<PAGE>
EVERGREEN
BALANCED FUND
(Picture of Statue of Liberty) (Picture of certificates)
(Picture of Statue) (Picture of dam)
(All above against green panel positioned down the center of the page)
(Picture of rock and evergreen tree appear here)
1996 ANNUAL REPORT
Evergreen Keystone
(logo of Evergreen FUNDS emblazened in box)
<PAGE>
EVERGREEN BALANCED FUNDS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<C> <C> <S> <C>
Picture of Statue of A Review of the Past Year and Prospects for the Future.................... 1
Liberty AMERICAN RETIREMENT A Report From Your Portfolio Manager...................................... 3
FUND Results to Date........................................................... 6
Statement of Investments.................................................. 7
Statement of Assets and Liabilities....................................... 12
Statement of Operations................................................... 13
Statement of Changes in Net Assets........................................ 14
Financial Highlights...................................................... 15
Picture of BALANCED A Report From Your Portfolio Manager...................................... 17
certificates FUND Results to Date........................................................... 19
Statement of Investments.................................................. 20
Statement of Assets and Liabilities....................................... 23
Statement of Operations................................................... 24
Statement of Changes in Net Assets........................................ 25
Financial Highlights...................................................... 26
Picture of FOUNDATION A Report From Your Portfolio Manager...................................... 28
statue FUND Results to Date........................................................... 31
Statement of Investments.................................................. 32
Statement of Assets and Liabilities....................................... 37
Statement of Operations................................................... 38
Statement of Changes in Net Assets........................................ 39
Financial Highlights...................................................... 40
Picture of TAX STRATEGIC A Report From Your Portfolio Managers..................................... 42
dam FOUNDATION FUND Results to Date........................................................... 45
Statement of Investments.................................................. 46
Statement of Assets and Liabilities....................................... 51
Statement of Operations................................................... 52
Statement of Changes in Net Assets........................................ 53
Financial Highlights...................................................... 54
Combined Notes to Financial Statements.................................... 56
Independent Auditors' Report.............................................. 65
Trustees and Officers......................................... Inside Back Cover
</TABLE>
<PAGE>
EVERGREEN BALANCED 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
his hopes for the future of our nation. One of these Picture of Stephen A.
hopes, "a nation that balances its budget but never Lieber appears here.
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
<PAGE>
EVERGREEN BALANCED 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
<PAGE>
EVERGREEN AMERICAN RETIREMENT FUND
(Picture of Liberty statue appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGER
IRENE D. O'NEILL
Evergreen American Retirement Fund completed its eighth (Picture of
fiscal year on December 31, 1996. While the performance of Irene D. O'Neill
equity markets was strong during the past year, fixed income appears here)
markets were up only slightly. For the twelve months ended
December 31, 1996, the Fund's total return (Class Y, no-load
shares) was 12.6%*. The 12-month total return ended December
31 for the Fund's Class A shares at net asset value was
12.5%*. (Please see page 6 for additional performance
information.)
Most of the Fund's industry groups contributed to the
performance of the equity portfolio. Banks and thrifts
representing 5.9% of the Fund's net assets at year-end,
was the strongest providing a 39.3% return for the fiscal year. Bank and thrift
stocks generally rose because the prospect of moderate economic growth in an
environment of stable interest rates is positive for bank earnings. Continued
loan growth, coupled with stable interest margins and cost control, should
continue to support bank earnings growth. This industry also benefited from the
acquisition of two banks which were held in the portfolio. At year-end, Crestar
Financial Corp. completed its acquisition of Citizen's Bancorp of Maryland,
which the Fund purchased in April 1995, at a cost of $26.38 per share. Based
on the closing price of Crestar Financial on December 31, the gain to the
portfolio was 135%. Additionally, on December 30, Banc One agreed to acquire
Liberty Bancorp of Oklahoma in an exchange of stock. Liberty was purchased for
the Fund at a cost of $38.26 per share in September 1996. Based on year-end
prices, the Fund will receive 1.175 shares of Banc One or the equivalent of $50
per share in Banc One stock during the second quarter of 1997**.
The healthcare sector representing 4.0% of net assets was the Fund's second
best performing group for the year, increasing 38.2%. The large drug stocks,
including Bristol-Myers Squibb Co., Warner-Lambert Co. and Zeneca Group Plc
ADR***, all posted strong performances. The major drug companies benefited from
the inability of managed care providers to control the prescription habits of
physicians and the introduction of new premium priced drugs to replace generics.
The energy sector, including oil field services, generated a 27.2% return to
the Fund during the fiscal year, and accounted for 8.4% of assets. Strong global
demand, especially from rapidly growing Asia Pacific nations and low levels of
inventory are pushing up energy prices. Higher prices, coupled with the benefits
from cost reduction programs, are spurring earnings growth for the major oil
companies, such as Exxon and Texaco.
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 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 FUND MAY BE NEGATIVELY IMPACTED SHOULD THE ACQUISITION NOT BE COMPLETED.
*** INTERNATIONAL INVESTING MAY INVOLVE CERTAIN ADDITIONAL RISKS SUCH AS
CURRENCY FLUCTUATIONS, ECONOMIC AND POLITICAL INSTABILITY, AND DIFFERENCES
IN ACCOUNTING STANDARDS.
3
<PAGE>
EVERGREEN AMERICAN RETIREMENT FUND
(Picture of Liberty statue appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
Additionally, higher oil and gas prices, combined with technological advances in
exploration and production, are stimulating drilling activity and driving growth
for oil field services. Besides benefiting from the increasing pace of drilling
activity, the oil field services companies are raising prices after a
decade-long drought.
The turmoil caused by deregulation in the telecommunications industry made
the telephone utilities and communications systems and services sectors
especially difficult in 1996. Telephone utilities, which comprised 1.5% of net
assets at December 31, declined 8.1% for the year. New rules governing
competition in local and long distance telephone markets are still under
negotiation, and this uncertainty is having a negative impact on the group. New
competitors already are allowed to enter these markets, but the phone utilities
are not yet free to compete on a level playing field. The communications systems
sector, which represented .8% of assets, declined 16.8%. Concern that personal
communication systems would take market share from cellular phone companies
negatively impacted this group. The cellular phone companies, however, continue
to experience strong subscriber growth in the U.S. and abroad.
In addition to the two bank acquisitions discussed above, three other of the
Fund's holdings received acquisition offers during the year. During the third
quarter, Revco offered to acquire Big B for $15 per share in cash. The Fund had
held Big B 6.5% convertible debentures for about three years and sold them after
the acquisition announcement for a gain of 33.7%. FHP International Corp. 5.00%
convertible preferred, which was purchased two years ago at $22.37, benefited
from an acquisition offer by PacifiCare Health Systems. Based on the terms of
the deal and the closing price of PacifiCare on December 31, the transaction is
worth about $30 per convertible preferred share**. Duke Power has offered to
acquire PanEnergy Corp. through an exchange of common stock valued at $50 per
share for each share of PanEnergy. This stock was first purchased in 1989 at an
average cost of $27.61.
During the second half of 1996, the Fund began increasing its exposure to
convertible securities. These securities allow the Fund to invest in companies
with good growth potential, while still benefiting from the defensive
characteristics that higher yielding convertibles offer. Among the convertibles
added to the portfolio were those of Time & Capital Trust, Central Garden and
Pet Co., Offshore Logistics, Inc., and Nuevo Energy Co. Two other areas of focus
are natural gas utilities and companies expected to benefit from improving
economic growth in foreign markets. Gas utilities, which offer attractive
dividend yields, are becoming acquisition targets of newly deregulated electric
utilities. Gas companies added to the portfolio include, Southwest Gas and
Yankee Energy System. The energy company Northwest Natural Gas was also added to
the portfolio. Companies with operations in Europe suffered last year from weak
economies there. But, interest rates in those markets have declined and better
growth is likely in 1997. As a result, companies that do a significant amount of
business in these markets, such as AMP and International Flavors and Fragrances,
have been added to the portfolio.
The behavior of interest rates in 1996 mirrored the variation in the
quarterly rate of Gross Domestic Product (GDP) growth that occurred in the U.S.
economy. Rates on long-term treasuries bottomed in January 1996 when economic
growth appeared weak. During the first half however, the pace of GDP growth
picked up, reaching 4.7% in the second quarter. Job growth was strong and the
unemployment rate declined, sparking fears that tight labor markets would lead
to rising wages and ultimately inflation. As a result, long-term treasury yields
climbed to over 7% in the spring. During the summer months, consumer spending
** THE FUND MAY BE NEGATIVELY IMPACTED SHOULD THE ACQUISITION NOT BE COMPLETED.
4
<PAGE>
EVERGREEN AMERICAN RETIREMENT FUND
(Picture of Liberty statue appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
slowed to a crawl, reducing the pace of third quarter GDP to 2.2%. Bonds rallied
in response to the expectation that the Federal Open Market Committee would not
need to raise rates in an effort to stem incipient inflation. The economic tide
turned once again with an acceleration in fourth quarter growth, that has pushed
interest rates higher. Despite these gyrations, the Lehman Brothers
Government/Corporate Bond Index+ moved slightly year over year, generating a
2.9% total return for 1996. During 1996, the Fund's performance benefited from
the defensive position of the fixed income portfolio. By maintaining a
relatively short average maturity, the Fund's fixed income portfolio was not
subject to the volatile swings that affected the broader market.
At the outset of 1997, fears that strong economic growth and tight labor
markets will lead to inflation are haunting the bond market once again. Without
an external shock, the U.S. economy may ebb and flow in 1997 much as it did last
year. The risks to economic growth, however, appear to be on the upside,
especially if foreign economies pick up. Although inflation has been dormant for
a number of years, concern remains that wage inflation will produce in price
inflation. Consistent with a conservative investment style, the Fund's fixed
income portfolio remains defensively positioned with a comparatively short
average maturity. The Fund's equity strategy continues to stress income and
capital growth potential with a well diversified portfolio of common stocks and
convertibles.
We welcome our new shareholders and would like to thank our existing
shareholders for their continued support.
+ THE LEHMAN BROTHERS GOVERNMENT/CORPORATE INDEX IS AN UNMANAGED REINVESTED
INDEX OF GOVERNMENT AND CORPORATE BONDS WITH REMAINING MATURITIES OF 1 TO 7
YEARS AND RATED SINGLE A OR HIGHER.
5
<PAGE>
EVERGREEN AMERICAN RETIREMENT FUND
(Picture of Liberty statue appears here)
RESULTS TO DATE
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN AMERICAN RETIREMENT FUND
The graphs below compare a $10,000 investment in the Evergreen American
Retirement Fund (Class A, Class B, Class C and Class Y Shares) with a similar
investment in the Wilshire 5000 and Lehman Brothers Government/Corporate Bond
Indexes ("Indexes").
[CHARTS TO FOLLOW.]
CLASS A
1-YEAR TOTAL RETURN=7.1%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 15.8%
$17,000 $15,000 $13,000 $11,000 $9,000
1/3/95*
6/30/95
12/31/95
6/30/96
12/31/96
CLASS B
1-YEAR TOTAL RETURN=6.5%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 15.0%
$17,000 $15,000 $13,000 $11,000 $9,000
1/3/95*
6/30/95
12/31/95
6/30/96
12/31/96
CLASS C
1-YEAR TOTAL RETURN=10.6%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 17.8%
$17,000 $15,000 $13,000 $11,000 $9,000
1/3/95*
6/30/95
12/31/95
6/30/96
12/31/96
CLASS Y
1-YEAR TOTAL RETURN=12.6%
AVERAGE ANNUAL COMPOUND RETURN:
5-YEAR= 11.6%
SINCE INCEPTION=10.8%
$10,000 $17,500 $25,000 $33,500 $40,000
3/14/88*
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
EVERGREEN AMERICAN RETIREMENT FUND
WILSHIRE 5000 INDEX
LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND 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) 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.
6
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EVERGREEN AMERICAN RETIREMENT FUND
(Picture of Liberty STATEMENT OF INVESTMENTS
statue appears here) DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- 48.8%
AEROSPACE & DEFENSE -- .0%(A)
2,800 Newport News Shipbuilding Inc...... $ 42,000
AUTOMOTIVE EQUIPMENT &
MANUFACTURING -- .3%
14,700 Federal-Mogul Corp................. 323,400
BANKS -- 5.7%
20,000 BancorpSouth, Inc.................. 555,000
20,000 Bank of New York Co., Inc. (The)... 675,000
16,000 Cape Cod Bank & Trust Co........... 360,000
15,000 Citizens Bancorp of Maryland....... 930,000
13,000 Comerica, Inc...................... 680,875
800 First Palm Beach Bancorp, Inc...... 18,832
4,000 First Union Corp. **............... 296,000
5,000 Fleet Financial Group, Inc......... 249,375
53,000 Hibernia Corp. Cl. A............... 702,250
25,000 Liberty Bancorp of Oklahoma........ 1,243,750
2,200 Maryland Federal Bancorp, Inc...... 75,688
16,000 Susquehanna Bancshares, Inc........ 554,000
6,340,770
BUILDING, CONSTRUCTION &
FURNISHINGS -- .4%
13,584 Medusa Corp........................ 466,950
BUSINESS EQUIPMENT &
SERVICES -- 2.1%
5,000 AC Nielsen Corp.................... 75,625
15,000 Cognizant Corp..................... 495,000
15,000 Dun & Bradstreet Corp. (The)....... 356,250
817 Lucent Technologies, Inc........... 37,786
18,000 Pitney Bowes, Inc.................. 981,000
16,000 Reynolds & Reynolds Co. (The), Cl.
A.................................. 416,000
2,361,661
CHEMICAL & AGRICULTURAL
PRODUCTS -- 2.3%
2,000 Dow Chemical Co. (The)............. 156,750
8,000 Eastman Chemical Co................ 442,000
11,000 Grace (W.R.) & Co.................. 569,250
14,000 Imperial Chemical Industrial Plc,
ADR................................ 728,000
4,535 Millennium Chemicals Inc........... 80,496
5,000 Praxair, Inc....................... 230,625
15,600 Stepan Co.......................... 317,850
2,524,971
COMMUNICATION SYSTEMS &
SERVICES -- .1%
5,500*..................... AirTouch Communications 138,875
<CAPTION>
SHARES VALUE
</TABLE>
<TABLE>
<C> <S> <C>
CONSUMER PRODUCTS &
SERVICES -- 1.9%
3,000 Colgate-Palmolive Co............... $ 276,750
15,875 Imperial Tobacco Group Plc......... 202,406
11,000 International Flavors &
Fragrances, Inc.................... 495,000
30,000 Jostens, Inc....................... 633,750
11,000 Tambrands, Inc..................... 449,625
2,057,531
DIVERSIFIED COMPANIES -- 2.2%
63,500 Hanson Plc, ADR.................... 428,625
5,000 Harris Corp........................ 343,125
2,000 Minnesota Mining & Manufacturing
Co................................. 165,750
14,000 Tenneco, Inc....................... 631,750
50,000 Tomkins Plc, ADR................... 925,000
2,494,250
ELECTRICAL EQUIPMENT &
SERVICES -- 1.5%
10,000 AMP, Inc........................... 383,750
1,000 Emerson Electric Co................ 96,750
11,656 Hubbell, Inc....................... 504,122
16,000 Thomas & Betts Corp................ 710,000
1,694,622
ENERGY -- 5.3%
8,000 Amoco Corp......................... 644,000
4,000 Atlantic Richfield Co.............. 530,000
1,302 El Paso Natural Gas Co............. 65,751
7,700 Exxon Corp......................... 754,600
3,000 Kerr-McGee Corp.................... 216,000
5,000 Mobil Corp......................... 611,250
19,250 Northwest Natural Gas Co........... 462,000
4,000 PanEnergy Corp..................... 180,000
10,775 Seitel, Inc........................ 431,000
6,000 Texaco, Inc........................ 588,750
5,928 Union Pacific Resource Group,
Inc................................ 173,394
30,000 Williams Cos., Inc. (The).......... 1,125,000
5,000 YPF Sociedad Anonima, ADR.......... 126,250
5,907,995
FINANCE & INSURANCE -- 3.4%
35,000 GCR Holdings, Ltd.................. 778,750
8,000 Hartford Steam Boiler Inspection &
Insurance Co. (The)................ 371,000
10,000 ITT Hartford Group, Inc............ 675,000
20,000 LaSalle Re Holdings, Ltd........... 585,000
30,000 Ohio Casualty Corp................. 1,065,000
</TABLE>
7
<PAGE>
EVERGREEN AMERICAN RETIREMENT FUND
(Picture of Liberty STATEMENT OF INVESTMENTS -- (CONTINUED)
statue appears here) DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS -- CONTINUED
FINANCE & INSURANCE -- CONTINUED
<C> <S> <C>
1,500 Provident Cos., Inc................ $ 72,562
3,000 Transamerica Corp.................. 237,000
3,784,312
FOOD & BEVERAGE PRODUCTS -- 1.4%
18,000 H.J. Heinz Co...................... 643,500
50,000 Lance, Inc......................... 900,000
1,543,500
HEALTHCARE PRODUCTS &
SERVICES -- 2.8%
7,000 Bristol-Myers Squibb Co............ 761,250
14,000 Shared Medical System Corp......... 689,500
5,000 Warner-Lambert Co.................. 375,000
30,000 West Co., Inc. (The)............... 847,500
5,333 Zeneca Group Plc, ADR.............. 447,972
3,121,222
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES -- 1.8%
60,000 BW/IP Holding, Inc................. 990,000
30,000 Goulds Pumps, Inc.................. 688,125
15,000 Graco, Inc......................... 367,500
2,045,625
LEISURE & TOURISM -- .9%
45,000 Gaylord Entertainment Co. Cl. A.... 1,029,375
METAL PRODUCTS & SERVICES -- .9%
42,000 Lindberg Corp...................... 420,000
5,000 Phelps Dodge Corp.................. 337,500
10,000 Quanex Corp........................ 273,750
1,031,250
PAPER & PACKAGING -- .3%
12,000 Westvaco Corp...................... 345,000
PUBLISHING, BROADCASTING &
ENTERTAINMENT -- 2.0%
2,460 Cox Communications, Inc............ 56,888
15,625* Evergreen Media Corp. Cl. A........ 390,625
8,000 McGraw-Hill Cos., Inc.............. 369,000
30,000 Reader's Digest Assn., Inc.
(The).............................. 1,207,500
2,803 Times Mirror Co.................... 139,449
2,163,462
REAL ESTATE -- .7%
10,000 Post Property, Inc................. 402,500
15,000 Prentiss Property Trust............ 375,000
777,500
<CAPTION>
SHARES VALUE
</TABLE>
<TABLE>
<C> <S> <C>
RETAILING & WHOLESALE -- 1.2%
8,000 J. C. Penney Co., Inc.............. $ 390,000
8,000 Mercantile Stores Co., Inc......... 395,000
30,000 Russ Berrie & Co., Inc............. 540,000
1,325,000
TEXTILE & APPAREL -- 1.1%
3,800 Garan, Inc......................... 73,625
23,000 Kellwood Co........................ 460,000
10,000 Oxford Industry, Inc............... 240,000
6,600 V.F. Corp.......................... 445,500
1,219,125
TRANSPORTATION -- .6%
3,191 Burlington Northern Santa Fe....... 275,623
7,000 Union Pacific Corp................. 420,875
696,498
UTILITIES -- ELECTRIC -- 5.9%
18,200 Commonwealth Energy System......... 427,700
20,000 Eastern Utilities Assn............. 347,500
30,000 Enova Corp......................... 682,500
30,000 Houston Industries, Inc............ 678,750
10,000 Illinova Corp...................... 275,000
37,000 PP&L Resources, Inc................ 851,000
20,000 Public Service Enterprise
Group, Inc......................... 545,000
22,000 Southern Co........................ 497,750
4,000 Southwestern Public Svc. Co........ 141,500
10,000 Texas Utilities Co................. 407,500
55,000 TNP Enterprises, Inc............... 1,505,625
8,000 Unicom Corp........................ 217,000
6,576,825
UTILITIES -- GAS -- 2.9%
15,000 AGL Resource, Inc.................. 316,875
40,500 Chesapeake Utilities Corp.......... 683,437
25,000 CMS Energy Corp. Cl. G............. 459,375
22,000 South Jersey Industry, Inc......... 536,250
40,000 Southwest Gas Corp................. 770,000
20,400 Yankee Energy System, Inc.......... 436,050
3,201,987
UTILITIES -- TELEPHONE -- 1.1%
2,521 AT&T Corp.......................... 109,664
35,000 Frontier Corp...................... 791,875
10,000 U.S. West, Inc..................... 322,500
1,224,039
TOTAL COMMON STOCKS
(COST $43,291,432)............... 54,437,745
</TABLE>
8
<PAGE>
EVERGREEN AMERICAN RETIREMENT FUND
(Picture of STATEMENT OF INVESTMENTS -- (CONTINUED)
Liberty statue DECEMBER 31, 1996
here)
<TABLE>
<CAPTION>
SHARES VALUE
PREFERRED STOCKS -- .0%(A)
<C> <S> <C>
HEALTHCARE PRODUCTS &
SERVICES -- .0%(A)
11,000* Fresenius National Med Care, Inc.
Cl. D (COST $1,608)................ $ 1,430
CONVERTIBLE PREFERRED STOCKS -- 10.4%
BANKS -- .2%
7,000 ONBANCorp, Inc.
6.75%, Series B.................... 195,125
BUILDING, CONSTRUCTION &
FURNISHINGS -- .3%
7,000 Southdown, Inc.
$2.875, Series D................... 365,750
COMMUNICATION SYSTEMS &
SERVICES -- .7%
30,000 AirTouch Communications
6.00%, 8/16/99..................... 817,500
CONSUMER PRODUCTS &
SERVICES -- .4%
5,000 SCI Finance LLC
$3.125, Series A TECONS............ 470,625
ELECTRICAL EQUIPMENT &
SERVICES -- .4%
6,000 Microsoft Corp.
$2.20, Series A.................... 480,750
ENERGY -- .5%
5,000 Nuevo Energy Co.
5.75%, Series A, TECONS............ 268,125
5,000 Valero Energy Corp.
$3.125............................. 288,750
556,875
FINANCE & INSURANCE -- 1.9%
20,000 American General Corp.
$3.00, Series A, MIPS.............. 1,102,500
15,000 Merrill Lynch & Co., Inc.
7.25%, STRYPES due 6/15/99
(exchangeable for SunAmerica
common stock)...................... 997,500
2,100,000
FOOD & BEVERAGE PRODUCTS -- .9%
20,000 Wendy's Financing, I
5.00%, TECONS...................... 1,040,000
<CAPTION>
SHARES VALUE
<C> <S> <C>
CONVERTIBLE PREFERRED STOCKS -- CONTINUED
HEALTHCARE PRODUCTS &
SERVICES -- .3%
10,000 FHP International Corp.
5.00%, Series A.................... $ 305,000
METAL PRODUCTS & SERVICES -- 1.0%
20,000 Timet Capital Trust I
6.625%, 144A, BUCS................. 1,085,000
PAPER & PACKAGING -- 1.2%
20,000 Crown Cork & Seal Co., Inc.
4.50%, MIPS........................ 1,040,000
10,000 James River Corp. Virginia
9.00%, Series P, DECS.............. 315,000
1,355,000
PUBLISHING, BROADCASTING &
ENTERTAINMENT -- 1.7%
15,000 AMC Entertainment, Inc.
$1.75.............................. 405,000
10,300 Granite Broadcasting Corp.
$1.938............................. 581,950
20,000 Merrill Lynch & Co., Inc.
6.00%, STRYPES due 6/15/99
(exchangeable for Cox
Communications Class A
Common Stock)...................... 445,000
10,000 TCI Communications, Inc.
$2.125, Series A................... 388,750
1,197 Times Mirror Co.
$1.374, Series B................... 33,366
1,854,066
TEXTILE & APPAREL -- .2%
5,000 Designer Financial Trust
6.00%, 12/30/16 TOPRS.............. 231,250
UTILITIES -- .7%
10,000 MCN Corp., PRIDES
8.75%.............................. 276,250
5,000 Philippine Long Distance Telephone
Co., GDS
7.00%, Series III.................. 255,000
5,000 Sprint Corp.
8.25%, DECS........................ 179,375
710,625
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $10,500,382)............... 11,567,566
</TABLE>
9
<PAGE>
EVERGREEN AMERICAN RETIREMENT FUND
(Picture of Liberty STATEMENT OF INVESTMENTS -- (CONTINUED)
statue appears here) DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
CONVERTIBLE DEBENTURES -- 6.1%
<C> <S> <C>
ENERGY -- .5%
$ 500,000 Swift Energy Co.
6.25%, 11/15/06.................... $ 540,000
ELECTRICAL EQUIPMENT &
SERVICES -- .2%
250,000 Platinum Technology, Inc.
6.75%, 11/15/10.................... 299,375
FINANCE & INSURANCE -- .3%
100,000 Equitable Cos., Inc. (The)
6.125%, 12/15/24................... 114,125
200,000 Trenwick Group, Inc.
6.00%, 12/15/99.................... 211,000
325,125
HEALTHCARE PRODUCTS &
SERVICES -- .9%
1,000,000 Physicians Resource Group,
Inc., 144A
6.00%, 12/1/01..................... 986,300
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES -- 1.1%
500,000 Central Garden & Pet Co., 144A
6.30%, 11/15/03.................... 502,500
600,000 Robbins & Myers, Inc.
6.50%, 9/1/03...................... 675,000
1,177,500
OIL FIELD SERVICES -- 2.6%
500,000 Key Energy Group, Inc., 144A
7.00%, 7/1/03...................... 637,500
1,000,000 Nabors Industry, Inc.
5.00%, 5/15/06..................... 1,235,000
1,000,000 Offshore Logistics, Inc., 144A
6.00%, 12/15/03.................... 1,052,500
2,925,000
PUBLISHING, BROADCASTING &
ENTERTAINMENT -- .4%
1,000,000 Jacor Communications, Inc.
Zero coupon, 6/12/11............... 445,000
UTILITIES -- GAS -- .1%
100,000 Enserch Corp.
6.375%, 4/1/02..................... 99,000
TOTAL CONVERTIBLE DEBENTURES
(COST $6,206,640)................ 6,797,300
CORPORATE BONDS -- 4.0%
BANKS -- .9%
1,000,000 NationsBank Corp.
6.50%, 8/15/03..................... 982,058
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
CONSUMER PRODUCTS &
SERVICES -- .4%
$ 500,000 Pepsico, Inc.
6.875%, 5/15/97.................... $ 502,304
FINANCE & INSURANCE -- 1.8%
1,000,000 American General Finance Corp.
7.125%, 12/1/99.................... 1,020,112
1,000,000 Ford Motor Credit Co.
5.625%, 12/15/98................... 989,445
2,009,557
TELECOMMUNICATION SERVICES &
EQUIPMENT -- .9%
1,000,000 GTE Southwest, Inc.
5.82%, 12/1/99..................... 986,681
TOTAL CORPORATE BONDS
(COST $4,501,740)................ 4,480,600
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 22.6%
FEDERAL AGRICULTURAL MORTGAGE CORP.
MEDIUM-TERM NOTE -- .7%
700,000 7.03%, 5/26/98..................... 711,047
FEDERAL HOME LOAN BANK -- 12.5%
2,000,000 5.65%, 12/29/00.................... 1,954,374
2,000,000 6.13%, 12/14/98.................... 1,996,875
1,000,000 6.195%, 2/5/03..................... 972,500
2,000,000 6.455%, 7/8/98..................... 2,007,812
1,000,000 7.29%, 10/18/01.................... 1,002,344
3,000,000 7.67%, 1/25/07..................... 2,988,750
3,000,000 8.00%, 1/10/12..................... 2,986,875
13,909,530
FEDERAL HOME LOAN
MORTGAGE CORP. -- 3.6%
1,000,000 6.773%, 1/7/02..................... 999,063
1,000,000 6.91%, 6/20/05..................... 988,747
2,000,000 7.585%, 9/19/06.................... 2,042,602
4,030,412
FEDERAL NATIONAL
MORTGAGE ASSN. -- 3.5%
1,000,000 6.25%, 8/12/03..................... 971,986
1,000,000 6.41%, 3/8/06...................... 981,471
2,000,000 6.68%, 12/28/01.................... 1,995,625
3,949,082
STUDENT LOAN MARKETING
ASSN. -- .9%
1,000,000 5.90%, 2/20/01..................... 980,978
</TABLE>
10
<PAGE>
EVERGREEN AMERICAN RETIREMENT FUND
(Picture of Liberty STATEMENT OF INVESTMENTS -- (CONTINUED)
statue appears here) DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- CONTINUED
<C> <S> <C>
U.S. TREASURY BONDS -- 1.4%
$1,500,000 7.125%, 2/15/23.................... $ 1,565,625
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS
(COST $25,196,094)............... 25,146,674
SHORT-TERM INVESTMENTS -- 13.2%
600,000 A.H. Robins Co., Inc.
5.55%, 2/6/97...................... 596,670
1,400,000 American Home Food Products, Inc.
5.47%, 1/17/97..................... 1,396,597
1,300,000 Eiger Capital Corp.
5.50%, 1/16/97..................... 1,297,021
Federal Home Loan Mortgage Discount
Notes
800,000 5.29%, 1/23/97..................... 797,414
1,400,000 5.39%, 1/30/97..................... 1,393,921
3,000,000 Federal National Mortgage
Association Discount Notes
5.28%, 2/3/97...................... 2,985,480
300,000 Fleet Funding Corp.
5.60%, 2/4/97...................... 298,413
1,000,000 Gold Crown Managers Acceptance
5.65%, 1/22/97..................... 996,704
300,000 Golden Managers Acceptance Corp.
5.45%, 1/8/97...................... 299,682
400,000 Great Lakes Chemical Corp.
5.65%, 2/7/97...................... 397,677
300,000 Mitsubishi International Corp.
5.55%, 1/9/97...................... 299,630
1,300,000 Montana Blanc Capital Corp.
5.45%, 1/13/97..................... 1,297,639
1,800,000 Riverwoods Funding Corp.
5.60%, 1/6/97...................... 1,798,600
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM INVESTMENTS -- CONTINUED
$ 400,000 Swiss Re Financial Products Corp.
5.40%, 1/16/97..................... $ 399,100
500,000 Three Rivers Funding Corp.
5.72%, 1/21/97..................... 498,411
TOTAL SHORT-TERM INVESTMENTS
(COST $14,752,959)............... 14,752,959
TOTAL INVESTMENTS --
(COST $104,450,855)...... 105.1 % 117,184,274
OTHER ASSETS AND
LIABILITIES -- NET....... (5.1 ) (5,716,655)
NET ASSETS................. 100.0 % $111,467,619
</TABLE>
* Non-income producing securities.
** At December 31, 1996 the Fund owned 4,000 shares of common stock of First
Union Corp. at a cost of $106,108. During the year ended December 31, 1996,
the Fund earned $8,800 in dividend income from this investment. These were
purchased by the Fund prior to the acquisition of the investment adviser and
Lieber & Company by First Union.
(a) Less than one tenth of one percent.
The following abbreviations are used in this portfolio:
ADR -- American Depositary Receipts
BUCS -- Beneficial Unsecured Convertible Securities
DECS -- Dividend Enhanced Convertible Stock
GDS -- Global Depositary Shares
MIPS -- Monthly Income Preferred Shares
PRIDES -- Provisionally Redeemable Income Debt Exchangeable for Stock
STRYPES -- Structured Yield Product Exchangeable for Stock
TECONS -- Term Convertible Shares
TOPRS -- Trust Originated Preferred Shares
Rule 144A securities are restricted as to resale to
qualified institutional investors
See accompanying notes to financial statements.
11
<PAGE>
EVERGREEN AMERICAN RETIREMENT FUND
(Picture of Liberty STATEMENT OF ASSETS AND LIABILITIES
statue appears here) DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $104,450,855)........................................................... $117,184,274
Cash.......................................................................................................... 108,548
Receivable for Fund shares sold............................................................................... 874,947
Dividends and interest receivable............................................................................. 548,921
Prepaid expenses.............................................................................................. 46,255
Total assets............................................................................................ 118,762,945
LIABILITIES:
Payable for investments purchased............................................................................. 7,093,582
Distribution fee payable...................................................................................... 72,867
Accrued advisory fee.......................................................................................... 67,586
Payable for Fund shares repurchased........................................................................... 30,182
Accrued expenses.............................................................................................. 31,109
Total liabilities....................................................................................... 7,295,326
NET ASSETS....................................................................................................... $111,467,619
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................... $ 98,741,015
Undistributed net investment income........................................................................... 28,913
Distributions in excess of net realized gain on investment transactions....................................... (35,728)
Net unrealized appreciation of investments.................................................................... 12,733,419
Net assets.............................................................................................. $111,467,619
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($11,115,760 (division sign) 801,904 shares of benefical interest outstanding)................. $13.86
Sales charge -- 4.75% of offering price....................................................................... .69
Maximum offering price.................................................................................. $14.55
Class B Shares ($57,622,320 (division sign) 4,176,659 shares of beneficial interest outstanding).............. $13.80
Class C Shares ($1,486,871 (division sign) 107,549 shares of beneficial interest outstanding)................. $13.83
Class Y Shares ($41,242,668 (division sign) 2,974,648 shares of beneficial interest outstanding).............. $13.86
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
EVERGREEN AMERICAN RETIREMENT FUND
(Picture of Liberty STATEMENT OF OPERATIONS
statue appears here) YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $17,809)......................................... $1,791,668
Interest........................................................................................ 1,705,527
Total investment income................................................................... 3,497,195
EXPENSES:
Advisory fee.................................................................................... $ 549,949
Distribution fee-Class A Shares................................................................. 14,426
Distribution fee-Class B Shares................................................................. 199,829
Shareholder services fee-Class B Shares......................................................... 66,610
Distribution fee-Class C Shares................................................................. 5,713
Shareholder services fee-Class C Shares......................................................... 1,904
Transfer agent fee.............................................................................. 73,721
Custodian fee................................................................................... 71,900
Registration and filing fees.................................................................... 50,750
Professional fees............................................................................... 18,371
Reports and notices to shareholders............................................................. 16,745
Trustees' fees and expenses..................................................................... 5,335
Insurance....................................................................................... 1,850
Miscellaneous................................................................................... 12,965
Total expenses............................................................................ 1,090,068
Less: Fee waivers and expense reimbursements.................................................... (28,241)
Net expenses.............................................................................. 1,061,827
Net investment income.............................................................................. 2,435,368
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investment transactions.................................................... 537,906
Net increase in unrealized appreciation of investments.......................................... 6,223,491
Net gain on investments............................................................................ 6,761,397
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................... $9,196,765
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
EVERGREEN AMERICAN RETIREMENT FUND
(Picture of Liberty STATEMENT OF CHANGES IN NET ASSETS
statue appears here)
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED
DECEMBER 31,
1996 1995
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................................................... $ 2,435,368 $ 1,556,941
Net realized gain on investment transactions................................................ 537,906 460,019
Net increase in unrealized appreciation of investments...................................... 6,223,491 6,860,189
Net increase in net assets resulting from operations..................................... 9,196,765 8,877,149
DISTRIBUTIONS TO SHAREHOLDERS:
FROM NET INVESTMENT INCOME:
Class A Shares.............................................................................. (214,502) (15,368)
Class B Shares.............................................................................. (839,295) (56,118)
Class C Shares.............................................................................. (22,543) (987)
Class Y Shares.............................................................................. (1,330,115) (1,498,372)
Total distributions from net investment income........................................... (2,406,455) (1,570,845)
IN EXCESS OF NET INVESTMENT INCOME:
Class A Shares.............................................................................. -- (12)
Class B Shares.............................................................................. -- (44)
Class C Shares.............................................................................. -- (1)
Class Y Shares.............................................................................. -- (1,166)
Total distributions in excess of net investment income................................... -- (1,223)
FROM NET REALIZED GAIN ON INVESTMENTS:
Class A Shares.............................................................................. (61,826) --
Class B Shares.............................................................................. (302,689) --
Class C Shares.............................................................................. (7,483) --
Class Y Shares.............................................................................. (321,583) --
Total distributions from net realized gain on investments................................ (693,581) --
IN EXCESS OF NET REALIZED GAIN ON INVESTMENTS:
Class A Shares.............................................................................. (3,185) --
Class B Shares.............................................................................. (15,592) --
Class C Shares.............................................................................. (385) --
Class Y Shares.............................................................................. (16,566) --
Total distributions in excess of net realized gain on investments........................ (35,728) --
Total distributions to shareholders................................................... (3,135,764) (1,572,068)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold................................................................... 66,932,304 9,254,552
Proceeds from reinvestment of distributions................................................. 2,790,578 1,339,655
Payment for shares redeemed................................................................. (9,928,020) (9,463,471)
Net increase resulting from Fund share transactions...................................... 59,794,862 1,130,736
Net increase in net assets............................................................ 65,855,863 8,435,817
NET ASSETS:
Beginning of year........................................................................... 45,611,756 37,175,939
End of year (including undistributed net investment income of $28,913 at December 31,
1996)..................................................................................... $111,467,619 $45,611,756
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
EVERGREEN AMERICAN RETIREMENT FUND --
CLASS A, B AND C SHARES
(Picture of Liberty FINANCIAL HIGHLIGHTS
appears here)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
JANUARY 3, JANUARY 3,
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................... $12.82 $10.65 $12.80 $10.65 $12.81
Income from investment operations:
Net investment income................................. .45 .41 .36 .35 .36
Net realized and unrealized gain on investments....... 1.12 2.22 1.09 2.20 1.11
Total from investment operations.................... 1.57 2.63 1.45 2.55 1.47
Less distributions to shareholders from:
Net investment income................................. (.42) (.46) (.34) (.40) (.34)
Net realized gain on investments...................... (.11) -- (.11) -- (.11)
Total distributions................................. (.53) (.46) (.45) (.40) (.45)
Net asset value, end of period......................... $13.86 $12.82 $13.80 $12.80 $13.83
TOTAL RETURN**......................................... 12.5% 24.9% 11.5% 24.1% 11.6%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)............. $ 11,116 $1,335 $ 57,622 $4,839 $1,487
Ratios to average net assets:
Expenses #............................................ 1.30% 1.37%+ 2.06% 2.12%+ 2.05%
Net investment income #............................... 3.53% 3.73%+ 2.79% 2.97%+ 2.80%
Portfolio turnover rate................................ 16% 49% 16% 49% 16%
Average commission rate paid per share................. $.0619 N/A $.0619 N/A $.0619
<CAPTION>
JANUARY 3,
1995*
THROUGH
DECEMBER 31,
1995
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period................... $10.65
Income from investment operations:
Net investment income................................. .36
Net realized and unrealized gain on investments....... 2.19
Total from investment operations.................... 2.55
Less distributions to shareholders from:
Net investment income................................. (.39)
Net realized gain on investments...................... --
Total distributions................................. (.39)
Net asset value, end of period......................... $12.81
TOTAL RETURN**......................................... 24.0%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)............. $110
Ratios to average net assets:
Expenses #............................................ 2.10%+
Net investment income #............................... 2.96%+
Portfolio turnover rate................................ 49%
Average commission rate paid per share................. N/A
</TABLE>
* Commencement of class operations.
** Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charge or contingent deferred
sales charges are not reflected.
+ Annualized.
# Net of expense waivers and reimbursements. If the Fund had borne all
expenses that were assumed or waived by the investment adviser, the
annualized ratios of operating expenses and net investment income (loss) to
average net assets, exclusive of any applicable state expense limitations,
would have been the following:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
JANUARY 3, JANUARY 3,
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................................... 1.33% 10.96% 2.09% 4.20% 2.08%
Net investment income (loss)............... 3.50% (5.86%) 2.76% .89% 2.77%
<CAPTION>
JANUARY 3,
1995*
THROUGH
DECEMBER 31,
1995
<S> <C>
Expenses................................... 103.52%
Net investment income (loss)............... (98.46%)
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
EVERGREEN AMERICAN RETIREMENT FUND --
CLASS Y SHARES
(Picture of Liberty FINANCIAL HIGHLIGHTS -- (CONTINUED)
statue appears here)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of year.......................................................... $12.83 $10.67 $11.60 $10.95
Income (loss) from investment operations:
Net investment income...................................................................... .48 .47 .60 .56
Net realized and unrealized gain (loss) on investments..................................... 1.10 2.16 (.93) .96
Total from investment operations......................................................... 1.58 2.63 (.33) 1.52
Less distributions to shareholders from:
Net investment income...................................................................... (.44) (.47) (.60) (.60)
Net realized gain on investments........................................................... (.11) -- -- (.24)
In excess of net realized gain on investments.............................................. -- -- -- (.03)
Total distributions...................................................................... (.55) (.47) (.60) (.87)
Net asset value, end of year................................................................ $13.86 $12.83 $10.67 $11.60
TOTAL RETURN*............................................................................... 12.6% 25.1% (2.9%) 14.1%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of year (000's omitted).................................................... $41,243 $39,327 $37,176 $37,336
Ratios to average net assets:
Expenses................................................................................... 1.05%# 1.26% 1.28% 1.36%
Net investment income...................................................................... 3.65%# 3.96% 5.40% 5.13%
Portfolio turnover rate..................................................................... 16% 49% 136% 92%
Average commission rate paid per share...................................................... $.0619 N/A N/A N/A
<CAPTION>
1992
<S> <C>
PER SHARE DATA:
Net asset value, beginning of year.......................................................... $10.52
Income (loss) from investment operations:
Net investment income...................................................................... .66
Net realized and unrealized gain (loss) on investments..................................... .55
Total from investment operations......................................................... 1.21
Less distributions to shareholders from:
Net investment income...................................................................... (.61)
Net realized gain on investments........................................................... (.17)
In excess of net realized gain on investments.............................................. --
Total distributions...................................................................... (.78)
Net asset value, end of year................................................................ $10.95
TOTAL RETURN*............................................................................... 11.8%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of year (000's omitted).................................................... $23,781
Ratios to average net assets:
Expenses................................................................................... 1.51%#
Net investment income...................................................................... 6.23%#
Portfolio turnover rate..................................................................... 151%
Average commission rate paid per share...................................................... N/A
</TABLE>
* Total return is calculated on net asset value per share for the periods
indicated and is not annualized.
# Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment adviser, the annualized ratios
of operating expenses and net investment income to average net assets would
have been the following:
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
DECEMBER 31, 1996 DECEMBER 31, 1992
<S> <C> <C>
Expenses........................................................................ 1.09% 1.59%
Net investment income........................................................... 3.61% 6.15%
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
EVERGREEN BALANCED FUND
(Picture of certificates appear here)
A REPORT FROM YOUR
PORTFOLIO MANAGER
DEAN HAWES
We are pleased to present the 1996 Annual Report for (Picture of Dean Hawes
Evergreen Balanced Fund. The Fund completed its second appears here)
consecutive year of double-digit performance, with a total
return (Class Y, no-load shares) of 11.7%* for the 12 months
ended December 31, 1996, as compared with the return for the
S&P 500 Reinvested Index** of 23.0%, and for the Lehman
Brothers Government/Corporate Index*** of 2.9%. The total
return at net asset value for the Fund's Class A shares was
11.4%*. (Please see page 19 for additional performance
information.)
Toward the end of 1995, we began to shift the Fund from an allocation of
approximately 60% stocks and 40% bonds to a more conservative position with a
decreased stock exposure and an increased bond exposure. The Fund slightly
underperformed the benchmark Balanced Composite Index+ in 1996 due primarily to
the fact that it remained modestly underweighted in equities versus the
benchmark. Our strategy was to be positioned to take advantage of any stock
market gains while also somewhat reducing our risk exposure.
In 1996, our largest sector weighting was in financials. We believe benign
inflation and ongoing industry consolidation will continue to favor financial
stocks. Due to the strong outlook in this area, we anticipate remaining
overweighted. We remained underweighted in utilities, although we did modestly
increase that position throughout the latter half of the year. We began the year
slightly underweighted in technology, but modestly increased our exposure as the
year progressed with names such as Intel Corp., Cisco Systems Inc., and Compaq
Computer Corp. A very positive secular story remains intact for the technology
sector as global competition and the quest for productivity gains are a
favorable backdrop for the industry. Stock selection will be paramount, but we
do look to be at least market weighted. Energy demand going into the year 2000
is shifting upward versus the past three to five years. This industry is
restructuring, and the cost of finding oil is declining as seismic technology
improves. Fundamental prospects remain favorable, and we don't feel current
prices reflect the rise in crude prices during the past year. With names such as
Texaco, Inc., Mobil Corp. and Unocal Corp., we feel that we are positioned to
benefit from the positive fundamentals within the energy sector. Within the
consumer non-durable sector where we remain underweighted; healthcare is our
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 PERFORMANCE FIGURES ABOVE, AND 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 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 LEHMAN BROTHERS GOVERNMENT/CORPORATE INDEX IS AN UNMANAGED REINVESTED
INDEX OF GOVERNMENT AND CORPORATE BONDS WITH REMAINING MATURITIES OF 1 TO 7
YEARS AND RATED SINGLE A OR HIGHER.
+ THE BALANCED COMPOSITE INDEX IS A PROPRIETARY INDEX CONSISTING OF A 55%
WEIGHTING IN THE S&P 500, 40% IN THE LEHMAN BROTHERS GOVERNMENT/CORPORATE
INDEX, AND 5% IN 91-DAY U.S. TREASURY BILLS.
AN INVESTMENT CAN NOT BE MADE IN AN INDEX.
17
<PAGE>
EVERGREEN BALANCED FUND
(Picture of certificates appear here)
A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
area of preference. Longer-term demographic trends are favorable and
shorter-term earnings visibility is good. Thus, we have added Lincare Holdings,
Inc., the second largest provider of home respiratory services in the nation.
Looking to 1997, we expect a year of moderation. Stocks completed two
outstanding years of returns and we anticipate them to take a breather. We
anticipate the bond market to continue its second-half recovery and provide
modest returns as well. Our current asset allocation of approximately 54%
stocks, 42% bonds and 4% cash and short-term investments should, we believe,
position the Fund well for the coming year. We view bonds as a good value and
our fixed income segment has a duration slightly longer than its benchmark. Any
rise in interest rates would be viewed as an opportunity to extend maturity. On
the equity side, we would view any correction during the year as an opportunity
to increase our equity holdings. We feel that our current asset allocation will
allow the Fund to take advantage of any upswing in the financial markets while
simultaneously helping to minimize our risk should the markets retreat.
Thank you for your investment in Evergreen Balanced Fund.
18
<PAGE>
EVERGREEN BALANCED FUND
(Picture of certificates appear here)
RESULTS TO DATE
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN BALANCED FUND
The graphs below compare a $10,000 investment in the Evergreen Balanced
Fund (Class A, Class B, Class C and Class Y Shares) with a similar investment in
the S&P 500 and Lehman Brothers Government/Corporate Bond Indexes ("Indexes").
[CHARTS TO FOLLOW.]
CLASS A
1-YEAR TOTAL RETURN = 6.1%
AVERAGE ANNUAL COMPOUND RETURN
SINCE INCEPTION = 10.9%
$8,000 $12,000 $16,000 $20,000 $24,000
6/10/91*
12/31/92
12/31/93
12/31/94
12/31/95
12/31/96
CLASS B
1-YEAR TOTAL RETURN = 5.7%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 9.6%
$10,000 $12,000 $14,000 $16,000 $18,000 $20,000
1/26/93*
12/31/93
12/31/94
12/31/95
12/31/96
CLASS C
1-YEAR TOTAL RETURN = 9.3%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 13.1%
$9,000 $11,000 $13,000 $15,000 $17,000
9/2/94*
12/31/94
12/31/95
12/31/96
CLASS Y
1-YEAR TOTAL RETURN = 11.7%
AVERAGE ANNUAL COMPOUND RETURN:
5-YEAR = 10.7%
SINCE INCEPTION = 11.6%
$10,000 $14,000 $18,000 $22,000 $26,000
4/1/91*
12/31/91
12/31/92
12/31/93
12/31/94
12/31/95
12/31/96
EVERGREEN BALANCED FUND
S&P 500 INDEX
LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND 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) 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 BALANCED FUND
(Picture of certificates STATEMENT OF INVESTMENTS
appears here) DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- 53.8%
AEROSPACE & DEFENSE -- .3%
40,000 AlliedSignal Inc.................. $ 2,680,000
BANKS -- 5.9%
140,000 Banc One Corp..................... 6,020,000
100,000 BankAmerica Corp.................. 9,975,000
36,800 Bank of Boston Corp............... 2,364,400
190,000 CoreStates Financial Corp......... 9,856,250
125,000 First Chicago NBD Corp............ 6,718,750
180,000 National City Corp................ 8,077,500
120,000 NationsBank Corp.................. 11,730,000
54,741,900
BUILDING, CONSTRUCTION &
FURNISHINGS -- .4%
100,000 Masco Corp........................ 3,600,000
BUSINESS EQUIPMENT &
SERVICES -- 1.8%
310,000 *Cabletron Sys., Inc.............. 10,307,500
100,000 *Cisco Systems, Inc............... 6,362,500
16,670,000
CHEMICAL & AGRICULTURAL
PRODUCTS -- 1.8%
130,000 Dow Chemical Co. (The)............ 10,188,750
75,000 Du Pont (E.I.) de Nemours......... 7,078,125
17,266,875
CONSUMER PRODUCTS &
SERVICES -- 4.0%
210,000 American Brands, Inc.............. 10,421,250
80,000 Eastman Kodak Co.................. 6,420,000
115,000 General Motors Corp............... 6,411,250
125,000 Philip Morris Cos., Inc........... 14,078,125
37,330,625
DIVERSIFIED COMPANIES -- 3.0%
150,000 General Electric Co............... 14,831,250
140,000 Textron Inc....................... 13,195,000
28,026,250
ELECTRICAL EQUIPMENT &
SERVICES -- 1.5%
150,000 Emerson Electric Co............... 14,512,500
ENERGY -- 7.0%
50,000 Atlantic Richfield Co............. 6,625,000
150,000 Chevron Corp...................... 9,750,000
145,000 Exxon Corp........................ 14,210,000
55,000 Mobil Corp........................ 6,723,750
125,000 Sonat, Inc........................ 6,437,500
<CAPTION>
SHARES VALUE
</TABLE>
ENERGY -- CONTINUED
<TABLE>
<C> <S> <C>
140,000 Texaco, Inc....................... $ 13,737,500
200,000 Unocal Corp....................... 8,125,000
65,608,750
FINANCE & INSURANCE -- 2.2%
110,000 Allstate Corp. (The).............. 6,366,250
200,000 Providian Corp.................... 10,275,000
50,900 UNUM Corp......................... 3,677,525
20,318,775
FOOD & BEVERAGE PRODUCTS -- 1.9%
110,350 American Stores Co................ 4,510,556
250,400 McCormick & Co., Inc.............. 5,900,050
200,000 Sara Lee Corp..................... 7,450,000
17,860,606
HEALTHCARE PRODUCTS &
SERVICES -- 4.6%
110,000 Bristol-Myers Squibb Co........... 11,962,500
225,000 *Lincare Holdings, Inc............ 9,225,000
150,000 Mallinckrodt, Inc................. 6,618,750
165,000 Schering-Plough Corp.............. 10,683,750
200,000 *Tenet Healthcare Corp............ 4,375,000
42,865,000
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES -- 1.3%
250,000 Weyerhaeuser Co................... 11,843,750
INFORMATION SERVICES &
TECHNOLOGY -- 3.1%
80,000 *Compaq Computer Corp............. 5,940,000
200,000 Hewlett-Packard Co................ 10,050,000
98,600 Intel Corp........................ 12,910,437
28,900,437
METAL PRODUCTS & SERVICES -- .5%
70,000 Phelps Dodge Corp................. 4,725,000
OFFICE EQUIPMENT &
SUPPLIES -- 1.1%
180,000 Pitney Bowes, Inc................. 9,810,000
OIL -- 1.0%
150,000 Ashland Inc....................... 6,581,250
100,000 Ultramar Diamond Shamrock Corp.... 3,162,500
9,743,750
PAPER & PACKAGING -- 1.0%
230,000 International Paper Co............ 9,286,250
</TABLE>
20
<PAGE>
EVERGREEN BALANCED FUND
(Picture of certificates STATEMENT OF INVESTMENTS -- (CONTINUED)
appear here) DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- CONTINUED
REAL ESTATE -- 1.2%
280,000 Healthcare Realty Trust, Inc...... $ 7,420,000
100,500 Highwoods Properties, Inc......... 3,391,875
10,811,875
RETAILING & WHOLESALE -- 1.9%
100,000 Dayton Hudson Corp................ 3,925,000
100,000 Dillard Department Stores, Inc.
Cl. A............................. 3,087,500
125,000 May Department Stores Co.......... 5,843,750
100,000 Sears, Roebuck & Co............... 4,612,500
17,468,750
TRANSPORTATION -- 2.2%
114,822 Conrail, Inc...................... 11,439,142
100,000 Norfolk Southern Corp............. 8,750,000
20,189,142
UTILITIES -- 6.1%
148,000 Bell Atlantic Corp................ 9,583,000
268,200 Carolina Power & Light Co......... 9,789,300
75,000 CMS Energy Corp................... 2,521,875
150,000 GPU, Inc.......................... 5,043,750
260,000 GTE Corp.......................... 11,830,000
160,000 SBC Communications, Inc........... 8,280,000
450,000 Southern Co....................... 10,181,250
57,229,175
TOTAL COMMON STOCKS
(COST $343,650,709).......... 501,489,410
<CAPTION>
PRINCIPAL
AMOUNT
<C> <S> <C>
CORPORATE BONDS -- 11.6%
BANKS -- 2.0%
$ 3,000,000 Boatmen's Bancshares, Inc.
6.75%, 3/15/03.................... 2,987,319
5,000,000 First Chicago Corp.
9.875%, 8/15/00................... 5,531,845
10,000,000 NationsBank Corp.
7.625%, 4/15/05................... 10,362,800
18,881,964
CHEMICAL & AGRICULTURAL
PRODUCTS -- .6%
5,000,000 Dow Chemical Co.
8.625%, 4/1/06.................... 5,573,985
CONSUMER PRODUCTS &
SERVICES -- .5%
5,000,000 Philip Morris Cos., Inc.
8.65%, 5/15/98.................... 5,162,680
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
ENERGY -- 1.0%
$ 4,000,000 Atlantic Richfield Co.
9.00%, 4/1/21..................... $ 4,747,448
4,400,000 Texaco, Inc.
7.90%, 2/13/97.................... 4,411,207
9,158,655
FINANCE & INSURANCE -- 2.3%
26,072 CIT Group Holdings, Inc.
4.70%, 6/15/18.................... 26,037
5,500,000 Dean Witter, Discover & Co.
6.75%, 10/15/13................... 5,137,522
5,500,000 General Electric Capital Corp.
8.75%, 3/14/03.................... 6,062,694
5,000,000 Merrill Lynch, Pierce, Fenner &
Smith, Inc.
7.00%, 4/27/08.................... 4,946,560
5,000,000 Smith Barney Holdings, Inc.
5.50%, 1/15/99.................... 4,928,795
21,101,608
FOOD & BEVERAGE PRODUCTS -- 1.1%
5,000,000 General Mills, Inc.
9.00%, 12/20/02................... 5,562,820
4,250,000 PepsiCo, Inc.
7.625%, 11/1/98................... 4,358,494
9,921,314
HEALTHCARE PRODUCTS &
SERVICES -- .5%
5,000,000 Baxter International
7.25%, 2/15/08.................... 5,095,175
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES -- 2.0%
7,000,000 Jet Equiptment Trust, 144A
9.41%, 6/15/10.................... 7,764,631
10,000,000 Loews Corp.
6.75%, 12/15/06................... 9,725,410
1,400,000 Waste Management, Inc.
8.75%, 5/1/18..................... 1,566,004
19,056,045
MANUFACTURING --
DISTRIBUTING -- .5%
4,300,000 Stanley Works,
7.375%, 12/15/02.................. 4,454,146
MORTGAGE BACKED SECURITIES -- .1%
479,627 Fleet Financial Home Equity Trust
6.70%, 1/16/06.................... 480,955
</TABLE>
21
<PAGE>
EVERGREEN BALANCED FUND
(Picture of certificates STATEMENT OF INVESTMENTS -- (CONTINUED)
appear here) DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS -- CONTINUED
<C> <S> <C>
SOVEREIGN GOVERNMENT -- .6%
$ 5,000,000 Ontario Province Canada,
7.75%, 6/4/02..................... $ 5,281,345
UTILITIES -- .4%
3,600,000 Union Electric Co.,
8.00%, 12/15/22................... 3,748,266
TOTAL CORPORATE BONDS
(COST $103,934,276).......... 107,916,138
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 30.2%
GOVERNMENT NATIONAL MORTGAGE
ASSN. -- 1.9%
3,095,440 8.50%, 5/15/21.................... 3,209,584
2,042,492 8.50%, 7/15/21.................... 2,117,809
3,822,379 8.50%, 6/15/22.................... 3,963,330
2,051,325 9.00%, 9/15/21.................... 2,164,148
3,514,822 9.00%, 10/15/21................... 3,708,137
1,954,138 9.50%, 2/15/21.................... 2,113,522
17,276,530
INTERNATIONAL BANK FOR
RECONSTRUCTION & DEVELOPMENT
CO. -- .3%
2,750,000 7.95%, 5/15/16.................... 3,015,337
U.S. TREASURY BONDS -- 15.5%
10,000,000 7.25%, 8/15/22.................... 10,581,250
20,000,000 7.625%, 2/15/07................... 20,993,740
24,100,000 8.75%, 11/15/08................... 27,074,832
20,000,000 8.75%, 5/15/17.................... 24,393,740
15,000,000 8.75%, 5/15/20.................... 18,454,680
17,000,000 8.875%, 8/15/17................... 20,989,679
17,500,000 9.125%, 5/15/18................... 22,148,437
144,636,358
U.S. TREASURY NOTES -- 12.5%
12,600,000 4.75%, 2/15/97.................... 12,584,250
10,000,000 5.50%, 11/15/98................... 9,928,120
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- CONTINUED
U.S. TREASURY NOTES -- CONTINUED
$ 8,000,000 6.375%, 7/15/99................... $ 8,077,496
10,000,000 6.50%, 4/30/99.................... 10,118,750
10,000,000 7.125%, 2/29/00................... 10,296,870
10,000,000 7.75%, 11/30/99................... 10,446,870
10,000,000 7.75%, 2/15/01.................... 10,571,870
20,000,000 8.00%, 1/15/97.................... 20,012,500
10,000,000 8.00%, 8/15/99.................... 10,475,000
10,000,000 8.125%, 2/15/98................... 10,231,250
3,500,000 8.875%, 11/15/98.................. 3,680,467
116,423,443
TOTAL U.S. GOVERNMENT
& AGENCY OBLIGATIONS
(COST $279,053,149).......... 281,351,668
</TABLE>
<TABLE>
<C> <S> <C>
REPURCHASE AGREEMENT -- .4%
4,114,966 Donaldson, Lufkin & Jenrette
Securities Corp., 6.50%, dated
12/31/96, due 1/2/97 --
collateralized by $1,284,000
U.S. Treasury Notes, 8.0%,
5/15/01 and $2,775,000 U.S.
Treasury Note, 6.0%, 9/30/98;
value including accrued
interest -- $4,198,309
(COST $4,114,966)................. 4,114,966
TOTAL INVESTMENTS --
(COST $730,753,100).... 96.0% 894,872,182
OTHER ASSETS AND
LIABILITIES -- NET..... 4.0 36,884,085
NET ASSETS............... 100.0% $931,756,267
</TABLE>
* Non-income producing securities.
Rule 144A securities are restricted as to resale to qualified institutional
investors.
See accompanying notes to financial statements.
22
<PAGE>
EVERGREEN BALANCED FUND
(Picture of certificates STATEMENT OF ASSETS AND LIABILITIES
appears here) DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $730,753,100)........................................................... $894,872,182
Receivable for Fund shares sold............................................................................... 34,539,226
Dividends and interest receivable............................................................................. 7,657,128
Prepaid expenses.............................................................................................. 52,616
Total assets............................................................................................ 937,121,152
LIABILITIES:
Payable for Fund shares repurchased........................................................................... 4,703,463
Accrued advisory fee.......................................................................................... 408,905
Accrued expenses.............................................................................................. 229,989
Distribution fee payable...................................................................................... 22,528
Total liabilities....................................................................................... 5,364,885
NET ASSETS....................................................................................................... $931,756,267
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................... $767,514,354
Undistributed net investment income........................................................................... 115,118
Undistributed net realized gain on investment transactions.................................................... 7,713
Net unrealized appreciation of investments.................................................................... 164,119,082
Net assets.............................................................................................. $931,756,267
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($43,168,982 (division sign) 3,333,437 shares of beneficial interest outstanding)................. $ 12.95
Sales charge -- 4.75% of offering price.......................................................................... .65
Maximum offering price........................................................................................ $13.60
Class B Shares ($109,591,221 (division sign) 8,453,724 shares of beneficial interest outstanding)................ $12.96
Class C Shares ($354,688 (division sign) 27,541 shares of beneficial interest outstanding)....................... $12.88
Class Y Shares ($778,641,376 (division sign) 60,120,604 shares of beneficial interest outstanding)............... $12.95
</TABLE>
See accompanying notes to financial statements.
23
<PAGE>
EVERGREEN BALANCED FUND
(Picture of STATEMENT OF OPERATIONS
certificates appear here) YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $45,707)...................................... $ 14,642,260
Interest..................................................................................... 31,431,682
Total investment income................................................................ 46,073,942
EXPENSES:
Advisory fee................................................................................. $4,765,912
Administrative personnel and service fees.................................................... 459,486
Distribution fee -- Class A Shares........................................................... 107,023
Distribution fee -- Class B Shares........................................................... 810,803
Shareholder services fee -- Class B Shares................................................... 270,267
Distribution fee -- Class C Shares........................................................... 1,883
Shareholder services fee -- Class C Shares................................................... 628
Transfer agent fee........................................................................... 324,216
Custodian fee................................................................................ 229,946
Reports and notices to shareholders.......................................................... 128,217
Registration and filing fees................................................................. 114,972
Professional fees............................................................................ 39,953
Trustees' fees and expenses.................................................................. 25,829
Insurance.................................................................................... 10,253
Miscellaneous................................................................................ 15,779
Total expenses......................................................................... 7,305,167
Net investment income........................................................................... 38,768,775
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investment transactions................................................. 74,563,015
Net decrease in unrealized appreciation of investments....................................... (8,122,510)
Net gain on investments......................................................................... 66,440,505
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................ $105,209,280
</TABLE>
See accompanying notes to financial statements.
24
<PAGE>
EVERGREEN BALANCED FUND
(Picture of certificates STATEMENT OF CHANGES IN NET ASSETS
appear here)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................................................... $ 38,768,775 $ 40,717,357
Net realized gain on investment transactions............................................. 74,563,015 33,813,027
Net change in unrealized appreciation of investments..................................... (8,122,510) 154,935,970
Net increase in net assets resulting from operations............................... 105,209,280 229,466,354
DISTRIBUTIONS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME:
Class A Shares........................................................................... (1,699,709) (1,620,476)
Class B Shares........................................................................... (3,505,791) (3,381,480)
Class C Shares........................................................................... (9,398) (8,000)
Class Y Shares........................................................................... (33,878,986) (35,087,211)
Total distributions from net investment income........................................ (39,093,884) (40,097,167)
NET REALIZED GAIN ON INVESTMENTS:
Class A Shares........................................................................... (3,402,462) (1,423,252)
Class B Shares........................................................................... (8,639,808) (3,696,589)
Class C Shares........................................................................... (28,096) (10,158)
Class Y Shares........................................................................... (62,657,565) (28,740,172)
Total distributions from net realized gain on investments............................. (74,727,931) (33,870,171)
Total distributions to shareholders................................................ (113,821,815) (73,967,338)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold................................................................ 234,680,222 170,978,316
Proceeds from reinvestment of distributions.............................................. 64,783,444 66,166,480
Payment for shares redeemed.............................................................. (328,365,114) (343,286,923)
Net decrease resulting from Fund share transactions................................... (28,901,448) (106,142,127)
Net increase (decrease) in net assets.............................................. (37,513,983) 49,356,889
NET ASSETS:
Beginning of year........................................................................ 969,270,250 919,913,361
End of year (including undistributed net investment income of $115,118 and $612,856,
respectively).......................................................................... $ 931,756,267 $ 969,270,250
</TABLE>
See accompanying notes to financial statements.
25
<PAGE>
EVERGREEN BALANCED FUND -- CLASS A AND B SHARES
FINANCIAL HIGHLIGHTS
(Picture of certificates appear here)
<TABLE>
<CAPTION>
CLASS B SHARES
CLASS A SHARES
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period...... $13.12 $11.17 $12.07 $11.41 $11.02 $13.13 $11.18
Income (loss) from investment operations:
Net investment income.................... .54 .51 .43 .42 .42 .43 .42
Net realized and unrealized gain (loss)
on investments.......................... .94 2.40 (.71) .75 .43 .95 2.40
Total from investment operations....... 1.48 2.91 (.28) 1.17 .85 1.38 2.82
Less distributions to shareholders from:
Net investment income.................... (.54) (.50) (.43) (.42) (.42) (.44) (.41)
Net realized gain on investments......... (1.11) (.46) (.19) (.09) (.04) (1.11) (.46)
In excess of net investment income....... -- -- -- -- -- -- --
Total distributions.................... (1.65) (.96) (.62) (.51) (.46) (1.55) (.87)
Net asset value, end of period............ $12.95 $13.12 $11.17 $12.07 $11.41 $12.96 $13.13
TOTAL RETURN+............................. 11.4% 26.5% (2.4%) 10.4% 7.9% 10.6% 25.6%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's
omitted)................................ $43,169 $41,849 $41,010 $35,032 $17,408 $ 109,591 $108,983
Ratios to average net assets:
Expenses................................. .89% .88% .89% .91% .91% 1.64% 1.62%
Net investment income.................... 3.95% 4.05% 3.69% 3.61% 3.93% 3.19% 3.30%
Portfolio turnover rate................... 34% 37% 35% 19% 12% 34% 37%
Average commission rate paid per share.... $.0593 N/A N/A N/A N/A $.0593 N/A
<CAPTION>
JANUARY 26,
1993*
THROUGH
DECEMBER 31,
1994 1993
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period...... $12.08 $11.54
Income (loss) from investment operations:
Net investment income.................... .36 .34
Net realized and unrealized gain (loss)
on investments.......................... (.71) .65
Total from investment operations....... (.35) .99
Less distributions to shareholders from:
Net investment income.................... (.36) (.34)
Net realized gain on investments......... (.19) (.09)
In excess of net investment income....... -- (.02)
Total distributions.................... (.55) (.45)
Net asset value, end of period............ $11.18 $12.08
TOTAL RETURN+............................. (3.0%) 8.7%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's
omitted)................................ $100,052 $65,475
Ratios to average net assets:
Expenses................................. 1.48% 1.41%++
Net investment income.................... 3.12% 3.09%++
Portfolio turnover rate................... 35% 19%
Average commission rate paid per share.... N/A N/A
</TABLE>
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charge or contingent deferred
sales charge is not reflected.
++ Annualized.
See accompanying notes to financial statements.
26
<PAGE>
EVERGREEN BALANCED FUND -- CLASS C AND Y SHARES
FINANCIAL HIGHLIGHTS -- (CONTINUED)
(Picture of certificates appear here)
<TABLE>
<CAPTION>
CLASS C SHARES
SEPTEMBER 2,
1994* CLASS Y SHARES
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, YEAR ENDED DECEMBER 31,
1996 1995 1994 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period............. $13.11 $11.17 $12.00 $13.12 $11.17 $12.07
Income (loss) from investment operations:
Net investment income........................... .40 .41 .18 .57 .54 .46
Net realized and unrealized gain (loss) on
investments.................................... .93 2.40 (.61) .95 2.40 (.71)
Total from investment operations.............. 1.33 2.81 (.43) 1.52 2.94 (.25)
Less distributions to shareholders from:
Net investment income........................... (.45) (.41) (.21) (.58) (.53) (.46)
Net realized gain on investments................ (1.11) (.46) (.19) (1.11) (.46) (.19)
Total distributions........................... (1.56) (.87) (.40) (1.69) (.99) (.65)
Net asset value, end of period................... $12.88 $13.11 $11.17 $12.95 $13.12 $11.17
TOTAL RETURN+.................................... 10.2% 25.5% (3.6%) 11.7% 26.8% (2.2%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)........ $355 $300 $195 $ 778,641 $818,137 $778,657
Ratios to average net assets:
Expenses........................................ 1.65% 1.62% 1.64%++ .64% .62% .64%
Net investment income........................... 3.19% 3.31% 3.23%++ 4.19% 4.30% 3.93%
Portfolio turnover rate.......................... 34% 37% 35% 34% 37% 35%
Average commission rate paid per share........... $ .0593 N/A N/A $.0593 N/A N/A
<CAPTION>
1993 1992
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period............. $11.41 $11.02
Income (loss) from investment operations:
Net investment income........................... .45 .46
Net realized and unrealized gain (loss) on
investments.................................... .75 .42
Total from investment operations.............. 1.20 .88
Less distributions to shareholders from:
Net investment income........................... (.45) (.45)
Net realized gain on investments................ (.09) (.04)
Total distributions........................... (.54) (.49)
Net asset value, end of period................... $12.07 $11.41
TOTAL RETURN+.................................... 10.7% 8.2%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)........ $760,147 $520,232
Ratios to average net assets:
Expenses........................................ .66% .66%
Net investment income........................... 3.86% 4.20%
Portfolio turnover rate.......................... 19% 12%
Average commission rate paid per share........... N/A N/A
</TABLE>
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Contingent deferred sales charge is not
reflected.
++ Annualized.
See accompanying notes to financial statements.
27
<PAGE>
EVERGREEN FOUNDATION FUND
(Picture of statue appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGER
STEPHEN A. LIEBER
In 1996, Evergreen Foundation Fund provided an 11.5%* total (Picture of
return (Class Y, no-load shares). Since inception on January Stephen A. Lieber
2, 1990, through December 31, 1996, the Fund (Class Y shares) appears here)
has provided an average annual compound return of 16.3%. The
Fund's five-year average annual compound return ended December
31, was 14.7%. The 12-month total return ended December 31,
and the average annual compound return for the period since
their inception on January 31, 1995, through December 31,
1996, for the Fund's Class A shares were 6.0% and 17.3%,
respectively. (Please see page 31 for additional performance
information.)
Nineteen-ninety-six was an unusual year in the history of
this Fund, with a substantial decline in the United States government bond
market negatively affecting its performance in the first five months. During the
first half of the year, the bond decline was only partially offset by a rise in
the Fund's common stock portfolio. In the second half of the year, there was a
major increase in the common stock portfolio and a sizable bond market recovery.
For the year, common stocks drove the performance of the Fund with their total
return, as a group, of 28.9%, nearly 600 basis points in excess of that of the
S&P 500 Reinvested Index** which returned 23.0% for the year. The fixed income
portfolio provided a 1.0% decline for the period, as compared with a 2.9% total
return for the Lehman Government/Corporate Bond Index***. While aiming primarily
to invest in common stocks, we did take the opportunity of an extraordinary drop
in the bond market in August to purchase long-term U. S. Treasury bonds on
yields as high as 7.3%, which contrasted favorably with the 6.6% available on
long-term U.S. Treasuries at the year-end.
Inflation fears led to a rising so-called "inflation premium" in the bond
market, bringing the sharp decline through May. These fears were stimulated by
the publication of statistics showing a rising trend of employment. While our
forecasts and analysis of current trends did not suggest that inflation would
increase -- which proved correct in full-year statistics -- nonetheless, we
recognized that in the prevailing environment, we could best seek returns by
shifting to a higher proportion of stocks in the portfolio. By year-end, the
asset allocation had shifted to 56.2% in equities, 35.3% in intermediate and
long-term bonds, and 8.5% in short-term cash equivalents, as compared with the
beginning of the year's 42.3% in equities, 48.1% in long-term bonds, and 9.6% in
short-term cash equivalents. This sizable reallocation of assets is consistent
with the way the Fund has been managed since its inception. While striving to
maintain a low-risk and comparatively high-yield portfolio of the highest
quality bonds as a risk averse core for the Fund's investments, we also seek to
provide capital appreciation primarily through investment in common stocks.
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.
** 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.
*** THE LEHMAN BROTHERS GOVERNMENT/CORPORATE INDEX IS AN UNMANAGED REINVESTED
INDEX OF GOVERNMENT AND CORPORATE BONDS WITH REMAINING MATURITIES OF 1 TO 7
YEARS AND RATED SINGLE A OR HIGHER. AN INVESTMENT CAN NOT BE MADE IN AN
INDEX.
28
<PAGE>
EVERGREEN FOUNDATION FUND
(Picture of statue appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
Our strategy for the use of cash equivalents was to treat these funds as a
reserve to buy common stocks in periods of market volatility, and sector or
company weakness. They allowed for a quick and sizable response to the
appearance of what your management considered to be bargain buying
opportunities. There were three major opportunities for such purchases during
the year. The first was during the sell-off in technology stocks during January.
Major purchases made at that time included initiating a position in Microsoft
Corp., which appreciated 64.5% by year-end, adding to a position in
International Business Machines Corp. (IBM) which appreciated 36.1%, and adding
to Avnet, Inc., up 34.2%. Each was viewed as a dynamic growth company which we
were able to purchase on an undervalued basis. During the major decline in the
summer, over fifty purchases were made for the portfolio. Here too, sizable
subsequent gains were achieved. Medtronic, Inc. increased 37.0% to year-end,
Cisco Systems, Inc., 28.3%, Patriot American Hospitality, Inc., 52.6%, Sunstone
Hotel Investors, Inc., 32.4%, and Intel Corp., 24.2%. During the tax-loss
selling period at year-end, we had further opportunities to purchase growth
stocks on a value basis. Among these new positions were shares of Beneficial
Corp., and KLA Instruments and the convertible preferreds of First Union Real
Estate Equity & Mortgage Investments and The Home Depot, Inc.
The strategy of buying growth stocks on a value basis provided substantial
appreciation over the course of the year. The Fund's top ten holdings in terms
of performance in the portfolio were: PHH Corp., +163.9%, Intel Corp., +130.0%,
Intel Corp. Warrants, +102.8%, Microsoft Corp., +99.0%, Peoples Heritage
Financial Group Inc., +97.1%, Starwood Lodging Trust, +90.4%, Patriot American
Hospitality, Inc., +83.0%, Roadway Express, Inc. +76.0%, Cisco Systems, Inc.,
+72.2%, and IBM, +69.6%.
The bottom ten performers for the year declined between 13.3% and 54.8%. Of
these, Caliber Systems, Inc., (which is the resulting company after Roadway
Services, Inc., spun off Roadway Express, Inc.) and eight of the ten have
reversed their declines subsequent to the Fund's fiscal year-end.
Sizable gains were taken during the year, most on partial sales of positions
held. These ranged from 454.4% in the shares of Nautica Enterprises, Inc., held
for a three-year and four-month period, 281.8% in shares of Guidant Corp., held
over a two-year period, to 128.0% in MedPartners, Inc. (originally Caremark
International Inc.), held over a three-year and nine-month period, and 108.8% in
shares of PHH Corp., held over a fourteen-month period. An important factor in
both realized and unrealized gains was corporate mergers and acquisitions.
Typically, the Evergreen Funds, which are focused on the purchase of growth on
an undervalued basis, find that a significant percentage of holdings are
subsequently acquired by other corporations. The results in 1996 followed the
pattern. Sixteen of the Fund's holdings received acquisition bids during the
year. Gains on the acquisitions which were completed ranged up to 139.0% in the
case of Baybanks, Inc., which was acquired by Bank of Boston Corp. On average
for those completed, the return for the Fund was 53.2%. Financial institutions
predominated, including five banks, as well as two insurance companies, two real
estate companies, two health care service companies, one railroad, Conrail,
Inc.; one utility, Long Island Lighting Co.; and one multiple financial service
company, PHH Corp.
While seeking companies whose undervaluation may be eventually realized
through acquisition, we also concentrate research and stock selection on
companies which are in the process of a corporate restructuring which will
unlock values. Two major holdings purchased during the year in this category
were the shares of E.I. Du Pont de Nemours & Co., Inc., purchased during market
weakness in July, and Monsanto Co. We see their potential, not merely as
unlocking values, but also as transitioning the companies into concentrating on
their growth potentials. This is consistent with our whole "value-timing"
strategy of seeking undervalued growth opportunities.
29
<PAGE>
EVERGREEN FOUNDATION FUND
(Picture of statue appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
Entering the new year, we see the Fund as positioned for an environment of
moderate economic growth with inflation held in check. The best investment
returns are likely to come from companies with outstanding new products or
services, the ability to generate new markets, or to reveal underlying, but
hitherto obscured growth trends. We expect such equities to outperform the
market. Our fixed income commitment, much reduced as a percentage from that at
the beginning of the year, will continue to be subject to adjustment as business
trends and underlying economic pressures materialize. We anticipate that this
will be a year of much more governmental effort to achieve a long-term budget
solution, which should further deflate investor inflationary expectations. The
economy should continue to have limited price rises due to heightened
international competition, as a consequence of the increase of the dollar versus
other currencies, and of the spread of industrial capacity worldwide.
Corporations will, we believe, continue to show voracious appetites for buying
other companies to supplement their own growth potential, while utilizing the
excess cash generated in the strong economy of the last few years to buy back
their shares and, thus, provide enhanced earnings power for continuing
shareholders. This is an environment which, we believe, should be favorable for
the present positioning of the Fund.
Our research and portfolio management group, and our entire staff, appreciate
the confidence shown in us by the many new shareholders who have joined the Fund
in 1996. We shall endeavor to equal or surpass the Fund's long-term performance.
30
<PAGE>
EVERGREEN FOUNDATION FUND
(Picture of statue appears here)
RESULTS TO DATE
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN FOUNDATION FUND
The graphs below compare a $10,000 investment in the Evergreen Foundation
Fund (Class A, Class B, Class C and Class Y Shares) with a similar investment in
the S&P 500 Index and Lipper Balanced Funds Average.
[CHARTS TO FOLLOW.]
CLASS A
1-YEAR TOTAL RETURN = 6.0%
AVERAGE ANNUAL COMPOUND RETURN
SINCE INCEPTION = 17.3%
$9,000 $11,000 $13,000 $15,000 $17,000
1/3/95*
6/30/95
12/31/95
6/30/96
12/31/96
CLASS B
1-YEAR TOTAL RETURN = 5.5%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 17.6%
$9,000 $11,000 $13,000 $15,000 $17,000
1/3/95*
6/30/95
12/31/95
6/30/96
12/31/96
CLASS C
1-YEAR TOTAL RETURN = 9.4%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 19.1%
$9,000 $11,000 $13,000 $15,000 $17,000
1/3/95*
6/30/95
12/31/95
6/30/96
12/31/96
CLASS Y
1-YEAR TOTAL RETURN = 11.5%
AVERAGE ANNUAL COMPOUND RETURN:
5-YEAR = 14/7%
SINCE INCEPTION = 16.3%
$9,000 $13,000 $17,000 $21,000 $25,000 $29,000
1/2/90*
12/31/91
12/31/92
12/31/93
12/31/94
12/31/95
12/31/96
EVERGREEN FOUNDATION FUND
S&P 500 INDEX
LIPPER BALANCED FUND 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 waiver) were
deducted; and (d) all dividends and distributions were reinvested.
The S&P 500 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.
31
<PAGE>
EVERGREEN FOUNDATION FUND
STATEMENT OF INVESTMENTS
DECEMBER 31, 1996
(Picture of statue appears here)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- 55.1%
AEROSPACE & DEFENSE -- .4%
60,000 Boeing Co....................... $ 6,382,500
AUTOMOTIVE EQUIPMENT &
MANUFACTURING -- 1.2%
581,500 Chrysler Corp................... 19,189,500
BANKS -- 5.0%
16,600 AmSouth Bancorp................. 803,025
50,000 Bancfirst Corp.................. 1,362,500
390,700 Bank of Boston Corp............. 25,102,475
140,000 Barnett Banks, Inc.............. 5,757,500
93,375 BSB Bancorp, Inc................ 2,497,781
57,000 Cape Cod Bank & Trust Co........ 1,282,500
20,000 CB Bancshares, Inc.............. 585,000
92,500 Central Fidelity Banks, Inc..... 2,381,875
48,500 Crestar Financial Corp.......... 3,607,188
90,138 First Chicago NBD Corp.......... 4,844,918
3,600 First Empire State Corp......... 1,036,800
196,800 First of America Bank Corp...... 11,832,600
7,500 First Security Corp............. 253,125
58,500 First Union Corp. **............ 4,329,000
70,801 Hibernia Corp. Cl. A............ 938,113
25,000 Mississippi Valley Bancshares,
Inc............................. 1,062,500
66,150 Peoples Heritage Financial
Group........................... 1,852,200
102,000 Seacoast Banking Corp. of
Florida Cl. A................... 2,658,375
114,100 Standard Federal Bank........... 6,489,437
32,500 U.S. Trust Corp................. 2,567,500
81,244,412
BUILDING, CONSTRUCTION &
FURNISHINGS -- 1.0%
122,800 Armstrong World Industries,
Inc............................. 8,534,600
149,300 Continental Homes Holding
Corp............................ 3,172,625
20,000* M/I Schottenstein Homes, Inc.... 220,000
20,000 Macerich Co. (The).............. 522,500
264,000* Pacific Greystone Corp.......... 2,904,000
15,353,725
BUSINESS EQUIPMENT &
SERVICES -- 1.1%
60,000* Cisco Systems, Inc.............. 3,817,500
72,000 International Business Machines
Corp............................ 10,872,000
50,000 Lucent Technologies, Inc........ 2,312,500
<CAPTION>
SHARES VALUE
</TABLE>
BUSINESS EQUIPMENT &
SERVICES -- CONTINUED
<TABLE>
<C> <S> <C>
10,000* Policy Management Systems
Corp............................ $ 461,250
25,200 Wackenhut Corp. (The) Cl. B..... 384,300
17,847,550
CHEMICAL & AGRICULTURAL
PRODUCTS -- 3.0%
85,000 A. Schulman, Inc................ 2,082,500
30,000 Air Products & Chemicals,
Inc............................. 2,073,750
248,000 Du Pont (E. I.) de Nemours...... 23,405,000
70,000 Grace (W.R.) & Co............... 3,622,500
40,000 H.B. Fuller Co.................. 1,880,000
201,500 Monsanto Co..................... 7,833,312
75,000 Nalco Chemical Co............... 2,709,375
65,000 Pioneer Hi-Bred International,
Inc............................. 4,550,000
20,000 Praxair, Inc.................... 922,500
49,078,937
COMMUNICATION SYSTEMS &
SERVICES -- .9%
98,333* 360 Communications Co........... 2,273,951
20,000* AirTouch Communications......... 505,000
286,000 Sprint Corp..................... 11,404,250
14,183,201
CONSUMER PRODUCTS &
SERVICES -- 3.4%
55,000 American Greetings Corp. Cl.
A............................... 1,560,625
75,000 Black & Decker Corp............. 2,259,375
20,000* Broderbund Software, Inc........ 595,000
23,311 Consolidated Products, Inc...... 454,565
120,000 CPC International, Inc.......... 9,300,000
148,800 Goodyear Tire & Rubber Co.
(The)........................... 7,644,600
95,000 H. & R. Block, Inc.............. 2,755,000
178,800 International Flavors &
Fragrances, Inc................. 8,046,000
53,800 Kimberly-Clark Corp............. 5,124,450
50,100* Nautica Enterprises, Inc........ 1,265,025
95,400 Procter & Gamble Co. (The)...... 10,255,500
78,500 Tupperware Corp................. 4,209,562
20,000 V.F. Corp....................... 1,350,000
54,819,702
DIVERSIFIED COMPANIES -- 2.0%
8,000 Cooper Industries, Inc.......... 337,000
222,400 General Electric Co............. 21,989,800
</TABLE>
32
<PAGE>
EVERGREEN FOUNDATION FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1996
(Picture of statue appears here)
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS -- CONTINUED
DIVERSIFIED COMPANIES -- CONTINUED
<C> <S> <C>
33,000 Minnesota Mining & Mortgage
Co.............................. $ 2,734,875
120,800 PPG Industries, Inc............. 6,779,900
31,841,575
ELECTRICAL EQUIPMENT &
ELECTRONICS -- 7.2%
173,400 AMP, Inc........................ 6,654,225
216,511 Avnet, Inc...................... 12,611,766
20,000 Computer Associates
International, Inc.............. 995,000
430,800 Hewlett-Packard Co.............. 21,647,700
340,800 Intel Corp...................... 44,623,500
65,000* Intel Corp. $41.75
Warrants Expiring 03/14/98...... 5,996,250
183,800* Microsoft Corp.................. 15,186,475
224,000* Sun Microsystems, Inc........... 5,754,000
70,000 Wyle Electronics................ 2,765,000
116,233,916
ENERGY -- 1.2%
260,000 Equitable Resources, Inc........ 7,735,000
30,500 Exxon Corp...................... 2,989,000
45,300 Mobil Corp...................... 5,537,926
43,103 Seitel, Inc..................... 1,724,120
33,877 Union Pacific Resource Group,
Inc............................. 990,901
18,976,947
FINANCE & INSURANCE -- 8.1%
10,668 Aetna, Inc...................... 853,440
120,000 Allstate Corp. (The)............ 6,945,000
55,300 AMBAC, Inc...................... 3,670,537
85,450 American International Group,
Inc............................. 9,249,962
159,000 Beneficial Corp................. 10,076,625
148,350 Countrywide Credit Industries,
Inc............................. 4,246,519
95,000 Degeorge Financial Corp......... 130,625
20,000 FBL Financial Group, Inc........ 497,500
10,000 Federal Home Loan Mortgage
Corp............................ 1,101,250
788,000 Federal National Mortgage
Association..................... 29,353,000
50,000 Hartford Steam Boiler Inspection
& Insurance Co. (The)........... 2,318,750
70,000 John Alden Financial Corp....... 1,295,000
130,000 John Nuveen Co. (The)........... 3,445,000
172,200 Marsh & McLennan Co., Inc....... 17,908,800
<CAPTION>
SHARES VALUE
</TABLE>
FINANCE & INSURANCE -- CONTINUED
<TABLE>
<C> <S> <C>
100,700 Merrill Lynch & Co., Inc........ $ 8,207,050
174,600 MGIC Investment Corp............ 13,269,600
155,000 NAC RE Corp..................... 5,250,625
235,000 North American Mortgage Co...... 4,641,250
35,000 Ohio Casualty Corp.............. 1,242,500
40,300 Raymond James Financial, Inc.... 1,214,038
150,800 Wilmington Trust Corp........... 5,956,600
130,873,671
FOOD & BEVERAGE
PRODUCTS -- .1%
30,000 Pepsico, Inc.................... 877,500
FOREST PRODUCTS -- .5%
88,000 Union Camp Corp................. 4,202,000
45,000 Willamette Industustries, Inc... 3,133,125
7,335,125
HEALTHCARE PRODUCTS &
SERVICES -- 6.2%
185,700 Abbott Laboratories............. 9,424,275
94,000 Alza Corp....................... 2,432,250
1,750* Alza Corp. $65.00
Warrants Expiring 12/31/1999.... 219
140,000 American Home Products Corp..... 8,207,500
50,000 Bristol-Myers Squibb Co......... 5,437,500
180,900 Columbia/HCA Healthcare Corp.... 7,371,675
34,275 Guidant Corp.................... 1,953,675
102,800 Johnson & Johnson............... 5,114,300
221,262 Lilly (Eli) & Co................ 16,152,126
65,000* Lincare Holdings, Inc........... 2,665,000
100,000* Living Centers of America,
Inc............................. 2,775,000
80,000 McKesson Corp................... 4,480,000
151,750* MedPartners, Inc................ 3,186,750
60,800 Medtronic, Inc.................. 4,134,400
164,758 Merck & Co., Inc................ 13,057,071
60,000 Pfizer, Inc..................... 4,972,500
66,000 Schering-Plough Corp............ 4,273,500
9,200 Shared Medical System Corp...... 453,100
44,900 Superior Surgical Manufacturing
Co., Inc........................ 606,150
1,750 Therapeutic Discovery Corp...... 19,469
50,000 Warner-Lambert Co............... 3,750,000
100,466,460
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES -- 1.7%
65,000 Applied Power, Inc.............. 2,575,625
</TABLE>
33
<PAGE>
EVERGREEN FOUNDATION FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1996
(Picture of statue appears here)
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS -- CONTINUED
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES -- CONTINUED
<C> <S> <C>
10,000 BemisCo., Inc................... $ 368,750
92,000 Corning, Inc.................... 4,255,000
7,000 FlightSafety Int'l, Inc......... 350,000
110,700 PHH Corp........................ 4,760,100
30,000 Pittston Brink's Group.......... 810,000
162,000 Snap-On, Inc.................... 5,771,250
6,000* Strattec Security Corp.......... 109,500
111,900 Timken Co. (The)................ 5,133,413
50,000 Trinity Industries, Inc......... 1,875,000
30,000* UCAR International, Inc......... 1,128,750
27,137,388
MACHINERY -- DIVERSIFIED -- .5%
200,000 Deere & Co...................... 8,125,000
PUBLISHING, BROADCASTING &
ENTERTAINMENT -- .5%
20,000 Belo A H Corp................... 697,500
20,000 Cox Communications, Inc......... 462,500
50,993 Disney Walt Co. (The)........... 3,550,388
20,000 Gaylord Entertainment Co. Cl.
A............................... 457,500
2,500* Lin Television Corp............. 105,625
55,000 Time Warner, Inc................ 2,062,500
3,000 Washington Post Co. (The)....... 1,005,375
8,341,388
REAL ESTATE -- 5.9%
30,000* Alexander's, Inc................ 2,373,750
23,400 Arbor Property Trust............ 169,650
50,000 Bay Apartment Communities,
Inc............................. 1,800,000
50,009 Bradley Real Estate, Inc........ 900,162
125,000 Cali Realty Corp................ 3,859,375
270,400 Capstead Mortgage Corp.......... 6,489,600
111,900 CarrAmerica Realty Corp......... 3,273,075
40,000 Chelsea GCA Realty, Inc......... 1,385,000
184,900 Columbus Realty Trust........... 4,206,475
140,000 Crescent Real Estate Equities,
Inc............................. 7,385,000
305,300 Crown American Realty Trust..... 2,289,750
50,300 CWM Mortgage Holdings, Inc...... 1,081,450
105,200 Essex Property Trust, Inc....... 3,090,250
83,000 Evans Withycombe Residential,
Inc............................. 1,743,000
165,000 FAC Realty, Inc................. 1,093,125
90,000 FelCor Suite Hotels, Inc........ 3,183,750
100,200 Gables Residential Trust........ 2,905,800
174,000 Glimcher Realty Trust........... 3,828,000
<CAPTION>
SHARES VALUE
</TABLE>
REAL ESTATE -- CONTINUED
<TABLE>
<C> <S> <C>
28,000 Highwoods Properties, Inc....... $ 945,000
14,076 Homestead Village Properties,
Inc............................. 253,368
9,443 Homestead Village Properties,
Inc............................. 76,724
363,216 Horizon Group, Inc.............. 7,218,918
7,000 JP Realty, Inc.................. 181,125
142,000 Kranzco Realty Trust............ 2,396,250
15,000 Liberty Property Trust.......... 386,250
57,000 Marriott International, Inc..... 3,149,250
26,700 Mills Corp. (The)............... 637,463
48,100 Oasis Residential, Inc.......... 1,094,275
20,000 Patriot American Hospitality,
Inc............................. 862,500
130,000 Post Property, Inc.............. 5,232,500
100,000 Prentiss Property Trust......... 2,500,000
90,000 Public Storage, Inc............. 2,790,000
70,416 Security Capital Industrial
Trust........................... 1,505,142
111,992 Security Capital Pacific
Trust........................... 2,561,817
100,000 Sovran Self Storage, Inc........ 3,125,000
98,500 Starwood Lodging Trust.......... 5,429,812
22,900 Storage USA, Inc................ 861,613
45,000 Sunstone Hotel Investors, Inc... 590,625
57,900 Tanger Factory Outlet Centers,
Inc............................. 1,570,537
20,000 Taubman Centers, Inc............ 257,500
25,000 Urban Shopping Centers, Inc..... 725,000
95,407,881
RETAILING & WHOLESALE -- 1.0%
30,000 Fingerhut Cos., Inc............. 367,500
10,000 Home Depot, Inc. (The).......... 501,250
133,000 Lowe's Cos., Inc................ 4,721,500
195,600 Mercantile Stores Co., Inc...... 9,657,750
25,000 Walgreen Co..................... 1,000,000
16,248,000
THRIFT INSTITUTIONS -- .2%
4,000 Golden West Financial Corp...... 252,500
80,000 Webster Financial Corp.......... 2,940,000
3,192,500
TRANSPORTATION -- 1.0%
35,000 Burlington Northern Santa Fe.... 3,023,125
34,000 Caliber System, Inc............. 654,500
70,000 Conrail, Inc.................... 6,973,750
20,000 KLM Royal Dutch Air Lines....... 557,500
17,000 Roadway Express, Inc............ 329,375
</TABLE>
34
<PAGE>
EVERGREEN FOUNDATION FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1996
(Picture of statue appears here)
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS -- CONTINUED
TRANSPORTATION -- CONTINUED
<C> <S> <C>
80,000 Union Pacific Corp.............. $ 4,810,000
16,348,250
UTILITIES -- ELECTRIC -- .1%
100,000 Long Island Lighting Co......... 2,212,500
UTILITIES -- 1.9%
10,000 AT & T Corp..................... 435,000
150,000 Bell Atlantic Corp.............. 9,712,500
325,000 GTE Corp........................ 14,787,500
30,000 NYNEX Corp...................... 1,443,750
40,000 PP&L Resources, Inc............. 920,000
100,000 Public Service Enterprise Group,
Inc............................. 2,725,000
32,000 TNP Enterprises, Inc............ 876,000
30,899,750
CHEMICALS -- .4%
170,000 Morton International, Inc....... 6,927,500
DIVERSIFIED -- .4%
283,800 Frontier Corp................... 6,420,975
NATURAL GAS -- .1%
22,000 Consolidated Natural Gas Co..... 1,215,500
OTHER -- .1%
5,000 Clorox Co....................... 501,875
10,000 General Motors Corp............. 557,500
10,000* KLA Instruments Corp............ 355,000
10,000 Premark International, Inc...... 222,500
1,636,875
TOTAL COMMON STOCKS
(COST $677,549,174)........... 888,818,228
PREFERRED STOCKS -- .0% (A)
HEALTHCARE PRODUCTS &
SERVICES -- .0% (A)
70,000* Fresenius National Med Care,
Inc. Cl. D (COST $14,317)....... 9,100
CONVERTIBLE PREFERRED STOCKS -- .8%
ELECTRICAL EQUIPMENT &
SERVICES -- .1%
100,000 Westinghouse Elec. Corp.
$1.30, Series C, PEPS, 144A..... 1,769,000
FINANCE & INSURANCE -- .0% (A)
3,557 Aetna, Inc...................... 282,337
<CAPTION>
SHARES VALUE
<C> <S> <C>
CONVERTIBLE PREFERRED STOCKS -- CONTINUED
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES -- .0% (A)
500,000 Home Depot, Inc. (The)
3.25%, 10/01/01................. $ 487,500
METAL PRODUCTS &
SERVICES -- .4%
100,000 Timet Capital Trust I
6.625%, BUCS, 144A.............. 5,425,000
REAL ESTATE -- .3%
115,000 First Union Real Estate Equity
& Mortgage Investments.......... 4,628,750
TOTAL CONVERTIBLE PREFERRED
STOCKS
(COST $9,980,605)............. 12,592,587
<CAPTION>
PRINCIPAL
AMOUNT
<C> <S> <C>
CONVERTIBLE DEBENTURES -- .3%
BUILDING, CONSTRUCTION &
FURNISHINGS -- .0% (A)
$ 500,000 Engle Homes, Inc.
7.00%, 3/1/03................... 435,000
HEALTHCARE PRODUCTS &
SERVICES -- .1%
750,000 Maxxim Medical, Inc.
6.75%, 3/1/03................... 727,500
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES -- .1%
2,000,000 Robbins & Myers, Inc.
6.50%, 9/1/03................... 2,250,000
NATURAL GAS -- .1%
1,328,000 Consolidated Natural Gas Co.
7.25%, 12/15/15................. 1,402,700
TOTAL CONVERTIBLE DEBENTURES
(COST $4,784,665)............. 4,815,200
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 35.3%
TENNESSEE VALLEY AUTHORITY --
1.1%
8,000,000 7.25%, 7/15/43.................. 7,807,232
10,000,000 7.85%, 6/15/44.................. 10,112,200
17,919,432
FEDERAL NATIONAL MORTGAGE
ASSN. -- .1%
1,000,000 8.10%, 8/12/19.................. 1,121,520
</TABLE>
35
<PAGE>
EVERGREEN FOUNDATION FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1996
(Picture of statue appears here)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- CONTINUED
U.S. TREASURY BONDS -- 30.0%
$150,000,000 6.25%, 8/15/23................. $ 140,625,000
125,000,000 7.125%, 2/15/23................ 130,468,750
49,000,000 7.25%, 5/15/16................. 51,756,250
7,000,000 7.625%, 11/15/22............... 7,726,250
10,000,000 8.00%, 11/15/21................ 11,465,620
25,000,000 8.125%, 5/15/21................ 29,007,800
50,000,000 8.125%, 8/15/19................ 57,796,850
30,000,000 8.375%, 8/15/08................ 33,215,610
10,000,000 8.50%, 2/15/20................. 12,003,120
7,000,000 10.00%, 5/15/10................ 8,561,875
1,000,000 10.625%, 8/15/15............... 1,413,750
484,040,875
U.S. TREASURY NOTES -- 4.1%
30,000,000 5.75%, 8/15/03................. 29,109,360
15,000,000 6.50%, 8/15/05................. 15,107,805
13,000,000 7.25%, 5/15/04................. 13,686,556
8,000,000 7.25%, 8/15/04................. 8,425,000
66,328,721
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS
(COST $578,814,301)............ 569,410,548
SHORT-TERM INVESTMENTS -- 8.0%
14,000,000 A.H. Robins Co., Inc.
5.55%, 2/6/97.................. 13,922,300
12,000,000 B.I. Funding, Inc.
5.50%, 2/19/97................. 11,910,167
Eiger Capital Corp.
800,000 5.45%, 1/13/97................. 798,547
5,600,000 5.50%, 1/16/97................. 5,587,166
47,000,000 Federal National Mortgage
Association Discount Notes
5.28%, 2/3/97.................. 46,772,520
1,700,000 Gold Crown Managers Acceptance
5.65%, 1/22/97................. 1,694,397
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM INVESTMENTS -- CONTINUED
Golden Managers Acceptance
Corp.
$ 4,800,000 5.45%, 1/8/97.................. $ 4,794,913
1,300,000 5.45%, 1/22/97................. 1,295,867
500,000 J.P. Morgan & Co., Inc.
5.47%, 1/16/97................. 498,860
400,000 Johnson Control, Inc.
6.20%, 1/15/97................. 399,036
450,000 Mitsubishi International Corp.
5.55%, 1/9/97.................. 449,445
4,400,000 Montana Blanc Capital Corp.
5.45%, 1/13/97................. 4,392,007
10,400,000 PHH Corp.
5.50%, 2/7/97.................. 10,341,211
21,400,000 Receivables Capital Corp.
5.70%, 1/27/97................. 21,311,903
Unifunding, Inc.
400,000 5.44%, 1/6/97.................. 399,698
2,000,000 5.55%, 2/7/97.................. 1,988,592
2,600,000 Virginia Electric & Power Co.
5.40%, 1/10/97................. 2,596,490
TOTAL SHORT-TERM INVESTMENTS
(COST $129,153,119)............ 129,153,119
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS --
(COST $1,400,296,181).. 99.5% 1,604,798,782
OTHER ASSETS AND
LIABILITIES -- NET... 0.5 7,357,308
NET ASSETS............. 100.0% $1,612,156,090
</TABLE>
* Non-income producing securities.
** At December 31, 1996 the Fund owned 58,500 shares of common stock of First
Union at a cost of $2,358,441. During the period ended December 31, 1996 the
Fund earned $128,700 in dividend income from this investment. These shares
were purchased by the Fund prior to the acquisition of the investment adviser
and Lieber & Company by First Union.
+ Consists of one share Starwood Lodging Trust and one share Starwood Lodging
Corp. common stock.
(a) Less than one tenth of one percent.
ADR -- American Depositary Receipts
BUCS -- Beneficial Unsecured Convertible Securities
PEPS -- Participating Equity Preferred Shares
See accompanying notes to financial statements.
36
<PAGE>
EVERGREEN FOUNDATION FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
(Picture of statue appears here)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $1,400,296,181)....................................................... $1,604,798,782
Cash........................................................................................................ 843,137
Dividends and interest receivable........................................................................... 14,449,437
Receivable for Fund shares sold............................................................................. 5,517,342
Receivable for investments sold............................................................................. 2,177,770
Prepaid expenses............................................................................................ 22,777
Total assets.......................................................................................... 1,627,809,245
LIABILITIES:
Payable for investments purchased........................................................................... 10,955,973
Payable for Fund shares repurchased......................................................................... 1,991,834
Accrued advisory fee........................................................................................ 1,077,476
Distribution fee payable.................................................................................... 855,281
Accrued expenses............................................................................................ 772,591
Total liabilities..................................................................................... 15,653,155
NET ASSETS..................................................................................................... $1,612,156,090
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................. $1,398,455,698
Undistributed net investment income......................................................................... 25,764
Undistributed net realized gain on investment transactions.................................................. 9,172,027
Net unrealized appreciation of investments.................................................................. 204,502,601
Net assets............................................................................................ $1,612,156,090
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($206,331,719 (division sign) 12,795,763 shares of beneficial interest outstanding).......... $ 16.13
Sales charge -- 4.75% of offering price..................................................................... .80
Maximum offering price................................................................................ $ 16.93
Class B Shares ($570,405,287 (division sign) 35,506,081 shares of beneficial interest outstanding).......... $ 16.07
Class C Shares ($26,576,977 (division sign) 1,654,832 shares of beneficial interest outstanding)............ $ 16.06
Class Y Shares ($808,842,107 (division sign) 50,106,550 shares of beneficial interest outstanding).......... $ 16.14
</TABLE>
See accompanying notes to financial statements.
37
<PAGE>
EVERGREEN FOUNDATION FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(Picture of statue appears here)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends................................................................................... $ 15,724,373
Interest.................................................................................... 48,429,872
Total investment income............................................................... 64,154,245
EXPENSES:
Advisory fee................................................................................ $11,140,780
Distribution fee -- Class A Shares.......................................................... 414,289
Distribution fee -- Class B Shares.......................................................... 3,487,899
Shareholder services fee -- Class B Shares.................................................. 1,162,633
Distribution fee -- Class C Shares.......................................................... 152,488
Shareholder services fee -- Class C Shares.................................................. 50,829
Transfer agent fee.......................................................................... 1,331,778
Registration and filing fees................................................................ 408,920
Custodian fee............................................................................... 365,915
Reports and notices to shareholders......................................................... 294,100
Professional fees........................................................................... 81,041
Insurance................................................................................... 41,820
Trustees' fees and expenses................................................................. 7,176
Miscellaneous............................................................................... 21,600
Total expenses........................................................................ 18,961,268
Net investment income.......................................................................... 45,192,977
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investment transactions................................................ 21,629,530
Net increase in unrealized appreciation of investments...................................... 96,176,448
Net gain on investments........................................................................ 117,805,978
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................... $162,998,955
</TABLE>
See accompanying notes to financial statements.
38
<PAGE>
EVERGREEN FOUNDATION FUND
STATEMENT OF CHANGES IN NET ASSETS
(Picture of statue appears here)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................................................... $ 45,192,977 $ 22,897,807
Net realized gain on investment transactions........................................ 21,629,530 9,385,074
Net change in unrealized appreciation of investments................................ 96,176,448 121,111,375
Net increase in net assets resulting from operations.......................... 162,998,955 153,394,256
DISTRIBUTIONS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME:
Class A Shares...................................................................... (5,718,718) (1,908,188)
Class B Shares...................................................................... (12,786,120) (4,488,521)
Class C Shares...................................................................... (568,120) (170,820)
Class Y Shares...................................................................... (26,366,104) (16,164,235)
Total distributions from net investment income................................... (45,439,062) (22,731,764)
NET REALIZED GAIN ON INVESTMENTS:
Class A Shares...................................................................... (1,819,496) (993,303)
Class B Shares...................................................................... (5,077,907) (2,824,116)
Class C Shares...................................................................... (231,947) (113,415)
Class Y Shares...................................................................... (7,335,097) (7,827,124)
Total distributions from net realized gain on investments........................ (14,464,447) (11,757,958)
Total distributions to shareholders........................................... (59,903,509) (34,489,722)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold........................................................... 717,070,601 652,779,207
Proceeds from reinvestment of distributions......................................... 55,523,207 32,843,419
Payment for shares redeemed......................................................... (301,222,020) (98,358,101)
Net increase resulting from Fund share transactions.............................. 471,371,788 587,264,525
Net increase in net assets.................................................... 574,467,234 706,169,059
NET ASSETS:
Beginning of year................................................................... 1,037,688,856 331,519,797
End of year (including undistributed net investment income of $25,764 and $271,849,
respectively)..................................................................... $1,612,156,090 $ 1,037,688,856
</TABLE>
See accompanying notes to financial statements.
39
<PAGE>
EVERGREEN FOUNDATION FUND --
CLASS A, B AND C SHARES
FINANCIAL HIGHLIGHTS
(Picture of statue appears here)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
JANUARY 3, JANUARY 3,
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..................... $15.12 $12.24 $15.07 $12.24 $15.07
Income from investment operations:
Net investment income................................... .50 .44 .40 .36 .40
Net realized and unrealized gain on investments......... 1.16 3.14 1.15 3.09 1.14
Total from investment operations...................... 1.66 3.58 1.55 3.45 1.54
Less distributions to shareholders from:
Net investment income................................... (.50) (.47) (.40) (.39) (.40)
Net realized gain on investments........................ (.15) (.23) (.15) (.23) (.15)
Total distributions................................... (.65) (.70) (.55) (.62) (.55)
Net asset value, end of period........................... $16.13 $15.12 $16.07 $15.07 $16.06
TOTAL RETURN+............................................ 11.3% 29.7% 10.5% 28.7% 10.4%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in millions)................. $206 $107 $570 $296 $27
Ratios to average net assets:
Expenses................................................ 1.24% 1.33%++# 1.99% 2.07%++ 1.99%
Net investment income................................... 3.39% 3.73%++# 2.64% 2.99%++ 2.64%
Portfolio turnover rate.................................. 10% 28% 10% 28% 10%
Average commission rate paid per share................... $.0649 N/A $.0649 N/A $.0649
<CAPTION>
JANUARY 3,
1995*
THROUGH
DECEMBER 31,
1995
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period..................... $12.24
Income from investment operations:
Net investment income................................... .34
Net realized and unrealized gain on investments......... 3.09
Total from investment operations...................... 3.43
Less distributions to shareholders from:
Net investment income................................... (.37)
Net realized gain on investments........................ (.23)
Total distributions................................... (.60)
Net asset value, end of period........................... $15.07
TOTAL RETURN+............................................ 28.5%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in millions)................. $11
Ratios to average net assets:
Expenses................................................ 2.23%++#
Net investment income................................... 2.83%++#
Portfolio turnover rate.................................. 28%
Average commission rate paid per share................... N/A
</TABLE>
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charge or contingent deferred
sales charges are not reflected.
++ Annualized.
# Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment adviser, the annualized ratios
of operating expenses and net investment income to average net assets would
have been the following:
<TABLE>
<CAPTION>
JANUARY 3, 1995*
THROUGH
DECEMBER 31, 1995
CLASS A CLASS C
SHARES SHARES
<S> <C> <C>
Expenses................................................................... 1.34% 2.37%
Net investment income...................................................... 3.72% 2.69%
</TABLE>
See accompanying notes to financial statements.
40
<PAGE>
EVERGREEN FOUNDATION FUND --
CLASS Y SHARES
FINANCIAL HIGHLIGHTS -- (CONTINUED)
(Picture of statue appears here)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of year.................................................... $15.13 $12.27 $13.12 $11.98
Income (loss) from investment operations:
Net investment income................................................................ .54 .51 .42 .31
Net realized and unrealized gain (loss) on investments............................... 1.16 3.07 (.57) 1.55
Total from investment operations................................................... 1.70 3.58 (.15) 1.86
Less distributions to shareholders from:
Net investment income................................................................ (.54) (.49) (.42) (.31)
Net realized gain on investments..................................................... (.15) (.23) (.28) (.41)
Total distributions................................................................ (.69) (.72) (.70) (.72)
Net asset value, end of year.......................................................... $16.14 $15.13 $12.27 $13.12
TOTAL RETURN+......................................................................... 11.5% 29.7% (1.1%) 15.7%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of year (in millions)................................................ $809 $623 $332 $240
Ratios to average net assets:
Expenses............................................................................. .99% 1.07% 1.14% 1.20%
Net investment income................................................................ 3.64% 3.89% 3.51% 2.81%
Portfolio turnover rate............................................................... 10% 28% 33% 60%
Average commission rate paid per share................................................ $.0649 N/A N/A N/A
<CAPTION>
1992
<S> <C>
PER SHARE DATA:
Net asset value, beginning of year.................................................... $10.75
Income (loss) from investment operations:
Net investment income................................................................ .27
Net realized and unrealized gain (loss) on investments............................... 1.83
Total from investment operations................................................... 2.10
Less distributions to shareholders from:
Net investment income................................................................ (.24)
Net realized gain on investments..................................................... (.63)
Total distributions................................................................ (.87)
Net asset value, end of year.......................................................... $11.98
TOTAL RETURN+......................................................................... 20.0%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of year (in millions)................................................ $64
Ratios to average net assets:
Expenses............................................................................. 1.40%#
Net investment income................................................................ 2.93%#
Portfolio turnover rate............................................................... 127%
Average commission rate paid per share................................................ N/A
</TABLE>
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized.
# 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.................................................................. 1.43%
Net investment income..................................................... 2.90%
</TABLE>
See accompanying notes to financial statements.
41
<PAGE>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
(Picture of dam appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGERS
STEPHEN A. LIEBER
JAMES T. COLBY, III
Evergreen Tax Strategic Foundation Fund (Class Y, no-load (Picture of Stephen
shares) provided a 15.8%* total return for 1996. This result A. Lieber
brings the Fund's average annual compound return for the appears here)
period since inception on November 2, 1993, through December
31, 1996, to 15.5%.
The Fund (Class Y shares) provided 1996 tax exempt interest (Picture of James
distributions of $0.224 per share**, ordinary income T. Colby, III
distributions of $0.155 per share, and long-term capital gain appears here)
distributions of $0.204 per share. For the investor who held
$10,000 in the Fund at December 31, 1995, the holding at 1996
year-end had a value of $11,557, and the taxes to be paid as
a result of the holding were only $94***, assuming the investor
is in the 36% ordinary income bracket, and 28% capital gains
bracket (without reference to any possible state tax payments).
The Fund's Class A shares provided 1996 tax-exempt interest
distributions of $0.203 per share**, ordinary income
distributions of $0.149 per share, and long-term capital gain
distributions of $0.204 per share. A $10,000 investment in the
Fund's Class A shares at December 31, 1995, had a 1996 year-end
value of $10,991, and the taxes to be paid as a result of the
holding were only $88***, assuming the investor is in the 36%
ordinary income bracket, and 28% capital gains bracket (without
reference to any possible state tax payments). These figures
illustrate the Fund's endeavor to achieve its objectives of
maximizing the after-tax total return on its portfolio investments.
The driving force for the Fund's performance in 1996 was the common stock
portfolio. It provided an as-weighted return of 35.2%, well above the market
average of 23.0% for the Standard & Poor's 500 Reinvested Index+. The tax exempt
bond portfolio, in contrast, provided a total return of 0.3%, as compared with
4.4% for the Lehman Municipal Bond Index++. The overall portfolio result of
15.8% compared with the total return for Lipper Balanced Funds Average of 13.8%
for the 272 balanced funds tracked during that time by Lipper Analytical
Services, Inc., an independent mutual funds performance monitor+++. The 12-month
total
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.
** THIS INCOME MAY BE SUBJECT TO STATE AND LOCAL TAXES. SOME OF THIS INCOME MAY
BE SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX FOR CERTAIN INVESTORS.
*** TAXES PAID WOULD BE LOWER FOR INVESTORS IN LOWER TAX BRACKETS AND HIGHER FOR
INVESTORS IN HIGHER TAX BRACKETS.
+ 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.
++ THE LEHMAN MUNICIPAL BOND INDEX IS AN UNMANAGED REINVESTED INDEX OF SELECT
MUNICIPAL BONDS.
+++ SOURCE: LANA (LIPPER ANALYTICAL NEW APPLICATIONS) LIPPER ANALYTICAL SERVICES
INC., IS AN INDEPENDENT MUTUAL FUNDS PERFORMANCE MONITOR. LIPPER AVERAGE
DOES NOT INCLUDE SALES CHARGES, AND IF INCLUDED PERFORMANCE COULD BE LOWER.
42
<PAGE>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
(Picture of dam appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGERS -- (CONTINUED)
return ended December 31, for the Fund's Class A shares was 9.9%*. The average
annual compound return for the Fund's Class A shares for the period since their
inception on January 17, 1995, through December 31, 1996, was 17.5%. (Please see
page 45 for additional performance information.)
The top ten equity performers in the Fund during the year ranged in
appreciation from 226.9% for the shares of PHH Corp., to 57.8% for the shares of
International Business Machines Corp (IBM). Others in this group were: Intel
Corp., +130.5%, Lucent Technologies Inc., +71.3%, Patriot American Hospitality,
Inc., +66.6%, Lincare Holdings, Inc., +63.8%, Capstead Mortgage Corp., +61.0%,
Harman International Industries, Inc., +60.2%, BankUnited Financial Corp.,
+60.1%, and Adidas AG, +59.9%. By year-end, only five of the Fund's holdings had
losses in excess of 10%, and each of these five, AMP, Inc.; Cadmus
Communications Corp.; Continental Homes Holding Corp.; Furon Co.; and North
American Mortgage Co., had been under tax-loss pressure. Electrical equipment
and electronics was the best performing industry among the Fund's holdings, with
an as-weighted return of 60.8% for the group. Their performance was led by
shares in Intel Corp. Banks was the second leading performer, led by shares in
Bank of Boston Corp., which provided a 41.1% return for the year. This is the
second largest holding in the Fund. Similar levels of performance in industry
groups were in health care products and services where Lincare Holdings, Inc.
was the leader, information services and technology, led by IBM, and thrift
institutions led by BankUnited Financial Corp.
Mergers and acquisitions played a significant role in the achievement of
capital appreciation by securities which originally were purchased as
comparatively undervalued. Seven acquisitions were initiated or completed during
the year, with an average gain of 53.1% on those completed. The leader among
them was in the shares of Baybanks, Inc., which was acquired by Bank of Boston
Corp. for an increase of 149.3% in the two years and eight months since the
shares were purchased. The major uncompleted transaction at year-end was in the
shares of PHH Corp. which is to be acquired by HFS Inc. at $49.50 per share. The
entire position was sold after the acquisition announcement for a 93.2% gain
after a one-year and one-month holding period. Additional shares were then
purchased on weakness. These acquisitions demonstrate our strategy of purchasing
growth opportunities on an undervalued basis. Each of the businesses acquired,
or to be acquired, represent, we believe, an outstanding business franchise.
For new purchases, the Fund took advantage of undervaluation during periods
of market weakness. Our heaviest buying was during sharp market sell-offs in
January, July, and then at the tax-loss selling period at year-end. The results
were often highly profitable. Illustrative was the fact that the shares of
Aspect Telecommunications Corp. purchased in July, produced an appreciation of
104.8% by year-end. Similarly, shares of IBM purchased in January, provided a
57.6% appreciation by year-end. The largest single purchase made during the year
was in the shares of Standard Federal Bancorporation, Inc., which was purchased
in October and, subsequently, received an acquisition bid from ABN AMRO Holdings
N.V., providing a 19.5% return in three months.
With the Fund's emphasis on tax-efficiency, we deemed it appropriate to take
losses in tax exempt bonds during periods of bond market declines so that we
could use these losses to offset profits realized on common stocks. Illustrative
was the sale of bonds of the Regional Transportation Authority of Illinois,
6.70% due 2021. These were sold with a 6.1% loss in September, when we judged
that the bond market had approached
43
<PAGE>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
(Picture of dam appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGERS -- (CONTINUED)
its bottom for the year. The proceeds from this sale, as in similar
transactions, were reinvested in similar bonds, insured| or of AAA quality, but
repositioned on the yield curve to maximize our opportunities under a
curve-steepening scenario. Common stocks with losses were also sold to offset
gains, frequently with a doubling up purchase thirty one days prior to the sale,
as allowed by the tax law.
The municipal bond portfolio of the Fund had a performance which could be
described as having modest volatility throughout the year and nominal final
returns. In general, municipal bonds outperformed U.S. Treasury bonds in 1996,
as demonstrated by the return of the Lehman Municipal Bond Index of 4.4% versus
that of the Lehman Treasury Index of 2.7%. While the yield on long-term U.S.
Treasuries gyrated from an opening year's low of 5.97% to its high of 7.19% in
mid-summer, and closed at 6.64% at year-end, municipals experienced less
volatility. Municipals, which generally mirror the Treasury market, followed in
a similar path, but, overall, performed better due to strong seasonal demand
features, with only a slight increase in new issue supply. And once the
political landscape became clear -- with flat-tax anxieties set aside -- the
oversold municipal yield curve quickly readjusted during the fourth quarter to a
more normal condition, giving a boost to year-end prices. Notwithstanding the
generally negative environment for fixed income investment during the year,
there were examples of superior performance among the Fund's holdings. Returns
of 10% or better were provided by issues such as Clark County, Nevada, 6% due
2022, Arapaho County, Colorado, 6.15% due 2026, Illinois Toll Road, 6.20% due
2016, and Connecticut State Health and Educational Authority, 5.40% due 2023.
Each of these carried bond insurance so that their credit rating is of the
highest quality, yet the combination of thoughtful research and market timing
contributed to their outstanding returns.
Looking ahead into 1997, we anticipate a less volatile bond market and a
continued favorable stock market environment, especially for those issues
reflecting companies with extraordinary growth of profitability through new
products and services, and which represent undervalued businesses in terms of
growth opportunity and franchise values. We believe that the portfolio is well
structured in both of these segments.
We particularly appreciate the many new shareholders who have joined
Evergreen Tax Strategic Foundation Fund this year, understanding our aim at
providing capital appreciation and tax exempt returns in a most efficient and
fruitful manner.
| THESE BONDS ARE INSURED AS TO PAYMENT OF PRINCIPAL AND INTEREST. THE FUND
ITSELF IS NOT INSURED NOR IS THE VALUE OF ITS SHARES GUARANTEED.
44
<PAGE>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
(Picture of dam appears here)
RESULTS TO DATE
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN TAX STRATEGIC FOUNDATION FUND
The graphs below compare a $10,000 investment in the Evergreen Tax
Strategic Foundation Fund (Class A, Class B, Class C and Class Y Shares) with a
similar investment in the S&P 500 and the Lehman Municipal Bond Indexes
("Indexes").
[CHARTS TO FOLLOW.]
CLASS A
1-YEAR TOTAL RETURN = 9.9%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 17.5%
$8,000 $10,000 $12,000 $14,000 $16,000 $18,000
1/17/95*
6/30/95
12/31/95
6/30/96
12/31/96
CLASS B
1-YEAR TOTAL RETURN = 9.7%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 18.4%
$8,000 $10,000 $12,000 $16,000 $18,000
1/8/95*
6/30/95
12/31/95
6/30/96
12/31/96
CLASS C
1-YEAR TOTAL RETURN = 13.5%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 19.6%
$8,000 $10,000 $12,000 $14,000 $16,000 $18,000
3/3/95*
6/30/95
12/31/95
6/30/96
12/31/96
CLASS Y
1-YEAR TOTAL RETURN = 15.8%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 15.5%
$8,000 $10,000 $12,000 $14,000 $16,000 $18,000
1/2/90*
12/31/91
12/31/92
12/31/93
12/31/94
12/31/95
12/31/96
EVERGREEN TAX FOUNDATION FUND
S&P 500 INDEX
LEIMAN MUNICIPAL BOND 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.
45
<PAGE>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
STATEMENT OF INVESTMENTS
DECEMBER 31, 1996
(Picture of dam appears here)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- 46.5%
BANKS -- 7.9%
19,500 Bank of Boston Corp................. $ 1,252,875
10,000 Barnett Banks, Inc.................. 411,250
25,000 Beverly Bancorporation, Inc......... 451,563
5,000 Comerica, Inc....................... 261,875
1,900 First Empire State Corp............. 547,200
11,000 First of America Bank Corp.......... 661,375
1,500 First Union Corp. **................ 111,000
1,100 Interchange Financial Services
Corp................................ 27,088
6,000 Seacoast Banking Corp. of Florida
Cl. A............................... 156,375
4,837 SouthTrust Corp..................... 168,690
10,100 Standard Federal Bank............... 574,437
4,623,728
BUILDING, CONSTRUCTION &
FURNISHINGS -- .9%
25,000 Clayton Homes, Inc.................. 337,500
15,000* Southern Energy Homes, Inc.......... 172,500
510,000
BUSINESS EQUIPMENT &
SERVICES -- .9%
2,000 International Business
Machines Corp....................... 302,000
5,000 Lucent Technologies, Inc............ 231,250
533,250
CHEMICALS & AGRICULTURAL
PRODUCTS -- 1.1%
11,000 Morton International, Inc........... 448,250
3,000 Pioneer Hi-Bred International,
Inc................................. 210,000
658,250
CONSUMER PRODUCTS & SERVICES -- 2.7%
10,000 Adidas AG ADS, 144A................. 427,500
8,000 International Flavors &
Fragrances, Inc..................... 360,000
2,000* National Processing, Inc............ 32,000
10,500 Toro Co. (The)...................... 383,250
6,000 V. F. Corp.......................... 405,000
1,607,750
DIVERSIFIED COMPANIES -- .6%
7,000 Dover Corp.......................... 351,750
ELECTRICAL EQUIPMENT &
ELECTRONICS -- 8.0%
6,000 AMP, Inc............................ 230,250
8,000 Avnet, Inc.......................... 466,000
6,000 Baldor Electric Co.................. 147,750
<CAPTION>
SHARES VALUE
</TABLE>
ELECTRICAL EQUIPMENT &
ELECTRONICS -- CONTINUED
<TABLE>
<C> <S> <C>
5,000* Gateway 2000, Inc................... $ 267,812
13,000 Harman International
Industries, Inc..................... 723,125
18,000 Hewlett-Packard Co.................. 904,500
12,000 Intel Corp.......................... 1,571,250
11,800 Park Electrochemical Corp........... 268,450
7,500* Southern Electronics Corp........... 93,750
4,672,887
FINANCE & INSURANCE -- 4.6%
10,000 Countrywide Credit Industries,
Inc................................. 286,250
3,000 Enhance Financial Services
Group, Inc.......................... 109,500
10,000 FBL Financial Group, Inc............ 248,750
12,000 Federal National Mortgage Assn...... 447,000
20,000* FPIC Insurance Group, Inc........... 270,000
4,000 Marsh & McLennan Co., Inc........... 416,000
13,000 North American Mortgage Co.......... 256,750
13,000 PHH Corp............................ 559,000
2,500 Wilmington Trust Corp............... 98,750
2,692,000
HEALTHCARE PRODUCTS &
SERVICES -- 3.8%
7,000 Abbott Laboratories................. 355,250
4,000 American Home Products Corp......... 234,500
2,000 Beckman Instruments, Inc............ 76,750
8,250* Bio-Rad Laboratories, Inc. Cl. A.... 247,500
9,000 Lilly (Eli) & Co.................... 657,000
5,000* Lincare Holdings, Inc............... 205,000
3,000 Medtronic, Inc...................... 204,000
5,000 Shared Medical System Corp.......... 246,250
2,226,250
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES -- 3.7%
3,300 Applied Power, Inc.................. 130,763
5,000 Cadmus Communications Corp.......... 77,500
7,500* Chemfab Corp........................ 105,000
8,000 Fisher Scientific International,
Inc................................. 377,000
10,000 Furon Co............................ 212,500
14,100 Kysor Industrial Corp............... 460,012
6,900 Snap-on, Inc........................ 245,812
4,000 Timken Co. (The).................... 183,500
10,000* UCAR International, Inc............. 376,250
2,168,337
</TABLE>
46
<PAGE>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1996
(Picture of dam appears here)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- CONTINUED
PUBLISHING, BROADCASTING &
ENTERTAINMENT -- .6%
10,000 A. H. Belo Corp..................... $ 348,750
REAL ESTATE -- 6.6%
1,500* Alexander's, Inc.................... 118,688
20,000 Brandywine Realty Trust............. 390,000
12,000 Capstead Mortgage Corp.............. 288,000
6,400 Continental Homes Holding Corp...... 136,000
40,000 CWM Mortgage Holdings, Inc.......... 860,000
13,500 Gables Residential Trust............ 391,500
438* Homestead Village Properties,
Inc................................. 7,884
293* Homestead Village Properties, Inc.
Warrants expiring 10/29/97 @$10..... 2,381
15,000* Interstate Hotels Co................ 423,750
7,000 Patriot American Hospitality,
Inc................................. 301,875
20,000 Prentiss Properties Trust........... 500,000
3,485 Security Capital Pacific Trust...... 79,719
25,000 Sunstone Hotel Investors, Inc....... 328,125
3,827,922
RETAILING -- 1.4%
11,000 Lowe's Cos., Inc.................... 390,500
8,200 Mercantile Stores Co., Inc.......... 404,875
795,375
THRIFT INSTITUTIONS -- 1.1%
18,000 Bank United Corp.................... 481,500
15,000 BankUnited Financial Corp........... 150,000
631,500
UTILITIES -- ELECTRIC -- .5%
9,900 TNP Enterprises, Inc................ 271,013
UTILITIES -- GAS -- .5%
7,500 Williams Cos., Inc. (The)........... 281,250
UTILITIES -- TELEPHONE -- 1.6%
10,000* 360 Communications Co............... 231,250
15,000 Frontier Corp....................... 339,375
8,000 GTE Corp............................ 364,000
934,625
TOTAL COMMON STOCKS
(COST $20,756,100)................ 27,134,637
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
MUNICIPAL OBLIGATIONS -- 51.7%
LONG-TERM -- 45.0%
ALASKA -- 1.7%
$1,000,000 Alaska Hsg. Fin. Corp. Mtge. RB,
1996 Ser. A
6.05%, 12/1/17 (MBIA)............... $ 1,007,320
ARIZONA -- .9%
500,000 City of Tucson GO Refunding Bonds,
Ser. 1995
5.70%, 7/1/08 (FGIC)................ 525,510
CALIFORNIA -- 2.6%
500,000 California Edl. Facs. Auth. RB
(Carnegie Institution of
Washington), Ser. A
5.60%, 10/1/23...................... 491,110
1,000,000 State of California
Various Purpose GO
5.90%, 4/1/23 (FGIC)................ 1,020,170
1,511,280
COLORADO -- 3.5%
500,000 Arapahoe Cnty. Pub. Hwy. Auth.
Capital Imp. Trust Fund Hwy. RB
(E-470 Proj.)
6.15%, 8/31/26 (MBIA)............... 530,765
1,000,000 City & Cnty. of Denver Arpt. Sys.
RB, Ser. 1995C (AMT)
5.60%, 11/15/25 (MBIA).............. 966,630
500,000 School Dist. No. 1 in the City &
Cnty. of Denver GO Refunding Bonds,
Ser. 1994A
6.50%, 6/1/10 (MBIA)................ 563,230
2,060,625
CONNECTICUT -- .4%
250,000 State of Connecticut Hlth. & Edl.
Facs. Auth. Kent School Issue RB,
Ser. B
5.40%, 7/1/23 (MBIA)................ 244,150
DELAWARE -- 1.9%
1,000,000 Delaware Econ. Dev. Auth. Hosp. RB
(The Osteopathic Hosp. Assoc. of
Delaware/Riverside Hosp.), Escrowed
to Maturity, Ser. A
6.50%, 1/1/08....................... 1,106,360
FLORIDA -- 2.3%
500,000 City of Palm Bay Util. Sys. RRB
(Palm Bay Util. Corp. Proj.), Ser.
1994
5.00%, 10/1/15 (MBIA)............... 465,405
</TABLE>
47
<PAGE>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1996
(Picture of dam appears here)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
MUNICIPAL OBLIGATIONS -- CONTINUED
FLORIDA -- CONTINUED
<C> <S> <C>
$ 300,000 Dade Cnty. Aviation RRB, Ser. 1995A
6.10%, 10/1/11 (AMBAC).............. $ 318,285
500,000 Orange Cnty. Hlth. Facs. Auth. Hosp.
RB (Orlando Regional Healthcare
Sys.), Ser. 1996C
6.25%, 10/1/16 (MBIA)............... 551,820
1,335,510
HAWAII -- 1.9%
1,000,000 State of Hawaii GO, 1990 Ser. BS
Prerefunded @$101
7.00%, 9/1/03....................... 1,098,810
ILLINOIS -- 1.4%
500,000 Forest Preserve Dist. of Cook Cnty.
GO Ltd. Tax Bonds, Ser. 1996
5.80%, 11/1/16 (MBIA)............... 503,230
300,000 Illinois St. Toll Hwy. Auth. Toll
Hwy. Priority RB, 1992 Ser. A
6.20%, 1/1/16 (FGIC)................ 314,631
817,861
MASSACHUSETTS -- .9%
250,000 Massachusetts Hsg. Fin. Agcy. Hsg.
Proj. RRB, 1993 Ser. A
5.95%, 10/1/08 (AMBAC).............. 256,025
250,000 Massachusetts Bay Trans. Auth.
General Trans. Sys. Bonds, Ser.
1994A
7.00%, 3/1/08....................... 289,112
545,137
MICHIGAN -- .6%
300,000 Michigan Muni. Bond Auth. Local
Govt. Loan Prog. RB, Ser 1994G
6.55%, 11/1/08 (AMBAC).............. 335,127
MISSOURI -- 3.5%
500,000 Missouri Hsg. Dev. Commission Single
Family Mtge. RB (Homeownership Loan
Prog.),
1996 Ser. D 6.00%, 9/1/17
(collateralized by GNMA or FNMA
Certificates)....................... 500,850
1,000,000 Missouri Hsg. Dev. Commission Single
Family Mtge. RB (Homeownership Loan
Prog.),
1996 Ser. B 6.25%, 9/1/15
(collateralized by GNMA or FNMA
Certificates)....................... 1,022,340
<CAPTION>
PRINCIPAL
AMOUNT VALUE
</TABLE>
MISSOURI -- CONTINUED
<TABLE>
<C> <S> <C>
$ 500,000 St. Louis Muni. Fin. Corp. Leasehold
Revenue Imp. Bonds,
Ser. 1996A
5.95%, 2/15/16 (AMBAC).............. $ 519,340
2,042,530
NEVADA -- 1.8%
1,000,000 Clark Cnty. Las Vegas McCarran Int'l
Arpt. Passenger Fac. Charge RB, 1992
Ser. A
6.00%, 7/1/22 (AMBAC)............... 1,028,540
NEW YORK -- 10.2%
1,500,000 Dormitory Auth. of the St. of New
York, City Univ. Sys. Consolidated
Second General Resolution RB,
Ser. 1995A
5.38%, 7/1/14 (FGIC)................ 1,479,105
1,000,000 New York St. Local Govt. Assist. (A
Pub. Benefit Corp. of the St. of New
York), Prerefunded @$100,
Ser. 1991B
7.00%, 4/1/21....................... 1,100,910
245,000 New York St. Med. Care Facs. Fin.
Agcy. Mental Hlth. Svcs. Facs. Imp.
RB, 1992 Ser. B
6.25%, 8/15/10 (AMBAC).............. 261,101
500,000 New York St. Med. Care Facs. Fin.
Agcy. Mental Hlth. Svcs. Facs. Imp.
RB, 1995 Ser. A
6.00%, 2/15/25 (MBIA)............... 517,210
1,000,000 New York St. Thruway Auth. General
RB, Ser. C
6.00%, 1/1/25 (FGIC)................ 1,035,730
250,000 State of New York Mtge. Agcy.
Homeowner Mtge. RB, Ser. 44 (AMT)
6.60%, 4/1/03....................... 261,823
1,000,000 State of New York Mtge. Agcy.
Homeowner Mtge. RB, Ser. 56 (AMT)
5.88%, 10/1/19...................... 1,015,460
250,000 Port Auth. of New York and New
Jersey Consolidated Bonds, Ninety-
Seventh Ser. Second Installment
(AMT)
7.00%, 7/15/05 (FGIC)............... 289,295
5,960,634
</TABLE>
48
<PAGE>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1996
(Picture of dam appears here)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
MUNICIPAL OBLIGATIONS -- CONTINUED
<C> <S> <C>
NORTH DAKOTA -- 1.8%
$1,000,000 Mercer Cnty. Poll. Ctrl. RRB (Basin
Elec. Pwr. Cooperative-Antelope
Valley Unit 1 & Common Facs.),
Second 1995 Ser.
6.05%, 1/1/19 (AMBAC)............... $ 1,044,220
OHIO -- 1.4%
700,000 Board of Ed. Beavercreek Local Sch.
Dist. Sch. Imp. Bonds (Unltd. Tax
GO), Ser. 1996
6.60%, 12/1/15 (FGIC)............... 802,361
PENNSYLVANIA -- 2.0%
1,045,000 City of Philadelphia Wtr. & Swr. RB,
Sixteenth Ser. Prerefunded @$102,
7.00%, 8/1/21....................... 1,171,884
TENNESSEE -- .6%
300,000 Hlth. & Edl. Facs. Board of the City
of Bristol Hosp. RRB (Bristol Mem.
Hosp.), Ser. 1993
6.75%, 9/1/07 (FGIC)................ 343,503
TEXAS -- 2.9%
1,000,000 City of Houston Wtr. Conveyance Sys.
Contract COP, Ser. 1993J
6.13%, 12/15/09 (AMBAC)............. 1,087,360
500,000 City of Houston Wtr. Conveyance Sys.
Contract COP, Ser. 1993H
7.50%, 12/15/10 (AMBAC)............. 602,810
1,690,170
UTAH -- .9%
500,000 Salt Lake City Hosp. RB (IHC
Hospitals, Inc.)
6.30%, 2/15/15...................... 535,935
WASHINGTON -- .9%
500,000 City of Richland Wtr. & Swr. RB,
Ser. 1996
5.60%, 11/1/16 (MBIA)............... 491,730
PUERTO RICO -- .9%
500,000 Puerto Rico Hsg. Bank & Fin. Agcy.
Affordable Hsg. Mtge. Subsidy Prog.
Single Family Mtge. RB, Portfolio I
(AMT)
5.85%, 4/1/09 (collateralized by
GNMA, FNMA & FHLMC Certificates).... 506,485
TOTAL LONG-TERM
(COST $25,516,981)................ 26,205,682
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM -- 6.7%
GEORGIA -- 1.7%
$1,000,000 Hapeville Dev. Auth. Indl. Dev. RB
(Hapeville Hotel Ltd. Partnership
Proj.), Ser. 1985
5.00% -- VRDN (LOC: Swiss Bank
Corp.).............................. $ 1,000,000
NEW YORK -- 5.0%
1,000,000 City of New York GO, 1994
Ser. A, Subseries A-5
5.00% -- VRDN (LOC: Kredietbank
N.V., N.Y. Branch).................. 1,000,000
400,000 City of New York GO, Fiscal 1995
Ser. B Sub-Ser. B-3
5.00% -- VRDN (MBIA)................ 400,000
500,000 City of New York GO, Fiscal 1995
Ser. B Sub-Ser. B-4
5.00% -- VRDN (MBIA)................ 500,000
1,000,000 City of New York GO, Fiscal 1995
Ser. B Sub-Ser. B-7
5.00% -- VRDN (AMBAC)............... 1,000,000
2,900,000
TOTAL SHORT-TERM
(COST $3,900,000)................. 3,900,000
TOTAL MUNICIPAL OBLIGATIONS
(COST $29,416,981)................ 30,105,682
MUTUAL FUND SHARES -- .2%
SHARES
90,000 Federated Tax Free Obligations
Fund (at net asset value)
(COST $90,000)...................... 90,000
TOTAL INVESTMENTS --
(COST $50,263,081)......... 98.4 % 57,330,319
OTHER ASSETS AND
LIABILITIES -- NET......... 1.6 952,359
NET ASSETS --................ 100.0 % $58,282,678
</TABLE>
49
<PAGE>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1996
(Picture of dam appears here)
* Non-income producing securities.
** At December 31, 1996 the Fund owned 1,500 shares of
common stock of First Union Corp. at a cost of $57,890. During
the year ended December 31, 1996 the Fund earned $3,300
in dividend income from this investment. These shares were
purchased by the Fund prior to the acquisition of the
investment adviser and Lieber & Company by First Union.
(a) Less than one tenth of one percent.
The following abbreviations are used in this portfolio:
ADS -- American Depositary Shares
AMT -- Subject to Alternative Minimum Tax
COP -- Certificates of Participation
FHLMC -- Federal Home Loan Mortgage Corp.
FNMA -- Federal National Mortgage Corp.
GO -- General Obligations
GNMA -- Government National Mortgage Corp.
LOC -- Letter of Credit
RB -- Revenue Bonds
RRB -- Refunding Revenue Bonds
VRDN -- Variable Rate Demand Notes are payable on
demand at par on no more than seven calendar days' notice
given by the Fund to the issuer or other parties not affiliated
with the issuer. These notes normally incorporate an
irrevocable letter of credit or line of credit from a major bank. Interest
rates are determined and reset by the issuer daily. Interest rates
presented for these securities are those in effect as of December
31, 1996.
Municipal bond insurance companies:
AMBAC -- American Municipal Bond Assurance Corp.
FGIC -- Financial Guarantee Insurance Corp.
MBIA -- Municipal Bond Insurance Association
Rule 144 securities are restricted as to resale to qualified
institutional investors.
See accompanying notes to financial statements.
50
<PAGE>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
STATEMENT OF ASSETS AND LIABILITIES
(Picture of dam appears here)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $50,263,081)............................................................. $57,330,319
Cash........................................................................................................... 6,114
Receivable for Fund shares sold................................................................................ 584,487
Dividends and interest receivable.............................................................................. 522,195
Prepaid expenses............................................................................................... 31,789
Unamortized organization expenses.............................................................................. 14,818
Total assets............................................................................................. 58,489,722
LIABILITIES:
Accrued expenses............................................................................................... 113,259
Accrued advisory fee........................................................................................... 42,119
Distribution fee payable....................................................................................... 42,111
Payable for Fund shares purchased.............................................................................. 9,555
Total liabilities........................................................................................ 207,044
NET ASSETS........................................................................................................ $58,282,678
NET ASSETS CONSIST OF:
Paid-in capital................................................................................................ $51,216,071
Distribution in excess of net investment income................................................................ (631)
Net unrealized appreciation of investments..................................................................... 7,067,238
Net assets............................................................................................... $58,282,678
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($11,165,998 (division sign) 827,010 shares of beneficial interest outstanding)................. $ 13.50
Sales charge -- 4.75% of offering price........................................................................ .67
Maximum offering price...................................................................................... $ 14.17
Class B Shares ($28,006,870 (division sign) 2,075,878 shares of beneficial interest outstanding)............... $ 13.49
Class C Shares ($4,107,803 (division sign) 304,906 shares of beneficial interest outstanding).................. $ 13.47
Class Y Shares ($15,002,007 (division sign) 1,108,180 shares of beneficial interest outstanding)............... $ 13.54
</TABLE>
See accompanying notes to financial statements.
51
<PAGE>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(Picture of dam appears here)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest.......................................................................................... $1,156,135
Dividends (net of foreign withholding taxes of $68)............................................... 434,437
Total investment income..................................................................... 1,590,572
EXPENSES:
Advisory fee...................................................................................... $ 354,958
Distribution fee -- Class A Shares................................................................ 16,426
Distribution fee -- Class B Shares................................................................ 131,282
Shareholder services fee -- Class B Shares........................................................ 43,761
Distribution fee -- Class C Shares................................................................ 16,493
Shareholder services fee -- Class C Shares........................................................ 5,498
Custodian fee..................................................................................... 79,350
Registration and filing fees...................................................................... 59,282
Transfer agent fee................................................................................ 56,591
Reports and notices to shareholders............................................................... 36,507
Professional fees................................................................................. 9,263
Amortization of organization expenses............................................................. 7,986
Insurance......................................................................................... 7,789
Trustees' fees and expenses....................................................................... 5,179
Miscellaneous..................................................................................... 3,643
Total expenses.............................................................................. 834,008
Less: Fee waivers and expense reimbursements...................................................... (101,890)
Net expenses................................................................................ 732,118
Net investment income................................................................................ 858,454
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments.................................................................. 1,133,442
Net increase in unrealized appreciation of investments............................................ 4,531,613
Net gain on investments.............................................................................. 5,665,055
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................. $6,523,509
</TABLE>
See accompanying notes to financial statements.
52
<PAGE>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
STATEMENT OF CHANGES IN NET ASSETS
(Picture of dam appears here)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income........................................................................ $ 858,454 $ 456,792
Net realized gain on investments............................................................. 1,133,442 671,486
Net change in unrealized appreciation of investments......................................... 4,531,613 2,607,309
Net increase in net assets resulting from operations................................... 6,523,509 3,735,587
DISTRIBUTIONS TO SHAREHOLDERS:
FROM NET INVESTMENT INCOME:
Class A Shares............................................................................... (163,381) (34,215)
Class B Shares............................................................................... (306,929) (72,776)
Class C Shares............................................................................... (42,461) (4,715)
Class Y Shares............................................................................... (342,618) (346,086)
Total distributions to shareholders from net investment income............................ (855,389) (457,792)
IN EXCESS OF NET INVESTMENT INCOME:
Class A Shares............................................................................... (121) (162)
Class B Shares............................................................................... (226) (345)
Class C Shares............................................................................... (31) (22)
Class Y Shares............................................................................... (253) (1,644)
Total distributions to shareholders in excess of net investment income.................... (631) (2,173)
FROM NET REALIZED GAIN ON INVESTMENTS:
Class A Shares............................................................................... (209,265) (77,951)
Class B Shares............................................................................... (555,359) (199,612)
Class C Shares............................................................................... (82,045) (14,445)
Class Y Shares............................................................................... (303,414) (490,453)
Total distributions to shareholders from net realized gain on
investments............................................................................ (1,150,083) (782,461)
Total distributions to shareholders.................................................... (2,006,103) (1,242,426)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold.................................................................... 32,091,878 10,412,208
Proceeds from reinvestment of distributions.................................................. 1,574,099 1,158,751
Payment for shares redeemed.................................................................. (3,143,238) (1,396,543)
Net increase resulting from Fund share transactions....................................... 30,522,739 10,174,416
Net increase in net assets............................................................. 35,040,145 12,667,577
NET ASSETS:
Beginning of year............................................................................ 23,242,533 10,574,956
End of year (including distributions in excess of net investment income of $631 at December
31, 1996).................................................................................. $58,282,678 $23,242,533
</TABLE>
See accompanying notes to financial statements.
53
<PAGE>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
CLASS A, B AND C SHARES
FINANCIAL HIGHLIGHTS
(Picture of dam appears here)
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C
JANUARY 17, JANUARY 6, 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....... $12.20 $10.44 $12.19 $10.31 $12.19
Income from investment operations:
Net investment income.................... .27 .29 .19 .22 .18
Net realized and unrealized gain on
investments............................ 1.59 2.24 1.59 2.37 1.58
Total from investment operations..... 1.86 2.53 1.78 2.59 1.76
Less distributions to shareholders from:
Net investment income.................... (.28) (.31) (.20) (.25) (.20)
Net realized gain on investments......... (.28) (.46) (.28) (.46) (.28)
Total distributions.................. (.56) (.77) (.48) (.71) (.48)
Net asset value, end of period............. $13.50 $12.20 $13.49 $12.19 $13.47
TOTAL RETURN**............................. 15.4% 24.8% 14.7% 25.6% 14.5%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's
omitted)................................. $ 11,166 $2,702 $ 28,007 $6,559 $4,108
Ratios to average net assets #:
Expenses................................. 1.52% 1.75%+ 2.27% 2.50%+ 2.25%
Net investment income.................... 2.39% 2.79%+ 1.64% 2.03%+ 1.64%
Portfolio turnover rate.................... 88% 110% 88% 110% 88%
Average commission rate paid per share..... $.0648 N/A $.0648 N/A $.0648
<CAPTION>
MARCH 3,
1995*
THROUGH
DECEMBER 31,
1995
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period....... $10.69
Income from investment operations:
Net investment income.................... .22
Net realized and unrealized gain on
investments............................ 1.99
Total from investment operations..... 2.21
Less distributions to shareholders from:
Net investment income.................... (.25)
Net realized gain on investments......... (.46)
Total distributions.................. (.71)
Net asset value, end of period............. $12.19
TOTAL RETURN**............................. 21.2%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's
omitted)................................. $496
Ratios to average net assets #:
Expenses................................. 2.50%+
Net investment income.................... 2.07%+
Portfolio turnover rate.................... 110%
Average commission rate paid per share..... N/A
</TABLE>
* Commencement of class operations.
** Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charge or contingent deferred
sales charges are not reflected.
+ Annualized.
# Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment adviser, the annualized ratios
of expenses and net investment income (loss) to average net assets, exclusive
of any applicable state expense limitations, would have been the following:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C
JANUARY 17, JANUARY 6, 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.................................. 1.76% 5.02% 2.51% 3.65% 2.48%
Net investment income (loss).............. 2.15% (.48%) 1.40% .88% 1.41%
<CAPTION>
MARCH 3,
1995*
THROUGH
DECEMBER 31,
1995
<S> <C>
Expenses.................................. 18.91%
Net investment income (loss).............. (14.34%)
</TABLE>
See accompanying notes to financial statements.
54
<PAGE>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
CLASS Y SHARES
FINANCIAL HIGHLIGHTS -- (CONTINUED)
(Picture of dam appears here)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period........................................................... $12.22 $10.27 $10.31
Income from investment operations:
Net investment income........................................................................ .34 .35 .27
Net realized and unrealized gain on investments.............................................. 1.56 2.39 .08
Total from investment operations......................................................... 1.90 2.74 .35
Less distributions to shareholders from:
Net investment income........................................................................ (.30) (.33) (.27)
Net realized gain on investments............................................................. (.28) (.46) (.12)
Total distributions...................................................................... (.58) (.79) (.39)
Net asset value, end of period................................................................. $13.54 $12.22 $10.27
TOTAL RETURN**................................................................................. 15.8% 27.3% 3.4%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)...................................................... $15,002 $13,485 $10,575
Ratios to average net assets #:
Expenses..................................................................................... 1.30% 1.50% 1.49%
Net investment income........................................................................ 2.63% 3.06% 2.87%
Portfolio turnover rate........................................................................ 88% 110% 245%
Average commission rate paid per share......................................................... $.0648 N/A N/A
<CAPTION>
NOVEMBER 2,
1993*
THROUGH
DECEMBER 31,
1993
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period........................................................... $10.00
Income from investment operations:
Net investment income........................................................................ .05
Net realized and unrealized gain on investments.............................................. .31
Total from investment operations......................................................... .36
Less distributions to shareholders from:
Net investment income........................................................................ (.05)
Net realized gain on investments............................................................. --
Total distributions...................................................................... (.05)
Net asset value, end of period................................................................. $10.31
TOTAL RETURN**................................................................................. 3.5%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)...................................................... $5,424
Ratios to average net assets #:
Expenses..................................................................................... .00%+
Net investment income........................................................................ 3.65%+
Portfolio turnover rate........................................................................ 25%
Average commission rate paid per share......................................................... N/A
</TABLE>
* Commencement of operations.
** Total return is calculated for the periods indicated and is not annualized.
+ Annualized.
# Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment adviser, the annualized ratios
of expenses and net investment income to average net assets, exclusive of any
applicable state expense limitations, would have been the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
Expenses.......................................................................................... 1.56% 2.23% 2.41%
Net investment income............................................................................. 2.37% 2.33% 1.95%
<CAPTION>
NOVEMBER 2,
1993*
THROUGH
DECEMBER 31,
1993
<S> <C>
Expenses.......................................................................................... 3.10%
Net investment income............................................................................. .54%
</TABLE>
See accompanying notes to financial statements.
55
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS
The Evergreen Balanced Funds (the "Funds") are separate series of open-end
management companies registered under the Investment Company Act of 1940, as
amended (the "Act"). The Balanced Funds consist of Evergreen American Retirement
Fund ("American Retirement"), Evergreen Balanced Fund ("Balanced"), Evergreen
Foundation Fund ("Foundation") and Evergreen Tax Strategic Foundation Fund ("Tax
Strategic") known collectively as the Funds.
American Retirement's investment objectives, in order of priority, are
conservation of capital, reasonable income and capital growth. Balanced's
investment objective is to achieve long-term total return through capital
appreciation, dividends and interest income. Foundation's investment objectives,
in order of priority, are reasonable income, conservation of capital and capital
appreciation. Tax Strategic's investment objective is to maximize the after-tax
total return on its portfolio of investments by investing in equities as well as
municipal securities, which are exempt from Federal income tax.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements. These policies are
in conformity with generally accepted accounting principles.
SECURITY VALUATIONS -- Investments in securities traded on a national
securities exchange or included on the NASDAQ National Market System ("NMS") are
valued at the last reported sales price. Securities traded on an exchange or NMS
for which there has been no sale and other securities traded in the
over-the-counter market are valued at the mean between the last reported bid and
asked price. Unlisted securities for which market quotations are not readily
available are valued at a price quoted by one or more brokers. Debt securities
(other than short-term obligations) are valued on the basis of valuations
provided by a pricing service. Securities for which market quotations are not
readily available are valued at their respective fair value as determined in
good faith by the Board of Trustees. Short-term investments are valued at
amortized cost, which approximates market value.
SECURITY TRANSACTIONS -- Security transactions are accounted for on the
date purchased or sold. Net realized gains or losses are determined on the
identified cost basis.
INVESTMENT INCOME AND EXPENSES -- Dividend income is recorded on the
ex-dividend date. Interest income and expenses are accrued daily.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase
agreements are held by the Federal Reserve Bank and are designated as being held
on each Fund's behalf by its custodian under a book-entry system. Each Fund
monitors the adequacy of the collateral on a daily basis and can require the
seller to provide additional collateral in the event the market value of the
securities pledged falls below the carrying value of the repurchase agreement,
including accrued interest. Each Fund will only enter into repurchase agreements
with banks and other financial institutions which are deemed by the investment
adviser to be creditworthy pursuant to guidelines established by the Trustees.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
are distributed quarterly for each of the Funds. Distributions from net realized
capital gains on investments, if any, will be distributed at least annually.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from amounts available under generally accepted
accounting principles. These differences are primarily due to differing
treatments for wash sales. To the extent these differences are permanent in
nature, such amounts are reclassified within the components of net assets.
56
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- continued
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>
UNDISTRIBUTED ACCUMULATED
NET INVESTMENT REALIZED GAIN
INCOME ON INVESTMENTS
<S> <C> <C>
Balanced......... ($ 172,629) $172,629
Tax Strategic.... ($ 16,641) $ 13,576
</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.
ALLOCATION OF EXPENSES -- Expenses specifically identifiable to a class of
shares are charged to that class. Expenses common to a Trust as a whole are
allocated to the funds in that Trust. Investment income, net of expenses (other
than class specific expenses) and realized and unrealized gains and losses are
allocated daily to each class of shares based upon the relative proportion of
net assets of each class.
UNAMORTIZED ORGANIZATION EXPENSES -- The expenses of Tax Strategic incurred
in connection with its organization are being deferred and amortized over a
period of benefit not to exceed 60 months from the date it commenced operations.
USE OF ESTIMATES -- The preparation of the financial statements is in
accordance with generally accepted accounting principles which requires
management to make estimates and assumptions that affect the reported amounts
and disclosures. Actual results could differ from those estimates.
NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AGREEMENTS -- First Union National Bank of North
Carolina ("First Union"), Balanced's investment adviser, is entitled to an
annual fee of .50 of 1% of Balanced's average daily net assets pursuant to the
Fund's investment advisory agreement.
Pursuant to an agreement with American Retirement's, Foundation's and Tax
Strategic's investment adviser, Evergreen Asset Management Corp. ("Evergreen
Asset"), a wholly owned subsidiary of First Union, Evergreen Asset is entitled
to an annual fee based on each of American Retirement's, Foundation's and Tax
Strategic's average daily net assets, respectively, in accordance with the
following schedules:
<TABLE>
<CAPTION>
FOUNDATION AND AMERICAN
TAX STRATEGIC RETIREMENT
<S> <C> <C> <C>
First $750 million 0.875% First $750 million 0.75%
Next $250 million 0.750% Over $750 million 0.70%
Over $1 billion 0.700%
</TABLE>
For American Retirement and Tax Strategic, Evergreen Asset voluntarily
waived advisory fees of $24,841 and $90,551, respectively, and voluntarily
reimbursed other expenses amounting to $3,400 and $11,339, respectively.
Evergreen Asset can modify or terminate voluntary waivers and reimbursements at
any time.
Lieber & Company, an affiliate of First Union, is the investment
sub-adviser to American Retirement, Foundation and Tax Strategic and also
provides brokerage services with respect to substantially all security
transactions of these Funds effected on the New York or American Stock
Exchanges. For the year ended December 31, 1996, American Retirement,
57
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES -- continued
Foundation and Tax Strategic incurred brokerage commissions of $51,579, $680,252
and $50,033 with Lieber & Company. Lieber & Company is reimbursed by Evergreen
Asset, at no additional expense to these Funds, for its cost of providing
investment advisory services.
ADMINISTRATION AGREEMENT -- Evergreen Asset furnishes American Retirement,
Foundation and Tax Strategic 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 Funds' sub-administrator. As sub-administrator, Furman Selz
provided the officers of the Funds. For these Funds, Furman Selz' fee was paid
by Evergreen Asset and was not a fund expense.
Evergreen Asset is Balanced's administrator and Furman Selz was its
sub-administrator through December 31, 1996. Evergreen Asset's and Furman Selz'
fees for Balanced 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
was 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 January 1, 1997, Bisys Group, Inc. ("Bisys") acquired Furman
Selz' mutual fund unit and accordingly, Bisys Fund Services became
sub-administrator. The administration fee structure has remained unchanged.
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, American Retirement, Foundation and Tax
Strategic have entered into distribution agreements with Evergreen Keystone
Distributor, Inc. ("EKD") (formerly Evergreen Funds Distributor, Inc.), a
subsidiary of Furman Selz, whereby American Retirement, Foundation and Tax
Strategic will compensate EKD for its services at a rate which may not exceed an
annual fee of .25 of 1% of Class A Shares' average daily net assets and an
annual fee of 1% of Class B and Class C Shares' average daily net assets. A
portion of the payments for Class B and C Shares, up to .25 of 1% may constitute
a shareholder services fee. 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
Fund's Class B and Class C Shares.
58
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES -- continued
In connection with its plan, Balanced entered into a distribution agreement
with EKD whereby it 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 A, B and C shareholders. Balanced has entered
into a shareholder services agreement with FUBS, and will pay FUBS, an annual
fee of up to .25 of 1% of the average net assets of its Class B and Class C
shares. This fee is designed to obtain certain services for shareholders and to
maintain shareholder accounts. 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>
American Retirement $20,024
Balanced 9,150
Foundation 57,736
Tax Strategic 25,078
</TABLE>
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 American Retirement,
Balanced and Foundation, 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 $5,560, $187,538 and $151,484 for American Retirement,
Balanced and Foundation, respectively, for the year ended December 31, 1996.
NOTE 4 -- SHARES OF BENEFICIAL INTEREST
The Funds have an unlimited number of $0.0001 par value shares of
beneficial interest authorized. The shares are divided into classes which are
designated Class 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% for shares redeemed during the
first year after the date of purchase. Class Y shares are sold without a sales
charge and are available only to investment advisory clients of First Union and
its affiliates, certain institutional investors or Class Y shareholders of
record of certain other funds managed by First Union and its affiliates as of
December 30, 1994. The classes have identical voting, dividend, liquidation and
other rights, except that Class A, Class B and Class C shares bear distribution
expenses (see Note 3) and have exclusive voting rights with respect to their
distribution plans.
59
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 4 -- SHARES OF BENEFICIAL INTEREST -- continued
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED*
AMERICAN RETIREMENT DECEMBER 31, 1996 DECEMBER 31, 1995
CLASS A SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold.......................................................... 762,980 $10,140,786 103,126 $ 1,278,749
Shares issued on reinvestment of distributions....................... 19,559 264,707 1,195 14,909
Shares redeemed...................................................... (84,770) (1,127,903) (186) (2,372)
Net increase......................................................... 697,769 9,277,590 104,135 1,291,286
CLASS B
Shares sold.......................................................... 3,892,133 51,648,645 380,412 4,651,965
Shares issued on reinvestment of distributions....................... 81,733 1,103,810 4,314 53,311
Shares redeemed...................................................... (175,385) (2,331,018) (6,548) (80,579)
Net increase......................................................... 3,798,481 50,421,437 378,178 4,624,697
CLASS C
Shares sold.......................................................... 100,739 1,334,965 8,507 104,262
Shares issued on reinvestment of distributions....................... 2,161 29,233 70 878
Shares redeemed...................................................... (3,928) (53,590) -- --
Net increase......................................................... 98,972 1,310,608 8,577 105,140
CLASS Y
Shares sold.......................................................... 287,843 3,807,908 280,323 3,219,576
Shares issued on reinvestment of distributions....................... 103,943 1,392,828 106,983 1,270,557
Shares redeemed...................................................... (481,537) (6,415,509) (808,529) (9,380,520)
Net decrease......................................................... (89,751) (1,214,773) (421,223) (4,890,387)
Total net increase resulting from Fund share transactions............ 4,505,471 $59,794,862 69,667 $ 1,130,736
</TABLE>
* The Fund share activity for Class A, Class B and Class C shares reflects the
period from January 3, 1995 (commencement of class operations) through
December 31, 1995.
60
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 4 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
BALANCED DECEMBER 31, 1996 DECEMBER 31, 1995
CLASS A SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold................................................... 450,824 $ 5,988,616 174,514 $ 2,180,996
Shares issued on reinvestment of distributions................ 372,747 4,905,076 228,390 2,924,585
Shares redeemed............................................... (680,925) (9,159,435) (883,230) (10,834,925)
Net increase (decrease)....................................... 142,646 1,734,257 (480,326) (5,729,344)
CLASS B
Shares sold................................................... 529,783 7,095,087 331,882 4,113,278
Shares issued on reinvestment of distributions................ 883,591 11,640,482 528,256 6,788,533
Shares redeemed............................................... (1,260,613) (16,901,766) (1,507,091) (18,590,977)
Net increase (decrease)....................................... 152,761 1,833,803 (646,953) (7,689,166)
CLASS C
Shares sold................................................... 19,191 256,143 6,207 78,623
Shares issued on reinvestment of distributions................ 2,215 28,991 1,346 17,328
Shares redeemed............................................... (16,775) (220,556) (2,122) (27,063)
Net increase.................................................. 4,631 64,578 5,431 68,888
CLASS Y
Shares sold................................................... 16,615,288 221,340,376 13,282,634 164,605,419
Shares issued on reinvestment of distributions................ 3,659,774 48,208,895 4,419,582 56,436,034
Shares redeemed............................................... (22,526,104) (302,083,357) (25,032,555) (313,833,958)
Net decrease.................................................. (2,251,042) (32,534,086) (7,330,339) (92,792,505)
Total net decrease resulting from Fund share
transactions................................................ (1,951,004) ($ 28,901,448) (8,452,187) ($106,142,127)
</TABLE>
61
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 4 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED*
DECEMBER 31, 1996 DECEMBER 31, 1995
FOUNDATION SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold.................................................... 8,413,021 $126,479,881 7,433,192 $103,904,500
Shares issued on reinvestment of distributions................. 474,763 7,335,750 194,159 2,828,216
Shares redeemed................................................ (3,177,106) (47,846,922) (542,266) (7,709,611)
Net increase................................................... 5,710,678 85,968,709 7,085,085 99,023,105
CLASS B
Shares sold.................................................... 18,909,215 282,822,448 19,717,460 275,013,438
Shares issued on reinvestment of distributions................. 1,109,399 17,095,215 487,710 7,076,078
Shares redeemed................................................ (4,174,149) (62,881,641) (543,554) (7,846,692)
Net increase................................................... 15,844,465 237,036,022 19,661,616 274,242,824
CLASS C
Shares sold.................................................... 1,165,822 17,413,787 761,087 10,573,728
Shares issued on reinvestment of distributions................. 43,393 668,629 19,172 277,286
Shares redeemed................................................ (308,109) (4,629,756) (26,533) (379,480)
Net increase................................................... 901,106 13,452,660 753,726 10,471,534
CLASS Y
Shares sold.................................................... 19,300,331 290,354,485 18,505,940 263,287,541
Shares issued on reinvestment of distributions................. 1,977,198 30,423,613 1,558,776 22,661,839
Shares redeemed................................................ (12,328,011) (185,863,701) (5,965,644) (82,422,318)
Net increase................................................... 8,949,518 134,914,397 14,099,072 203,527,062
Total net increase resulting from Fund share
transactions................................................. 31,405,767 $471,371,788 41,599,499 $587,264,525
</TABLE>
* The Fund share activity for Class A, Class B and Class C shares reflect the
period from January 3, 1995 (commencement of class operations) through
December 31, 1995.
62
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 4 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995*
TAX STRATEGIC SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold.............................................................. 652,149 $ 8,273,511 215,649 $ 2,527,734
Shares issued on reinvestment of distributions........................... 26,949 357,306 8,759 105,291
Shares redeemed.......................................................... (73,546) (929,252) (2,950) (36,239)
Net increase............................................................. 605,552 7,701,565 221,458 2,596,786
CLASS B
Shares sold.............................................................. 1,563,566 19,725,070 550,703 6,364,106
Shares issued on reinvestment of distributions........................... 59,693 793,572 21,721 260,033
Shares redeemed.......................................................... (85,378) (1,087,302) (34,427) (407,693)
Net increase............................................................. 1,537,881 19,431,340 537,997 6,216,446
CLASS C
Shares sold.............................................................. 263,684 3,324,801 39,093 457,822
Shares issued on reinvestment of distributions........................... 6,172 81,908 1,561 18,761
Shares redeemed.......................................................... (5,604) (70,810) -- --
Net increase............................................................. 264,252 3,335,899 40,654 476,583
CLASS Y
Shares sold.............................................................. 63,086 768,496 92,229 1,062,541
Shares issued on reinvestment of distributions........................... 26,475 341,313 66,375 774,666
Shares redeemed.......................................................... (84,857) (1,055,874) (84,665) (952,606)
Net increase............................................................. 4,704 53,935 73,939 884,601
Total net increase resulting from Fund share transactions................ 2,412,389 $30,522,739 874,048 $10,174,416
</TABLE>
* For Class A, Class B, and Class C shares, the Fund share transaction activity
reflects the period January 17, 1995, January 6, 1995, and March 3, 1995,
respectively (commencement of class operations) through December 31, 1995.
NOTE 5 -- INVESTMENT TRANSACTIONS
The cost of purchases and proceeds from sales of investments, excluding
short-term securities for the year ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
<S> <C> <C>
American Retirement.... $ 61,282,970 $ 10,474,200
Balanced............... 301,410,563 419,093,895
Foundation............. 435,891,619 116,921,520
Tax Strategic.......... 59,793,904 34,152,600
</TABLE>
On December 31, 1996, the composition of unrealized appreciation and
depreciation of investment securities based on the aggregate cost for federal
tax purposes was as follows:
<TABLE>
<CAPTION>
APPRECIATION DEPRECIATION NET TAX COST
<S> <C> <C> <C> <C>
American Retirement.... $ 13,825,539 $ 1,154,915 $ 12,670,624 $ 104,513,650
Balanced............... 172,241,593 8,122,511 164,119,082 730,753,100
Foundation............. 232,321,512 27,939,388 204,382,124 1,400,416,658
Tax Strategic.......... 7,198,915 131,677 7,067,238 50,263,081
</TABLE>
63
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 6 -- CONCENTRATION OF CREDIT RISK
Tax Strategic invests the municipal bond portion of its portfolio in
obligations issued by states, territories and possessions of the United States
and by their political subdivisions and duly constituted authorities. The
issuers' abilities to meet their obligations may be affected by economic and
political developments in a specific state or region. Certain debt obligations
held in the Fund's municipal portfolio may be entitled to the benefit of standby
letters of credit or other guarantees of banks or other financial institutions.
NOTE 7 -- FINANCING AGREEMENT
Effective July 3, 1996, a financing agreement was put in place between all
of the Evergreen Funds and State Street. Under this agreement, State Street
provided an unsecured line of credit facility, in the aggregate amount of $100
million ($50 million committed and $50 million uncommitted), to be accessed by
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 line of 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.
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 deferral 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 $8,419,
$23,045, $7,206 and $2,978 for American Retirement, Balanced, Foundation and Tax
Strategic, respectively.
64
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND SHAREHOLDERS OF
EVERGREEN AMERICAN RETIREMENT FUND
EVERGREEN BALANCED FUND
EVERGREEN FOUNDATION FUND
EVERGREEN TAX STRATEGIC FOUNDATION FUND
We have audited the accompanying statements of assets and liabilities,
including the statements of investments, for the Evergreen Balanced 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 AMERICAN RETIREMENT 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 BALANCED 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.
EVERGREEN FOUNDATION 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 TAX STRATEGIC FOUNDATION 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 November
2, 1993 (commencement of operations) through December 31, 1993 were audited
by other auditors, whose report thereon dated February 15, 1996 was
unqualified.
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 accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1996, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights audited
by us and referred to above present fairly, in all material respects, the
financial position of Evergreen American Retirement Fund, Evergreen Balanced
Fund, Evergreen Foundation Fund and Evergreen Tax Strategic Foundation 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 generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
February 19, 1997
65
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66
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68
<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
* These individuals are not trustees for Balanced.
+ Trustee Emeritus
FEDERAL INCOME TAX STATUS OF DISTRIBUTIONS (UNAUDITED)
During the fiscal year ended December 31, 1996, American Retirement, Balanced,
Foundation and Tax Strategic paid $498,967, $74,293,460, $9,919,612 and
$850,061, respectively, of net long term capital gain distributions.
During the fiscal year ended December 31, 1996, Tax Strategic paid $616,906 of
tax-exempt distributions. Of the total tax exempt distributions, 9.14%, 9.10%,
9.13%, and 9.13% is subject to alternative minimum tax for Class Y, Class A,
Class B and Class C shares, respectively.
For corporate taxpayers, 67.33%, 36.81%, 34.11% and 79.29% of the ordinary
income distributions paid during the fiscal year ended December 31, 1996 by
American Retirement, Balanced, Foundation and Tax Strategic, respectively,
qualified for corporate dividends received deduction.
