year by the gas distribution
group, although long-term we believe that many of the gas distributors will be
acquired. In addition, several of our industrial restructuring candidates and a
number of our convertible debentures have still yet to provide strong
performance.
Outlook
As we enter 1997, the U.S. economy is still experiencing low inflation and
satisfactory growth. We are ever mindful, though, of the possibility of
inflation re-igniting as many sectors of the economy are experiencing tighter
labor conditions. We also see the possibility of the rebound of economies around
the world this year with the exception of the economy of Japan. This worldwide
growth may push up the usage of capacity in many businesses, which may have
inflationary implications. We believe that the economy will still benefit from a
strong merger and acquisition trend in the first half of this year and perhaps
into the second half as big companies are using their higher-priced stocks to
buy undervalued, small capitalization companies which have lagged the market.
Technology innovation in personal computers, internet and intranet services, and
telecommunications are still creating dramatic demands for products and services
in our country and abroad. Technology-based businesses will probably provide
positive long-term growth for a few years.
Evergreen Asset Management Corp. currently has 16 people involved in portfolio
management and original, fundamental research who have an average experience of
20 years. The Fund has the benefit of having ideas generated from a wide range
of research from this group. Of note is the addition of Eric Cinnamond, CFA,
assistant portfolio manager, who has been instrumental in managing this Fund.
Even though we have had a dramatic growth in the size of the Fund since the
beginning of the fiscal year, increasing from $5.3 million in net assets at
December 31, 1995, to $9.7 at December 31, 1996, to $15 million currently, we
have continued to find opportunity to easily invest these monies. We welcome our
new shareholders and seek to produce favorable returns as we focus on investing
in well-run, well-financed smaller companies.
18
<PAGE>
EVERGREEN SMALL CAP EQUITY INCOME FUND
(photo of building)
Results to Date
Performance of $10,000 invested in the
Evergreen Small Cap Equity Income Fund
The graphs below compare a $10,000 investment in the Evergreen Small Cap
Equity Income Fund (Class A, Class B, Class C and Class Y Shares) with a similar
investment in the Russell 2000 and the NASDAQ OTC Composite Indexes ("Indexes").
[Charts to follow.]
CLASS A
1-YEAR TOTAL RETURN=16.2%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION=22.7%
Evergreen Small Cap Equity Fund
NASDAQ OTC Composite Index
Russell 2000 Index
1/3/95* 6/30/95 12/31/95 6/30/96 12/31/96
(Customer to supply Plot points)
CLASS B
1-YEAR TOTAL RETURN=16.1%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION=23.3%
Evergreen Small Cap Equity Fund
NASDAQ OTC Composite Index
Russell 2000 Index
1/3/95* 6/30/95 12/31/95 6/30/96 12/31/96
(Customer to supply Plot points)
CLASS C
1-YEAR TOTAL RETURN=20.1%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION=25.0%
Evergreen Small Cap Equity Fund
NASDAQ OTC Composite Index
Russell 2000 Index
1/3/95* 6/30/95 12/31/95 6/30/96 12/31/96
(Customer to supply Plot points)
CLASS Y
1-YEAR TOTAL RETURN=22.4%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION=15.7%
Evergreen Small Cap Equity Fund
NASDAQ OTC Composite Index
Russell 2000 Index
10/1/93* 12/31/93 12/31/94 12/31/95 12/31/96
(Customer to supply Plot points)
*Commencement of class operations.
Past performance is not predictive of future performance results. Mutual funds
are
not obligations of, or guaranteed by, any bank and are not federally insured.
For the purposes of the graphs and the accompanying tables, it has been
assumed that (a) the maximum sales charge of 4.75% was deducted from the initial
$10,000 investment in Class A Shares; (b) the maximum applicable contingent
deferred sales charge was deducted from the value of the investment in Class B
and Class C Shares, assuming full redemption on December 31, 1996; (c) all
recurring fees (including investment advisory fees) net of fee waivers and
reimbursements were deducted; and (d) all dividends and distributions were
reinvested.
The Indexes are unmanaged and include the reinvestment of income, but do
not reflect the payment of transaction costs and advisory fees associated with
an investment in the Fund.
19
<PAGE>
EVERGREEN SMALL CAP EQUITY INCOME FUND
(photo of building)
Statement of Investments
December 31, 1996
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
Common Stocks -- 75.4%
Automotive Equipment &
Manufacturing -- .7%
6,000 Simpson Industries, Inc............... $ 65,344
Banks -- 19.4%
3,000 ABC Bancorp........................... 50,625
2,000 Amcore Financial, Inc................. 53,500
3,000 BancorpSouth, Inc..................... 83,250
8,000 CB Bancshares, Inc.................... 234,000
5,000 Citizens Bancorp...................... 310,000
6,000 First Essex Bancorp, Inc.............. 78,750
2,500 First Midwest Bancorp, Inc............ 81,563
9,747 Hudson Chartered Bancorp, Inc......... 255,861
6,575 Interchange Financial Services Corp... 161,909
2,000 Liberty Bancorp, Inc.................. 99,500
2,500 One Valley Bancorp of West
Virginia, Inc......................... 92,813
6,800 State Financial Services Corp......... 136,000
5,000 Susquehanna Bancshares, Inc........... 173,125
4,000 West Coast Bancorp, Inc............... 69,750
1,880,646
Business Equipment &
Services -- 3.4%
3,400 American Business Products, Inc....... 85,425
6,000 BGS Systems, Inc...................... 164,250
7,500 Computer Language Research, Inc....... 80,625
330,300
Consumer Products &
Services -- 5.9%
15,000 Oneida, Ltd........................... 270,000
17,100 Piccadilly Cafeterias, Inc............ 158,175
6,000 Polaris Industries, Inc............... 142,500
570,675
Electrical Equipment &
Services -- 3.3%
4,000 Badger Meter, Inc..................... 153,500
8,100 Research, Inc......................... 40,500
10,000 Tech/OPS Sevcon, Inc.................. 128,750
322,750
Energy -- 3.5%
1,500 Berry Petroleum Co. Cl. A............. 21,562
5,000 Enron Global Power & Pipelines
L.L.C................................. 135,000
4,000 Penn Virginia Corp.................... 187,000
343,562
<CAPTION>
Shares Value
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
Finance & Insurance -- 4.6%
6,000 Arthur J. Gallagher & Co.............. $ 186,000
5,000 GCR Holdings, Ltd..................... 111,250
5,000 LaSalle Re Holdings, Ltd.............. 146,250
443,500
Food & Beverage Products -- 1.9%
10,000 Lance, Inc............................ 180,000
Food Retailing & Distribution -- 2.7%
24,000 Bridgford Foods Corp.................. 204,000
3,000 Luby's Cafeterias, Inc................ 60,204
264,204
Healthcare Products &
Services -- 2.1%
2,500 ADAC Laboratories..................... 59,688
12,000 Kinetic Concepts, Inc................. 147,000
206,688
Industrial Specialty Products
& Services -- 7.2%
5,000 BW/IP, Inc............................ 82,500
10,000 Goulds Pumps, Inc..................... 229,375
1,000 Petrolite Corp........................ 48,000
2,900 Raven Industries, Inc................. 65,975
500 Spartech Corp......................... 5,562
2,000 Woodward Governor Co.................. 266,000
697,412
Real Estate -- 3.1%
891 Bradley Real Estate, Inc.............. 16,038
2,000 CBL & Associates Properties, Inc...... 51,750
2,000 Columbus Realty Trust................. 45,500
1,000 Kranzco Realty Trust.................. 16,875
2,500 Sovran Self Storage, Inc.............. 78,125
4,000 Summit Properties, Inc................ 88,500
296,788
Retailing & Wholesale -- .5%
2,800 Russ Berrie & Co., Inc................ 50,400
Thrift Institutions -- 7.4%
4,000 First Financial Holdings, Inc......... 90,000
7,000 First Palm Beach Bancorp, Inc......... 165,375
18,000 Jacksonville Bancorp, Inc............. 263,250
7,000 People's Savings Financial Corp....... 194,250
712,875
Utilities -- Electric -- 1.4%
5,000 TNP Enterprises, Inc.................. 136,875
</TABLE>
20
<PAGE>
EVERGREEN SMALL CAP EQUITY INCOME FUND
(photo of building)
Statement of Investments -- (continued)
December 31, 1996
<TABLE>
<CAPTION>
Shares Value
Common Stocks -- continued
<C> <S> <C>
Utilities -- Gas -- 8.3%
4,500 Atrion Corp........................... $ 74,250
7,100 Chesapeake Utilities Corp............. 119,812
2,500 Delta Natural Gas Co., Inc............ 46,250
4,000 Energen Corp.......................... 121,000
7,400 NUI Corp.............................. 167,425
6,000 Public Service Company of North
Carolina, Inc......................... 109,500
6,000 Southwest Gas Corp.................... 115,500
2,000 United Cities Gas Co.................. 45,000
798,737
Total Common Stocks
(cost $6,063,435)................... 7,300,756
Convertible Preferred Stocks -- 3.1%
Energy -- 2.0%
4,000 Callon Petroleum Co.
8.50%, Series A....................... 179,500
400 Chieftain International Funding Corp.
$1.8125............................... 13,100
192,600
Publishing, Broadcasting &
Entertainment -- 1.1%
4,000 AMC Entertainment, Inc.
$1.75................................. 108,000
Total Convertible Preferred Stocks
(cost $219,644)..................... 300,600
<CAPTION>
Principal
Amount
<C> <S> <C>
Convertible Debentures -- 18.4%
Banks -- .7%
$ 50,000 First State Bank Corp.
7.00%, 11/1/03........................ 70,750
Building, Construction &
Furnishings -- 1.1%
100,000 Toll Corp.
4.75%, 1/15/04........................ 103,500
Consumer Products &
Services -- 1.3%
130,000 Max & Erma's Restaurants, Inc.
8.00%, 9/1/04......................... 124,800
<CAPTION>
Principal
Amount Value
<C> <S> <C>
Convertible Debentures -- continued
Energy -- 9.0%
$500,000 Key Energy Group, Inc.
7.00%, 7/1/03, 144A................... $ 637,500
225,000 Offshore Logistics, Inc.
6.00%, 12/15/03, 144A................. 236,813
874,313
Finance & Insurance -- 1.1%
100,000 Trenwick Group, Inc.
6.00%, 12/15/99....................... 105,500
Healthcare Products &
Services -- 3.5%
140,000 Maxxim Medical, Inc.
6.75%, 3/1/03......................... 135,800
100,000 Meridian Diagnostics, Inc.
7.00%, 9/1/06......................... 101,000
100,000 Physicians Resource Group, Inc.
6.00%, 12/1/01........................ 98,630
335,430
Industrial Specialty Products
& Services -- 1.2%
100,000 Robbins & Myers, Inc.
6.50%, 9/1/03......................... 112,500
Retailing & Wholesale -- .5%
50,000 Proffitt's, Inc.
4.75%, 11/1/03........................ 50,125
Total Convertible Debentures
(cost $1,590,203)................... 1,776,918
Short-Term U.S. Government Agency Obligations -- 7.2%
Federal Home Loan Mortgage Corp.
100,000 5.40%, 1/9/97......................... 99,880
600,000 5.43%, 1/21/97........................ 598,190
Total Short-Term U.S. Government
Agency Obligations
(cost $698,070)..................... 698,070
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments --
(cost $8,571,352)......... 104.1% 10,076,344
Other Assets and
Liabilities -- net........ (4.1) (400,148)
Net Assets.................. 100.0% $ 9,676,196
</TABLE>
Rule 144A securities are restricted as to resale to qualified institutional
investors.
See accompanying notes to financial statements.
21
<PAGE>
EVERGREEN SMALL CAP EQUITY INCOME FUND
(photo of building)
Statement of Assets and Liabilities
December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments at value (identified cost $8,571,352).............................................................. $10,076,344
Cash........................................................................................................... 246,224
Dividends and interest receivable.............................................................................. 55,113
Receivable for Fund shares sold................................................................................ 24,378
Unamortized organization expenses.............................................................................. 11,536
Prepaid expenses............................................................................................... 2,518
Total assets............................................................................................. 10,416,113
Liabilities:
Payable for investments purchased.............................................................................. 668,969
Accrued expenses............................................................................................... 68,742
Payable for Fund shares repurchased............................................................................ 1,600
Distribution fee payable....................................................................................... 606
Total liabilities........................................................................................ 739,917
Net assets........................................................................................................ $ 9,676,196
Net assets consist of:
Paid-in capital................................................................................................ $ 8,128,208
Undistributed net investment income............................................................................ 3,333
Undistributed net realized gains on investment transactions.................................................... 39,663
Net unrealized appreciation of investments..................................................................... 1,504,992
Net assets............................................................................................... $ 9,676,196
Calculation of net asset value and maximum offering price per share:
Class A Shares ($336,185/25,657 shares of beneficial interest outstanding)..................................... $ 13.10
Sales charge -- 4.75% of offering price........................................................................ .65
Maximum offering price...................................................................................... $ 13.75
Class B Shares ($691,954/52,857 shares of beneficial interest outstanding)..................................... $ 13.09
Class C Shares ($56,251/4,298 shares of beneficial interest outstanding)....................................... $ 13.09
Class Y Shares ($8,591,806/654,876 shares of beneficial interest outstanding).................................. $ 13.12
</TABLE>
See accompanying notes to financial statements.
22
<PAGE>
EVERGREEN SMALL CAP EQUITY INCOME FUND
(photo of building)
Statement of Operations
Year Ended December 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
Investment income:
Dividends......................................................................................... $ 221,319
Interest.......................................................................................... 86,418
Total investment income........................................................................ 307,737
Expenses:
Advisory fee...................................................................................... $ 63,333
Distribution fee -- Class A Shares................................................................ 618
Distribution fee -- Class B Shares................................................................ 3,199
Shareholder services fee -- Class B Shares........................................................ 1,066
Distribution fee -- Class C Shares................................................................ 267
Shareholder services fee -- Class C Shares........................................................ 89
Registration and filing fees...................................................................... 71,195
Custodian fee..................................................................................... 59,940
Transfer agent fee................................................................................ 50,036
Professional fees................................................................................. 15,594
Reports and notices to shareholders............................................................... 11,634
Insurance expense................................................................................. 7,193
Amortization of organization expense.............................................................. 5,744
Trustees' fees and expenses....................................................................... 5,346
Miscellaneous..................................................................................... 1,724
Total expenses................................................................................. 296,978
Less: Fee waivers and expense reimbursements...................................................... (196,739)
Net expenses................................................................................... 100,239
Net investment income................................................................................ 207,498
Net realized and unrealized gain on investments:
Net realized gain on investment transactions...................................................... 329,191
Net change in unrealized appreciation of investments.............................................. 833,605
Net gain on investments.............................................................................. 1,162,796
Net increase in net assets resulting from operations................................................. $1,370,294
</TABLE>
See accompanying notes to financial statements.
23
<PAGE>
EVERGREEN SMALL CAP EQUITY INCOME FUND
(photo of building)
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended
December 31,
1996 1995
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income......................................................................... $ 207,498 $ 159,722
Net realized gain on investment transactions.................................................. 329,191 232,995
Net change in unrealized appreciation of investments.......................................... 833,605 786,111
Net increase in net assets resulting from operations....................................... 1,370,294 1,178,828
Distributions to shareholders from:
Net investment income:
Class A Shares................................................................................ (7,618) (5,089)
Class B Shares................................................................................ (9,798) (4,875)
Class C Shares................................................................................ (710) (421)
Class Y Shares................................................................................ (186,039) (155,906)
Total distributions to shareholders from net investment income............................. (204,165) (166,291)
Net realized gain on investments:
Class A Shares................................................................................ (12,475) (8,583)
Class B Shares................................................................................ (27,933) (10,427)
Class C Shares................................................................................ (1,936) (900)
Class Y Shares................................................................................ (279,606) (196,151)
Total distributions to shareholders from net realized gain on investments.................. (321,950) (216,061)
Total distributions to shareholders........................................................ (526,115) (382,352)
Fund share transactions:
Proceeds from shares sold..................................................................... 4,304,325 1,451,437
Proceeds from reinvestment of distributions................................................... 374,529 315,637
Payment for shares redeemed................................................................... (1,159,053) (864,156)
Net increase resulting from Fund share transactions........................................ 3,519,801 902,918
Net increase in net assets.............................................................. 4,363,980 1,699,394
Net assets:
Beginning of year............................................................................. 5,312,216 3,612,822
End of year (including undistributed net investment income of $3,333 at December 31, 1996).... $ 9,676,196 $5,312,216
</TABLE>
See accompanying notes to financial statements.
24
<PAGE>
EVERGREEN SMALL CAP EQUITY INCOME FUND
CLASS A, B AND C SHARES
(photo of building)
Financial Highlights
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C
January 3, January 3, Shares
Year 1995* Year 1995* Year
Ended through Ended through Ended
December 31, December 31, December 31, December 31, December 31,
1996 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C>
Per Share Data:
Net asset value, beginning of
period.............................. $11.57 $9.64 $11.57 $9.64 $11.56
Income from investment operations:
Net investment income............... .34 .34 .27 .28 .28
Net realized and unrealized gain on
investments....................... 2.13 2.45 2.11 2.43 2.10
Total from investment
operations...................... 2.47 2.79 2.38 2.71 2.38
Less distributions to shareholders
from:
Net investment income............... (.34) (.37) (.26) (.29) (.25)
Net realized gains on investments... (.60) (.49) (.60) (.49) (.60)
Total distributions............... (.94) (.86) (.86) (.78) (.85)
Net asset value, end of period........ $13.10 $11.57 $13.09 $11.57 $13.09
Total Return+......................... 22.0% 29.5% 21.1% 28.7% 21.1%
Ratios & Supplemental Data:
Net assets, end of period (000's
omitted)............................ $336 $216 $692 $266 $56
Ratios to average net assets#:
Expenses............................ 1.75% 1.75%++ 2.50% 2.50%++ 2.50%
Net investment income............... 3.08% 3.39%++ 2.39% 2.67%++ 2.33%
Portfolio turnover rate............... 50% 48% 50% 48% 50%
Average commission rate paid per
share............................... $.0635 N/A $.0635 N/A $.0635
<CAPTION>
January 24,
1995*
through
December 31,
1995
<S> <C>
Per Share Data:
Net asset value, beginning of
period.............................. $9.74
Income from investment operations:
Net investment income............... .28
Net realized and unrealized gain on
investments....................... 2.33
Total from investment
operations...................... 2.61
Less distributions to shareholders
from:
Net investment income............... (.30)
Net realized gains on investments... (.49)
Total distributions............... (.79)
Net asset value, end of period........ $11.56
Total Return+......................... 27.3%
Ratios & Supplemental Data:
Net assets, end of period (000's
omitted)............................ $24
Ratios to average net assets#:
Expenses............................ 2.50%++
Net investment income............... 2.63%++
Portfolio turnover rate............... 48%
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 loss to average net assets, exclusive of any
applicable state expense limitations, would have been the following:
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C
January 3, January 3, Shares
Year 1995* Year 1995* Year
Ended through Ended through Ended
December 31, December 31, December 31, December 31, December 31,
1996 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C>
Expenses......................... 5.03% 24.45% 5.72% 20.90% 5.77%
Net investment income loss....... (.19%) (19.30%) (.83%) (15.72%) (.94%)
<CAPTION>
January 24,
1995*
through
December 31,
1995
<S> <C>
Expenses......................... 187.29%
Net investment income loss....... (182.16%)
</TABLE>
See accompanying notes to financial statements.
25
<PAGE>
EVERGREEN SMALL CAP EQUITY INCOME FUND
CLASS Y SHARES
(photo of building)
Financial Highlights -- (continued)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Per Share Data:
Net asset value, beginning of period.................................... $11.58 $9.70 $10.15
Income (loss) from investment operations:
Net investment income................................................. .38 .38 .34
Net realized and unrealized gain (loss) on investments................ 2.13 2.38 (.41)
Total from investment operations.................................... 2.51 2.76 (.07)
Less distributions to shareholders from:
Net investment income................................................. (.37) (.38) (.33)
Net realized gains on investments..................................... (.60) (.50) (.05)
Total distributions................................................. (.97) (.88) (.38)
Net asset value, end of period.......................................... $13.12 $11.58 $9.70
Total Return+........................................................... 22.4% 29.1% (.7%)
Ratios & Supplemental Data:
Net assets, end of period (000's omitted)............................... $ 8,592 $4,806 $3,613
Ratios to average net assets#:
Expenses.............................................................. 1.50% 1.50% 1.48%
Net investment income................................................. 3.36% 3.56% 3.72%
Portfolio turnover rate................................................. 50% 48% 9%
Average commission rate paid per share.................................. $ .0635 N/A N/A
<CAPTION>
October 1,
1993*
through
December 31,
1993
<S> <C>
Per Share Data:
Net asset value, beginning of period.................................... $10.00
Income (loss) from investment operations:
Net investment income................................................. .10
Net realized and unrealized gain (loss) on investments................ .15
Total from investment operations.................................... .25
Less distributions to shareholders from:
Net investment income................................................. (.10)
Net realized gains on investments..................................... --
Total distributions................................................. (.10)
Net asset value, end of period.......................................... $10.15
Total Return+........................................................... 2.5%
Ratios & Supplemental Data:
Net assets, end of period (000's omitted)............................... $2,236
Ratios to average net assets#:
Expenses.............................................................. 0%++
Net investment income................................................. 4.07%++
Portfolio turnover rate................................................. 15%
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 (loss) to average net assets, exclusive
of any applicable state expense limitations, would have been the following:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Expenses............................................................ 4.75% 4.34% 4.68%
Net investment income (loss)........................................ .11% .72% .53%
<CAPTION>
October 1,
1993*
through
December 31,
1993
<S> <C>
Expenses............................................................ 4.39%
Net investment income (loss)........................................ (.33%)
</TABLE>
See accompanying notes to financial statements.
26
<PAGE>
EVERGREEN UTILITY FUND
(photo of power lines)
A Report From Your
Portfolio Manager
Paul DiLella
We are pleased to present the 1996 Annual Report for (photo of
Evergreen Utility Fund. The Fund's 4.5%* total return (Class Paul DiLella)
Y, no-load shares) for the 12 months ended December 31, 1996,
compared with the total returns of 3.1% for the S&P Utility
Composite Index** and 23.0% for the S&P 500 Reinvested
Index*** for that time. The total return at net asset value
for the 12 months ended December 31, for the Fund's Class A
shares was 4.4%*. (Please see page 28 for additional
performance information.)
The utility sector in general, as well as Evergreen Utility
Fund, experienced a particularly difficult year in 1996, that
was the result of a combination of higher interest rates and uncertainties
regarding competition and deregulation within the industry. The telephone and
electric stocks were among the worst sub-sectors of the stock market in 1996
and were a dramatically underperforming group. In addition, the overall
strength in the general market caused traditional utility investors to seek
other more profitable and predictable sectors.
Electric and telecommunication companies are in the early throes of a
transition toward increased competition, decreased regulation, and increased
volatility for their sales and share prices. One result of this should be
continued consolidation across energy industries. Several of the companies among
the Fund's current holdings have announced or been involved in mergers during
the past twelve months. We expect more mergers in the future and are analyzing
the industry for opportunities for the Fund. Mergers will be an important
defense as utilities seek to achieve economies of scale, gain market share
and/or diversify their source for earnings growth.
While 1996 performance of the Fund compared favorably with that of the S&P
Utility Index, we were somewhat disappointed by overall results. Relatively high
concentrations of electric and telephone securities in the portfolio and lagging
performance of our Real Estate Investment Trusts and technology positions
impacted overall results. In an effort to reduce the risk associated with
holding high concentrations of utility securities, the non-utility sector of the
Fund was increased with the additions of Unocal Corp., Ford Motor Co., Dow
Chemical Co. and Philip Morris Cos., Inc.
In our opinion, underperformance seen in the electric and telephone areas
represent a buying opportunity. We are seeing very attractive historical
valuations in both areas. In fact, the dividend yield differential between the
electric utilities and the S&P 500 is at its highest level in over twenty
years+. If economic growth subsides and the financial markets slow, we would
view utilities with strong competitive characteristics as excellent investment
choices. Likewise, the Fund plans to continue to increase its non-utility
investment, thus reducing sector risk, while being careful not to affect the
Fund's yield. With increased diversification coupled with a utility sector
rebound, the Fund should be on course to provide investors with solid returns
for 1997.
Thank you for your continued investment support and confidence in Evergreen
Utility Fund.
Figures represent past performance which is no guarantee of future results.
* Performance figures include reinvestment of income dividend and capital gain
distributions. Investment return and principal value will fluctuate.
Investors' shares, when redeemed, may be worth more or less than their
original cost.
Class A shares are subject to a maximum 4.75% front-end sales charge, which
is not reflected in the Fund's performance figure above. If reflected,
performance would be lower. The Fund also offers Class B shares which are
subject to a maximum 5% contingent deferred sales charge, and Class C shares
which are subject to a 1% contingent deferred sales charge within the first
year of purchase. Performance for these classes of shares may be different.
** Unmanaged index of selected securities within the utility sector.
*** The S&P 500 Reinvested Index is an unmanaged index of common stocks in
industry, transportation, finance, and public utilities, denoting general
market performance as monitored by Standard & Poor's Corp. An investment can
not be made in an index.
+ Source: Merrill Lynch Electric Utility Industry Overview, 1/8/97
27
<PAGE>
EVERGREEN UTILITY FUND
(photo of power lines)
Results to Date
Performance of $10,000 invested in the
Evergreen Utility Fund
The graphs below compare a $10,000 investment in the Evergreen Utility Fund
(Class A, Class B, Class C and Class Y Shares) with a similar investment in the
S&P 500 and the S&P 500 Utility Indexes ("Indexes").
[four charts appear, plot point listed below]
CLASS A
1-YEAR TOTAL RETURN=0.6%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION=7.1%
1/4/94*
6/30/94
12/31/94
6/30/95
12/31/95
6/30/96
12/31/96
CLASS B
1-YEAR TOTAL RETURN=-1.3%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION=7.2%
1/4/94*
6/30/94/
12/31/94
6/30/95
12/31/95
6/30/96
12/31/96
CLASS C
1-YEAR TOTAL RETURN=2.5%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION=12.4%
9/2/94*
12/31/94
6/30/95
12/31/95
6/30/96
12/31/96
CLASS Y
1-YEAR TOTAL RETURN=4.5%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION=11.2%
2/28/94*
6/30/94
12/31/94
6/30/95
12/31/95
6/30/96
12/31/96
- --Evergreen Utility Fund
S&P Utility Index
S&P 500 Index
*Commencement of class operations.
Past performance is not predictive of future performance results. Mutual funds
are not obligations of, or guaranteed by, any bank and are not federally
insured.
For the purposes of the graphs and the accompanying tables, it has been
assumed that (a) the maximum sales charge of 4.75% was deducted from the initial
$10,000 investment in Class A Shares; (b) the maximum applicable contingent
deferred sales charge was deducted from the value of the investment in Class B
and Class C Shares, assuming full redemption on December 31, 1996; (c) all
recurring fees (including investment advisory fees) net of fee waivers and
reimbursements were deducted; and (d) all dividends and distributions were
reinvested.
The Indexes are unmanaged and include the reinvestment of income, but do
not reflect the payment of transaction costs and advisory fees associated with
an investment in the Fund.
28
<PAGE>
EVERGREEN UTILITY FUND
(photo of power lines)
Statement of Investments
December 31, 1996
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
Common Stocks -- 89.5%
Automotive Equipment &
Manufacturing -- 2.3%
100,000 Ford Motor Co....................... $ 3,187,500
Chemicals & Agricultural
Products -- 2.0%
35,000 Dow Chemical Co. (The).............. 2,743,125
Consumer Products & Services -- 2.9%
35,000 Philip Morris Cos., Inc............. 3,941,875
Healthcare Products &
Services -- 2.2%
75,000 Pharmacia & Upjohn Inc.............. 2,971,875
Real Estate -- 1.1%
6,666* Echelon International Corp.......... 104,156
35,000 Equity Residential Properties
Trust............................... 1,443,750
1,547,906
Utilities -- Electric -- 41.6%
82,000 American Electric Power Co., Inc.... 3,372,250
125,000 Central & South West Corp........... 3,203,125
120,500 CINergy Corp........................ 4,021,687
150,000 Enova Corp.......................... 3,412,500
100,000 Florida Progress Corp............... 3,225,000
100,000 FPL Group, Inc...................... 4,600,000
111,300 GPU, Inc............................ 3,742,463
150,000 Houston Industries, Inc............. 3,393,750
120,000 Illinova Corp....................... 3,300,000
48,000 NIPSCO Industries, Inc.............. 1,902,000
150,000 PacifiCorp.......................... 3,075,000
75,000 Portland General Corp............... 3,150,000
150,000 PP&L Resources, Inc................. 3,450,000
100,000 Public Service Co. of Colorado...... 3,887,500
80,000 Public Service Enterprise Group,
Inc................................. 2,180,000
35,000 Texas Utilities Co.................. 1,426,250
120,000 UtiliCorp United, Inc............... 3,240,000
80,000 Western Resources, Inc.............. 2,470,000
57,051,525
Utilities -- Gas -- 7.3%
120,000 MCN Corp............................ 3,465,000
105,000 NICOR Inc........................... 3,753,750
75,000 Williams Cos., Inc. (The)........... 2,812,500
10,031,250
Utilities -- Telephone -- 30.1%
110,000 ALLTEL Corp......................... 3,451,250
40,000 Ameritech Corp...................... 2,425,000
47,000 Bell Atlantic Corp.................. 3,043,250
<CAPTION>
Shares Value
<C> <S> <C>
</TABLE>
Utilities -- Telephone -- continued
<TABLE>
<C> <S> <C>
90,000 BellSouth Corp...................... $ 3,633,750
175,000 Frontier Corp....................... 3,959,375
130,000 GTE Corp............................ 5,915,000
40,800 Lucent Technologies, Inc............ 1,887,000
150,000 MCI Communications Corp............. 4,903,125
60,000 SBC Communications, Inc............. 3,105,000
60,000 Sprint Corp......................... 2,392,500
37,000 Telefonica de Espana SA de CV,
ADR................................. 2,562,250
125,000 U.S. West Communications Group...... 4,031,250
41,308,750
Total Common Stocks
(cost $104,554,221)............ 122,783,806
Convertible Preferred Stocks -- 7.0%
Energy -- 2.1%
50,000 Unocal Corp......................... 2,850,000
Utilities -- Telephone -- 4.9%
100,000 AirTouch Communications............. 2,725,000
24,000 Compania de Iversiones en
Telecomunicaciones SA, PRIDES
(exchangeable for ADS's of
Telefonica de Argentina SA), 144A... 1,266,000
80,100 Nacional Financiera, SNC, PRIDES
(exchangeable for ADS's of Telefonos
de Mexico, SA de CV), 144A.......... 2,703,375
6,694,375
Total Convertible Preferred Stocks
(cost $10,052,824)............. 9,544,375
<CAPTION>
Principal
Amount
<C> <S> <C>
Corporate Bonds -- 3.0%
Utilities -- Electric -- 2.3%
$1,000,000 Duke Power Co.
7.00%, 9/1/05....................... 991,598
1,000,000 Norsk Hydro AS
7.75%, 6/15/23...................... 1,036,738
1,000,000 Virginia Electric & Power Co.
7.57%, 12/9/02...................... 1,041,369
3,069,705
Utilities -- Telephone -- .7%
1,000,000 Pacific Telephone & Telegraph Co.
7.25%, 2/1/08....................... 989,258
Total Corporate Bonds
(cost $3,802,643).............. 4,058,963
</TABLE>
29
<PAGE>
EVERGREEN UTILITY FUND
(photo of power lines)
Statement of Investments -- (continued)
December 31, 1996
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
Repurchase Agreement -- .1%
$ 164,736 Donaldson, Lufkin & Jenrette
Securities Corp., 6.50% dated
12/31/96, due 1/2/97 --
collateralized by $156,000 U.S.
Treasury Notes, 8.00%, 5/15/01;
value, including accrued interest
$169,111
(cost $164,736)..................... $ 164,736
Total Investments --
(cost $118,574,424)........ 99.6% 136,551,880
Other Assets and
Liabilities -- net......... .4 597,673
Net Assets --................ 100.0% $137,149,553
</TABLE>
* Non-income producing securities.
The following abbreviations are used in this portfolio:
ADR -- American Depository Receipts
ADS -- American Depository Shares
PRIDES -- Provisionally Redeemable Income Debt Exchangeable for Stock
Rule 144A securities are restricted as to resale to qualified institutional
investors.
See accompanying notes to financial statements.
30
<PAGE>
EVERGREEN UTILITY FUND
(photo of power lines)
Statement of Assets and Liabilities
December 31, 1996
<TABLE>
<S> <C>
Assets:
Investments at value (identified cost $118,574,424)........................................................... $136,551,880
Dividends and interest receivable............................................................................. 791,166
Receivable for Fund shares sold............................................................................... 146,676
Prepaid expenses.............................................................................................. 41,759
Total assets............................................................................................... 137,531,481
Liabilities:
Payable for Fund shares repurchased........................................................................... 160,263
Distribution fee payable...................................................................................... 95,969
Accrued expenses.............................................................................................. 95,148
Accrued advisory fee.......................................................................................... 30,548
Total liabilities.......................................................................................... 381,928
Net assets....................................................................................................... $137,149,553
Net assets consist of:
Paid-in capital............................................................................................... $119,094,687
Undistributed net investment income........................................................................... 100,717
Distributions in excess of net realized gains on investment transactions...................................... (23,307)
Net unrealized appreciation of investments.................................................................... 17,977,456
Net assets................................................................................................. $137,149,553
Calculation of net asset value and maximum offering price per share:
Class A Shares ($96,242,902/9,103,549 shares of beneficial interest outstanding)................................. $ 10.57
Sales charge -- 4.75% of offering price.......................................................................... .53
Maximum offering price........................................................................................ $ 11.10
Class B Shares ($38,510,738/3,640,035 shares of beneficial interest outstanding)................................. $ 10.58
Class C Shares ($395,720/37,407 shares of beneficial interest outstanding)....................................... $ 10.58
Class Y Shares ($2,000,193/189,013 shares of beneficial interest outstanding).................................... $ 10.58
</TABLE>
See accompanying notes to financial statements.
31
<PAGE>
EVERGREEN UTILITY FUND
(photo of power lines)
Statement of Operations
Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
Investment income:
Dividends (net of foreign withholding taxes of $18,580)......................................... $ 6,423,879
Interest........................................................................................ 452,100
Total investment income...................................................................... 6,875,979
Expenses:
Advisory fee.................................................................................... $ 725,733
Administrative personnel and service fees....................................................... 70,215
Distribution fee -- Class A Shares.............................................................. 252,753
Distribution fee -- Class B Shares.............................................................. 283,875
Shareholder services fee -- Class B Shares...................................................... 94,625
Distribution fee -- Class C Shares.............................................................. 2,843
Shareholder services fee -- Class C Shares...................................................... 948
Transfer agent fee.............................................................................. 224,192
Custodian fee................................................................................... 91,954
Reports and notices to shareholders............................................................. 85,237
Registration and filing fees.................................................................... 45,962
Professional fees............................................................................... 30,625
Insurance expense............................................................................... 2,903
Trustees' fees and expenses..................................................................... 1,386
Miscellaneous................................................................................... 21,098
Total expenses............................................................................... 1,934,349
Less: Fee waivers............................................................................... (396,483)
Net expenses................................................................................. 1,537,866
Net investment income.............................................................................. 5,338,113
Net realized and unrealized gain (loss) on investments:
Net realized gain on investments................................................................ 3,459,558
Net decrease in unrealized appreciation of investments.......................................... (3,509,310)
Net loss on investments............................................................................ (49,752)
Net increase in net assets resulting from operations............................................... $ 5,288,361
</TABLE>
See accompanying notes to financial statements.
32
<PAGE>
EVERGREEN UTILITY FUND
(photo of power lines)
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended
December 31,
1996 1995
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................................................... $ 5,338,113 $ 3,889,362
Net realized gain on investments.......................................................... 3,459,558 6,197,705
Net change in unrealized appreciation of investments...................................... (3,509,310) 17,561,515
Net increase in net assets resulting from operations................................... 5,288,361 27,648,582
Distributions to shareholders from:
Net investment income:
Class A Shares............................................................................ (3,887,411) (2,358,231)
Class B Shares............................................................................ (1,173,301) (1,177,734)
Class C Shares............................................................................ (11,835) (6,275)
Class Y Shares............................................................................ (229,804) (298,965)
Total distributions to shareholders from net investment
income.............................................................................. (5,302,351) (3,841,205)
Net realized gain on investments:
Class A Shares............................................................................ (2,465,668) (4,315,104)
Class B Shares............................................................................ (979,858) (1,416,839)
Class C Shares............................................................................ (10,055) (9,717)
Class Y Shares............................................................................ (53,192) (316,309)
Total distributions to shareholders from net realized gain on investments.............. (3,508,773) (6,057,969)
In excess of net realized gains on investments:
Class A Shares............................................................................ (16,378) --
Class B Shares............................................................................ (6,509) --
Class C Shares............................................................................ (67) --
Class Y Shares............................................................................ (353) --
Total distributions in excess of net realized gain on investments...................... (23,307) --
Total distributions to shareholders................................................. (8,834,431) (9,899,174)
Fund share transactions:
Proceeds from shares sold................................................................. 12,422,675 8,809,765
Proceeds from shares issued from the acquisition of ABT
Utility Income Fund, Inc............................................................... -- 99,162,259
Proceeds from reinvestment of distributions............................................... 7,082,140 7,723,699
Payment for shares redeemed............................................................... (30,379,907) (20,186,142)
Net increase (decrease) from Fund share transactions................................... (10,875,092) 95,509,581
Net increase (decrease) in net assets............................................... (14,421,162) 113,258,989
Net assets:
Beginning of year......................................................................... 151,570,715 38,311,726
End of year (including undistributed net investment income of $100,717 and $68,090,
respectively)........................................................................... $137,149,553 $151,570,715
</TABLE>
See accompanying notes to financial statements.
33
<PAGE>
EVERGREEN UTILITY FUND -- CLASS A AND B SHARES
(photo of power lines)
Financial Highlights
<TABLE>
<CAPTION>
Class A Shares Class B Shares
January 4,
1994*
Year Ended through Year Ended
December 31, December 31, December 31,
1996 1995 1994 1996 1995
<S> <C> <C> <C> <C> <C>
Per Share Data:
Net asset value, beginning of period...................... $10.80 $9.00 $10.00 $10.81 $9.00
Income (loss) from investment operations:
Net investment income................................... .41 .44 .45 .33 .37
Net realized and unrealized gain (loss) on
investments........................................... .05 2.25 (1.01) .05 2.26
Total from investment operations...................... .46 2.69 (.56) .38 2.63
Less distributions to shareholders from:
Net investment income................................... (.41) (.44) (.44) (.33) (.37)
Net realized gain on investments........................ (.28) (.45) -- (.28) (.45)
Total distributions................................... (.69) (.89) (.44) (.61) (.82)
Net asset value, end of period............................ $10.57 $10.80 $9.00 $10.58 $10.81
Total Return+............................................. 4.4% 30.7% (5.6%) 3.6% 29.9%
Ratios & Supplemental Data:
Net assets, end of period (000's omitted)................. $96,243 $107,872 $4,190 $38,511 $35,662
Ratios to average net assets:
Expenses**.............................................. .87% .79% .53%++ 1.62% 1.53%
Net investment income**................................. 3.87% 4.51% 5.07%++ 3.12% 3.78%
Portfolio turnover rate................................... 59% 88% 23% 59% 88%
Average commission rate paid per share.................... $.0605 N/A N/A $.0605 N/A
<CAPTION>
January 4,
1994*
through
December 31,
1994
<S> <C>
Per Share Data:
Net asset value, beginning of period...................... $10.00
Income (loss) from investment operations:
Net investment income................................... .39
Net realized and unrealized gain (loss) on
investments........................................... (1.01)
Total from investment operations...................... (.62)
Less distributions to shareholders from:
Net investment income................................... (.38)
Net realized gain on investments........................ --
Total distributions................................... (.38)
Net asset value, end of period............................ $9.00
Total Return+............................................. (6.2%)
Ratios & Supplemental Data:
Net assets, end of period (000's omitted)................. $28,792
Ratios to average net assets:
Expenses**.............................................. 1.27%++
Net investment income**................................. 4.19%++
Portfolio turnover rate................................... 23%
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 charge is not reflected.
++ Annualized.
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment adviser, the annualized ratios
of expenses and net investment income to average net assets would have been
the following:
<TABLE>
<CAPTION>
Class A Shares Class B Shares
January 4,
1994*
Year Ended through Year Ended
December 31, December 31, December 31,
1996 1995 1994 1996 1995
<S> <C> <C> <C> <C> <C>
Expenses................................................. 1.15% 1.18% 1.43% 1.89% 1.93%
Net investment income.................................... 3.59% 4.12% 4.17% 2.85% 3.37%
<CAPTION>
January 4,
1994*
through
December 31,
1994
<S> <C>
Expenses................................................. 2.11%
Net investment income.................................... 3.35%
</TABLE>
See accompanying notes to financial statements.
34
<PAGE>
EVERGREEN UTILITY FUND -- CLASS C AND Y SHARES
(photo of power lines)
Financial Highlights -- (continued)
<TABLE>
<CAPTION>
Class C Shares Class Y Shares
September 2,
1994*
Year Ended through Year Ended
December 31, December 31, December 31,
1996 1995 1994 1996 1995
<S> <C> <C> <C> <C> <C>
Per Share Data:
Net asset value, beginning of period............................ $10.82 $9.01 $9.33 $10.82 $9.00
Income (loss) from investment operations:
Net investment income......................................... .33 .37 .12 .44 .47
Net realized and unrealized gain (loss) on investments........ .04 2.26 (.33) .03 2.27
Total from investment operations............................ .37 2.63 (.21) .47 2.74
Less distributions to shareholders:
From net investment income.................................... (.33) (.37) (.11) (.43) (.47)
In excess of net investment income............................ -- -- -- -- --
From net realized gain on investments......................... (.28) (.45) -- (.28) (.45)
Total distributions......................................... (.61) (.82) (.11) (.71) (.92)
Net asset value, end of period.................................. $10.58 $10.82 $9.01 $10.58 $10.82
Total Return+................................................... 3.5% 29.8% (2.2%) 4.5% 31.3%
Ratios & Supplemental Data:
Net assets, end of period (000's omitted)....................... $396 $246 $128 $2,000 $7,791
Ratios to average net assets:
Expenses**.................................................... 1.63% 1.54% 1.94%++ .61% .54%
Net investment income**....................................... 3.13% 3.76% 3.96%++ 4.01% 4.76%
Portfolio turnover rate......................................... 59% 88% 23% 59% 88%
Average commission rate paid per share.......................... $.0605 N/A N/A $.0605 N/A
<CAPTION>
February 28,
1994*
through
December 31,
1994
<S> <C>
Per Share Data:
Net asset value, beginning of period............................ $9.51
Income (loss) from investment operations:
Net investment income......................................... .37
Net realized and unrealized gain (loss) on investments........ (.50)
Total from investment operations............................ (.13)
Less distributions to shareholders:
From net investment income.................................... (.37)
In excess of net investment income............................ (.01)
From net realized gain on investments......................... --
Total distributions......................................... (.38)
Net asset value, end of period.................................. $9.00
Total Return+................................................... (1.6%)
Ratios & Supplemental Data:
Net assets, end of period (000's omitted)....................... $5,201
Ratios to average net assets:
Expenses**.................................................... .40%++
Net investment income**....................................... 4.93%++
Portfolio turnover rate......................................... 23%
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.
** 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 C Shares Class Y Shares
September 2,
1994*
Year Ended through Year Ended
December 31, December 31, December 31,
1996 1995 1994 1996 1995
<S> <C> <C> <C> <C> <C>
Expenses....................................................... 1.90% 1.93% 2.78% .89% .93%
Net investment income.......................................... 2.86% 3.37% 3.12% 3.73% 4.37%
<CAPTION>
February 28,
1994*
through
December 31,
1994
<S> <C>
Expenses....................................................... 1.24%
Net investment income.......................................... 4.09%
</TABLE>
See accompanying notes to financial statements.
35
<PAGE>
EVERGREEN VALUE FUND
(photo of building)
A Report From Your
Portfolio Managers
David Francis
J. Donald Raines
We are pleased to present the 1996 Annual Report for (photo of David
Evergreen Value Fund. The Fund's total return of 19.2%* (Class Francis)
Y, no-load shares) for the 12 months ended December 31, 1996,
compares with the total return of 23.0% for the S&P 500 (photo of J.
Reinvested Index** for that time. The total return at net Donald Raines)
asset value for the Fund's Class A shares was 18.9%*. (Please
see page 37 for additional performance information.)
The stock market again rewarded investors during 1996, as
the S&P 500 posted its eighth consecutive quarterly gain. The
two most often cited reasons for the advance
were the continued strong money flows into equity funds, and a
growing confidence among investors that inflation will remain
subdued and allow the Federal Reserve to avoid raising
interest rates in the foreseeable future. While the Fund
outperformed the S&P 500 during three of the four quarters in
1996, underperformance came during the second quarter when
both sector weightings and individual security selection was
somewhat out of step with the market. Strong performance
resumed in the fourth quarter, and the Fund outpaced the S&P
500 by over 100 basis points during the period, capping off a
strong year.
The portfolio's returns can be attributed to individual
stock selection as well as a few key sector weightings. An
overweight in financials proved beneficial as the sector again
posted impressive results. Illustrative of our financials holdings' success was
Boatmen's Bancshares, Inc., which was acquired by NationsBank during the third
quarter and returned 61.7% for the year. We continue to believe that the
banking group represents an attractive investment opportunity. Consolidation and
cost-cutting have been, and continue to be, the driving force in this industry.
Thus, we will remain overweighted in this sector. Our emphasis within the energy
sector, specifically natural gas and oil refinery stocks, also lifted portfolio
returns. Representing the energy sector is Tosco Corp., a refiner and processor
of petroleum products. Tosco jumped roughly 20% in one day on news of its
impending acquisition of the refining and marketing interests of Unocal Corp.
Tosco posted 109.2% return for the year. The supply and demand situation
continues to favor the energy sector, as low inventory levels and a cold winter
have made natural gas area particularly attractive. We believe this will result
in a strong pricing environment which will benefit stock prices. Supporting our
belief, we acquired shares of Ashland, Inc., as we feel oil refiners will also
benefit from improving stock margins. Positions in the technology area, led by
semiconductor companies, fueled portfolio performance as holdings such as IBM
and Intel Corp. rose 67.2% and 131.2%, respectively. In addition, Nokia Corp.,
reported strong earnings, confirming our belief that the company's restructuring
efforts are beginning to improve its earnings profile.
Coming off of two outstanding years, we feel the market is likely headed
toward more modest returns. Although possible economic softness in the first
half exposes the market to a possible correction, long term we believe solid
positive fundamentals remain in place. Individual stock selection becomes even
more essential to portfolio success in this environment and we will look for
opportunities to selectively add positions within the communication and consumer
staples sectors. We will continue to focus on companies with strong positions
within their respective industries, diverse distribution channels and consistent
earnings growth as we feel they will help provide above-average, long-term
rewards.
Figures represent past performance which is no guarantee of future results.
* Performance figures include reinvestment of income dividend and capital gain
distributions.
Investment return and principal value will fluctuate. Investors' shares, when
redeemed, may be worth more or less than their original cost.
Class A shares are subject to a maximum 4.75% front-end sales charge which is
not reflected in the Fund's performance figure above. If reflected,
performance would be lower. The Fund also offers Class B shares which are
subject to a maximum 5% contingent deferred sales charge, and Class C shares
which are subject to a 1% contingent deferred sales charge within the first
year of purchase. Performance for these classes of shares may be different.
** The S&P 500 Reinvested Index is an unmanaged index of common stocks in
industry, transportation, finance, and public utilities, denoting general
market performance as monitored by Standard & Poor's Corp. An investment can
not be made in an index.
36
<PAGE>
EVERGREEN VALUE FUND
(photo of building)
Results to Date
Performance of $10,000 invested in the
Evergreen Value Fund
The graphs below compare a $10,000 investment in the Evergreen Value Fund
(Class A, Class B, Class C and Class Y Shares) with a similar investment in the
S&P 500 Index ("Index").
(four charts appear, plot points listed below)
CLASS A
1-YEAR TOTAL RETURN=13.3%
AVERAGE ANNUAL COMPOUND RETURN:
5-YEAR=12.4%
10-YEAR=12.9%
12/31/86
12/31/87
12/31/88
12/31/89
12/31/90
12/31/91
12/31/92
12/31/93
12/31/94
12/31/95
12/31/96
CLASS B
1-YEAR TOTAL RETURN=13.1%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION=13.8%
2/2/93*
12/31/93
12/31/94
12/31/95
12/31/96
CLASS C
1-YEAR TOTAL RETURN=17.1%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION=18.8%
9/2/94*
12/31/94
12/31/95
12/31/96
CLASS Y
1-YEAR TOTAL RETURN=19.2%
AVERAGE ANNUAL COMPOUND RETURN:
5-YEAR=13.8%
SINCE INCEPTION=16.1%
1/3/91*
12/31/91
12/31/92
12/31/93
12/31/94
12/31/95
12/31/96
*Commencement of class operations.
Past performance is not predictive of future performance results. Mutual funds
are not obligations of, or guaranteed by, any bank and are not federally
insured.
For the purposes of the graphs and the accompanying tables, it has been
assumed that (a) the maximum sales charge of 4.75% was deducted from the initial
$10,000 investment in Class A Shares; (b) the maximum applicable contingent
deferred sales charge was deducted from the value of the investment in Class B
and Class C Shares, assuming full redemption on December 31, 1996; (c) all
recurring fees (including investment advisory fees) were deducted; and (d) all
dividends and distributions were reinvested.
The Index is unmanaged and includes the reinvestment of income, but does
not reflect the payment of transaction costs and advisory fees associated with
an investment in the Fund.
37
<PAGE>
EVERGREEN VALUE FUND
(photo of building)
Statement of Investments
December 31, 1996
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
Common Stocks -- 94.3%
Aerospace & Defense -- .1%
112,000* Newport News Shipbuilding,
Inc............................. $ 1,680,000
Automotive Equipment &
Manufacturing -- 1.3%
626,500 Ford Motor Co................... 19,969,688
Banks -- 17.9%
400,000 Bank of Boston Corp............. 25,700,000
380,000 Bankers Trust New York Corp..... 32,775,000
410,000 Boatmen's Bancshares, Inc....... 26,445,000
811,800 Central Fidelity Banks, Inc..... 20,903,850
232,900 Chase Manhattan Corp............ 20,786,325
218,400 Citicorp CCI.................... 22,495,200
686,600 CoreStates Financial Corp....... 35,617,375
670,700 First Chicago NBD Corp.......... 36,050,125
248,500 First Security Corp............. 8,386,875
430,600 First Tennessee National Corp... 16,147,500
234,500 SouthTrust Corp................. 8,178,188
247,730 Summit Bancorp.................. 10,838,187
200,100 Union Planters Corp............. 7,803,900
272,127,525
Business Equipment &
Services -- 4.5%
841,610* Cabletron Systems, Inc.......... 27,983,532
225,500* Cisco Systems, Inc.............. 14,347,438
172,300 International Business Machines
Corp............................ 26,017,300
68,348,270
Chemical & Agricultural
Products -- 3.6%
1,027,500 Cabot Corp...................... 25,815,938
366,200 Dow Chemical Co. (The).......... 28,700,925
54,516,863
Consumer Products &
Services -- 4.8%
808,200 American Brands, Inc............ 40,106,925
296,100 Philip Morris Cos., Inc......... 33,348,262
73,455,187
Diversified Companies -- 6.4%
989,300 Frontier Corp................... 22,382,913
336,600 General Electric Co............. 33,281,325
171,200 Loews Corp...................... 16,135,600
560,000 Tenneco, Inc.................... 25,270,000
97,069,838
<CAPTION>
Shares Value
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
Electrical Equipment &
Services -- 5.6%
1,365,000* ADT Ltd......................... $ 31,224,375
840,700* Applied Materials, Inc.......... 30,212,656
463,900 Varian Associates, Inc.......... 23,600,913
85,037,944
Energy -- 9.7%
123,800 Mobil Corp...................... 15,134,550
637,500 Sonat, Inc...................... 32,831,250
154,800 Texaco, Inc..................... 15,189,750
615,300 Tosco Corp...................... 48,685,612
700,000 Union Pacific Resource Group,
Inc............................. 20,475,000
360,000 Unocal Corp..................... 14,625,000
146,941,162
Finance & Insurance -- 3.2%
396,400 ITT Hartford Group, Inc......... 26,757,000
529,800 Travelers/Aetna Property
Casualty Cl. A.................. 18,741,675
40,000 UNUM Corp....................... 2,890,000
48,388,675
Food & Beverage
Products -- 2.0%
740,750 American Stores Co.............. 30,278,156
Food Retailing &
Distribution -- 3.4%
644,400 General Mills, Inc.............. 40,838,850
1,602,475* Shoney's, Inc................... 11,217,325
52,056,175
Healthcare Products &
Services -- 8.1%
277,900 Bristol-Myers Squibb Co......... 30,221,625
348,525* OrNda Healthcorp................ 10,194,356
790,300 Pharmacia & Upjohn Inc.......... 31,315,637
1,354,300* Tenet Healthcare Corp........... 29,625,313
1,100,800* Value Health, Inc............... 21,465,600
122,822,531
Industrial Specialty Products &
Services -- 1.0%
229,600 Aluminum Co. of America......... 14,637,000
</TABLE>
Information Services &
Technology -- 1.6%
190,400 Intel Corp...................... 24,930,500
38
<PAGE>
EVERGREEN VALUE FUND
(photo of building)
Statement of Investments -- (continued)
December 31, 1996
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
</TABLE>
Common Stocks -- continued
<TABLE>
<C> <S> <C>
Manufacturing --
Distributing -- 1.4%
902,000* Teradyne, Inc................... $ 21,986,250
Oil -- 6.8%
342,900 Ashland Inc..................... 15,044,737
370,000 Kerr-McGee Corp................. 26,640,000
965,000 Ultramar Diamond Shamrock
Corp............................ 30,518,125
841,350 Williams Cos., Inc. (The)....... 31,550,625
103,753,487
Telecommunication Services &
Equipment -- 2.4%
646,600 Nokia Corp...................... 37,260,325
Transportation -- 3.3%
262,100 Burlington Northern
Santa Fe........................ 22,638,888
322,900 Norfolk Southern Corp........... 28,253,750
50,892,638
Utilities -- 7.2%
465,000 CINergy Corp.................... 15,519,375
52,080 El Paso Natural Gas Co.......... 2,630,040
683,200 GTE Corp........................ 31,085,600
637,800 Houston Inds., Inc.............. 14,430,225
809,700 Illinova Corp................... 22,266,750
671,800 NICOR Inc....................... 24,016,850
109,948,840
Total Common Stocks
(cost $1,199,747,522)........... 1,436,101,054
</TABLE>
Convertible Preferred Stocks -- 1.7%
Energy -- .8%
227,664 Unocal Corp., 144A.............. 12,976,848
Manufacturing --
Distributing -- .9%
98,200 Case Corp....................... 13,134,250
Total Convertible Preferred
Stocks
(cost $24,199,251).............. 26,111,098
Principal
Amount Value
Repurchase Agreement -- 2.2%
$33,030,516 Donaldson, Lufkin & Jenrette
Securities Corp., 6.50%, dated
12/31/96, due 1/2/97 --
collateralized by $104,066,000,
U.S. Treasury notes, zero coupon
due 5/15/97 to 11/14/24; value
including accrued interest --
$27,935,696 and $4,913,000, U.S.
Treasury Bonds, 8.00%, 11/15/21;
value including accrued
interest -- $5,755,549 (cost
$33,030,516).................... $ 33,030,516
<TABLE>
<CAPTION>
Total Investments --
(cost $1,256,977,289)... 98.2% 1,495,242,668
<C> <S> <C> <C>
Other Assets and
Liabilities -- net.... 1.8 27,993,963
Net Assets.............. 100.0% $1,523,236,631
</TABLE>
* Non-income producing securities.
Rule 144A securities are restricted as to resale to qualified institutional
investors.
See accompanying notes to financial statements.
39
<PAGE>
EVERGREEN VALUE FUND
(photo of building)
Statement of Assets and Liabilities
December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments at value (identified cost $1,256,977,289)....................................................... $1,495,242,668
Receivable for Fund shares sold............................................................................. 27,957,094
Dividends and interest receivable........................................................................... 3,708,019
Prepaid expenses............................................................................................ 50,613
Total assets.......................................................................................... 1,526,958,394
Liabilities:
Payable for Fund shares repurchased......................................................................... 2,067,603
Accrued expenses............................................................................................ 674,263
Accrued advisory fee........................................................................................ 662,651
Distribution fee payable.................................................................................... 317,246
Total liabilities..................................................................................... 3,721,763
Net assets..................................................................................................... $1,523,236,631
Net assets consist of:
Paid-in capital............................................................................................. $1,285,758,755
Undistributed net investment income......................................................................... 292,413
Distribution in excess of net realized gain on investment transactions...................................... (1,079,916)
Net unrealized appreciation of investments.................................................................. 238,265,379
Net assets............................................................................................... $1,523,236,631
Calculation of net asset value and maximum offering price per share:
Class A Shares ($328,028,184/15,943,945 shares of beneficial interest outstanding).......................... $ 20.57
Sales charge -- 4.75% of offering price..................................................................... 1.03
Maximum offering price................................................................................ $ 21.60
Class B Shares ($197,410,901/9,594,642 shares of beneficial interest outstanding)........................... $ 20.58
Class C Shares ($1,458,241/70,941 shares of beneficial interest outstanding)................................ $ 20.56
Class Y Shares ($996,339,305/48,435,529 shares of beneficial interest outstanding).......................... $ 20.57
</TABLE>
See accompanying notes to financial statements.
40
<PAGE>
EVERGREEN VALUE FUND
(photo of building)
Statement of Operations
Year Ended December 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
Investment income:
Dividends (net of foreign withholding taxes of $23,070)...................................... $ 34,250,957
Interest..................................................................................... 2,988,223
Total investment income................................................................ 37,239,180
Expenses:
Advisory fee................................................................................. $6,950,730
Administrative personnel and service fee..................................................... 670,060
Distribution fee -- Class A Shares........................................................... 767,254
Distribution fee -- Class B Shares........................................................... 1,255,600
Shareholder services fee -- Class B Shares................................................... 418,533
Distribution fee -- Class C Shares........................................................... 8,706
Shareholder services fee -- Class C Shares................................................... 2,902
Transfer agent fee........................................................................... 631,695
Custodian fee................................................................................ 328,227
Reports and notices to shareholders.......................................................... 294,326
Registration and filing fees................................................................. 166,097
Professional fees............................................................................ 87,113
Trustees' fees and expenses.................................................................. 17,961
Insurance.................................................................................... 17,785
Miscellaneous................................................................................ 23,242
Total expenses......................................................................... 11,640,231
Net investment income........................................................................... 25,598,949
Net realized and unrealized gain on investments:
Net realized gain on investment transactions................................................. 216,135,176
Net increase in unrealized appreciation of investments....................................... 11,014,356
Net gain on investments......................................................................... 227,149,532
Net increase in net assets resulting from operations............................................ $252,748,481
</TABLE>
See accompanying notes to financial statements.
41
<PAGE>
EVERGREEN VALUE FUND
(photo of building)
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended
December 31,
1996 1995
Increase (decrease) in net assets:
Operations:
Net investment income................................................................. $ 25,598,949 $ 29,177,545
Net realized gain on investment transactions.......................................... 216,135,176 50,649,714
Net change in unrealized appreciation of
investments........................................................................ 11,014,356 196,633,111
Net increase in net assets resulting from operations............................... 252,748,481 276,460,370
Distributions to shareholders:
From investment income:
Class A Shares........................................................................ (5,758,586) (6,221,428)
Class B Shares........................................................................ (1,939,188) (2,281,745)
Class C Shares........................................................................ (14,165) (12,030)
Class Y Shares........................................................................ (19,538,457) (19,218,021)
Total distributions from net investment income..................................... (27,250,396) (27,733,224)
From realized gain on investments:
Class A Shares........................................................................ (45,832,278) (12,319,599)
Class B Shares........................................................................ (27,532,324) (5,935,694)
Class C Shares........................................................................ (204,292) (33,758)
Class Y Shares........................................................................ (141,841,285) (32,229,160)
Total distributions from net realized gain on investments.......................... (215,410,179) (50,518,211)
In excess of net realized gain on investments:
Class A Shares........................................................................ (229,771) --
Class B Shares........................................................................ (138,028) --
Class C Shares........................................................................ (1,024) --
Class Y Shares........................................................................ (711,093) --
Total distributions in excess of net realized gain on investments.................. (1,079,916) --
Total distributions to shareholders................................................ (243,740,491) (78,251,435)
Fund share transactions:
Proceeds from shares sold............................................................. 396,972,164 309,533,208
Proceeds from acquisition of ABT Growth and Income Trust.............................. -- 63,356,435
Proceeds from acquisition of FFB Lexicon Select Value Fund............................ 95,883,824 --
Proceeds from acquisition of FFB Equity Fund.......................................... 14,077,973 --
Proceeds from reinvestment of distributions........................................... 187,361,591 66,652,380
Payments for shares redeemed.......................................................... (375,117,185) (243,317,457)
Net increase resulting from Fund share transactions................................ 319,178,367 196,224,566
Net increase in net assets...................................................... 328,186,357 394,433,501
Net assets:
Beginning of year..................................................................... 1,195,050,274 800,616,773
End of year (including undistributed net investment income of $292,413 and $1,943,860,
respectively)....................................................................... $1,523,236,631 $1,195,050,274
</TABLE>
See accompanying notes to financial statements.
42
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN VALUE FUND -- CLASS A SHARES
(photo of building)
Financial Highlights
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1996 1995 1994 1993 1992
Per Share Data:
Net asset value, beginning of year......................................... $20.45 $16.62 $17.63 $17.11 $17.08
Income from investment operations:
Net investment income.................................................... .38 .55 .52 .47 .44
Net realized and unrealized gain (loss) on investments................... 3.49 4.69 (.20) 1.10 .89
Total from investment operations....................................... 3.87 5.24 .32 1.57 1.33
Less distributions to shareholders from:
Net investment income.................................................... (.41) (.51) (.51) (.47) (.43)
Net realized gain on investments......................................... (3.32) (.90) (.82) (.58) (.87)
Distributions in excess of net realized gain on investments.............. (.02) -- -- -- --
Total distributions.................................................... (3.75) (1.41) (1.33) (1.05) (1.30)
Net asset value, end of year............................................... $20.57 $20.45 $16.62 $17.63 $17.11
Total Return+.............................................................. 18.9% 31.8% 1.9% 9.3% 8.0%
Ratios & Supplemental Data:
Net assets, end of year (in millions)...................................... $328 $292 $189 $190 $169
Ratios to average net assets:
Expenses................................................................. .91% .90% .93% .99% 1.01%*
Net investment income.................................................... 1.77% 2.78% 2.96% 2.63% 2.37%*
Portfolio turnover rate.................................................... 91% 53% 70% 46% 56%
Average commission rate paid per share..................................... $.0588 N/A N/A N/A N/A
</TABLE>
+ Initial sales charge is not reflected.
* 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 would have been
the following:
<TABLE>
<CAPTION>
Year Ended
December 31, 1992
<S> <C>
Expenses.............................................................................. 1.02%
Net investment income................................................................. 2.36%
</TABLE>
See accompanying notes to financial statements.
43
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN VALUE FUND -- CLASS B AND C SHARES
(photo of building)
Financial Highlights -- (continued)
<S> <C> <C> <C> <C> <C> <C>
Class B Shares Class C Shares
February 2,
1993*
Year Ended through Year Ended
December 31, December 31, December 31,
1996 1995 1994 1993 1996 1995
Per Share Data:
Net asset value, beginning of
period.......................... $20.45 $16.62 $17.63 $17.24 $20.44 $16.61
Income (loss) from investment
operations:
Net investment income........... .22 .39 .42 .35 .22 .39
Net realized and unrealized gain
(loss) on investments......... 3.50 4.70 (.20) 1.01 3.50 4.70
Total from investment
operations.................. 3.72 5.09 .22 1.36 3.72 5.09
Less distributions to shareholders
from:
Net investment income........... (.25) (.36) (.41) (.35 ) (.26 ) (.36 )
Net realized gain on
investments................... (3.32) (.90) (.82) (.58 ) (3.32 ) (.90 )
Distributions in excess of net
investment income............. -- -- -- (.04 ) -- --
Distributions in excess of net
realized gain on
investments................... (.02) -- -- -- (.02 ) --
Total distributions........... (3.59) (1.26) (1.23) (.97 ) (3.60 ) (1.26 )
Net asset value, end of
period........................ $20.58 $20.45 $16.62 $17.63 $20.56 $20.44
Total Return+..................... 18.1% 30.9% 1.3% 8.0% 18.1% 30.9%
Ratios & Supplemental Data:
Net assets, end of period (000's
omitted)........................ $197,411 $141,072 $104,297 $59,953 $1,458 $811
Ratios to average net assets:
Expenses........................ 1.66% 1.65% 1.53% 1.48% ++ 1.67% 1.65%
Net investment income........... 1.01% 2.04% 2.36% 2.09% ++ 1.00% 2.03%
Portfolio turnover rate........... 91% 53% 70% 46% 91% 53%
Average commission rate paid per
share........................... $.0588 N/A N/A N/A $.0588 N/A
<CAPTION>
September 2,
1994*
through
December 31,
1994
Per Share Data:
Net asset value, beginning of
period.......................... $18.28
Income (loss) from investment
operations:
Net investment income........... .19
Net realized and unrealized gain
(loss) on investments......... (.81 )
Total from investment
operations.................. (.62 )
Less distributions to shareholders
from:
Net investment income........... (.19 )
Net realized gain on
investments................... (.82 )
Distributions in excess of net
investment income............. (.04 )
Distributions in excess of net
realized gain on
investments................... --
Total distributions........... (1.05 )
Net asset value, end of
period........................ $16.61
Total Return+..................... (3.4% )
Ratios & Supplemental Data:
Net assets, end of period (000's
omitted)........................ $485
Ratios to average net assets:
Expenses........................ 1.68% ++
Net investment income........... 2.16% ++
Portfolio turnover rate........... 70%
Average commission rate paid per
share........................... N/A
<CAPTION>
</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 charges are not
reflected.
++ Annualized.
See accompanying notes to financial statements.
44
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN VALUE FUND -- CLASS Y SHARES
(photo of building)
Financial Highlights -- (continued)
<S> <C> <C> <C> <C>
Year Ended December 31,
1996 1995 1994 1993
Per Share Data:
Net asset value, beginning of year...................................... $20.45 $16.61 $17.63 $17.11
Income from investment operations:
Net investment income................................................. .44 .57 .56 .52
Net realized and unrealized gain (loss)
on investments...................................................... 3.49 4.72 (.20) 1.12
Total from investment operations.................................... 3.93 5.29 .36 1.64
Less distributions to shareholders from:
Net investment income................................................. (.47) (.55) (.56) (.52)
Net realized gain on investments...................................... (3.32) (.90) (.82) (.58)
Distributions in excess of net investment income...................... -- -- -- (.02)
Distributions in excess of net realized gain on investments........... (.02) -- -- --
Total distributions................................................. (3.81) (1.45) (1.38) (1.12)
Net asset value, end of year.......................................... $20.57 $20.45 $16.61 $17.63
Total Return............................................................ 19.2% 32.2% 2.1% 9.7%
Ratios & Supplemental Data:
Net assets, end of year (in millions)................................... $996 $761 $507 $463
Ratios to average net assets:
Expenses.............................................................. .66% .65% .68% .65%
Net investment income................................................. 2.02% 3.02% 3.21% 2.98%
Portfolio turnover rate................................................. 91% 53% 70% 46%
Average commission rate paid per share.................................. $.0588 N/A N/A N/A
<CAPTION>
1992
Per Share Data:
Net asset value, beginning of year...................................... $17.08
Income from investment operations:
Net investment income................................................. .49
Net realized and unrealized gain (loss)
on investments...................................................... .90
Total from investment operations.................................... 1.39
Less distributions to shareholders from:
Net investment income................................................. (.49)
Net realized gain on investments...................................... (.87)
Distributions in excess of net investment income...................... --
Distributions in excess of net realized gain on investments........... --
Total distributions................................................. (1.36)
Net asset value, end of year.......................................... $17.11
Total Return............................................................ 8.3%
Ratios & Supplemental Data:
Net assets, end of year (in millions)................................... $326
Ratios to average net assets:
Expenses.............................................................. .68%**
Net investment income................................................. 2.90%**
Portfolio turnover rate................................................. 56%
Average commission rate paid per share.................................. N/A
<CAPTION>
1992
</TABLE>
* Commencement of class operations.
** 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 would have been
the following:
<TABLE>
<CAPTION>
Year Ended
December 31, 1992
<S> <C>
Expenses................................................................................. .69%
Net investment income.................................................................... 2.89%
</TABLE>
See accompanying notes to financial statements.
45
<PAGE>
Combined Notes to Financial Statements
NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS
The Evergreen Growth and Income Funds (the "Funds") are separate open-end
management investment companies registered under the Investment Company Act of
1940, as amended (the "Act"). The Evergreen Growth and Income Funds included
herein consist of Evergreen Growth and Income Fund ("Growth and Income"),
Evergreen Small Cap Equity Income Fund ("Small Cap"), Evergreen Utility Fund
("Utility") and Evergreen Value Fund ("Value").
Growth and Income's investment objective is to achieve a return composed of
capital appreciation and current income by investing in the securities of
companies which are undervalued in the marketplace. Small Cap's investment
objective is to achieve a return consisting of current income and capital
appreciation in the value of its shares. Utility's investment objective is to
achieve a return consisting of high current income and moderate capital
appreciation by investing in a diversified portfolio of equity and debt
securities of utility companies. Value's investment objective is long-term
capital appreciation with current income as a secondary objective.
NOTE 2 -- ACQUISITION INFORMATION
Effective January 1, 1996, First Fidelity Bancorporation ("First Fidelity")
merged with First Union National Bank of North Carolina ("First Union").
Effective on the close of business on January 19, 1996, Growth and Income
acquired substantially all of the net assets of FFB Lexicon Capital Appreciation
Fund, an open-end investment company registered under the Act valued at
$159,432,723. The net assets were exchanged through a non-taxable exchange for
8,631,861 Class Y shares of Growth and Income valued at $18.47 per share. The
acquired net assets consisted primarily of portfolio securities with unrealized
appreciation of $31,537,903. The aggregate net assets of Growth and Income upon
the acquisition were $375,936,243.
Effective on the close of business on January 19, 1996, Value acquired
substantially all of the net assets of FFB Lexicon Select Value Fund and FFB
Equity Fund, open-end investment companies registered under the Act valued at
$95,883,824 and $14,077,973, respectively. The net assets of these Funds were
exchanged through a non-taxable exchange for 4,720,676 and 692,924 Class Y
shares of Value valued at $20.31 per share. The acquired net assets consisted
primarily of portfolio securities with unrealized appreciation of $12,858,729
and $2,218,691, respectively. The aggregate net assets of Value upon the
acquisitions were $1,310,431,335.
In addition, on June 30, 1995, Value acquired substantially all of the net
assets of ABT Growth and Income Trust, an open-end investment company registered
under the Act valued at $63,356,435. The net assets were exchanged through a
non-taxable exchange for 3,289,535 Class A Shares of Value valued at $19.26 per
share. The acquired net assets consisted primarily of portfolio securities with
unrealized appreciation of $10,278,721. The aggregate net assets of Value upon
the acquisition were $935,777,632.
On June 30, 1995, Utility acquired substantially all of the net assets of
ABT Utility Income Fund, Inc., an open-end investment company registered under
the Act valued at $99,162,259. The net assets were exchanged through a
non-taxable exchange for 10,160,068 Class A shares of Utility valued at $9.76
per share. The acquired net assets consisted primarily of portfolio securities
with unrealized appreciation of $6,321,522. The aggregate net assets of Utility
upon the acquisition were $140,913,190.
NOTE 3 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements. These policies are
in conformity with generally accepted accounting principles.
Security Valuations -- Investments in securities traded on a national
securities exchange or included on the NASDAQ National Market System ("NMS") are
valued at the last reported sales price. Securities traded on an exchange or NMS
for which there has been no sale and securities traded in the over-the-counter
market are valued at the mean between the last
46
<PAGE>
Combined Notes to Financial Statements
NOTE 3 -- SIGNIFICANT ACCOUNTING POLICIES -- continued
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 Trustees. Short-term investments are valued at
amortized cost, which approximates market value.
Security Transactions -- Security transactions are accounted for on the
date purchased or sold. Net realized gains or losses are determined on the
identified cost basis.
Investment Income and Expenses -- Dividend income is recorded on the
ex-dividend date. Interest income and expenses are accrued daily.
Repurchase Agreements -- Securities pledged as collateral for repurchase
agreements are held by the Federal Reserve Bank and are designated as being held
on each Fund's behalf by its custodian under a book-entry system. Each Fund
monitors the adequacy of the collateral on a daily basis, and can require the
seller to provide additional collateral in the event the market value of the
securities pledged falls below the carrying value of the repurchase agreement,
including accrued interest. Each Fund will only enter into repurchase agreements
with banks and other financial institutions which are deemed by the investment
adviser to be creditworthy pursuant to guidelines established by the Trustees.
Distributions to Shareholders -- Distributions from net investment income
are distributed monthly for Utility and quarterly for Growth and Income, Small
Cap and Value. 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.
As of December 31, 1996, the following reclassifications have been made to
increase (decrease) such accounts with offsetting adjustments made to paid-in
capital.
<TABLE>
<CAPTION>
Distribution
Undistributed in Excess of
Net Investment Realized Gain
Income on Investments
<S> <C> <C>
Growth and Income.. ($17,263) $ 17,263
Utility............ ($ 3,135) $ 3,135
</TABLE>
Income Taxes -- It is each Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable net income and net realized capital
gains to its shareholders. Accordingly, no provisions for Federal income or
excise taxes are necessary. To the extent that realized capital gains can be
offset by capital loss carryforwards, it is each Fund's policy not to distribute
such gains.
Capital losses incurred after October 31 within a fund's fiscal year are
deemed to arise on the first business day of the following fiscal year for tax
purposes. In its prior fiscal year, Small Cap incurred and had elected to defer
such capital losses of $11,493 to the current fiscal year.
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.
47
<PAGE>
Combined Notes to Financial Statements
NOTE 3 -- SIGNIFICANT ACCOUNTING POLICIES -- continued
Unamortized Organization Expenses -- The expenses of Small Cap incurred in
connection with its organization are being deferred and amortized over a period
of benefit not to exceed five years from the date it commenced operations.
Use of Estimates -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
NOTE 4 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Advisory Agreements -- First Union is entitled to an annual fee
of .50 of 1% of Utility's and Value's average daily net assets pursuant to each
Fund's investment advisory agreement. First Union voluntarily waived $396,483 of
its fee for Utility for the year ended December 31, 1996.
Pursuant to an agreement with Growth and Income's and Small Cap's
investment adviser, Evergreen Asset Management Corp. ("Evergreen Asset"), a
wholly owned subsidiary of First Union, Evergreen Asset is entitled to an annual
fee based on each of Growth and Income's and Small Cap's average daily net
assets, respectively, in accordance with the following schedule:
<TABLE>
<S> <C>
First $750 million 1.00%
Next $250 million 0.90%
Over $1 billion 0.80%
</TABLE>
Evergreen Asset has agreed to reimburse Small Cap to the extent that the
Fund's operating expenses (including the investment advisory fee and
amortization of organizational expenses but excluding interest, taxes, brokerage
commissions, 12b-1 distribution and shareholder services fees and extraordinary
expenses) exceed 1.50% of its average daily net assets until the Fund's net
assets reach $15 million. Evergreen Asset waived all of its advisory fee
aggregating $63,333 for the year ended December 31, 1996, and reimbursed other
expenses amounting to $133,406. Additionally, for Growth and Income, Evergreen
Asset voluntarily waived $5,000 of its advisory fee. First Union and Evergreen
Asset can modify or terminate voluntary waivers at any time.
Lieber & Company, an affiliate of First Union, is the investment
sub-adviser to Growth and Income and Small Cap and also provides brokerage
services with respect to substantially all security transactions of these Funds
effected on the New York or American Stock Exchanges. For transactions executed
during the year ended December 31, 1996, Growth and Income and Small Cap
incurred brokerage commissions of $429,888 and $13,246, respectively, with
Lieber & Company. Lieber & Company is reimbursed by Evergreen Asset, at no
additional expense to the Funds, for its cost of providing investment advisory
services.
Administration Agreement -- Evergreen Asset furnishes Growth and Income and
Small Cap with administrative services as part of their advisory agreements and
accordingly, these Funds do not pay a separate administration fee. Through
December 31, 1996, Furman Selz LLC ("Furman Selz") was each of the Fund's
sub-administrator through December 31, 1996. As sub-administrator, Furman Selz
provided the officers of the Funds. For Growth and Income and Small Cap, Furman
Selz' fee was paid by Evergreen Asset and was not a fund expense.
48
<PAGE>
Combined Notes to Financial Statements
NOTE 4 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES -- continued
Evergreen Asset is also Utility's and Value's administrator and Furman Selz
was sub-administrator through December 31, 1996. Evergreen Asset's and Furman
Selz' fees for Utility and Value were 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. These fees were 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 December 31, 1996, assets for which Evergreen Asset was the
administrator for which either Evergreen Asset or First Union was investment
adviser totalled approximately $17.0 billion.
Effective Janaury 1, 1997, Bisys Group, Inc. ("Bisys") acquired Furman
Selz' mutual fund unit and accordingly, Bisys Fund Services became
sub-administrator. The administration fee structure has remained unchanged.
Plans of Distribution -- The Funds have adopted for their Class A, Class B,
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.
In connection with their Plans, Growth and Income and Small Cap have
entered into distribution agreements with Evergreen Keystone Distributor, Inc.
("EKD") (formerly Evergreen Funds Distributor, Inc.), a subsidiary of Furman
Selz, whereby Growth and Income and Small Cap will compensate EKD for its
services at a rate which may not exceed an annual fee of .25 of 1% of its Class
A Shares average daily net assets and an annual fee of 1% of Class B and Class C
Share's average daily net assets. A portion of the payments for Class B and C
Shares, up to .25 of 1% may constitute a shareholder services fee. EKD has
entered into a Shareholder Services Agreement with First Union Brokerage
Services ("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 Funds' Class B and Class C Shares.
In connection with their Plans, Utility and Value have entered into a
distribution agreement with EKD whereby they will compensate EKD 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. Utility and Value have entered into a Shareholder Services
Agreement with FUBS whereby they will compensate up to an annual fee of .25 of
1% of Class B and C average net assets for certain services provided to
shareholders.
49
<PAGE>
Combined Notes to Financial Statements
NOTE 4 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES -- continued
With the acquisition of Furman Selz' mutual fund unit by Bisys, effective
January 1, 1997, EKD became a subsidiary of Bisys.
Sales Charges -- EKD has advised the Funds that it has retained the
following amounts from front-end sales charges resulting from sales of Class A
shares during the year ended December 31, 1996:
<TABLE>
<CAPTION>
Front-End
Sales
Charges
<S> <C> <C>
Growth and Income $158,858
Small Cap 340
Utility 7,857
Value 56,609
</TABLE>
Organizational Expenses -- Organizational expenses for Utility were
initially borne by the Fund's prior administrator. Utility agreed to reimburse
such expenses during the five-year period following its commencement of
operations. As a result of a change in the administration agreement, First Union
purchased the remaining unreimbursed organizational expenses from the prior
administrator. As of, and for the year ended December 31, 1996, Utility paid and
has a remaining liability of $19,269 and $13,766, respectively.
Other Services with Affiliates -- State Street Bank & Trust Company ("State
Street") is the transfer agent, dividend disbursing agent and shareholder
servicing agent for the Funds. For certain accounts in Growth and Income and
Value, First Union has been sub-contracted by State Street to maintain
shareholder sub-account records, take fund purchase and redemption orders and
answer inquiries. For each account, First Union is entitled to a monthly fee
which totaled $11,011 and $110,847 for Growth and Income and Value,
respectively.
NOTE 5 -- 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 A, Class B, Class C and Class Y shares. Class A shares are sold
with a front-end sales charge of up to 4.75%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class B shares will automatically convert to
Class A shares seven years after the date of purchase. Class C shares are sold
with a contingent deferred sales charge of 1% during the first year after the
date of purchase. Class Y shares are sold without a sales charge and are
available only to investment advisory clients of First Union and its affiliates,
certain institutional investors or Class Y shareholders of record of certain
other funds managed by First Union and its affiliates as of December 30, 1994.
The classes have identical voting, dividend, liquidation and other rights,
except that Class A, Class B and Class C shares bear distribution expenses (see
Note 4) and have exclusive voting rights with respect to their distribution
plans.
50
<PAGE>
Combined Notes to Financial Statements
NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
Year Ended Year Ended*
December 31, 1996 December 31, 1995
Growth and Income Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Class A
Shares sold..................................................... 3,719,917 $76,959,622 1,049,648 $ 17,981,665
Shares issued on reinvestment of distributions.................. 69,271 1,546,893 29,563 545,083
Shares redeemed................................................. (1,044,500) (21,729,967) (59,282) (1,048,468)
Net increase.................................................... 2,744,688 56,776,548 1,019,929 17,478,280
Class B
Shares sold..................................................... 8,914,571 185,314,202 2,516,682 43,094,733
Shares issued on reinvestment of distributions.................. 160,953 3,613,927 66,937 1,234,636
Shares redeemed................................................. (646,461) (13,411,376) (97,308) (1,763,506)
Net increase.................................................... 8,429,063 175,516,753 2,486,311 42,565,863
Class C
Shares sold..................................................... 348,918 7,294,757 106,185 1,808,328
Shares issued on reinvestment of distributions.................. 5,130 115,108 2,716 50,033
Shares redeemed................................................. (29,065) (597,615) (5,395) (96,507)
Net increase.................................................... 324,983 6,812,250 103,506 1,761,854
Class Y
Shares sold..................................................... 9,899,164 200,509,060 3,937,086 68,368,276
Shares issued in acquisition of FFB Lexicon Capital Appreciation
Fund.......................................................... 8,631,861 159,432,723 -- --
Shares issued on reinvestment of distributions.................. 349,251 7,729,161 211,697 3,882,512
Shares redeemed................................................. (6,820,349) (135,786,868) (1,658,100) (27,997,743)
Net increase.................................................... 12,059,927 231,884,076 2,490,683 44,253,045
Total net increase resulting from Fund share
transactions.................................................. 23,558,661 $470,989,627 6,100,429 $106,059,042
</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.
51
<PAGE>
Combined Notes to Financial Statements
NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995*
Small Cap Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Class A
Shares sold...................................................................... 23,318 $ 285,774 20,272 $ 210,173
Shares issued on reinvestment of distributions................................... 1,564 19,575 1,218 13,667
Shares redeemed.................................................................. (17,926) (213,193) (2,789) (30,712)
Net increase..................................................................... 6,956 92,156 18,701 193,128
Class B
Shares sold...................................................................... 27,963 341,494 24,055 248,049
Shares issued on reinvestment of distributions................................... 2,883 36,358 1,305 14,752
Shares redeemed.................................................................. (966) (11,697) (2,383) (26,158)
Net increase..................................................................... 29,880 366,155 22,977 236,643
Class C
Shares sold...................................................................... 3,956 48,265 1,928 19,533
Shares issued on reinvestment of distributions................................... 136 1,697 -- --
Shares redeemed.................................................................. (1,838) (22,125) 116 1,317
Net increase..................................................................... 2,254 27,837 2,044 20,850
Class Y
Shares sold...................................................................... 289,906 3,628,792 93,274 973,677
Shares issued on reinvestment of distributions................................... 25,358 316,899 25,655 285,901
Shares redeemed.................................................................. (75,598) (912,038) (76,033) (807,281)
Net increase..................................................................... 239,666 3,033,653 42,896 452,297
Total net increase resulting from Fund share transactions........................ 278,756 $3,519,801 86,618 $ 902,918
</TABLE>
* For Class A and Class B shares, the Fund share transaction activity reflects
the period January 3, 1995, (commencement of class operations) through
December 31, 1995. For Class C shares, the Fund share transaction activity
reflects the period January 24, 1995, (commencement of class operations)
through December 31, 1995.
52
<PAGE>
Combined Notes to Financial Statements
NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
Utility Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Class A
Shares sold......................................................... 246,512 $ 2,626,118 190,219 $ 1,885,138
Shares issued in acquisition of ABT Utility
Income Fund, Inc.................................................. -- -- 10,160,068 99,162,259
Shares issued on reinvestment of distributions...................... 478,287 5,051,093 505,736 5,335,896
Shares redeemed..................................................... (1,609,448) (16,984,094) (1,333,516) (13,551,249)
Net increase (decrease)............................................. (884,649) (9,306,883) 9,522,507 92,832,044
Class B
Shares sold......................................................... 787,800 8,401,385 506,602 4,989,454
Shares issued on reinvestment of distributions...................... 183,056 1,935,353 222,027 2,287,981
Shares redeemed..................................................... (630,402) (6,652,890) (626,919) (6,110,450)
Net increase........................................................ 340,454 3,683,848 101,710 1,166,985
Class C
Shares sold......................................................... 25,812 274,673 10,650 109,078
Shares issued on reinvestment of distributions...................... 1,963 20,723 1,497 15,571
Shares redeemed..................................................... (13,100) (135,909) (3,614) (37,152)
Net increase........................................................ 14,675 159,487 8,533 87,497
Class Y
Shares sold......................................................... 106,165 1,120,499 184,329 1,826,095
Shares issued on reinvestment of distributions...................... 7,089 74,971 8,025 84,251
Shares redeemed..................................................... (644,560) (6,607,014) (49,697) (487,291)
Net increase (decrease)............................................. (531,306) (5,411,544) 142,657 1,423,055
Total net increase (decrease) resulting from Fund share
transactions...................................................... (1,060,826) ($10,875,092) 9,775,407 $95,509,581
</TABLE>
53
<PAGE>
Combined Notes to Financial Statements
NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
Value Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Class A
Shares sold................................................... 1,109,850 $ 23,895,251 628,945 $ 12,018,651
Shares issued in acquisition of ABT Growth and Income Trust... -- -- 3,289,535 63,356,435
Shares issued on reinvestment of distributions................ 2,371,895 49,562,452 883,572 17,771,730
Shares redeemed............................................... (1,836,296) (39,736,035) (1,863,758) (35,747,673)
Net increase.................................................. 1,645,449 33,721,668 2,938,294 57,399,143
Class B
Shares sold................................................... 2,197,426 47,442,303 951,887 18,428,845
Shares issued on reinvestment of distributions................ 1,374,236 28,693,188 394,396 7,933,916
Shares redeemed............................................... (873,740) (18,943,891) (723,565) (13,658,563)
Net increase.................................................. 2,697,922 57,191,600 622,718 12,704,198
Class C
Shares sold................................................... 38,761 832,827 15,721 307,770
Shares issued on reinvestment of distributions................ 10,328 215,421 2,274 45,762
Shares redeemed............................................... (17,818) (377,207) (7,532) (149,074)
Net increase.................................................. 31,271 671,041 10,463 204,458
Class Y
Shares sold................................................... 15,195,754 324,801,783 14,762,272 278,777,942
Shares issued in acquisition of FFB Lexicon Select Value
Fund........................................................ 4,720,676 95,883,824 -- --
Shares issued in acquisition of FFB Equity Fund............... 692,924 14,077,973 -- --
Shares issued on reinvestment of distributions................ 5,208,388 108,890,530 2,044,972 40,900,972
Shares redeemed............................................... (14,584,293) (316,060,052) (10,121,343) (193,762,147)
Net increase.................................................. 11,233,449 227,594,058 6,685,901 125,916,767
Total net increase resulting from Fund share transactions..... 15,608,091 $ 319,178,367 10,257,376 $ 196,224,566
</TABLE>
NOTE 6 -- INVESTMENT TRANSACTIONS
The cost of purchases and proceeds from sales of investments, excluding
short-term securities for the year ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Purchases Sales
<S> <C> <C>
Growth and Income............... $ 238,741,288 $ 61,805,548
Small Cap....................... 6,550,736 3,042,710
Utility......................... 83,136,428 96,084,227
Value........................... 1,210,509,734 1,274,623,554
</TABLE>
54
<PAGE>
Combined Notes to Financial Statements
NOTE 6 -- INVESTMENT TRANSACTIONS -- continued
On December 31, 1996, the composition of unrealized appreciation and
depreciation of investment securities based on the aggregate cost of investments
for federal tax purposes was as follows:
<TABLE>
<CAPTION>
Appreciation Depreciation Net Tax Cost
<S> <C> <C> <C> <C>
Growth and Income...... $184,455,990 $ 7,157,090 $177,298,900 $ 605,787,421
Small Cap.............. 1,588,227 83,235 1,504,992 8,571,352
Utility................ 19,488,289 1,534,140 17,954,149 118,597,731
Value.................. 257,436,859 20,707,007 236,729,852 1,258,512,816
</TABLE>
NOTE 7 -- FINANCING AGREEMENT
Effective July 3, 1996, a financing agreement was put in place between all
of the Evergreen Funds and their custodian, State Street. Under this agreement,
State Street provided an unsecured line of credit facility, in the aggregate
amount of $100 million ($50 million committed and $50 million uncommitted), to
be accessed by the Funds for temporary or emergency purposes only and is subject
to each participating Fund's borrowing restrictions. Effective October 31, 1996,
a new financing agreement was put in place between all of the Evergreen Funds
and State Street, Societe Generale and ABN AMRO Bank N.V. (collectively, the
"Banks"). Under this agreement, the Banks provide an unsecured credit facility
in the aggregate amount of $225 million ($112.5 million committed and $112.5
million uncommitted) allocated evenly between the Banks. Borrowings under these
facilities bear interest at .75% per annum above the Federal Funds rate. A
commitment fee of .10% per annum will be incurred on the unused portion of the
committed facility which would be allocated to all participating funds. State
Street acts as agent for the Banks, and as agent is entitled to a fee of $15,000
which is allocated to all of the Evergreen Funds.
The Funds had no borrowings under the financing agreements during the year
ended December 31, 1996.
NOTE 8 -- DEFERRED TRUSTEE'S FEES
Each Trustee may defer any or all compensation related to performance of
duties as a Trustee of the Funds. Each Trustee's deferred balances are allocated
to deferral accounts which are included in the accrued expenses for each Fund.
The investment performance of the deferred accounts are based on the investment
performance of certain Evergreen Funds. Any gains earned or losses incurred in
the deferral accounts are reported in each Fund's Trustee's fees and expenses.
Trustees will be paid either in one lump sum or in quarterly installments for up
to ten years at their election, not earlier than either the year in which the
Trustee ceases to be a member of the Board of Trustees or January 1, 2000. As of
December 31, 1996, the value of the Trustees deferral accounts was $6,332,
$3,391, $3,548 and $32,133 for Growth and Income, Small Cap, Utility and Value,
respectively.
55
<PAGE>
Independent Auditors' Report
TO THE TRUSTEES AND SHAREHOLDERS OF
EVERGREEN GROWTH AND INCOME FUND
EVERGREEN SMALL CAP EQUITY INCOME FUND
EVERGREEN UTILITY FUND
EVERGREEN VALUE FUND
We have audited the accompanying statements of assets and liabilities,
including the statements of investments, for the Evergreen Growth and Income
Funds listed below as of December 31, 1996, and the related statements of
operations, changes in net assets and the financial highlights for each of the
periods listed below:
Evergreen Growth and Income Fund -- statement of operations, statement of
changes in net assets and financial highlights for the year ended December
31, 1996. The statement of changes in net assets for the year ended December
31, 1995 and the financial highlights for each of the years in the four-year
period ended December 31, 1995 were audited by other auditors, whose report
thereon dated February 15, 1996 was unqualified.
Evergreen Small Cap Equity Income Fund -- statement of operations, statement
of changes in net assets and financial highlights for the year ended
December 31, 1996. The statement of changes in net assets for the year ended
December 31, 1995 and the financial highlights for each of the years in the
two-year period ended December 31, 1995 and the period from October 1, 1993
(commencement of operations) through December 31, 1993 were audited by other
auditors, whose report thereon dated February 15, 1996 was unqualified.
Evergreen Utility Fund -- statement of operations for the year ended
December 31, 1996, statements of changes in net assets for each of the years
in the two-year period then ended and the financial highlights for each of
the years or periods from January 4, 1994 (commencements of operations)
through December 31, 1996.
Evergreen Value Fund -- statement of operations for the year ended December
31, 1996, statements of changes for each of the years in the two-year period
then ended and the financial highlights for each of the years in the
five-year period then ended.
These financial statements and financial highlights are the responsibility
of the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in according with generally accepted accounting
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1996, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by managements, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights audited
by us and referred to above present fairly, in all material respects, the
financial position of Evergreen Growth and Income Fund, Evergreen Small Cap
Equity Income Fund, Evergreen Utility Fund and Evergreen Value Fund as of
December 31, 1996, and the results of their operations, changes in their net
assets and the financial highlights for each of the periods listed above in
conformity with the generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
February 19, 1997
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
George O. Martinez
Secretary
Sheryl Hirschfeld
Assistant Secretary
Stephen W. St. Clair
Assistant Treasurer
* Trustees for Growth and Income and Small Cap
only.
+ Trustee Emeritus
FEDERAL INCOME TAX STATUS OF DISTRIBUTIONS (UNAUDITED)
During the fiscal year ended December 31, 1996, Growth and Income, Small Cap,
Utility and Value paid $8,393,650, $278,035, $2,982,605 and $189,689,078,
respectively, of net long term capital gain distributions.
For corporate taxpayers, 94.50%, 90.56%, 99.06% and 64.56% of the ordinary
income distributions paid during the fiscal year ended December 31, 1996, by
Growth and Income, Small Cap, Utility and Value, respectively, qualified for
corporate dividends received deduction.
<PAGE>
This brochure must be preceeded 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 No bank guarantee
INSURED
Evergreen Keystone Distributor, Inc.
46797 450390
2/97
<PAGE>
