EVERGREEN
TAX STRATEGIC
FOUNDATION
FUND
SEMI-ANNNUAL REPORT
JUNE 30, 1995
THE EVERGREEN FUNDS [LOGO]
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DEAR FELLOW SHAREHOLDER:
Evergreen Tax Strategic Foundation Fund (Class Y, no-load shares) completed
the first half of 1995 with a +13.5% total return. The Fund attempts to maximize
the "after-tax" total return portfolio of investments by investing in common and
preferred stocks and securities convertible into or exchangeable for common
stocks, and municipal securities*. Tax Strategic Foundation Fund's goal is to
provide tax efficient investment, both in the provision of tax-exempt bond
income, and in the effort to reduce tax obligations where possible by investing
in other areas of tax efficiency in the equity market. (For performance
information, please see the fourth page of this letter.)
Tax-exempt income was $0.101 during the first half, 59.8% of the total
earned and, therefore, will not be subject to Federal income taxes. We have
invested as much as practical within our goals in the shares of companies which
buy back their shares rather than pay out sizable taxable dividends. Further, we
buy stocks with tax advantaged dividends. All these factors together make for a
tax efficient foundation of an investor's portfolio.
The results in the different asset classes naturally reflected the specific
markets. The equity portfolio provided a +20.8% total return during the first
six months, and +32.8% for the twelve months. The fixed income portion provided
a total return of +8.7% in the first half of 1995, and +8.4% for the twelve
months.
STOCKS
The group which led the Fund's performance during the first half of the
year was the technology stocks, where our positions in Intel Corp., the Fund's
largest equity holding, increased 94.9%, and Hewlett-Packard increased 47.6%.
Banks also provided sizable growth, led by Bank of Boston with a gain of 53.5%,
Baybanks, +49.9%, and Barnett Banks, +33.2%. Other strong groups were the
residential housing finance, building, and operating sectors, with gains of
34.8% in CWM Mortgage Holdings, 25.7% in Southern Energy Homes and 25.1% in
Gables Residential Trust.
There were a few negative performers in the portfolio, most notably our one
Mexican holding purchased after last year's virtual collapse of the Mexican
market and the sharp decline of the peso. Shares of Grupo Sidek, S.A. de C.V., a
hotel and construction conglomerate, declined 51.4% during the first half of the
year, but have since shown significant recovery. Among our other holdings, only
two had declines of 15% or more, and these were Roadway Services, -16.7%, the
major trucking, air express and package service company whose earnings were
negatively impacted by the development of severe competition in the truck
business, and Superior Surgical Mfg. Co., -15.8%, apparently reflecting market
apprehensions concerning the level of demand by hospitals.
The overall equity strategy of the Fund continued to be the purchase of
issues believed to have undervalued growth potential, or undervalued business
franchises. The new holdings added during the first half of the year represented
such commitments. In addition, we focus on tax-advantaged selection of equities.
During the period under review, this fell into two categories. One category was
the shares of companies where management has a strong share buy-back policy,
reflecting the view that from an after-tax point of view, shareholders are given
an improved capital gain return when management uses funds to buy back shares
rather than pay out dividends. Issues purchased in the portfolio which have
strong buy-back records and current policies include: Chrysler Corp., CWM
Mortgage Holdings, Inc, Intel Corp., John Nuveen Co., and Loews Corp.
Tax-advantaged dividends particularly appear in the case of real estate
investment trusts which pay out a portion of their dividends as return of
capital. Such dividend payments are not treated as current income, but are
subtracted from the base of purchase so that they are eventually treated as
capital gains. Shares purchased in this category include: Bay Apartment
Communities, Gables Residential Trust, and Irvine Apartment Communities. In
addition to these purchases, a number of our other holdings bought in prior
periods also have this tax benefit.
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FIGURES REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS.
* While the income from the municipal bonds is exempt from Federal income tax,
it may be subject to some state and local taxes, and the Federal alternative
minimum tax for certain investors.
8/95
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BONDS
The tax-exempt bond portfolio, accounting for over 50% of the Fund's
investments, underwent a number of changes in the first half of the year. Most
changes were aimed at lengthening the maturity of the Fund's holdings, so that
the Fund would benefit fully from a decline in long-term interest rates. Issues
purchased had maturities ranging from 17 years to 28 years, with 28.5% of new
purchases being in the 20-year to 25-year maturity range. Quality considerations
were dominant, with all purchases being either of insured tax-exempt bonds, or
bonds with the highest investment rating. The overall aim of this program was to
increase the capital gains potential of the portfolio.
There may well be an opportunity for larger gains in the tax-exempt bond
market than in the taxable because of recent uncertainties with regard to the
tax law. Discussions of a possible legislation of a flat tax has tended to
reduce the price premium paid for tax-exempt bonds as opposed to taxable bonds.
They are, therefore, relatively cheaper than at any time in recent years. If, as
many observers think, the development of new tax legislation does not
significantly lower rates and does not move toward a flat tax, the likelihood is
that this gap will close and that tax-exempt bonds will move back to their
historic, typical relationship to taxable income. This may well develop into a
significant capital appreciation opportunity for the Fund.
Another facet of undervaluation characteristic of the experience in the
Evergreen Funds is that of the benefits of mergers or acquisitions. Coral Gables
Fedcorp (held since July, 1994) was acquired by First Union Corp. (parent of the
Fund's advisor) during the first half for a 29.4% gain to the portfolio.
Entering the second half of the year, we see a widening search for dynamic,
high-reward investment opportunities. The search will, we believe, intensify as
investors seek out the most promising sectors and companies for new equity
investment in a less ebullient economy. The leaders of the first half of the
Fund's fiscal year, notably technologies, are being looked upon by many as
vulnerable, particularly given the recent sizable gains. Much depends on
interest rates. Industrial and financial sectors, which by historical standards
are conservatively valued, can accelerate their growth dynamics if credit is
significantly stimulated. The areas for renewed strength with such stimulus
include those relating to housing, credit retailing, and lending.
But, what if Federal Reserve policy takes a very cautious approach? Minor
adjustments in interest rates to facilitate domestic stability without
disturbing foreign holders of dollars is, we think, a likely course. The Federal
Reserve will be testing the international markets, judging reactions to the
pending legislation on Federal budget reductions, to the pace of American
growth, and to the still quiescent, but visible trends of inflation.
Outstanding growth opportunities, we judge, are likely to continue to
emerge from the highly innovative, fast-moving technological sectors of the
market. Such opportunities may well be stimulated by mergers, as companies
position themselves for product and service variety in an environment where
business franchise values are a stronger asset than tangible properties. The
Lotus Development Corp. acquisition proposed by IBM and the Computer Associates
International bid for Legent Corp. may well be the forerunners of a series of
such transactions on the part of both hardware and software companies whose
continuing leadership requires dominance in specific software or information
sources. Merger and acquisition activity will likely continue to accelerate, we
believe, as public companies seek to strengthen their business franchises and
product offerings without facing the lag time of large new capital investments
or product development. Recently improved stock prices will facilitate this kind
of merger and acquisition, as will the much improved balance sheets of
companies, the result of four years of rising income. The lower dollar also
provides many value opportunities for acquisitions by foreign acquirers.
Financial institutions will continue their trends of consolidation, with similar
goals of expansion of franchises and enhancement of earnings opportunity in
mind.
The foregoing trends should support a broadening of investor focus, once
again evaluating smaller companies as candidates for acquisition when they hold
an especially strong product or service position in a growing business sector.
Investors will seek companies which offer rising productivity, franchise
strengthening, and strength of near-term growth trends.
Over the months ahead, we expect a greater-than-usual investor
concentration on current economic trends. The fact that the Federal Funds rate
was reduced by one-quarter percent has begged the question of whether it is a
lagging move which is but a prelude to a significant series of further cuts, or
whether it is an accommodation to a slight slow-down. With this issue of Federal
Reserve interest rate trends basically opened, but unresolved, the likelihood is
that every employment figure, every inventory figure, every business capital
investment, and consumer sentiment figure, will be studied and discussed to find
the basis for future investment trends. Just as the one-quarter percent
reduction created a quick market shift, with buying in cyclical stocks and
selling in defensive consumer-income-related growth stocks, so each apparent
shift or confirmation of trends is likely to create new volatilities for the
stock market. In this environment, and considering the current historically high
level of the stock indices, a continuing volatility of prices and volume can be
expected. Careful positioning for corporate earnings growth and business values
will be required for effective portfolio management in what may well become an
often distracting, very short-term-oriented equity investment environment. The
fixed income market will also, of course, be impacted by these same short-term
trend shifts, although we believe the fixed income markets will likely sustain
their strength in this environment of subdued inflation and cooled economic
growth.
We greatly appreciate the continued interest of Evergreen Tax Strategic
Foundation Fund shareholders, and we welcome a growing number of new investors
in the Fund. The first half of 1995 has been a very rewarding period for all
shareholders. We are confident that our essentially defensive investment
policies, together with our search for undervalued growth, can meet the
challenge which you have given us.
Sincerely,
/S/ Stephen A. Lieber /s/ James T. Colby, III
Stephen A. Lieber James T. Colby, III
Chairman Portfolio Manager
Evergreen Asset Fixed Income
Management Corp.
July 17, 1995
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PERFORMANCE AT A GLANCE
Performance for periods ended June 30, 1995*
CLASS Y CLASS A CLASS B CLASS C
SHARES SHARES SHARES SHARES
------- ------- ------- -------
6-month total return +13.5% +7.9% +8.0% +12.0%
12-month total return
+18.6% +12.8% +13.0% +17.1%
Average annual compound
return since inception
on 11/01/93 +12.5% +9.1% +9.9% +12.2%
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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
commencement of operations on 1/17/95 for Class A shares, 1/6/95 for Class B
shares, and 3/3/95 for Class C shares 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 those dates does
not reflect any 12b-1 fees, and if reflected the returns would be lower.
Performance data beginning from those dates 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, 1% of its
aggregate average daily net assets attributable to each its 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 waiving and absorbing a portion of the expenses for the
Fund's Class A, B and C shares. Had expenses not been waived or absorbed,
returns for Class A, B, and C shares would have been lower.
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STATEMENT OF INVESTMENTS
June 30, 1995 (unaudited)
COMMON STOCKS--47.7% SHARES VALUE
------ -----
AUTOMOTIVE EQUIPMENT
& MANUFACTURING--0.9%
Chrysler Corp. 3,000 $ 143,625
BANKS--8.1%
Bank of Boston Corp. 14,000 525,000
Barnett Banks, Inc. 5,000 256,250
Baybanks, Inc. 2,500 198,125
First Empire State Corp. 500 85,750
+ First Union Corp. 1,500 67,875
Meridian Bancorp, Inc. 3,000 103,125
----------
1,236,125
----------
BUILDING, CONSTRUCTION
& FURNISHINGS--3.9%
Centex Corp. 5,000 141,250
Medusa Corp. 7,000 174,125
Roanoke Electric Steel Corp. 12,000 135,000
* Southern Energy Homes, Inc. 10,000 140,000
----------
590,375
----------
CONSUMER PRODUCTS
& SERVICES--2.0%
Kimberly-Clark Corp. 5,000 299,375
ELECTRICAL EQUIPMENT
& ELECTRONICS--7.3%
Hewlett-Packard Co. 5,000 372,500
Intel Corp. 10,000 633,125
Park Electrochemical Corp. 2,000 101,250
----------
1,106,875
----------
FINANCE & INSURANCE--1.4%
Inter-Regional
Financial Group, Inc. 500 14,750
John Nuveen Co. (The) Cl. A 8,000 192,000
----------
206,750
----------
HEALTHCARE PRODUCTS
& SERVICES--2.0%
* Alza Corp. 5,000 116,875
* Lincare Holdings, Inc. 5,000 132,813
Superior Surgical
Manufacturing Co., Inc. 5,800 60,900
----------
310,588
----------
INDUSTRIAL SPECIALTY
PRODUCTS--0.9%
Greenbrier Companies, Inc. 10,000 131,250
* Strattec Security Corp. 400 4,900
----------
136,150
----------
REAL ESTATE--12.9%
* Alexander's, Inc. 1,000 55,500
Bay Apartment Communities, Inc. 10,000 195,000
Columbus Realty Trust 12,000 225,000
Countrywide Mortgage
Investments, Inc. 40,000 510,000
Factory Stores of America, Inc. 4,000 82,000
Gables Residential Trust 5,000 102,500
* Grupo Sidek, S.A. de C.V.
Sponsored ADR 20,000 92,500
Horizon Outlet Centers, Inc. 7,000 162,750
Irvine Apartment Communities, Inc. 10,000 172,500
McArthur/Glen Realty Corp. 14,000 204,750
Security Capital Pacific Trust 3,485 60,552
Standard Pacific Corp. 1,000 6,875
Tucker Properties Corp. 8,000 97,000
----------
1,966,927
----------
RETAILING--5.5%
* Borders Group, Inc. 15,000 215,625
Lowe's Companies, Inc. 7,000 209,125
Mercantile Stores Co., Inc. 7,000 325,500
Shelter Components, Inc. 8,000 94,000
----------
844,250
----------
TRANSPORTATION--1.8%
Burlington Northern, Inc. 2,000 126,750
Roadway Services, Inc. 3,000 141,750
----------
268,500
----------
UTILITIES-ELECTRIC--1.0%
TNP Enterprises, Inc. 9,900 159,639
----------
TOTAL COMMON STOCKS
(COST $6,612,815) 7,269,179
----------
PRINCIPAL
AMOUNT
---------
CONVERTIBLE
DEBENTURES--0.5%
BUILDING, CONSTRUCTION & FURNISHINGS
Continental Homes Holding Corp.
6.875% Due 03/15/02
(COST $80,438) $75,000 69,282
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STATEMENT OF INVESTMENTS (CONTINUED)
June 30, 1995 (unaudited)
PRINCIPAL
MUNICIPAL OBLIGATIONS--53.3% AMOUNT VALUE
--------- -----
LONG-TERM--49.4%
ARIZONA--5.0%
City of Phoenix, Arizona General
Obligation Refunding Bonds,
Series 1995A
5.00% Due 07/01/19 $285,000 $249,968
City of Tucson, Arizona Water System
Revenue Refunding Bonds,
Series 1993 (FGIC)
5.70% Due 07/01/08 500,000 508,700
----------
758,668
----------
CALIFORNIA--5.2%
Contra Costa County, California
Water District; Water Revenue
Bonds, Series G (MBIA)
5.75% Due 10/01/14 250,000 240,960
State of California Various
Purpose General Obligation
Bonds, (AMBAC)
6.75% Due 03/01/07 500,000 548,725
----------
789,685
----------
DISTRICT OF COLUMBIA--1.5%
Washington Metropolitan Area
Transit Authority; Gross Revenue
Transit Refunding Bonds,
Series 1993 (FGIC)
5.25% Due 07/01/14 250,000 229,172
----------
ILLINOIS--2.0%
Illinois State Toll Highway Authority;
Toll Highway Priority Revenue
Bonds, Series 1992A (FGIC)
6.20% Due 01/01/16 300,000 300,210
----------
FLORIDA--11.0%
City of Palm Bay, Florida Utility
System Refunding Revenue
Bonds, Series 1994 (MBIA)
5.00% Due 10/01/15 500,000 445,540
City of Pensacola, Florida Sales &
Excise Tax Refunding Revenue
Bonds, Series 1995 (MBIA)
5.50% Due 10/01/12 250,000 241,865
Dade County, Florida Aviation
Revenue Refunding Bonds,
Series 1995A (AMBAC)
6.10% Due 10/01/11 300,000 305,406
Florida Full Faith and Credit
State Board of Education; Public
Education Capital Outlay Bonds,
Series 1994B
5.75% Due 06/01/17 250,000 240,650
Jacksonville, Florida Jacksonville
Electric Authority; St. Johns River
Power Park System Refunding
Revenue Bonds, Issue Two,
Series Eleven
5.25% Due 10/01/20 250,000 224,850
Orlando, Florida Utilities
Commission; Water & Electric
Subordinated Revenue
Refunding Bonds, Series 1994A
5.00% Due 10/01/20 250,000 216,505
----------
1,674,816
----------
MARYLAND--1.4%
Maryland Health and Higher
Education Facilities Authority;
Francis Scott Key Medical Center
Issue Refunding Revenue Bonds,
Series 1993 (FGIC)
5.00% Due 07/01/23 250,000 212,997
----------
MASSACHUSETTS--3.5%
Massachusetts Bay Transportation
Authority; General Transportation
System Bonds, Series 1994A
7.00% Due 03/01/08 250,000 279,980
Massachusetts Housing Finance
Agency; Housing Revenue
Refunding Bonds,
Series 1994B (AMBAC)
5.95% Due 10/01/08 250,000 257,615
----------
537,595
----------
MICHIGAN--2.1%
Michigan Municipal Bond Authority
Revenue Bonds; Local Gov't Loan
Program, Series 1994G (AMBAC)
6.55% Due 11/01/08 300,000 324,174
----------
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MUNICIPAL OBLIGATIONS (CONTINUED) PRINCIPAL
AMOUNT VALUE
------ -----
LONG-TERM (CONTINUED)
NEW YORK--6.8%
New York State Medical Care
Facilities Finance Agency;
Mental Health Services Facilities
Improvement Revenue Bonds,
Series 1992B (AMBAC)
6.25% Due 08/15/10 $250,000 $ 257,187
New York State Mortgage
Agency; Homeowner Mortgage
Revenue Bonds, Series 44
6.60% Due 04/01/03 250,000 260,575
Niagara Falls, New York Bridge
Commission; Toll Bridge System
Revenue Bonds,
Series 1993B (FGIC)
5.25% Due 10/01/15 250,000 231,607
Port Authority of New York and
New Jersey Consolidated Bonds,
Ninety Seventh Series (FGIC)
7.00% Due 07/15/05 250,000 283,805
-----------
1,033,174
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PUERTO RICO--3.3%
Puerto Rico Housing Bank &
Finance Agency Affordable
Housing Mortgage Subsidy
Program; Single Family
Mortgage Revenue Bonds,
Portfolio I (AMT)
5.85% Due 04/01/09 500,000 507,505
-----------
SOUTH CAROLINA--1.5%
Hilton Head, South Carolina
No. 1 Public Service District;
Waterworks and Sewer
System Improvement and
Refunding Revenue Bonds,
Series 1995 (MBIA)
5.50% Due 08/01/20 250,000 233,263
-----------
TENNESSEE--2.2%
City of Bristol, Tennessee Health
and Educational Facilities Board;
Hospital Revenue Refunding
Bonds, Series 1993 (FGIC)
6.75% Due 09/01/07 300,000 333,486
-----------
TEXAS--3.9% City of Houston,
Texas Water Conveyance
System Contract; Certificate
of Participation, Series
1993H (AMBAC)
7.50% Due 12/15/10 500,000 592,210
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TOTAL LONG-TERM MUNICIPAL
OBLIGATIONS (COST $7,470,905) 7,526,955
-----------
SHORT-TERM--3.9%
NEW YORK--2.6%
New York City Municipal Water Finance
Authority; Water and Sewer System
Revenue Bonds, Series 1992C
3.35%--VRDN 200,000 200,000
New York City Municipal Water Finance
Authority; Water and Sewer System
Revenue Bonds, Series 1994C
3.35%--VRDN 200,000 200,000
-----------
400,000
-----------
WYOMING--1.3%
Platte County, Wyoming (Tri-State
Generation & Transmission
Assoc., Inc. Project) Series
984B 3.45%--VRDN 200,000 200,000
-----------
TOTAL SHORT-TERM MUNICIPAL
OBLIGATIONS (COST $600,000) 600,000
-----------
TOTAL MUNICIPAL OBLIGATIONS
(COST $8,070,905) 8,126,955
-----------
TOTAL INVESTMENTS
(COST $14,764,158) 101.5% 15,465,416
OTHER ASSETS AND
LIABILITIES--NET (1.5) (230,677)
----- -----------
TOTAL NET ASSETS 100.0% $15,234,739
===== ===========
* Non-income producing.
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 June 30, 1995. ADR - American
Depositary Receipt AMT - Subject to Alternative Minimum Tax
+ See Note 3.
Municipal bond insurance companies:
AMBAC - American Municipal Bond Assurance Corp.
FGIC - Financial Guarantee Insurance Corp.
MBIA - Municipal Bond Insurance Association
See accompanying notes to financial statements.
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STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (unaudited)
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ASSETS:
Investments at market value (identified cost $14,764,158) $15,465,416
Cash 7,391
Receivable for investment securities sold 321,100
Receivable for Fund shares sold 31,196
Dividends and interest receivable 149,418
Unamortized organization expenses 30,960
Prepaid expenses 54,840
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Total assets 16,060,321
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LIABILITIES:
Payable for investment securities purchased 740,435
Organization expenses payable to Adviser--net 15,557
Accrued advisory fee 10,735
Accrued expenses 58,855
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Total liabilities 825,582
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NET ASSETS:
Paid-in capital 13,911,479
Accumulated net realized gain on investment transactions 622,674
Distributions in excess of net investment income (672)
Net unrealized appreciation of investments 701,258
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Net assets $15,234,739
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CALCULATIONS OF NET ASSET VALUE PER SHARE:
CLASS A SHARES
Net asset value per share
($658,189/57,997 shares of beneficial interest outstanding) $11.35
Sales charge--4.75% of offering price .57
------
Maximum offering price $11.92
======
CLASS B SHARES
Net asset value per share
($2,619,190/230,975 shares of beneficial interest outstanding) $11.34
======
CLASS C SHARES
Net asset value per share
($145,452/12,817 shares of beneficial interest outstanding) $11.35
======
CLASS Y SHARES
Net asset value per share
($11,811,908/1,039,928 shares of beneficial interest outstanding) $11.36
======
See accompanying notes to financial statements.
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STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1995 (unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Income:
Interest $186,584
Dividends (net of foreign withholding taxes of $942) 116,656
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Total income 303,240
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EXPENSES:
Advisory fee $ 55,325
Distribution fee--Class A Shares 362
Distribution and services fee--Class B Shares 5,674
Distribution and services fee--Class C Shares 362
Custodian fee 31,876
Registration and filing fees 27,447
Transfer agent fee 19,167
Professional fees 15,660
Reports and notices to shareholders 13,161
Trustees' fees and expenses 5,757
Amortization of organization expenses 4,004
Insurance 3,323
Other 587
---------
182,705
Less: Advisory fee waiver (44,590)
Expense reimbursement (37,347)
---------
Total expenses 100,768
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Net investment income 202,472
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 621,939
Net change in unrealized appreciation (depreciation) of investments 772,942
- --------------------------------------------------------------------------------
Net gain on investments 1,394,881
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,597,353
================================================================================
See accompanying notes to financial statements.
<PAGE>
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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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INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 202,472 $ 216,225
Net realized gain on investments 621,939 223,927
Net change in unrealized appreciation
(depreciation) of investments 772,942 (170,351)
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Net increase in net assets resulting
from operations 1,597,353 269,801
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DISTRIBUTIONS TO SHAREHOLDERS:
from net investment income
Class A shares (4,680) --
Class B shares (13,975) --
Class C shares (860) --
Class Y shares (173,583) (215,225)
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Total distributions from net investment
income (193,098) (215,225)
- --------------------------------------------------------------------------------
IN EXCESS OF NET INVESTMENT INCOME
Class A shares (2,012) --
Class B shares (8,777) --
class C shares (257) --
- --------------------------------------------------------------------------------
Total distributions in excess of net
investment income (11,046) --
- --------------------------------------------------------------------------------
FROM NET REALIZED GAINS ON INVESTMENTS
Class A shares (2,787) --
Class B shares (11,987) --
Class C shares (517) --
Class Y shares (112,340) (99,018)
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Total distributions from net realized
gains on investments (127,631) (99,018)
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Total distributions to shareholders (331,775) (314,243)
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FUND SHARE TRANSACTIONS (NOTE 8):
Net increase resulting from fund share
transactions 3,394,205 5,195,204
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Net increase in net assets 4,659,783 5,150,762
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NET ASSETS:
Beginning of year 10,574,956 5,424,194
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End of period (including undistributed
net investment income/(distributions
in excess of net investment income)
of ($672) and $1,000, respectively) $15,234,739 $10,574,956
================================================================================
See accompanying notes to financial statements.
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
June 30, 1995 (unaudited)
NOTE 1--ORGANIZATION
The Evergreen Tax Strategic Foundation Fund (the "Fund") is one of two
portfolios of The Evergreen Foundation Trust (the "Trust"). The Trust was
organized in the Commonwealth of Massachusetts as a Massachusetts business trust
on October 19, 1989. The Fund is registered under the Investment Company Act of
1940, as amended (the "Act"), as a diversified open-end management investment
company. The Fund commenced investment operations on November 2, 1993.
NOTE 2--ISSUANCE OF MULTIPLE CLASS 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 that are listed on a securities
exchange are valued at the last quoted sales price on the day the valuation
is made. Price information on listed securities is taken from the exchange
where the security is primarily traded. Such securities not traded on the
valuation date are valued at the mean between the bid and asked price.
Unlisted securities for which market quotations are readily available are
valued at a price quoted by one or more brokers. Debt securities (other than
short-term obligations) are normally valued on the basis of valuations
provided by a pricing service when such prices are believed to reflect the
value of such securities. Securities for which no quotations are readily
available, when held by the Fund, are valued at fair value as determined in
good faith by the Trustees. Short-term obligations purchased with 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 (the "Code") applicable to regulated investment
companies, and to distribute timely all of its taxable and tax-exempt
interest income to its shareholders. Therefore, no Federal income or excise
tax provision is required. The Fund intends, under normal market conditions,
to meet the quarterly asset test requirements of the Code with respect to
investments in tax-exempt municipal securities, to enable distributions paid
to shareholders from the tax-exempt interest income generated by such
securities to be exempt from Federal income tax other than the alternative
minimum tax.
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
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
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 the Fund or to
a class of shares are charged to the Fund or class. Other expenses common to
the Fund or the Trust as a whole, are primarily allocated to the Funds in the
Trust or to the classes in the Fund in proportion to net assets.
UNAMORTIZED ORGANIZATION EXPENSES: The expenses of the Fund incurred in
connection with its organization and initial registration which aggregated
approximately $40,364 were paid by the Adviser on behalf of the Fund. These
expenses are being deferred and amortized by the Fund over a period of
benefit not to exceed 60 months from the date the Fund commenced investment
operations.
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 recognized 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 paid monthly, for the performance of its
services at an annual rate of .875 of 1% of the daily net assets of the Fund.
For the six months ended June 30, 1995, the Adviser limited total operating
expenses, exclusive of taxes, interest, brokerage fees, 12b-1 distribution and
shareholder service fees and extraordinary expenses, to 1.50% of average net
assets. As a result of this limitation, the Adviser waived a portion of its
advisory fee and reimbursed the Fund for certain of its expenses, including
certain class specific expenses. The Adviser may, at its discretion, revise or
cease voluntary advisory fee waivers and expense reimbursement 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 $20,364 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.
At June 30, 1995, the Fund owned 1,500 shares of common stock of First Union at
a cost of $57,890. During the period ended June 30, 1995, the Fund earned $1,380
in dividend income from this investment. These shares were purchased by the Fund
prior to the acquisition of the Adviser and Lieber & Company by First Union.
NOTE 5--DISTRIBUTION AND SHAREHOLDER SERVICES FEES
The Fund has adopted for each of 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, 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 $14,092,604 and $9,950,714, respectively, for the six
months ended June 30, 1995.
The aggregate cost of investments owned at June 30, 1995, is the same for both
financial statement and Federal income tax purposes. Gross unrealized
appreciation and depreciation of securities was $1,059,686 and $358,428,
respectively, resulting in net unrealized appreciation for federal income tax
purposes of $701,258.
NOTE 7--CONCENTRATION OF CREDIT RISK
The Fund 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.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 8--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 57,135 $621,345
Shares issued on reinvestment
of distributions 862 9,460
- --------------------------------------------------------
Net increase 57,997 $630,805
- --------------------------------------------------------
CLASS B*
Shares sold 236,397 $2,572,500
Shares issued on reinvestment
of distributions 2,876 31,473
Shares redeemed (8,298) (88,986)
- --------------------------------------------------------
Net increase 230,975 $2,514,987
- --------------------------------------------------------
CLASS C*
Shares sold 12,672 $135,835
Shares issued on reinvestment
of distributions 145 1,586
- --------------------------------------------------------
Net increase 12,817 $137,421
- --------------------------------------------------------
CLASS Y
Shares sold 37,115 $401,240
Shares issued on reinvestment
of distributions 24,627 267,558
Shares redeemed (51,351) (558,478)
- --------------------------------------------------------
Net increase 10,391 $110,320
- --------------------------------------------------------
TOTAL NET INCREASE RESULTING
FROM FUND SHARE
TRANSACTIONS 312,180 $3,393,533
========================================================
YEAR ENDED
DECEMBER 31, 1994
- --------------------------------------------------------
SHARES DOLLARS
- --------------------------------------------------------
CLASS Y
Shares sold 565,134 $5,836,214
Issued on reinvestment
of distributions 28,865 293,992
Shares redeemed (90,753) (935,002)
- --------------------------------------------------------
NET INCREASE RESULTING FROM
FUND SHARE TRANSACTIONS 503,246 $5,195,204
========================================================
* 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 June 30, 1995.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (UNAUDITED)
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
JANUARY 17, 1995* JANUARY 6, 1995* MARCH 3, 1995*
THROUGH THROUGH THROUGH
JUNE 30, 1995 JUNE 30, 1995 JUNE 30, 1995
PER SHARE DATA CLASS A SHARES CLASS B SHARES CLASS C SHARES
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $10.44 $10.31 $10.69
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .13 .10 .12
Net realized and unrealized gain
on investments 1.05 1.18 .79
- ------------------------------------------------------------------------------------------------------------------
Total income from investment operations 1.18 1.28 .91
- ------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders:
From net investment income (.13) (.10) (.12)
In excess of net investment income (.03) (.04) (.02)
From net realized gains on investments (.11) (.11) (.11)
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.27) (.25) (.25)
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.35 $11.34 $11.35
==================================================================================================================
TOTAL RETURN** 11.5% 12.5% 8.6%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $658 $2,619 $145
Ratios to average net assets:
Expenses+ 1.75% 2.50% 2.50%
Net investment income+ 3.25% 2.48% 2.41%
Portfolio turnover rate++ 81% 81% 81%
==================================================================================================================
</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 charges or contingent deferred
sales charges are not reflected.
+ Annualized and net of advisory fee waivers and expense reimbursements. If the
Fund had borne all expenses that were assumed or waived by the Adviser, the
annualized ratios of expenses and net investment income (loss) to average net
assets, exclusive of any applicable state expense limitations, would be 8.05%
and (3.05%), respectively, for Class A Shares, 4.65% and 1.48%, respectively,
for Class B Shares and 25.69% and (20.77%), respectively for Class C Shares.
Due to the recent commencement of their offering, the gross 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 month period ended June 30,
1995.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
CLASS Y SHARES
SIX MONTHS FOR THE PERIOD
ENDED NOVEMBER 2, 1993*
JUNE 30, 1995 YEAR ENDED THROUGH
PER SHARE DATA (UNAUDITED) DECEMBER 31, 1994 DECEMBER 31, 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $10.27 $10.31 $10.00
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .18 .27 .05
Net realized and unrealized gain
on investments 1.19 .08 .31
- --------------------------------------------------------------------------------------------------------------------
Total income from investment
operations 1.37 .35 .36
- --------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income (.17) (.27) (.05)
Net realized gains on investments (.11) (.12) --
- --------------------------------------------------------------------------------------------------------------------
Total distributions (.28) (.39) (.05)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.36 $10.27 $10.31
====================================================================================================================
TOTAL RETURN** 13.5% 3.4% 3.5%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $11,812 $10,575 $5,424
Ratios to average net assets:
Expenses(a) 1.50%+ 1.49% .00%+
Net investment income(a) 3.30%+ 2.87% 3.65%+
Portfolio turnover rate 81% 245% 25%
====================================================================================================================
</TABLE>
* Commencement of operations.
** Total return calculated for the periods indicated and is not annualized.
+ Annualized.
(a)Net of advisory fee waivers and expense reimbursements. If the Fund had
borne all expenses that were assumed or waived by the Adviser, the annualized
ratios of expenses and net investment income to average net assets, exclusive
of any applicable state expense limitations, would have been 2.44% and 2.36%,
respectively for the six months ended June 30, 1995, 2.41% and 1.95%,
respectively, for the year ended December 31, 1994, and 3.10% and .54%,
respectively, for the period from November 2, 1993 to December 31, 1993.
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 ACCOUNTANTS
Price Waterhouse 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 TAX STRATEGIC FOUNDATION FUND
2500 Westchester Avenue
Purchase, New York 10577
536581
<PAGE>
