Evergreen
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Growth &
Income Fund
SEMI-ANNUAL REPORT
JUNE 30, 1995
THE EVERGREEN FUNDS [LOGO]
<PAGE>
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DEAR FELLOW SHAREHOLDER:
Evergreen Growth & Income Fund continued to earn an A rating from Lipper
Analytical Services based on its performance for the 1, 3, and 5-year periods
through June 30, 1995+. (For additional performance information, see table on
the third page of this letter).
During the first quarter of 1995, the Fund's total return exceeded that of
the the S&P 500 Reinvested Index++, as it has for each of the past 3 years ended
December 31. The Fund underperformed the S&P 500 during the first half of 1995,
due to the excellent performance of the technology sector and especially
semi-conductor manufacturers and related capital equipment suppliers*. The
Fund's investment strategy, well-known to long-term shareholders, is "value
timing", through which undervalued growth opportunities or assets are identified
along with a catalyst to close the valuation gap. The resulting investments are
opportunistic and value-based and seldom fall into the highly volatile and
cyclical technology sector, usually the province of growth investors.
PORTFOLIO REVIEW
The Federal Reserve Board raised short-term interest rates six times during
1994 and once more during the first quarter of 1995, in an effort to slow the
economy. Real Gross Domestic Product (GDP) growth slipped from 5.1% in fourth
quarter 1994 to 2.7% in first quarter 1995 and to a value near zero in second
quarter 1995. The higher interest rates dampened end-user demand, creating the
first inventory correction where product levels are monitored by comprehensive
automated tracking systems. These computer-based systems may compress the cycle
allowing a rebound as early as the second half.
Investment by the Fund in regional banks is always undertaken with careful
consideration of a bank's franchise value. Consolidation of the domestic banking
industry is a longstanding Fund investment theme. During the first half, a
number of positions were originated or expanded in strategically attractive
regional banks whose balance sheets are interest rate sensitive. Central
Fidelity Banks, First Security Corp., Liberty Bancorp., and Washington Mutual
are examples. The slowing economy produced a decline in long-term interest
rates, as concern about inflation accelerating in this cycle subsided and lifted
the value of these banks.
A measure of the success of "value timing" in the selection of securities
is whether strategic purchasers also find these corporate assets attractive and
act to close the valuation gap. The first half of 1995 saw numerous
confirmations as it was an extremely active period for strategic acquisitions of
Fund holdings. The year opened with the sale of Pet Inc., (held 5 1/2 years) to
Grand Metropolitan PLC for a gain of 66%. Santa Fe Pacific Corp. agreed to be
acquired by Burlington Northern when Union Pacific Corp. dropped from the
bidding. Shortly thereafter, Union Pacific Corp., concerned about its lack of
access to Chicago and Powder River Basin coal, agreed to acquire Chicago &
Northwestern Transportation Co., for a gain of 72% for the Fund (held 2 years).
Also, Michigan National Corp., a regional Michigan bank, agreed to be acquired
at $110 per share by National Australia Bank. AT&T agreed to acquire the
minority interest in Lin Broadcasting, after the spin-off of Lin's television
stations. Outlet Communications agreed to be acquired by Renaissance
Communications Corp. for more than $42 per share. National Gypsum Co. announced
its purchase by an investment group, led by its chairman. In an effort to
exploit significant economies of scale, First Financial Management agreed to
merge with First Data Corp., creating a dominant transaction processing company
and an unrealized gain of 222% at June 30, 1995. The Fund purchased shares of
First Financial in December of 1991. Since inception, 46 Fund holdings have been
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PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
+ Source: The Wall Street Journal through Lipper Analytical Services, Inc., an
independent mutual funds performance monitor.
++ Unmanaged Index of selected securities.
* Dow Jones Semiconductor & Related Industry Group advanced 37.6% and 94.3% in
first quarter 1995 and first half 1995, respectively.
<PAGE>
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acquired or have agreed to be acquired, indicating success at identifying
attractive, undervalued companies. With acquisitions being undertaken for
valid business objectives and financing readily available, we believe a high
level of activity will likely continue.
The first-half slowdown engineered by the Fed's aggressive tightening of
monetary policy restrained personal consumption which increased competitive
pressure on retailers, causing a loss of pricing power, poorer earnings and
earnings prospects. While the Fund has a relatively small proportion of its
assets committed to retailers, Caldor Inc. and Carson Pirie Scott were two of
the poorest performing issues in first half of 1995, with losses of 20% and 14%,
respectively.
OUTLOOK
Evergreen Growth & Income Fund's 1994 Annual Report anticipated a strong
finish for the economy for 1994 and a continuation of tight monetary policy,
with further tightening a strong possibility. The Federal Reserve tightened for
the last time in this policy phase in February 1995. The seven rate increases
dramatically slowed the economy, which curtailed price increases at the
intermediate goods level and prevented prior increases from being passed through
to the consumer level. Inventory reduction and production schedule cutbacks
strongly suggest that the desired "soft landing" did in fact occur in the first
half 1995. Cushioning the economic slowdown has been the significant drop in
long-term interest rates (from over 8.0% in fourth quarter 1994 as measured by
the 30-year Treasury bond to approximately 6.5%). These factors led to declining
short-term interest rates with Fed action lagging the markets. On July 6, the
Fed did reduce the Fed Fund's rate .25 of 1% and is likely to ease policy
further if the inventory correction lasts longer or is deeper than currently
anticipated.
Declining interest rates across the maturity spectrum support higher
valuation levels for the stock market, and the unfolding "soft landing" should
enable corporate profits to remain nearly flat. Taken together, they support
recent equity market gains. A low inflation, lower interest rate, slow growth
economic environment leads to premium valuations for companies that maintain
above-average earnings growth. The current market perception is that technology
companies can supply above average earnings growth and they were rewarded with
higher valuation levels in the second quarter. Historically, many technology
companies have shown highly cyclical earnings behavior driven by product cycles.
The passage of time will indicate "if it is different this time".
Looking at overall stock market valuation and considering the returns
available on alternate investments such as fixed income securities, the current
valuation level is not in a zone of overvaluation, provided the economy neither
slips into a recession nor rapidly re-accelerates later in 1995. In this
environment, we believe that equity markets should appreciate further during the
second half of 1995, but at only a fraction of the rate experienced during the
first half of 1995.
A number of new shareholders have invested in the Fund. We believe their
participation demonstrates confidence in Evergreen Growth & Income Fund and its
management strategy. We expect to prove that the confidence demonstrated by new
and old shareholders is deserved as we continue to identify and exploit hidden
assets, undervalued growth, and unrecognized franchises.
Very truly yours,
/s/ Stephen A. Lieber /s/ Edmund H. Nicklin, Jr
Stephen A. Lieber Edmund H. Nicklin, Jr.
Chairman Portfolio Manager
Evergreen Asset
Management Corp.
July 15, 1995
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PERFORMANCE AT A GLANCE
Performance for periods ended June 30, 1995*
Class Y Class A Class B Class C S&P 500
Shares Shares Shares Shares Reinvested
------- ------- ------- ------- ----------
3-month total return + 7.2% + 2.0% + 2.0% + 6.0% + 9.5%
6-month total return +18.4% +12.7% +13.0% +17.0% +20.2%
12-month total return +24.5% +18.5% +19.0% +23.0% +26.0%
3-year average annual
compound return +16.1% +14.2% +15.2% +16.0% +13.2%
5-year average annual
compound return +13.4% +12.3% +13.0% +13.3% +12.0%
Average annual compound
return since inception
on 10/15/86 +12.7% +12.1% +12.6% +12.6% +13.2%
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FIGURES REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS.
* Performance figures include reinvestment of income dividends 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.
Effective 1/3/95, the Fund adopted a multi-class distribution arrangement to
issue additional classes of shares, designated as Class A, Class B and Class C.
The Fund's performance for its Class A shares (subject to a maximum front-end
sales charge of 4.75%), its Class B shares (subject to a maximum contingent
deferred sales charge of 5%) and its Class C shares (subject to a 1% contingent
deferred sales charge within the first year of purchase) for the period prior to
1/3/95, has been calculated based on the performance of the existing no-load
(Class Y) shares as adjusted for any front-end or back-end sales charges.
Performance data prior to 1/3/95 does not reflect any 12b-1 fees, and if
reflected the returns would be lower. Performance data beginning from 1/3/95
reflects actual performance including 12b-1 fees.
The Fund may incur 12b-1 expenses up to an annual maximum of .75 of 1% of its
aggregate average daily net assets attributable to Class A shares, and 1% of its
aggregate average daily net assets attributable to each of the Class B shares
and Class C shares. For the foreseeable future, however, management intends to
limit such payments on the Class A shares to .25 of 1% of the Fund's aggregate
average daily net assets.
The adviser is currently absorbing a portion of the expenses for the Fund's
Class A, B and C shares. Had expenses not been absorbed, returns for Class A, B,
and C shares would have been lower.
<PAGE>
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STATEMENT OF INVESTMENTS
June 30, 1995 (unaudited)
COMMON STOCKS--94.4% SHARES VALUE
------ -----
BANKS & THRIFTS--9.0%
Central Fidelity Banks, Inc. 50,000 $ 1,525,000
Cullen/Frost Bankers, Inc. 22,500 911,250
First Security Corp. 70,000 1,960,000
Hibernia Corp. Cl. A 145,000 1,286,875
Liberty Bancorp, Inc. 20,000 645,000
Michigan National Corp. 7,000 744,625
ONBANCorp, Inc. 20,000 567,500
State Street Boston Corp. 40,000 1,475,000
Summit Bancorporation 50,000 1,062,500
Washington Mutual Savings Bank 54,600 1,279,688
-----------
11,457,438
-----------
BUSINESS EQUIPMENT
& SERVICES--13.0%
* Airtouch Communications, Inc. 66,500 1,895,250
* Associated Group, Inc. Cl. A 11,950 206,138
* Associated Group, Inc. Cl. B 11,950 221,075
* Compuware Corp. 62,500 1,921,875
* Cray Research, Inc. 7,200 175,500
First Financial Management Corp. 20,000 1,710,000
Harper Group, Inc. 117,500 1,968,125
* Landmark Graphics Corp. 25,000 637,500
* Lin Broadcasting Corp. 16,000 2,024,000
Pittston Services Group 40,000 960,000
* Policy Management Systems Corp. 30,000 1,380,000
Reynolds & Reynolds Co. Cl. A 116,000 3,422,000
-----------
16,521,463
-----------
CHEMICALS & AGRICULTURAL
PRODUCTS--5.2%
Air Products & Chemicals, Inc. 22,500 1,254,375
* Bush Boake Allen, Inc. 5,400 164,025
Fuller (H.B.) Co. 47,300 1,750,100
Great Lakes Chemical Corp. 15,000 903,750
Praxair, Inc. 100,000 2,500,000
-----------
6,572,250
-----------
CONSUMER PRODUCTS
& SERVICES--1.2%
CPC International, Inc. 25,000 1,543,750
-----------
DIVERSIFIED COMPANIES--3.0%
Grace (W.R.) & Co. 22,500 1,380,937
ITT Corp. 7,500 881,250
Morton International, Inc. 52,500 1,535,625
-----------
3,797,812
-----------
ENERGY--5.1%
Anadarko Petroleum Corp. 20,000 862,500
Coastal Corp. 45,000 1,366,875
Kerr-McGee Corp. 25,000 1,340,625
Southwestern Energy Co. 54,000 749,250
Williams Companies, Inc. 50,000 1,743,750
YPF Sociedad Anonima-ADR 20,000 377,500
-----------
6,440,500
-----------
FINANCE & INSURANCE--4.4%
Federal Home Loan Mortgage Corp. 50,000 3,437,500
Federal National
Mortgage Association 14,000 1,321,250
Guaranty National Corp. 10,000 185,000
Hartford Steam Boiler Inspection
& Insurance Co. 7,000 310,625
National RE Corp. 10,000 335,000
-----------
5,589,375
-----------
HEALTH CARE PRODUCTS
& SERVICES--11.8%
Caremark International, Inc. 35,000 700,000
* Health Systems International, Inc. 15,000 435,000
Johnson & Johnson 12,000 811,500
* Laboratory Corporation
of America Holdings 105,000 1,391,250
* Lincare Holdings, Inc. 82,000 2,178,125
Mallinckrodt Group, Inc. 25,000 887,500
McKesson Corp. 14,500 677,875
Schering-Plough Corp. 56,000 2,471,000
Shared Medical Systems Corp. 12,500 501,562
* Spacelabs Medical, Inc. 25,000 634,375
* Tenet Healthcare Corp. 70,000 1,006,250
Warner-Lambert Co. 11,000 950,125
* Wellpoint Health Networks, Inc. 41,000 1,158,250
West Co., Inc. 40,000 1,120,000
-----------
14,922,812
-----------
INDUSTRIAL PRODUCTS--7.8%
Eaton Corp. 7,500 435,938
J & L Specialty Steel Inc. 27,000 519,750
Lone Star Industries, Inc. 71,000 1,526,500
Medusa Corp. 32,500 808,437
* National Gypsum Co. 19,000 992,750
Santa Fe Pacific Gold Corp. 55,000 666,875
* Strattec Security Corp. 57,900 709,275
Sundstrand Corp. 12,000 717,000
Tecumseh Products Co. Cl. A 27,500 1,210,000
Vulcan Materials Co. 25,000 1,362,500
York International Corp. 22,500 1,012,500
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9,961,525
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<PAGE>
COMMON STOCKS--(CONTINUED) SHARES VALUE
------ -----
PAPER--1.7%
Westvaco Corp. 50,000 $ 2,212,500
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PUBLISHING, BROADCASTING
& ENTERTAINMENT--18.7%
* Citicasters, Inc. 107,900 2,967,250
* Evergreen Media Corp. Cl. A 10,000 260,000
* EZ Communications, Inc. Cl. A 140,000 2,590,000
Gaylord Entertainment Co. Cl. A 39,375 994,219
* Jacor Communications, Inc. 40,000 640,000
* Katz Media Group, Inc. 92,000 1,460,500
* Lin Television Corp. 4,500 151,312
McGraw-Hill Companies, Inc. 7,500 569,062
* Multimedia, Inc. 37,500 1,453,125
New York Times Co. Cl. A 21,000 493,500
* Outlet Communications, Inc. 30,500 1,220,000
Pulitzer Publishing Co. 1,000 42,625
Scripps (E.W) Co. Cl. A 35,000 1,128,750
TCA Cable TV, Inc. 100,000 2,700,000
* TeleWest Communications-PLC ADS 2,500 64,375
Time Warner, Inc. 65,000 2,673,125
* Viacom, Inc. Cl. A 17,000 790,500
* Viacom, Inc. Cl. B 6,940 321,842
* Viacom, Inc. Cl. C Warrants
expiring 06/06/97 2,654 9,787
* Viacom, Inc. Cl. E Warrants
expiring 06/06/99 1,592 9,154
Washington Post Co. 1,800 469,800
* Young Broadcasting, Inc. Cl. A 101,000 2,802,750
------------
23,811,676
------------
RETAILING--2.1%
* Caldor Corp. 30,000 536,250
* Carson Pirie Scott & Co. 5,000 81,875
Kellwood Co. 15,000 255,000
Mercantile Stores Co., Inc. 12,500 581,250
Sears, Roebuck & Co. 20,000 1,197,500
------------
2,651,875
------------
TRANSPORTATION--4.4%
Kansas City Southern Industries,
Inc. 40,000 1,490,000
Santa Fe Pacific Corp. 75,000 1,912,500
Union Pacific Corp. 40,000 2,215,000
------------
5,617,500
------------
UTILITIES--7.0%
AT&T Corp. 15,000 796,875
Century Telephone Enterprises, Inc. 50,000 1,418,750
Commonwealth Energy System 25,000 943,750
Eastern Utilities Associates 5,000 113,125
Houston Industries, Inc. 15,000 631,875
Illinova Corp. 50,000 1,268,750
Pacific Telesis Group 26,500 708,875
SBC Communications, Inc. 17,208 819,531
TNP Enterprises, Inc. 61,000 983,625
Unicom Corp. 45,000 1,198,125
------------
8,883,281
------------
TOTAL COMMON STOCKS
(COST $92,409,434) 119,983,757
------------
PRINCIPAL
CORPORATE OBLIGATIONS--1.6% AMOUNT
---------
**Columbia Gas System, Inc.
+ 9.00% Due 08/01/93 $ 215,000 302,613
+ 9.00% Due 10/01/94 188,000 261,320
+ 8.75% Due 04/01/95 225,000 312,188
9.125% Due 10/01/95 30,000 41,925
10.125% Due 11/01/95 55,000 77,069
8.375% Due 03/01/96 22,000 30,195
7.50% Due 06/01/97 20,000 26,450
7.50% Due 10/01/97 25,000 33,375
------------
1,085,135
------------
Time Warner, Inc.
Redeemable Reset Notes
Due 08/15/02 825,000 812,625
------------
Viacom Inc.
8.00% Due 07/07/06 92,000 89,240
------------
TOTAL CORPORATE OBLIGATIONS
(COST $1,611,803) 1,987,000
------------
SHORT-TERM INVESTMENTS--2.5%
COMMERCIAL PAPER--1.7%
American Home Products Corp.
5.96% Due 07/07/95 1,000,000 999,006
Bell Atlantic Financial
Services, Inc.
5.93% Due 07/10/95 300,000 299,555
Xerox Corp.
5.85% Due 07/06/95 900,000 899,269
------------
2,197,830
------------
U.S. GOVERNMENT &
AGENCY OBLIGATIONS--0.8%
Federal Home Loan Mortgage Corp.
5.90% Due 07/07/95 1,000,000 999,017
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $3,196,847) 3,196,847
------------
TOTAL INVESTMENTS
(COST $97,218,084) 98.5% 125,167,604
OTHER ASSETS AND LIABILITIES--NET 1.5 1,920,748
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TOTAL NET ASSETS 100.0% $127,088,352
===== ============
ADR-American Depositary Receipts.
ADS-American Depositary Shares.
* Non-income producing.
** Non-income producing, on non accrual status.
+ Security in default.
See accompanying notes to financial statements.
<PAGE>
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STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (unaudited)
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ASSETS:
Investments at market value (identified cost $97,218,084) $125,167,604
Cash 75,045
Receivable for investment securities sold 90,330
Receivable for Fund shares sold 2,073,381
Dividends and interest receivable 188,193
Receivable from Adviser 3,675
Prepaid expenses 64,379
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Total assets 127,662,607
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LIABILITIES:
Payable for investment securities purchased 316,250
Payable for Fund shares repurchased 86,600
Accrued advisory fee 98,818
Accrued expenses 72,587
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Total liabilities 574,255
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NET ASSETS:
Paid-in capital 96,699,582
Accumulated net realized gain on investment transactions 2,449,180
Distributions in excess of net investment income (9,930)
Net unrealized appreciation of investments 27,949,520
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Net assets $127,088,352
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CALCULATION OF NET ASSET VALUE PER SHARE:
CLASS A SHARES
Net asset value per share
($8,553,094/499,461 shares of beneficial interest outstanding) $17.12
Sales charge--4.75% of offering price 0.85
------
Maximum offering price $17.97
======
CLASS B SHARES
Net asset value per share
($20,103,558/1,175,426 shares of beneficial interest outstanding) $17.10
======
CLASS C SHARES
Net asset value per share
($1,123,569/65,716 shares of beneficial interest outstanding) $17.10
======
CLASS Y SHARES
Net asset value per share
($97,308,131/5,680,306 shares of beneficial interest outstanding) $17.13
======
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See accompanying notes to financial statements.
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STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1995 (unaudited)
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INVESTMENT INCOME:
Dividends $ 799,795
Interest 252,881
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Total income 1,052,676
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EXPENSES:
Advisory fee $474,509
Distribution fee-Class A shares 4,459
Distribution and services fees-Class B shares 42,312
Distribution and services fees-Class C shares 1,535
Registration and filing fees 48,453
Custodian fee 38,872
Transfer agent fee 37,057
Professional fees 25,246
Reports and notices to shareholders 8,234
Trustees' fees and expenses 6,594
Insurance 6,546
Other 2,591
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696,408
Less: expense reimbursement (17,264)
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Total expenses 679,144
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Net investment income 373,532
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NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 2,449,180
Net increase in unrealized appreciation of investments 13,140,285
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Net gain on investments 15,589,465
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $15,962,997
================================================================================
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
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STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR
JUNE 30, 1995 ENDED
(UNAUDITED) DECEMBER 31, 1994
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<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 373,532 $ 655,759
Net realized gain on investments 2,449,180 4,749,072
Net change in unrealized appreciation of
investments 13,140,285 (4,490,466)
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Net increase in net assets resulting from operations 15,962,997 914,365
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DISTRIBUTIONS TO SHAREHOLDERS:
FROM NET INVESTMENT INCOME
Class A shares (14,551) --
Class B shares (2,879) --
Class C shares (25) --
Class Y shares (342,923) (655,759)
- ------------------------------------------------------------------------------------------------------------------------
Total distributions from net investment income (360,378) (659,759)
- ------------------------------------------------------------------------------------------------------------------------
IN EXCESS OF NET INVESTMENT INCOME
Class A shares (6,474) --
Class B shares (15,281) --
Class C shares (1,329) --
- ------------------------------------------------------------------------------------------------------------------------
Total distributions in excess of net investment income (23,084) --
- ------------------------------------------------------------------------------------------------------------------------
FROM NET REALIZED GAINS ON INVESTMENTS--Class Y shares -- (4,749,072)
- ------------------------------------------------------------------------------------------------------------------------
Total distribution to shareholders (383,462) (5,404,831)
- ------------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Net increase resulting from Fund share transactions 38,051,799 885,411
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 53,631,334 (3,605,055)
NET ASSETS:
Beginning of year 73,457,018 77,062,073
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End of period (including distributions in excess of net
investment income of ($9,930) for the six months ended
June 30, 1995 $127,088,352 $73,457,018
========================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
June 30, 1995 (unaudited)
NOTE 1--ORGANIZATION
The Evergreen Growth & Income Fund (formerly the Evergreen Value Timing Fund)
(the "Fund") is registered under the Investment Company Act of 1940, as amended
(the "Act"), as a diversified open-end management investment company.
NOTE 2--ISSUANCE OF MULTIPLE CLASSES OF SHARES
On January 3, 1995, the Fund adopted a multiple class distribution program and
created three new classes of shares designated Class A, Class B and Class C
shares. The then existing shares of the Fund were designated as Class Y (no
load) shares. Class A shares are offered with a front-end sales charge of 4.75%
which will be reduced on purchases in excess of $100,000. Class B shares are
offered with a contingent deferred sales charge payable when shares are redeemed
which would decline from 5% to zero over a seven year period (after which it is
expected that they will convert to Class A shares). Class C shares are offered
with a 1% contingent deferred sales charge on shares redeemed during the first
year of purchase. All four classes of shares have identical voting, dividend,
liquidation and other rights, except that certain classes bear different
distribution expenses (see Note 5) and have exclusive voting rights with respect
to their distribution plan.
NOTE 3--SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
SECURITY VALUATION: Portfolio securities are valued at the last reported sales
price on an exchange which is the primary market for such securities, or, if no
sales were reported, as in the case of most securities traded over-the-counter,
the mean between the last reported bid and asked price. Unlisted securities for
which market quotations are readily available are valued at a price quoted by
one or more brokers. Securities or other assets for which the market quotations
are not readily available are valued at fair value as determined in good faith
by the Trustees. Short-term obligations purchase with remaining maturities of 60
days or less are stated at amortized cost which approximates market value. Cost
of securities is determined and gains and losses are based upon the specific
identification method for both financial statement and Federal income tax
purposes.
FEDERAL TAXES: It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute timely all of its taxable income and net capital gains to its
shareholders. Therefore, no Federal income or excise tax provision is required.
DISTRIBUTIONS TO SHAREHOLDERS: Distributions to shareholders are recorded on the
ex-distribution date. The amount of distributions from net investment income and
net realized capital gains are determined in accordance with Federal income tax
regulations, which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. Accordingly, to the extent these differences are permanent in nature,
such amounts are reclassified within the capital accounts based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
distributions in excess of net investment income or net realized capital gains.
To the extent distributions exceed current and accumulated earnings and profits
for Federal income tax purposes, they are reported as distributions of paid-in
capital.
ALLOCATION OF EXPENSES: Expenses specifically identifiable to a class of shares
are charged to that class. Other expenses common to the Fund as a whole are
primarily allocated to the classes in the Fund in proportion to net assets.
<PAGE>
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OTHER: Security transactions are accounted for on the trade date, the date the
order to buy or sell is executed. Dividend income is recorded on the ex-dividend
date and interest income is recorded on the accrual basis.
NOTE 4--ADVISORY FEE AND RELATED PARTY TRANSACTIONS
Evergreen Asset Management Corp. (the "Adviser"), an affiliate of Lieber &
Company, is the investment adviser to the Fund and also furnishes the Fund with
administrative services. The Adviser, which is an indirect, wholly-owned
subsidiary of First Union Corporation, succeeded on June 30, 1994 to the
advisory business of the same name, but under different ownership. The Adviser
is entitled to a fee, accrued daily and payable monthly, for the performance of
its services at an annual rate of 1% of the daily net assets of the Fund. For
the six months ended June 30, 1995, the adviser voluntarily reimbursed Class A,
Class B and Class C shares for certain class specific expenses in the amount of
$6,488, $4,288 and $6,488, respectively. The Adviser may, at its discretion,
revise or cease these voluntary expense reimbursements at any time.
Lieber & Company is the investment sub-adviser to the Fund and also provides
brokerage services with respect to substantially all security transactions of
the Fund effected on the New York or American Stock Exchanges. For transactions
executed during the six months ended June 30, 1995, the Fund incurred brokerage
commissions of $61,164 with Lieber & Company. For the six months ended June 30,
1995, Lieber & Company was reimbursed by the Adviser, at no additional expense
to the Fund, for its cost of providing investment advisory services to the
Adviser.
NOTE 5--DISTRIBUTION AND SHAREHOLDER SERVICES FEES
The Fund has adopted for each if its Class A, Class B and Class C shares, a
Distribution Plan (the "Plans") pursuant to Rule 12b-1 under the Act. Under the
terms of the Plans, the Fund may incur distribution-related and shareholder
servicing-related expenses which may not exceed, as a percentage of average
daily net assets on an annual basis, .75 of 1% of Class A shares and 1% for both
Class B and Class C shares. The payments under the Class A Plan will be
voluntarily limited to .25 of 1%.
In connection with the Plans, the Fund has entered into a distribution agreement
with Evergreen Funds Distributor, Inc. ("EFD"), a subsidiary of Furman Selz
Incorporated, whereby the Fund will compensate EFD for its services at a rate
which may not exceed, as a percentage of average daily net assets on an annual
basis, .25 of 1% for Class A shares and .75 of 1% for both Class B and Class C
shares. Such fees are accrued daily and paid monthly. The Agreement provides
that EFD will use such fees to finance activities that promote the sale of Class
A, Class B and Class C shares.
A portion of the payments under the Class B and Class C Plans of, up to .25 of
1% of average daily net assets may constitute a shareholder services fee. EFD
has entered into a Shareholder Services Agreement with First Union Brokerage
Services ("FUBS"), an affiliate of the Adviser, whereby EFD will compensate FUBS
for certain services provided to shareholders and/or for the maintenance of
shareholders accounts relating to the Fund's Class B and Class C shares. Such
fees are accrued daily and paid monthly.
NOTE 6--PORTFOLIO TRANSACTIONS
Cost of purchases and proceeds from sales of investments, other than short-term
obligations, aggregated $44,657,797 and $9,102,059, respectively, for the six
months ended June 30, 1995.
The aggregate cost of investments owned at June 30, 1995, for federal income tax
purposes is $97,228,209 due to sales of certain portfolio securities on which
losses are deferred for Federal income tax purposes. Gross unrealized
appreciation and depreciation of securities at June 30, 1995, was $28,924,693
<PAGE>
- --------------------------------------------------------------------------------
and $985,298, respectively, resulting in net unrealized depreciation of
$27,939,395.
NOTE 7--SHARES OF BENEFICIAL INTEREST
There is an unlimited number of $.0001 par value shares of beneficial interest
authorized, divided into four classes, designated Class A, Class B, Class C and
Class Y shares. Transaction in shares of beneficial interest were as follows:
SIX MONTHS ENDED
JUNE 30, 1995
(UNAUDITED)
- --------------------------------------------------------
SHARES DOLLARS
- --------------------------------------------------------
CLASS A*
Shares sold 507,958 $8,133,997
Shares issued on reinvestment
of distributions 1,227 20,503
Shares redeemed (9,724) (156,640)
- --------------------------------------------------------
Net increase 499,461 $7,997,860
- --------------------------------------------------------
CLASS B*
Shares sold 1,180,946 $18,848,814
Shares issued on reinvestment
of distributions 1,089 17,887
Shares redeemed (6,609) (107,266)
- --------------------------------------------------------
Net increase 1,175,426 $18,759,435
- --------------------------------------------------------
CLASS C*
Shares sold 66,675 $1,090,697
Shares issued on reinvestment
of distributions 76 1,272
Shares redeemed (1,035) (17,384)
- --------------------------------------------------------
Net increase 65,716 $1,074,585
- --------------------------------------------------------
CLASS Y
Shares sold 1,492,228 $23,918,874
Shares issued on reinvestment
of distributions 18,791 306,725
Shares redeemed (888,144) (14,005,680)
- --------------------------------------------------------
Net increase 622,875 $10,219,919
- --------------------------------------------------------
NET INCREASE RESULTING FROM
FUND SHARE TRANSACTIONS 2,363,478 $38,051,799
========================================================
YEAR ENDED
DECEMBER 31, 1994
- --------------------------------------------------------
SHARES DOLLARS
- --------------------------------------------------------
CLASS Y
Shares sold 2,750,023 $42,704,686
Issued on reinvestment
of distributions 339,866 4,904,262
Shares redeemed (3,032,322) (46,723,537)
- --------------------------------------------------------
NET INCREASE RESULTING FROM
FUND SHARE TRANSACTIONS 57,567 $885,411
========================================================
* For Class A, Class B and Class C shares, the Fund share transaction activity
reflects the period from January 3, 1995, (commencement of class operations)
through June 30, 1995.
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (UNAUDITED)
FOR THE PERIOD JANUARY 3, 1995 THROUGH JUNE 30, 1995*
--------------------------------------------------------
PER SHARE DATA CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $14.48 $14.48 $14.48
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .05 .01 .01
Net realized and unrealized gain
on investments 2.65 2.64 2.64
- ---------------------------------------------------------------------------------------------------------------
Total income from investment operations 2.70 2.65 2.65
- ---------------------------------------------------------------------------------------------------------------
Less distributions to shareholders:
From net investment income (.05) (.01) (.01)
In excess of net investment income (.01) (.02) (.02)
- ---------------------------------------------------------------------------------------------------------------
Total distributions (.06) (.03) (.03)
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.12 $17.10 $17.10
===============================================================================================================
TOTAL RETURN** 18.7% 18.3% 18.3%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted) $8,553 $20,104 $1,124
Ratios to average net assets:
Expenses+ 1.46% 2.22% 2.25%
Net investment income+ .82% .07% .02%
Portfolio turnover rate++ 10% 10% 10%
===============================================================================================================
</TABLE>
* Commencement of class operations.
** Total return is calculated on net asset value per share for the period
indicated and is not annualized. Initial sales charge or contingent deferred
sales charges are not reflected.
+ Annualized and net of voluntary expense reimbursements. If the Fund had borne
all expenses that were assumed by the Adviser, the annualized ratios of
expenses and net investment income (loss) to average net assets would be
1.83% and .45%, respectively, for Class A Shares, 2.32% and (.03%),
respectively, for Class B Shares and 6.47% and (4.21%), respectively for
Class C Shares. Due to the recent commencement of their offering, the ratios
for Class A, Class B and Class C shares are not necessarily comparable to
that of the Class Y shares, and are not necessarily indicative of future
ratios.
++ Portfolio turnover is calculated for the six months period ended June 30,
1995.
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
EVERGREEN GROWTH & INCOME FUND
FINANCIAL HIGHLIGHTS
CLASS Y SHARES
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1995 ----------------------------------------------------
PER SHARE DATA (UNAUDITED) 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $14.52 $15.41 $14.18 $12.99 $10.72 $12.03
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .06 .14 .14 .15 .19 .30
Net realized and unrealized gain (loss)
on investments 2.61 .12 1.91 1.65 2.58 (.84)
- -----------------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations 2.67 .26 2.05 1.80 2.77 (.54)
- -----------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income (.06) (.14) (.14) (.15) (.19) (.30)
Net realized gains on investments -- (1.01) (.68) (.46) (.31) (.47)
- -----------------------------------------------------------------------------------------------------------------
Total distributions (.06) (1.15) (.82) (.61) (.50) (.77)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.13 $14.52 $15.41 $14.18 $12.99 $10.72
=================================================================================================================
TOTAL RETURN 18.4%+ 1.7% 14.4% 13.8% 25.8% (4.5)%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $97,308 $73,457 $77,062 $63,841 $47,763 $36,222
Ratios to average net assets:
Expenses 1.35%++ 1.33% 1.26% 1.33% 1.41% 1.50%
Net investment income .86%++ .96% .99% 1.18% 1.55% 2.62%
Portfolio turnover rate 10% 29% 28% 30% 23% 41%
=================================================================================================================
</TABLE>
+ Total return is calculated for the six months ended June 30, 1995 is not
annualized.
++ Annualized.
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN FAMILY OF FUNDS
DOMESTIC GROWTH FUNDS
U.S. Real Estate Equity Fund
Aggressive Growth Fund
Limited Market Fund
Evergreen Fund
INTERNATIONAL/GLOBAL GROWTH FUNDS
Global Real Estate Equity Fund
Emerging Markets Growth Fund
International Equity Fund
GROWTH AND INCOME FUNDS
Growth & Income Fund
Value Fund
Total Return Fund
Evergreen Foundation Fund
Balanced Fund
American Retirement Fund
SPECIALTY GROWTH AND INCOME FUNDS
Small Cap Equity Income Fund
Tax Strategic Foundation
Utility Fund
INCOME FUNDS
U.S. Government Fund
Fixed Income Fund
STATE TAX-FREE FUNDS
Florida High Income Municipal Bond Fund
Florida Municipal Bond Fund
Georgia Municipal Bond Fund
North Carolina Municipal Bond Fund
South Carolina Municipal Bond Fund
Virginia Municipal Bond Fund
TAX FREE FUNDS
High Grade Tax Free Fund
Short-Intermediate Municipal Fund-California
Short-Intermediate Municipal Fund
MONEY MARKET FUNDS
Money Market Fund
Tax Exempt Money Market Fund
Treasury Money Market Fund
<PAGE>
TRUSTEES
Laurence B. Ashkin
Foster Bam
James S. Howell
Robert J. Jeffries
Gerald M. McDonnell
Thomas L. McVerry
William Walt Pettit
Russell A. Salton, III, M.D.
Michael S. Scofield
INVESTMENT ADVISER
Evergreen Asset Management Corp.
2500 Westchester Avenue
Purchase, New York 10577
CUSTODIAN &
TRANSFER AGENT
State Street Bank and Trust Company
LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman
INDEPENDENT AUDITORS
Ernst & Young LLP
DISTRIBUTOR
Evergreen Funds Distributor, Inc.
The investment advisers to the Evergreen Funds are Capital Management Group
of First Union National Bank of North Carolina ("FUNB-NC") and Evergreen
Asset Management Corp., which is wholly owned by FUNB-NC. Investments in
the Evergreen Funds are not endorsed or guaranteed by First Union or its
subsidiaries, are not deposits or other obligations of First Union or its
subsidiaries, are not insured or otherwise protected by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other government
agency, and involve investment risks, including possible loss of principal.
The Evergreen Funds are sponsored and distributed by Evergreen Funds
Distributor, Inc., which is independent of Evergreen and First Union.
EVERGREEN GROWTH & INCOME FUND
2500 Westchester Avenue
Purchase, New York 10577
536578
<PAGE>
