<PAGE>
Annual Report
as of September 30, 1999
Evergreen
Equity and Fixed Income Funds
[LOGO]
<PAGE>
Table of Contents
Letter to Shareholders ..................................... 1
Evergreen Capital Balanced Fund
(formerly Mentor Balanced Portfolio)
Fund at a Glance ......................................... 2
Portfolio Manager Interview .............................. 3
Evergreen Capital Growth Fund
(formerly Mentor Capital Growth Portfolio)
Fund at a Glance ......................................... 7
Portfolio Manager Interview .............................. 8
Evergreen Capital Income and Growth Fund
(formerly Mentor Income and Growth Portfolio)
Fund at a Glance ......................................... 11
Portfolio Manager Interview .............................. 12
Evergreen Growth Fund
(formerly Mentor Growth Portfolio)
Fund at a Glance ......................................... 16
Portfolio Manager Interview .............................. 17
Evergreen High Income Fund
(formerly Mentor High Income Portfolio)
Fund at a Glance ......................................... 20
Portfolio Manager Interview .............................. 21
Evergreen Municipal Income Fund
(formerly Mentor Municipal Income Portfolio)
Fund at a Glance ......................................... 24
Portfolio Manager Interview .............................. 25
Evergreen Quality Income Fund
(formerly Mentor Quality Income Portfolio)
Fund at a Glance ......................................... 27
Portfolio Manager Interview .............................. 28
Evergreen Short-Duration Income Fund
(formerly Mentor Short-Duration Income Portfolio)
Fund at a Glance ......................................... 30
Portfolio Manager Interview .............................. 31
Financial Highlights
Evergreen Capital Balanced Fund .......................... 24
Evergreen Capital Growth Fund ............................ 36
Evergreen Capital Income and
Growth Fund .............................................. 38
Evergreen Growth Fund .................................... 40
Evergreen High Income Fund ............................... 42
Evergreen Municipal Income Fund .......................... 43
Evergreen Quality Income Fund ............................ 45
Evergreen Short-Duration Income Fund ..................... 47
Schedule of Investments
Evergreen Capital Balanced Fund .......................... 49
Evergreen Capital Growth Fund ............................ 52
Evergreen Capital Income and
Growth Fund .............................................. 53
Evergreen Growth Fund .................................... 55
Evergreen High Income Fund ............................... 57
Evergreen Municipal Income Fund .......................... 62
Evergreen Quality Income Fund ............................ 66
Evergreen Short-Duration Income Fund ..................... 69
Statements of Assets and Liabilities ....................... 72
Statements of Operations ................................... 74
Statements of Changes in Net Assets ........................ 76
Combined Notes to Financial
Statements ................................................. 80
Independent Auditors' Report ............................... 93
Additional Information ..................................... 94
Evergreen Funds
Evergreen Funds is one of the nation's fastest growing investment companies with
over $70 billion in assets under management.
With over 80 mutual funds to choose among and acclaimed service and operations
capabilities, investors enjoy a broad range of quality investment products and
services designed to meet their needs.
The Evergreen Funds employ intensive, research-driven investment strategies
executed by over 90 research analysts and portfolio managers. The fund company
remains dedicated to meeting the needs of investors and their advisors in a
global economy. Look to the Evergreen Funds to provide a distinctive level of
service and excellence in investment management.
This annual report must be preceded or accompanied by a prospectus of an
Evergreen fund contained herein. The prospectus contains more complete
information, including fees and expenses, and should be read carefully before
investing or sending money.
Mutual Funds: NOT FDIC INSURED May lose value . Not bank guaranteed
Evergreen Distributor, Inc.
Evergreen(SM) is a Service Mark of Evergreen Investment Services, Inc.
<PAGE>
Letter to Shareholders
----------------------
November 1999
[PHOTO]
William M. Ennis
President and CEO
Dear Evergreen Shareholders,
We are pleased to provide the Evergreen Equity and Fixed Income Funds annual
report, which covers the twelve-month period ended September 30, 1999.
Uncertainty over Interest Rates Influences the Markets
Although the U.S. economy is in the ninth year of economic expansion, many
believe that valuation levels in some sectors of the stock market are just not
sustainable. The S&P 500 continued to advance in the first half of 1999,
dominated by the performance of a very small group of large-cap stocks. By the
3rd quarter of 1999, rising interest rates dampened performance of stocks across
the board. Investors' inflation fears and continued doubts about the ability of
U.S. companies to sustain significant growth in earnings prompted an October
sell-off.
The Federal Reserve Bank's "tightening bias" leads many to anticipate further
interest rate increases in order to stem even the slightest inflationary
pressure. Additional interest rate hikes would likely have a negative effect on
stock prices, which could restrain consumer spending; however, many investors
are waiting for just such a scenario to take place, so they can take advantage
of lower stock prices as a buying opportunity. Bonds appear relatively
attractive over the long term compared to other asset classes, particularly
because "real" interest rates are high by historical standards.
We believe that the economy is still fundamentally strong, and that inflation
will stay contained, producing only moderate upward pressure on interest rates.
We remain cautiously optimistic about the prospects for continued growth in the
markets.
Evergreen Funds is Ready for the Year 2000/1/
We have been addressing the Year 2000 challenge since February of 1996 and have
committed the time, resources and people necessary to prepare for any
ramifications from the millennium bug. Today, we are confident that our
preparations will enable us to continue to deliver the high-quality Evergreen
products and services on which our shareholders rely. In addition, Evergreen
portfolio managers have placed great emphasis on monitoring portfolios for Y2K
readiness.
We believe that sound investing is about taking steps to meet your long-term
financial needs and goals. We remind you to take advantage of your financial
advisor's expertise to develop and refine a financial plan that will enable you
to meet your objectives. Evergreen Funds offers a broad mix of stock, bond and
money market funds that should make it simple for you to choose the most
appropriate for your portfolio.
We would like to thank you for your continued investment in Evergreen Funds.
Sincerely,
William M. Ennis
President and CEO
Evergreen Investment Company, Inc.
/1/ The information above constitutes Year 2000 readiness disclosure.
1
<PAGE>
EVERGREEN (formerly Mentor
Capital Balanced Fund Balanced Portfolio)
Fund at a Glance as of September 30, 1999
Portfolio
Management
- --------------------------------------------------------------------------------
[PHOTO] [PHOTO]
John P.Michael
Davenport Jones
Tenure: June 1994 Tenure: June 1994
CURRENT INVESTMENT STYLE/1/
[GRAPHICS]
Morningstar's Style Box is based on a portfolio date as of 9/30/1999.
The Equity Style Box placement is based on a fund's price-to-earnings and
price-to-book ratio relative to the S&P 500, as well as the size of the
companies in which it invests, or median market capitalization.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
/1/Source: 1999 Morningstar, Inc.
/2/Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. The performance of each class may vary
based on differences in loads and fees paid by the shareholders investing in
each class. Effective October 18, 1999, shareholders of Mentor Balanced
Portfolio Class A, Class B and Class Y became owners of that number of full and
fractional shares of Class A, Class C and Class Y shares, respectively, of the
Evergreen Capital Balanced Fund. In addition, the Evergreen Fund added a new
class of shares designated as Class B shares. Class A shares of the Fund are
currently sold with a maximum front-end sales charge of 4.75%. Class B and Class
C shares are sold without a front-end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"), when shares are redeemed within six
years and one year of their purchase, respectively. Class A, Class B and Class C
shares are also assessed a distribution fee at an annual rate of 0.25%, 1.00%
and 1.00%, respectively, of the average daily net assets of each Class. Class Y
shares are sold at net asset value and are not subject to CDSC or ongoing
distribution fees.
Historical performance shown for Classes A and Y prior to their inception is
based on the performance of Class B, the original class offered. These
historical returns for Classes A and Y have not been adjusted to reflect the
effect of each Class' 12b-1 fees. These fees for Class A are 0.25% and for Class
B are 1.00%. Class Y does not pay a 12b-1 fee. If these fees had been reflected,
returns for Classes A and Y would have been higher. Returns reflect expense
limits previously in effect, without which returns would have been lower.
PERFORMANCE AND RETURNS/2/
Portfolio Inception Date: 6/21/1994 Class A Class B Class Y
Class Inception Date 9/16/1998 6/21/1994 9/16/1998
- --------------------------------------------------------------------------------
Average Annual Returns*
- --------------------------------------------------------------------------------
1 year with sales charge 6.19% 7.87% n/a
- --------------------------------------------------------------------------------
1 year w/o sales charge 12.67% 11.87% 12.91%
- --------------------------------------------------------------------------------
3 years 14.56% 16.11% 16.93%
- --------------------------------------------------------------------------------
5 years 16.03% 17.25% 17.47%
- --------------------------------------------------------------------------------
Since Portfolio Inception 15.53% 16.68% 16.88%
- --------------------------------------------------------------------------------
Maximum Sales Charge 5.75% 4.00% n/a
Front End CDSC
- --------------------------------------------------------------------------------
12-month income dividends per share $0.22 $0.14 $0.28
- --------------------------------------------------------------------------------
12-month capital gain distributions per share $0.05 $0.05 $0.05
- --------------------------------------------------------------------------------
* Adjusted for maximum applicable sales charges unless noted.
LONG TERM GROWTH
[GRAPH]
<TABLE>
<S> <C> <C> <C>
Consumer Price Index - US S & P 500 Lehman Brothers Aggregate Bond Index Class B
10,000 10,000 10,000 9,427
10,095 10,487 10,061 9,733
10,351 13,604 11,476 11,540
10,662 16,372 12,038 13,617
10,892 22,989 13,211 17,235
11,054 25,044 14,727 19,279
11,318 31,673 14,674 21,722
</TABLE>
Comparison of a $10,000 investment in the Evergreen Capital Balanced Fund Class
B/2/ shares, versus a similar investment in the Lehman Brothers Aggregate Bond
Index (LBABI), the Standard & Poor's 500 Stock Index (S&P 500) and the Consumer
Price Index (CPI).
The LBABI and S&P 500 are unmanaged market indices which do not include
transaction costs associated with buying and selling securities nor any
management fees. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
2
<PAGE>
EVERGREEN
Capital Balanced Fund
Portfolio Manager Interview
How did the Fund perform?
For the twelve-month period ended September 30, 1999, the Evergreen Capital
Balanced Fund's return for the Fund's Class B shares was 11.87%, compared with
returns for the fund's benchmarks, the S&P 500 and Lehman Brothers Aggregate
Bond Index, of 27.80% and -0.37%, respectively. During this same twelve-month
period, the average balanced fund had a return of 12.56% as measured by Lipper
Inc., an independent monitor of mutual fund performance. These returns are
before the deduction of any applicable sales charges.
Portfolio
Characteristics
---------------
(as of 9/30/1999)
Total Net Assets $357,528,412
- --------------------------------------------------------------------------------
Number of Holdings 86
- --------------------------------------------------------------------------------
P/E Ratio 22.0x
- --------------------------------------------------------------------------------
Beta 0.56
- --------------------------------------------------------------------------------
What was the investment environment like over the past year?
Even though the U.S. economy has enjoyed its ninth year of economic expansion,
there are signs that many equity market sectors have reached relatively high
valuation levels. Early in the year, it was relatively easy for many companies
to show significant growth in year-over-year earnings and the market rewarded
this news with record valuation levels. This was the case during the fourth
quarter of 1998 when the S&P 500 Index returned 21.30%, the highest return of
any single quarter since first quarter of 1987.
As the year progressed, it became apparent that companies are finding it more
difficult to sustain significant growth in earnings and support their valuation
levels. After advancing in the first and second quarters of 1999, the S&P's
total return was negative in the third quarter when it lost 6.24%. The backdrop
of the Federal Reserve Board's increasing interest rates by 0.50% in an
ever-vigilant stance against inflation has put pressure on corporate earnings
that will continue into the next year. Also, it appears that the Federal
Reserve's actions are not over and any additional increases will make it even
more difficult for companies to grow their earnings.
The past twelve months have been extremely difficult for managers of
fixed-income portfolios. Inflation fears have caused interest rates to increase
by 1.00% to 1.50% across all maturities, which puts 1999 on track to be the
second worst year for the fixed-income markets in credit market history. Rates
had moved lower in the fall of 1998 in the wake of the Russian debt crisis and
the problems sustained by leveraged hedge funds. Investors demanded securities
of the highest quality and liquidity and many turned to U.S. Treasuries as a
result. To help re-stabilize global economies and financial markets, the world's
central bankers flooded their economies with liquidity in the fourth quarter of
1998, pushing interest rates to historically low levels.
In early 1999, many investors expected fragile international economies to limit
U.S. economic growth. However, due to aggressive easing by the Federal Reserve
and other central banks, the U.S. economy remained robust and growth in many
global economies was faster and more durable than anticipated. Market sentiment
shifted from concerns that weak international growth would dampen the U.S.
economy, to concerns
3
<PAGE>
EVERGREEN
Capital Balanced Fund
Portfolio Manager Interview
that an overheated economy would accelerate inflation and prompt the need for a
more restrictive monetary policy. By September 30, 1999, the Federal Reserve
Board had raised interest rates twice.
In the equity markets, recent months have brought an increasingly narrow market
focus on industry sectors experiencing positive price movement. Early this year,
the primary focus was on shares of technology and several of the mega-cap
companies. In the early spring, the attention switched to value and cyclical
issues. Recently, the focus has swung back to technology companies, quite often
at the expense of other sectors. Of the eleven major S&P industry sectors, only
five have posted positive returns so far in calendar 1999. Technology has been
by far the best performing industry sector, with its 1999 calendar year-to-date
return of 24.5%, as measured by S&P. Other sectors with positive returns include
energy, capital goods, communication services, and basic materials. Of these
five sectors, only technology and communication services are traditionally
characterized as growth industries.
Top 5 Industries - Equity
-------------------------
(as a percentage of net assets)
Business Equipment & Services 7.9%
- --------------------------------------------------------------------------------
Healthcare Products & Services 5.9%
- --------------------------------------------------------------------------------
Information Services & Technology 4.7%
- --------------------------------------------------------------------------------
Banks 4.3%
- --------------------------------------------------------------------------------
Finance & Insurance 4.1%
- --------------------------------------------------------------------------------
How did you manage the asset allocation between stocks and bonds?
In view of an anticipated decline in the growth rate of corporate earnings, we
have lowered the Fund's equity allocation over the past twelve months from a
high of 63% to a low of 46%. This defensive posture helps to protect the value
of Fund assets in a time of uncertainty about domestic economic growth,
earnings, and interest rate levels.
Top 10 Equity Holdings
----------------------
(as a percentage of net assets)
Computer Sciences Corp. 2.5%
- --------------------------------------------------------------------------------
Tyco International Ltd.. 2.5%
- --------------------------------------------------------------------------------
Sun Microsystems, Inc. 2.4%
- --------------------------------------------------------------------------------
Sysco Corp. 2.4%
- --------------------------------------------------------------------------------
Intel Corp. 2.2%
- --------------------------------------------------------------------------------
Automatic Data Processing, Inc. 2.2%
- --------------------------------------------------------------------------------
Johnson & Johnson 2.1%
- --------------------------------------------------------------------------------
Bristol-Myers Squibb Co. 2.1%
- --------------------------------------------------------------------------------
Interpublic Group of Companies, Inc. 2.0%
- --------------------------------------------------------------------------------
First Data Corp. 2.0%
- --------------------------------------------------------------------------------
What were some of the strategies that were used in managing the fixed-income
portion of the Fund's portfolio?
For the Fund's fixed-income investments, our fund management team's objective is
to seek a high level of long-term total return consistent with the preservation
of capital. The managers make investments in a well-diversified portfolio of
mainly U.S. government and agency securities, corporate securities,
mortgage-backed securities, asset-backed securities and cash instruments.
4
<PAGE>
EVERGREEN
Capital Balanced Fund
Portfolio Manager Interview
Aside from increasing the overall fixed-income allocation to the current 42%
level, we have employed two major portfolio management strategies to enhance the
Fund's performance over the past twelve months.
The first strategy was to move some of the fixed-income assets into high yield
securities. These purchases were concentrated in solid cable and
telecommunication issues. These securities fell to distressed levels during the
market turmoil that characterized the fall of 1998. The Fund had virtually no
exposure to this area going into last fall and quickly built a position of
approximately 2% of the entire portfolio. As credit markets recovered somewhat
in 1999, these sectors were among the first to see the benefits.
The second strategic move was to build liquidity throughout the second quarter
of 1999. The Fund's position in 30-year U.S. Treasuries and cash was increased
substantially during this period. This barbell positioning was designed to
benefit from a flattening yield curve. In addition, by adding cash and Treasury
securities, the fixed-income portion of the Fund was positioned to benefit
should Y2K-related bond supply pressures cause spread products, e.g., high yield
corporate securities, mortgage-backed and asset-backed securities, to
underperform. Both aspects of this position paid off during the summer when the
yield curve flattened by about 25 basis points and yield spreads on investment
grade corporate bonds and mortgage-backed securities approached all time highs.
These trades were reversed during August and as a result the Fund benefited from
the spread tightening witnessed in investment grade issues and mortgage-backed
securities throughout September.
Top 5 Industries - Bonds
------------------------
(as a percentage of net assets)
U.S. Government Agency Obligations 24.4%
- ------------------------------------------------------
Asset-Backed Securities 5.0%
- ------------------------------------------------------
Finance & Insurance 2.9%
- ------------------------------------------------------
Telecommunication Services & Equipment 1.4%
- ------------------------------------------------------
Utilities--Electric 1.2%
- ------------------------------------------------------
Top 5 Bond Holdings
-------------------
(as a percentage of net assets)
Coupon Maturity
------ --------
FNMA 7.5% 9/1/2029 7.0%
- -----------------------------------------------------------
FNMA 7.0% 9/1/2014 4.6%
- -----------------------------------------------------------
FNMA 7.0% 8/1/2029 4.2%
- -----------------------------------------------------------
FNMA 6.5% 4/1/2014 2.9%
- -----------------------------------------------------------
U.S. Treasury Bonds 6.5% 11/15/2026 2.7%
- -----------------------------------------------------------
What is your outlook?
Even though the domestic economy continues to be strong, it appears that U.S.
corporations are beginning to enter into a period where it will be much more
difficult to show significant sustained growth in revenues and earnings on a
year-over-year basis. In general, corporate operating and net margins have
expanded to historically high levels and it will be difficult to generate
significant additional efficiencies or economies. As we move into the year 2000,
we believe the earnings growth rates of S&P companies will begin to decline to
the single digits.
5
<PAGE>
EVERGREEN
Capital Balanced Fund
Portfolio Manager Interview
Also, the Federal Reserve Board's recent moves increasing interest rates to stem
inflationary pressures do not appear to be over and we anticipate additional
increases in coming weeks. Federal Reserve Board chairman, Alan Greenspan, has
made it clear that he views current equity asset valuation levels to be at risky
levels and would like to see the market refrain from any additional substantial
upside movement in the near term. We believe the Federal Reserve Board will move
decisively to stem unabated positive equity market momentum and to squelch any
perceived inflationary conditions.
The Fund's equity investment style of investing in high quality companies with
strong growth levels at reasonable prices should perform well on a relative
basis in this environment. Our growth at a reasonable-price philosophy should
tend to outperform the S&P 500 when the fundamental strengths of the companies
in the Fund's portfolio rise above general market emotion and sentiment.
We believe fixed-income investments currently provide very attractive relative
valuation and offer the potential for solid long-term returns. "Real" interest
rates (the rate earned by investors in excess of inflation) are high by
historical standards. Value is further enhanced by current yield advantages
provided by mortgage-backed securities and corporate issues. We also continue to
look for other opportunities in high yield securities for the fixed-income
portion of the Fund's portfolio.
6
<PAGE>
EVERGREEN (formerly Mentor Capital
Capital Growth Fund Growth Portfolio)
Fund at a Glance as of September 30, 1999
Portfolio
Management
- --------------------------------------------------------------------------------
[PHOTO] [PHOTO]
John Davenport Steve Certo
Tenure:December 1992 Tenure:June 1997
[PHOTO] [PHOTO]
E.Craig Dauer John Jordan,III
Tenure:June 1999 Tenure:June 1999
[PHOTO]
Richard Skeppstrom
Tenure:December 1992
CURRENT INVESTMENT STYLE/1/
[GRAPHIC]
Morningstar's Style Box is based on a portfolio date as of 9/30/1999.
The Equity Style Box placement is based on a fund's price-to-earnings and
price-to-book ratio relative to the S&P 500, as well as the size of the
companies in which it invests, or median market capitalization.
/1/ Source: 1999 Morningstar, Inc.
PERFORMANCE AND RETURNS/2/
Portfolio Inception Date: 4/29/1992 Class A Class B Class Y
Class Inception Date 4/29/1992 4/29/1992 11/19/1997
- --------------------------------------------------------------------------------
Average Annual Returns*
- --------------------------------------------------------------------------------
1 year with sales charge 13.29% 15.08% n/a
- --------------------------------------------------------------------------------
1 year w/o sales charge 20.21% 19.08% 20.57%
- --------------------------------------------------------------------------------
3 years 19.13% 20.08% n/a
- --------------------------------------------------------------------------------
5 years 20.42% 20.80% n/a
- --------------------------------------------------------------------------------
Since Class Inception 14.44% 14.52% 16.60%
- --------------------------------------------------------------------------------
Maximum Sales Charge 5.75% 4.00% n/a
Front End CDSC
- --------------------------------------------------------------------------------
12-month capital gain distributions per share $2.55 $2.55 $2.55
- --------------------------------------------------------------------------------
* Adjusted for maximum applicable sales charges unless noted.
[GRAPH]
Consumer Price Index - US S & P 500 Class A
10,000 10,000 9,422
10,129 10,193 9,496
10,401 11,514 10,275
10,710 11,939 10,135
10,982 15,488 12,180
11,312 18,639 15,180
11,556 26,172 20,460
11,728 28,512 22,653
12,007 36,059 27,230
Comparison of a $10,000 investment in Evergreen Capital Growth Fund's Class A2
shares, versus a similar investment in the Standard and Poor's 500 Index (S&P
500), and the Consumer Price Index (CPI).
The S&P 500 is an unmanaged market index which does not include transaction
costs associated with buying and selling securities nor any management fees. The
CPI is a commonly used measure of inflation and does not represent an investment
return. It is not possible to invest directly in an index.
/2/Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. The performance of each class may vary
based on differences in loads and fees paid by the shareholders investing in
each class. Returns reflect expense limits previously in effect, without which
returns would have been lower. Effective October 25, 1999, shareholders of
Mentor Capital Growth Portfolio Class A, Class B and Class Y became owners of
that number of full and fractional shares of Class A, Class C and Class Y
shares, respectively, of the Evergreen Capital Growth Fund. In addition, the
Evergreen Fund added a new class of shares designated as Class B shares. Class A
shares of the Fund are currently sold with a maximum front-end sales charge of
4.75%. Class B and Class C shares are sold without a front-end sales charge, but
are subject to a contingent deferred sales charge ("CDSC"), when shares are
redeemed within six years and one year of their purchase, respectively. Class A,
Class B and Class C shares are also assessed a distribution fee at an annual
rate of 0.25%, 1.00% and 1.00%, respectively, of the average daily net assets of
each Class. Class Y shares are sold at net asset value and are not subject to
CDSC or ongoing distribution fees.
7
<PAGE>
EVERGREEN
Capital Growth Fund
Portfolio Manager Interview
How did the Fund perform?
For the twelve-month period ended September 30, 1999, the Evergreen Capital
Growth Fund had good returns in the face of an increasingly difficult equity
market environment for active fund managers. The total return for the Fund's
Class A shares was 20.21% for this period compared to a return of 27.80% for the
Fund's benchmark, the S&P 500. These returns are before deduction of any
applicable sales charges.
During this same twelve-month period, however, the average multi-cap core fund
had a return of 25.29% as measured by Lipper, Inc., an independent monitor of
mutual fund performance. The long-term historical performance of the Fund has
been strong. Over the 3-year and 5-year periods ended September 30, 1999, the
total returns of the Fund's Class A shares, were 19.13% and 20.42%,
respectively. This compares favorably to the Lipper average returns of 17.78%
and 19.03% for the same periods.
Portfolio
Characteristics
---------------
(as of 9/30/1999)
Total Net Assets $538,972,618
- ---------------------------------------------------------
Number of Holdings 25
- ---------------------------------------------------------
P/E Ratio 21.9x
- ---------------------------------------------------------
Beta 0.91
- ---------------------------------------------------------
How would you describe the basic investment strategy of the Capital Growth Fund?
Our strategy is to invest in a "core" group of high quality companies that have
earnings growth rates that exceed the average of the S&P 500. The primary
criteria for this strategy are: (1) established businesses with proven
management, (2) predictable and sustainable above-average earnings growth rates
of about 15% per annum, (3) attractive relative valuation, and (4) adequate
industry diversification. This "core" strategy avoids market valuation extremes
that may include on one hand high price/earnings ratio, high momentum, and
high-risk companies, and also the stocks of lower quality, cyclical, and
unpredictable companies (often called "value stocks"). The Fund's management
team seeks to produce superior, risk-adjusted, long-term returns by focusing on
the fundamental strengths of the specific companies the Fund owns, rather than
on momentum, technical, or emotional factors which can be attributed to the
general market.
At any given time, the Fund's portfolio tends to hold 25 to 30 stocks with an
average risk profile that is lower than the S&P 500, as measured by beta.
What was the investment environment like over the past year?
Even though the U.S. economy is enjoying its ninth year of economic expansion,
there are signs that many equity market sectors have reached relatively high
valuation levels. Early in the year, it was relatively easy for many companies
to show significant growth in year-over-year earnings and the market rewarded
this news with record price and valuation levels.
8
<PAGE>
EVERGREEN
Capital Growth Fund
Portfolio Manager Interview
This was the case during the fourth quarter of 1998, during which the S&P 500
returned 21.30%, the highest return of any single quarter since first quarter of
1987.
As the year progressed, it became apparent that many companies were finding it
more difficult to sustain significant growth in earnings to support their
valuation levels. After advancing in the first and second quarters of 1999, the
S&P's total return was negative in the third quarter when it lost 6.24%. The
backdrop of the Federal Reserve Board increasing interest rates by 0.50% in an
ever-vigilant stance against inflation has put pressure on corporate earnings
that will continue into the next year. Also, it appears that the actions of the
Federal Reserve are not over and any additional increases will make it even more
difficult for companies to grow their earnings.
Recent months have brought an increasingly narrow market focus on industry
sectors experiencing positive price movement. Early this year, the primary
interest was on technology and several of the mega-cap companies. In the spring,
the attention switched to value and cyclical stocks. Recently, the focus has
swung back to technology companies, quite often at the expense of other sectors.
Of the eleven major S&P industry sectors, only five have posted positive returns
so far in 1999. Technology has been by far the best performing industry sector,
as its 1999 calendar year-to-date return has been 24.5% as measured by S&P.
Other sectors with positive returns include energy, capital goods, communication
services, and basic materials. Of these five sectors, only technology and
communication services are traditionally characterized as growth industries.
Top 10 Holdings
---------------
(as a percentage of net assets)
Sysco Corp. 4.9%
- -------------------------------------------------------
Computer Sciences Corp. 4.9%
- -------------------------------------------------------
Tyco International Ltd.. 4.6%
- -------------------------------------------------------
Interpublic Group of Companies, Inc. 4.4%
- -------------------------------------------------------
AMFM, Inc. 4.3%
- -------------------------------------------------------
Automatic Data Processing, Inc. 4.3%
- -------------------------------------------------------
Intel Corp. 4.1%
- -------------------------------------------------------
Sun Microsystems, Inc. 3.9%
- -------------------------------------------------------
Illinois Tool Works, Inc. 3.9%
- -------------------------------------------------------
American Express Co. 3.9%
- -------------------------------------------------------
What were some of the individual companies that contributed to the Fund's
performance for the year?
Six of the Fund's present twenty-five holdings have provided returns of greater
than 50% during the past twelve months. The top performers were Sun Microsystems
Inc. with a gain of 273.4%, Tyco International with a gain of 86.9%, First Data
Corp. with a gain of 86.7%, AMFM Inc. with a gain of 82.0%, American Express Co.
with a gain of 73.9%, and Interpublic Group Co. with a gain of 52.5%. Also,
several of the sales from the Fund's portfolio during the year were significant
positive contributors. These include Computer Associates Intl., Clear Channel
Communications, WW Grainger Inc., Royal Caribbean Cruises Ltd., and Bank of
America. As a group, the Fund's technology and financial services holdings
provided good returns.
9
<PAGE>
EVERGREEN
Capital Growth Fund
Portfolio Manager Interview
In September we experienced some disappointments primarily from companies that
have been unable to efficiently manage and integrate significant acquisitions.
The Fund moved to quickly sell these stocks which included Waste Management,
Newell Rubbermaid, and UNUM Provident Corp., all at losses. Two other recent
disappointments we sold are American Home Products and Xerox Corp. Some recent
purchases we expect to be strong future contributors are Intel Corp.,
Kimberly-Clark, and Albertsons Inc.
Top 5 Industries
----------------
(as a percentage of net assets)
Business Equipment & Services 16.3%
- -------------------------------------------------------
Healthcare Products & Services 11.3%
- -------------------------------------------------------
Finance & Insurance 10.1%
- -------------------------------------------------------
Information Services & Technology 8.1%
- -------------------------------------------------------
Banks 7.2%
- -------------------------------------------------------
What is your outlook?
Even though the domestic economy continues to be strong, it appears that U.S.
corporations are beginning to enter into a period where it will be much more
difficult to show significant sustained growth in revenues and earnings on a
year-to-year basis. In general, corporate operating and net margins have
expanded to historically high levels and it will be difficult to generate
significant additional efficiencies or economies. As we move into the year 2000,
we believe the earnings growth rates of S&P companies will begin to decline to
the single digits.
Also, the Federal Reserve Board's recent moves increasing interest rates to stem
inflationary pressures do not appear to be over and we anticipate additional
increases in coming weeks. Federal Reserve Board chairman, Alan Greenspan, has
made it clear that he views current equity asset valuations to be at risky
levels and would like to see the market refrain from any additional substantial
upside movement in the near term. We believe the Federal Reserve Board will move
decisively to stem unabated positive equity market momentum and to squelch any
perceived inflationary conditions.
The Fund's style of investing in high quality companies with strong growth
levels at reasonable prices should perform well on a relative basis in this
environment. We believe our growth at a reasonable price philosophy should
outperform the S&P 500 when the fundamental strengths of the companies in the
Fund's portfolio rise above general market emotion and sentiment.
10
<PAGE>
EVERGREEN (formerly Mentor Income
Capital Income and Growth Fund and Growth Portfolio)
Fund at a Glance as of September 30, 1999
Portfolio
Management
- --------------------------------------------------------------------------------
[PHOTO] [PHOTO]
John P. Michael
Davenport Jones
Tenure: July 1999 Tenure: July 1999
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC]
Morningstar's Style Box is based on a portfolio date as of 9/30/1999.
The Equity Style Box placement is based on a fund's price-to-earnings and
price-to-book ratio relative to the S&P 500, as well as the size of the
companies in which it invests, or median market capitalization.
/1/Source: 1999 Morningstar, Inc.
/2/Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. The performance of each class may vary
based on differences in loads and fees paid by the shareholders investing in
each class. Returns reflect expense limits previously in effect, without which
returns would have been lower. Effective October 25, 1999, shareholders of
Mentor Income and Growth Portfolio Class A, Class B and Class Y became owners of
that number of full and fractional shares of Class A, Class C and Class Y
shares, respectively, of the Evergreen Capital Income and Growth Fund. Class A
shares of the Fund are currently sold with a maximum front-end sales charge of
4.75%. Class C shares are sold without a front-end sales charge, but are subject
to a contingent deferred sales charge ("CDSC"), when shares are redeemed within
one year of their purchase. Class A and Class C shares are also assessed a
distribution fee at an annual rate of 0.25% and 1.00%, respectively, of the
average daily net assets of each Class. Class Y shares are sold at net asset
value and are not subject to CDSC or ongoing distribution fees.
PERFORMANCE AND RETURNS/2/
Portfolio Inception Date: 5/24/1993 Class A Class B Class Y
Class Inception Date 5/24/1993 5/24/1993 11/19/1997
- --------------------------------------------------------------------------------
Average Annual Returns*
- --------------------------------------------------------------------------------
1 year with sales charge 1.65% 3.06% n/a
- --------------------------------------------------------------------------------
1 year w/o sales charge 7.85% 7.06% 8.21%
- --------------------------------------------------------------------------------
3 years 9.51% 10.06% n/a
- --------------------------------------------------------------------------------
5 years 12.90% 13.28% n/a
- --------------------------------------------------------------------------------
Since Class Inception 12.04% 12.28% 8.33%
- --------------------------------------------------------------------------------
Maximum Sales Charge 5.75% 4.00% n/a
Front End CDSC
- --------------------------------------------------------------------------------
12-month income dividends per share $0.51 $0.38 $0.17
- --------------------------------------------------------------------------------
12-month capital gain distributions per share $0.98 $0.98 $0.98
- --------------------------------------------------------------------------------
* Adjusted for maximum applicable sales charges unless noted.
LONG TERM GROWTH
[GRAPH]
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Consumer Price Index - US S & P 500 Lehman Brothers Aggregate Bond Index Class A
10,000 10,000 10,000 9,424
10,062 10,288 10,447 9,901
10,361 10,668 10,110 10,549
10,624 13,839 11,532 12,368
10,943 16,654 12,097 14,733
11,179 23,385 13,275 17,992
11,345 25,476 14,799 19,037
11,616 32,219 14,745 20,532
</TABLE>
Comparison of a $10,000 investment in Evergreen Capital Income and Growth Fund
Class A/2/ shares, versus a similar investment in the Standard & Poor's 500
Stock Index (S&P 500), the Lehman Brothers Aggregate Bond Index (LBABI), and the
Consumer Price Index (CPI).
The LBABI and the S&P 500 are unmanaged market indices which do not include
transaction costs associated with buying and selling securities nor any
management fees. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
11
<PAGE>
EVERGREEN
Capital Income and Growth Fund
Portfolio Manager Interview
How did the Portfolio perform for the year?
For the twelve-month period ended September 30, 1999, the Evergreen Capital
Income and Growth Fund's Class A shares returned 7.85% in the face of rising
interest rates and an increasingly difficult equity market environment for
active fund managers. During the same period the fund's benchmarks, the S&P 500
and Lehman Brothers Aggregate Bond Index, returned 27.80% and -0.37%,
respectively. These returns are before deduction of any applicable sales
charges.
During this same twelve-month period, the average balanced fund had a return of
12.56% as measured by Lipper Inc., an independent monitor of mutual fund
performance.
Prior to July 1, 1999, the Fund was sub-advised and managed by Wellington
Management Company, LLP. Since July 1, 1999, the Fund has been managed by Mentor
Investment Advisors, LLC.
Portfolio
Characteristics
---------------
(as of 9/30/1999)
Total Net Assets $245,409,849
- ---------------------------------------------------------
Number of Holdings 95
- ---------------------------------------------------------
P/E Ratio 21.7x
- ---------------------------------------------------------
Beta 0.49
- ---------------------------------------------------------
What was the investment environment like over the past year?
Even though the U.S. economy has enjoyed its ninth year of economic expansion,
there are signs that many equity market sectors have reached relatively high
valuation levels. Early in the year, it was relatively easy for many companies
to show significant growth in year-over-year earnings and the market rewarded
this news with record price and valuation levels. This was particularly the case
during the fourth quarter of 1998 when the S&P 500 Index returned 21.30%, the
highest return of any single quarter since first quarter of 1987.
As the year progressed, it became apparent that companies are finding it more
difficult to sustain significant growth in earnings and support their valuation
levels. After advancing in the first and second quarters of 1999, the S&P's
total return was negative in the third quarter when it lost 6.24%. The backdrop
of the Federal Reserve Board increasing interest rates by 0.50% in an
ever-vigilant stance against inflation has put pressure on corporate earnings
that will continue into the next year. Also, it appears that the Federal Reserve
Bank's actions are not over and any additional increases will make it even more
difficult for companies to grow their earnings.
The past twelve months have been extremely difficult for managers of
fixed-income portfolios. Inflation fears have caused interest rates to increase
by 1.00% to 1.50% across all maturities, which puts 1999 on track to be the
second worst year for the fixed-income markets in credit market history. Rates
had moved lower in the fall of 1998 in the wake of the Russian debt crisis and
the problems sustained by leveraged hedge funds. Investors demanded securities
of the highest quality and liquidity and many turned to U.S.
12
<PAGE>
EVERGREEN
Capital Income and Growth Fund
Portfolio Manager Interview
Treasuries as a result. To help re-stabilize global economies and financial
markets, the world's central bankers flooded their economies with liquidity in
the fourth quarter of 1998, pushing interest rates to historically low levels.
In early 1999, many investors expected fragile international economies to limit
U.S. economic growth. However, due to aggressive easing by the Federal Reserve
and other central banks, the U.S. economy remained robust and growth of many
global economies was faster and more durable than anticipated. Market sentiment
shifted from concerns that weak international growth would dampen the U.S.
economy, to concerns that an overheated economy would accelerate inflation and
prompt the need for a more restrictive monetary policy. By September 30, 1999,
the Federal Reserve Board had raised interest rates twice.
In the equity markets, recent months have brought an increasingly narrow market
focus on industry sectors experiencing positive price movement. Early this year,
the primary focus was on shares of technology and several of the mega-cap
companies. In the early spring, the attention switched to value and cyclical
issues. Recently, the focus has swung back to technology companies, quite often
at the expense of other sectors. Of the eleven major S&P industry sectors, only
five have posted positive returns so far in calendar 1999. Technology has been
by far the best performing industry sector with a 1999 calendar year-to-date
return at 24.5%, as measured by S&P. Other sectors with positive returns include
energy, capital goods, communication services, and basic materials. Of these
five sectors, only technology and communication services are traditionally
characterized as growth industries.
How did you manage the asset allocation between stocks and bonds?
In view of an anticipated decline in the growth rate of corporate earnings, we
have lowered the Fund's equity allocation over the past twelve months from a
high of 63% to a low of 50%. This defensive posture helps to protect the value
of Fund assets in a time of uncertainty about domestic economic growth,
earnings, and interest rate levels.
Top 5 Bond Holdings
-------------------
(as a percentage of net assets)
Coupon Maturity
------ --------
FNMA 7.5% 9/1/2029 7.0%
- ---------------------------------------------------------
FNMA 7.0% 9/1/2014 3.8%
- ---------------------------------------------------------
FNMA 6.5% 4/1/2014 2.4%
- ---------------------------------------------------------
U.S. Treasury Bonds 5.25% 11/15/2028 2.0%
- ---------------------------------------------------------
GNMA 6.0% 12/15/2028 1.9%
- ---------------------------------------------------------
Top 5 Industries - Bonds
------------------------
(as a percentage of net assets)
U.S. Government Agency Obligations 24.0%
- -----------------------------------------------------
Finance & Insurance 2.4%
- -----------------------------------------------------
Asset-Backed Securities 2.2%
- -----------------------------------------------------
Sovereign Government 2.0%
- -----------------------------------------------------
Treasury Notes &Bonds 2.0%
- -----------------------------------------------------
13
<PAGE>
EVERGREEN
Capital Income and Growth Fund
Portfolio Manager Interview
What were some of the strategies that were used in managing the fixed-income
portion of the portfolio?
Aside from increasing the overall fixed-income allocation to the current 41%
level, we have employed two major portfolio management strategies to enhance the
Fund's performance over the past twelve months.
The first strategy was to move some of the fixed-income assets into high yield
securities. These purchases were concentrated in solid cable and
telecommunication issues. These securities fell to distressed levels during the
market turmoil that characterized the fall of 1998. The Fund had virtually no
exposure to this area going into last fall and quickly built a position of
approximately 2% of the entire Fund's portfolio. As credit markets recovered
somewhat in 1999, these sectors were among the first to see the benefits.
The second strategic move was to build liquidity throughout the second quarter
of 1999. The Fund's position in 30-year U.S. Treasuries and cash was increased
substantially during this period. This barbell positioning was designed to
benefit from a flattening yield curve. In addition, by adding cash and Treasury
securities, the fixed-income portion of the Fund's portfolio was positioned to
benefit should Y2K related bond supply pressures cause spread products, e.g.,
high yield corporate securities, mortgage-backed and asset-backed securities, to
underperform. Both aspects of this position paid off during the summer when the
yield curve flattened by about 25 basis points and yield spreads on investment
grade corporate bonds and mortgage-backed securities approached all time highs.
These trades were reversed during August and as a result the Fund benefited from
the spread tightening witnessed in investment grade issues and mortgage-backed
securities throughout September.
Top 10 Equity Holdings
-------------------------------
(as a percentage of net assets)
Sun Microsystems, Inc. 2.3%
- --------------------------------------------------------------------------------
Tyco International Ltd. 2.2%
- --------------------------------------------------------------------------------
Sysco Corp. 2.1%
- --------------------------------------------------------------------------------
Computer Sciences Corp. 2.0%
- --------------------------------------------------------------------------------
Automatic Data Processing, Inc. 2.0%
- --------------------------------------------------------------------------------
Federal National Mortgage Assoc. 2.0%
- --------------------------------------------------------------------------------
Bristol-Myers Squibb Co. 1.8%
- --------------------------------------------------------------------------------
Interpublic Group of Companies, Inc. 1.7%
- --------------------------------------------------------------------------------
AMFM, Inc. 1.7%
- --------------------------------------------------------------------------------
Intel Corp. 1.7%
- --------------------------------------------------------------------------------
Top 5 Industries - Equity
-------------------------------
(as a percentage of net assets)
Business Equipment & Services 7.0%
- --------------------------------------------------------------------------------
Healthcare Products & Services 6.2%
- --------------------------------------------------------------------------------
Finance & Insurance 6.2%
- --------------------------------------------------------------------------------
Information Services & Technology 5.5%
- --------------------------------------------------------------------------------
Banks 4.6%
- --------------------------------------------------------------------------------
What is your outlook?
Even though the domestic economy continues to be strong, it appears that U.S.
corporations are beginning to enter into a period where it will be much more
difficult to show significant sustained growth in revenues and earnings on a
year-over-year basis. In general, corporate operating and net margins have
expanded to historically high levels and it will be difficult to generate
significant additional efficiencies or economies. As we move into the year 2000,
we believe the earnings growth rates of S&P companies will begin to decline to
the single digits.
Also, the Federal Reserve Board's recent moves increasing interest rates to stem
inflationary pressures do not appear to be over and we anticipate additional
14
<PAGE>
EVERGREEN
Capital Income and Growth Fund
Portfolio Manager Interview
increases in coming weeks. Federal Reserve Board chairman, Alan Greenspan, has
made it clear that he views current equity asset valuation levels to be at risky
levels and would like to see the market refrain from any additional substantial
upside movement in the near term. We believe the Federal Reserve Board will move
decisively to stem unabated positive equity market momentum and to squelch any
perceived inflationary conditions.
The Fund's equity investment style of investing in high quality companies with
strong growth levels at reasonable prices should perform well on a relative
basis in this environment. Our growth at a reasonable price philosophy should
tend to outperform the S&P 500 when the fundamental strengths of the companies
in the Fund's portfolio rise above general market emotion and sentiment.
We believe fixed-income investments currently provide very attractive relative
valuation and offer the potential for solid long-term returns. "Real" interest
rates (the rate earned by investors in excess of inflation) are high by
historical standards. Value is further enhanced by current yield advantages
provided by mortgage-backed securities and corporate issues. We also continue to
look for other opportunities in high yield securities for the fixed-income
portion of the Fund's portfolio.
15
<PAGE>
EVERGREEN
Growth Fund (formerly Mentor Growth Portfolio)
Fund at a Glanceas of September 30 , 1999
Portfolio Management
- --------------------------------------------------------------------------------
[PHOTO] [PHOTO]
Theodore Price Jeffrey
Tenure: April 1985 Drummond Tenure: May 1993
[PHOTO]
Linda Ziglar
Tenure: September 1991
CURRENT INVESTMENT STYLE/1/
[GRAPHIC]
Morningstar's Style Box is based on a portfolio date as of 9/30/1999.
The Equity Style Box placement is based on a fund's price-to-earnings and
price-to-book ratio relative to the S&P 500, as well as the size of the
companies in which it invests, or median market capitalization.
/1/Source: 1999 Morningstar, Inc.
PERFORMANCE AND RETURNS/2/
Portfolio Inception Date: 4/15/1985 Class A Class B Class Y
Class Inception Date 6/5/1995 4/15/1985 11/19/1997
- --------------------------------------------------------------------------------
Average Annual Returns*
- --------------------------------------------------------------------------------
1 year with sales charge 7.35% 9.01% n/a
- --------------------------------------------------------------------------------
1 year w/o sales charge 13.90% 13.01% 14.08%
- --------------------------------------------------------------------------------
3 years 1.72% 2.38% n/a
- --------------------------------------------------------------------------------
5 years n/a 12.27% n/a
- --------------------------------------------------------------------------------
10 years n/a 11.07% n/a
- --------------------------------------------------------------------------------
Since Class Inception 12.03% 11.88% -3.74%
- --------------------------------------------------------------------------------
Maximum Sales Charge 5.75% 4.00% n/a
Front End CDSC
- --------------------------------------------------------------------------------
12-month capital gain distributions per share $0.56 $0.56 $0.56
- --------------------------------------------------------------------------------
* Adjusted for maximum applicable sales charges unless noted.
LONG TERM GROWTH
[GRAPH]
Consumer Price
Index - US Russell 2000 Class B
9/30/89 10,000 10,000 10,000
9/30/90 10,616 7,285 7,258
9/30/91 10,976 10,569 11,326
9/30/92 11,304 11,532 12,397
9/30/93 11,608 15,356 15,691
9/30/94 11,952 15,767 15,927
9/30/95 12,256 19,450 20,447
9/30/96 12,624 22,005 26,209
9/30/97 12,896 29,308 32,671
9/30/98 13,088 23,733 25,280
9/30/99 13,400 28,259 28,568
Comparison of a $10,000 investment in Evergreen Growth Fund Class B/2/
shares, versus a similar investment in the Russell 2000 Index (Russell 2000) and
the Consumer Price Index (CPI).
The Russell 2000 is an unmanaged market index which does not include transaction
costs associated with buying and selling securities nor any management fees. The
CPI is a commonly used measure of inflation and does not represent an investment
return. It is not possible to invest directly in an index.
/2/Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. The performance of each class may vary
based on differences in loads and fees paid by the shareholders investing in
each class. Effective October 18, 1999, shareholders of Mentor Growth Portfolio
Class A, Class B and Class Y became owners of that number of full and fractional
shares of Class A, Class C and Class Y shares, respectively, of the Evergreen
Growth Fund. In addition, the Evergreen Fund added a new class of shares
designated as Class B shares. Class A shares of the Fund are currently sold with
a maximum front-end sales charge of 4.75%. Class B and Class C shares are sold
without a front-end sales charge, but are subject to a contingent deferred sales
charge ("CDSC"), when shares are redeemed within six years and one year of their
purchase, respectively. Class A, Class B and Class C shares are also assessed a
distribution fee at an annual rate of 0.25%, 1.00% and 1.00%, respectively, of
the average daily net assets of each Class. Class Y shares are sold at net asset
value and are not subject to CDSC or ongoing distribution fees.
16
<PAGE>
EVERGREEN
Growth Fund
Portfolio Manager Interview
How did the Fund perform?
The Evergreen Growth Fund's Class B shares returned 13.01% for the twelve-month
period ended September 30, 1999. This compares to a 19.07% return for the
Russell 2000. The Fund outperformed the benchmark during the fourth quarter of
1998 and the third quarter of 1999; however, during the intervening six-month
period from January through June of this year the Fund trailed the index. When
viewed within the context of a longer-term investment horizon the Fund has
outperformed the Russell 2000 for both the five- and ten-year periods, 12.27%
and 11.07% versus 12.16% and 9.89% respectively, ended September 30, 1999.
Portfolio
Characteristics
-----------------
(as of 9/30/1999)
Total Net Assets $462,139,723
- --------------------------------------------------------------------------------
Number of Holdings 120
- --------------------------------------------------------------------------------
P/E Ratio 22.6x
- --------------------------------------------------------------------------------
Beta 1.06
- --------------------------------------------------------------------------------
How would you describe the basic investment strategy of the Fund?
The Evergreen Growth Fund's management team seeks to identify fast-growing,
smaller companies, with strong and consistent earnings growth, whose growth has
not been fully recognized in their stock price. Purchase criteria used in
picking individual stocks for inclusion in the fund include superior earnings,
revenue growth, no negative revisions in quarterly earnings estimates, positive
price momentum, and strong underlying financial fundamentals.
Disciplines used to establish when equities should be sold include a
deterioration in earnings growth, a negative fundamental change in the outlook
for the company or its industry, and significant deterioration in the price
momentum of the stock. Additionally, appreciation of individual holdings to an
over-weighted position (greater than 2% of the portfolio) will cause a partial
reduction in position size in order to re-establish standard portfolio weighting
norms. The portfolio will normally consist of between 125 and 135 securities,
typically with significant weighting in the consumer cyclical, healthcare, and
technology sectors of the market.
Can you review the primary factors impacting your past year's relative
performance?
After a strong fourth quarter of 1998, the Fund encountered a period of
lackluster performance for most of the first half of 1999. Factors primarily
responsible for these below average results were a lack of exposure to internet
stocks and the poor performance of our healthcare holdings. Internet stocks were
up approximately 100% during the first half of 1999 despite their lack of
earnings and few fundamentals upon which to determine proper valuations. Before
the removal of the largest internet companies from the Russell 2000, due to
their size in the annual re-balancing of that index at mid-year, internet stocks
had come to represent almost 10% of the index. Our requirement of established
earnings streams in the companies that we purchase precluded us from investing
in this hot sector of the market.
Our exposure to healthcare stocks also created a performance drag during the
1999 portion of the twelve-month period. Despite continued strong earnings,
potential healthcare legislation created sufficient worries regarding Medicare
reimbursement
17
<PAGE>
EVERGREEN
Growth Fund
Portfolio Manager Interview
to severely depress this market sector. By late summer we had reduced our
healthcare weighting in half, to approximately 10% of the portfolio.
On a positive note, earnings reports for both the first and second quarters of
1999 have shown fewer negative earnings surprises than at any other time during
the last three years. This continues to emphasize to us the strong, underlying,
fundamental characteristics of the Fund's holdings.
Top 5 Industries
-------------------------------
(as a percentage of net assets)
Electrical Equipment & Services 11.6%
- --------------------------------------------------------------------------------
Information Services & Technology 10.4%
- --------------------------------------------------------------------------------
Business Equipment & Services 9.6%
- --------------------------------------------------------------------------------
Healthcare Products & Services 8.7%
- --------------------------------------------------------------------------------
Retail & Wholesale 6.7%
- --------------------------------------------------------------------------------
How is the portfolio currently positioned?
The Fund's current industry breakdown is weighted toward what we believe are the
outstanding growth sectors of the economy. Technology is our heaviest weighting,
with our most significant exposure within that sector to semiconductor and
semiconductor equipment names. We are also maintaining a significant exposure to
specialty retail, broadcast, and food company names, making the consumer sector
our second largest portfolio weighting. We believe that the engine for continued
moderate growth in the domestic economy will be the bargain-conscious consumer.
The rapidly growing telecommunications group and energy companies are additional
areas of current emphasis.
An additional item worth noting is that in reviewing the companies within our
portfolio, we have discovered that the vast majority of spending needed to
upgrade systems for Y2K compliance is already in place at these companies.
Top 10 Holdings
-------------------------------
(as a percentage of net assets)
Benchmark Electronics, Inc. 1.7%
- --------------------------------------------------------------------------------
Emmis Broadcasting Corp., Cl. A 1.7%
- --------------------------------------------------------------------------------
ITC DeltaCom, Inc. 1.6%
- --------------------------------------------------------------------------------
Papa Johns International, Inc. 1.5%
- --------------------------------------------------------------------------------
Kemet Corp. 1.5%
- --------------------------------------------------------------------------------
Cox Radio, Inc., Cl. A 1.5%
- --------------------------------------------------------------------------------
Markel Corp. 1.4%
- --------------------------------------------------------------------------------
Atmel Corp. 1.4%
- --------------------------------------------------------------------------------
National Commerce Bancorp 1.4%
- --------------------------------------------------------------------------------
Family Dollar Stores, Inc. 1.3%
- --------------------------------------------------------------------------------
What is your outlook?
We believe that the recent failure of our companies to experience price
appreciation in line with their earnings per share growth rates has created a
tremendous valuation opportunity. At the end of the period the price-earnings on
the stocks in the Fund were 22.6 times 2000 earnings estimates. This compares
favorably with the historical and projected earnings growth rate of over 30% for
the stocks within the portfolio. The comparison is particularly striking versus
slower-growing, higher price-to-earning, large cap names that have continued to
benefit in this increasingly narrowly focused market environment.
18
<PAGE>
EVERGREEN
Growth Fund
Portfolio Manager Interview
The Federal Reserve's two recent moves raising short-term interest rates are, in
our opinion, likely to be followed by additional modest rate hikes between now
and year-end. These moves are largely unwinding the looser monetary policy
instituted at the time of the Asian and a major U.S. Hedge Fund crises last
fall. Despite an increasingly tight labor market and higher energy and gold
prices, we believe that inflation pressures will continue to remain modest.
Our growth-at-a-reasonable-price methodology, focusing on companies with
established earnings histories that trade at attractive valuations versus their
rates of growth, should continue to serve us well under a variety of potential
market outcomes.
19
<PAGE>
EVERGREEN
(formerly Mentor
High Income Fund High Income Portfolio)
Fund at a Glance as of September 30, 1999
Portfolio Management
[PHOTO] [PHOTO]
Timothy P. Michael
Anderson Jones
Tenure: June 1999 Tenure: June 1999
CURRENT INVESTMENT STYLE/1/
[GRAPHIC]
Morningstar's Style Box is based on a portfolio date as of 9/30/1999.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
/1/Source: 1999 Morningstar, Inc.
/2/Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. The performance of each class may vary
based on differences in loads and fees paid by the shareholders investing in
each class. Returns reflect expense limits previously in effect, without which
returns would have been lower. Effective October 18, 1999, shareholders of
Mentor High Income Portfolio Class A and Class B became owners of that number of
full and fractional shares of Class A and Class C shares, respectively, of the
Evergreen High Income Fund. In addition, the Evergreen Fund added new classes of
shares designated as Class B and Class Y shares. Class A shares of the Fund are
currently sold with a maximum front-end sales charge of 4.75%. Class B and Class
C shares are sold without a front-end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"), when shares are redeemed within six
years and one year of their purchase, respectively. Class A, Class B and Class C
shares are also assessed a distribution fee at an annual rate of 0.25%, 1.00%
and 1.00%, respectively, of the average daily net assets of each Class. Class Y
shares are sold at net asset value and are not subject to CDSC or ongoing
distribution fees.
PERFORMANCE AND RETURNS/2/
Portfolio Inception Date: 6/23/1998 Class A Class B
Class Inception Date 6/23/1998 6/23/1998
- --------------------------------------------------------------------------------
Average Annual Returns*
- --------------------------------------------------------------------------------
1 year with sales charge -0.80% -0.26%
- --------------------------------------------------------------------------------
1 year w/o sales charge 4.07% 3.64%
- --------------------------------------------------------------------------------
Since Class Inception -5.99% -5.63%
- --------------------------------------------------------------------------------
Maximum Sales Charge 4.75% 4.00%
Front End CDSC
- --------------------------------------------------------------------------------
12-month income dividends per share $1.09 $1.02
- --------------------------------------------------------------------------------
* Adjusted for maximum applicable sales charges unless noted.
LONG TERM GROWTH
[GRAPH]
Consumer Price ML High Yield Master II
Date Index - US Bond Index Class A
---- ---------- ----------------------- -------
6/30/98 10,000 10,000 9,524
9/30/98 10,037 9,581 8,874
12/31/98 10,055 9,845 9,209
3/31/99 10,123 10,025 9,493
6/30/99 10,196 10,090 9,443
9/30/99 10,276 9,956 9,156
Comparison of a $10,000 investment in the Evergreen High Income Fund Class A/2/
shares, versus a similar investment in the Merrill Lynch High Yield Master II
Bond Index (MLHYM2) and the Consumer Price Index (CPI).
The MLHYM2 is an unmanaged market index which does not include transaction costs
associated with buying and selling securities nor any management fees. The CPI
is a commonly used measure of inflation and does not represent an investment
return. It is not possible to invest directly in an index.
20
<PAGE>
EVERGREEN
High Income Fund
Portfolio Manager Interview
How did the Fund Perform?
Evergreen High Income Fund Class A shares produced a total return of 4.07% for
the twelve-month period ended September 30, 1999, before deduction of any
applicable sales charge. This compared to the Merrill Lynch High Yield Master II
Bond Index, which returned 3.92% for the same period. The average return of the
Lipper High Current Yield peer group stood at 4.84% for the same period.
Portfolio
Characteristics
---------------
(as of 9/30/1999)
Total Net Assets $253,743,746
- -----------------------------------------------------------------------
Number of Holdings 154
- -----------------------------------------------------------------------
Average Duration 4.3 years
- -----------------------------------------------------------------------
Effective Maturity 6.5 years
- -----------------------------------------------------------------------
The past twelve months were difficult for bond investors. Interest rates rose
1.00% to 1.50% in all maturities, putting 1999 on track to be the second worst
year for bonds in the history of the credit markets. The Fund's fiscal year
began with interest rates moving lower, however. In the fourth quarter of 1998,
the Federal Reserve Board and many foreign bankers pumped liquidity into the
world's economies and global financial markets to stabilize them after a
turbulent summer. Russia effectively defaulted on its debt in the summer of
1998, setting off a global crisis in the credit markets. Many Wall Street firms,
including one of the largest hedge funds in the U.S., had engaged in highly
leveraged transactions that were linked to Russia. As their trades were unwound,
bond prices spiraled lower. Hedge funds are private investment companies which
typically engage in highly complex, leveraged transactions. They are not subject
to the same regulations as mutual funds. Investors sought only the safest and
most liquid securities, primarily U.S. Treasuries. U.S. Treasury prices
soared--driving their prices higher--and demand for riskier securities waned, in
a classic "flight-to-quality". As a result, the yield premium of riskier
securities versus U.S. Treasuries rose dramatically. The markets stabilized in
the final months of 1998, with many investors anticipating weak economic growth
heading into the new year.
The U.S. economy remained robust in 1999, however, and many foreign economies
experienced faster and more durable growth than investors had expected. Market
sentiment reversed course. Thoughts of an overheated U.S. economy, inflationary
pressures and tighter monetary policies replaced beliefs that fragile world
economies would dampen U.S. economic growth. Domestic investors pushed interest
rates higher; a move that was echoed by foreign investors who both shared
inflationary concerns and sought to attract international cash flows. Official
tightening moves followed, with the Federal Reserve Board raising interest rates
twice in the summer of 1999.
Despite having limited absolute returns, high yield bonds turned in a strong
relative performance compared to other fixed-income sectors. Yield premiums to
U.S. Treasuries had increased substantially during the "flight-to-quality", with
the yield advantages increasing with credit risk.
The situation enabled high yield bonds to outperform higher-quality counterparts
when the markets stabilized and yield relationships tightened somewhat. As the
Fund's fiscal year came to a close, however, a rising default rate and concerns
about Y2K caused high yield bonds to give back some of their gains. Yield
spreads at fiscal year end between high yield debt and Treasury bonds remained
at extremely high levels by historical standards.
Top 5 Industries
----------------
(as a percentage of net assets)
Communication Systems & Services 16.5%
- ---------------------------------------------------------------------------
Telecommunication Services & Equipment 11.3%
- ---------------------------------------------------------------------------
Consumer Products & Services 7.7%
- ---------------------------------------------------------------------------
Gaming 5.9%
- ---------------------------------------------------------------------------
Oil/Energy 4.9%
- ---------------------------------------------------------------------------
21
<PAGE>
EVERGREEN
High Income Fund
Portfolio Manager Interview
How would you describe the investment strategy for the High Income Fund?
The Fund's performance was influenced by two key strategies: its substantial
cash position during the decline of the high yield market and a shift in focus
from yield to liquidity. The Fund held 20% of net assets in cash as the high
yield market collapsed in the fall of last year, which enhanced price stability
and left the Fund well positioned to reinvest at attractive yields. At the same
time, however, a large percentage of the Fund was invested in securities that
had provided higher yields, but limited liquidity. Although global markets
recovered somewhat from the turmoil of last fall, many Wall Street firms hurt by
last year's use of extensive leverage became unusually cautious about adding to
their security inventories. This reluctance on the part of dealers to make
markets in many types of securities limited the potential price appreciation for
bonds, particularly those considered to be less liquid. Liquidity is a measure
of how easily a particular security can be bought and sold, and how high the
transaction costs associated with such purchases and sales will be. In light of
reduced overall liquidity in the market, the liquidity of individual securities
became a top priority for investors. Securities deemed to be relatively
illiquid, including many owned by the Fund, incurred greater relative price
losses when investors began to put increasing importance on liquidity.
As market conditions improved, we began to reduce the Fund's positions in
securities with limited liquidity, replacing them with bonds that enhanced
overall portfolio liquidity. This strategy included selling holdings in emerging
markets and limiting international exposure to positions in the so-called "G-7"
countries, particularly Canada and Great Britain. In addition to raising
liquidity standards, we also have focused on bonds that we believe offer the
potential for price appreciation due to credit improvement, primarily in
securities rated "B". Many companies in the telecommunications and cable
industries offer considerable opportunities for credit improvement due to merger
and acquisition activity and an increasing number of private equity infusions.
This global activity is being driven by the increasing penetration of wireless
communications and the exponential growth in demand for bandwidth due to the
internet. As a result, portfolio weightings were tilted toward issuers in these
sectors of the market.
Top 10 Holdings
---------------
(as a percentage of net assets)
Coupon Maturity
------ --------
King Pharmaceuticals, Inc. 10.75% 2/15/2009 1.2%
- ---------------------------------------------------------------------------
Intermedia Comm.,
Step Bond 0% 5/15/2006 1.1%
- ---------------------------------------------------------------------------
Triton PCS, Inc.,
Step Bond 0% 5/1/2008 1.1%
- ---------------------------------------------------------------------------
Biovail Corp. Intl. 10.88% 11/15/2005 1.1%
- ---------------------------------------------------------------------------
Tekni Plex, Inc. 11.25% 4/1/2007 1.0%
- ---------------------------------------------------------------------------
Swift Energy Co. 10.25% 8/1/2009 1.0%
- ---------------------------------------------------------------------------
Pantry, Inc. 10.25% 10/15/2007 1.0%
- ---------------------------------------------------------------------------
Oxford Hlth. Plans, Inc. 11.00% 5/15/2005 1.0%
- ---------------------------------------------------------------------------
Argosy Gaming Co. 10.75% 6/1/2009 1.0%
- ---------------------------------------------------------------------------
Centennial Cellular
Oper. Co. 10.75% 12/15/2008 1.0%
- ---------------------------------------------------------------------------
What is your outlook?
We are cautious about high yield bonds over the near term, yet extremely
optimistic longer term. We expect a period of stagnation over the next few
months, with investors wary of putting money into the market in advance of Y2K.
Further, the high yield default rate has been rising. To some extent, the rising
default rate is a natural consequence of the record supply witnessed in recent
years; as securities age they are more prone to default. Other culprits leading
to rising defaults include the emerging market crisis and
22
<PAGE>
EVERGREEN
High Income Fund
Portfolio Manager Interview
depressed commodity prices. Although rising defaults should have been expected,
the increase has hurt bond prices. We believe that problems associated with Y2K
will be limited and that defaults will remain confined to marginal deals put
together in the aggressive environment of recent years. However, we expect
liquidity to remain a prime consideration for investors in the foreseeable
future.
In our opinion, high yield bonds offer very attractive relative value and
tremendous opportunity for price appreciation over the longer term. "Real"
interest rates--the rate earned by the investor in excess of inflation--is high
by historical standards. This rate is enhanced further by the yield advantages
provided by high yield bonds versus U.S. Treasuries, again high by historical
standards. Some high yield bonds offer nearly double the yield of Treasuries
with comparable maturities.
We are also optimistic about credit opportunities in high yield bonds,
particularly in telecommunications and cable industries. Other areas of emphasis
include technology manufacturers and paper producers. These industries are
benefiting from improved pricing power as world economies recover from the
financial shocks of recent years, and deflationary pressures are eased.
With its emphasis on liquidity and credit opportunity, we believe the Fund is
well-positioned for solid returns. We look forward to continued opportunity in
high yield bonds, as yield relationships return to more historical standards.
23
<PAGE>
EVERGREEN
(formerly Mentor Municipal
Municipal Income Fund Income Portfolio)
Fund at a Glance as of September 30 , 1999
Portfolio Management
[PHOTO] [PHOTO]
George James
Kimball Colby III
Tenure: June 1999 Tenure: June 1999
CURRENT INVESTMENT STYLE/1/
[GRAPHIC]
Morningstar's Style Box is based on a portfolio date as of 9/30/1999.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
/1/Source: 1999 Morningstar, Inc.
/2/Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. The performance of each class may vary
based on differences in loads and fees paid by the shareholders investing in
each class. Effective October 18, 1999, shareholders of Mentor Municipal Income
Portfolio Class A, Class B and Class Y became owners of that number of full and
fractional shares of Class A, Class C and Class Y shares, respectively, of the
Evergreen Municipal Income Fund. Returns reflect expense limits previously in
effect, without which returns would have been lower. Class A shares of the Fund
are currently sold with a maximum front-end sales charge of 4.75%. Class C
shares are sold without a front-end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"), when shares are redeemed within one
year of their purchase. Class A and Class C shares are also assessed a
distribution fee at an annual rate of 0.25% and 1.00%, respectively, of the
average daily net assets of each Class. Class Y shares are sold at net asset
value and are not subject to CDSC or ongoing distribution fees.
PERFORMANCE AND RETURNS/2/
Portfolio Inception Date: 4/29/1992 Class A Class B Class Y
Class Inception Date 4/29/1992 4/29/1991 1/19/1997
- --------------------------------------------------------------------------------
Average Annual Returns*
- --------------------------------------------------------------------------------
1 year with sales charge -8.18% -7.62% n/a
- --------------------------------------------------------------------------------
1 year w/o sales charge -3.60% -3.93% -3.36%
- --------------------------------------------------------------------------------
3 years 2.67% 3.27% n/a
- --------------------------------------------------------------------------------
5 years 4.75% 5.12% n/a
- --------------------------------------------------------------------------------
Since Class Inception 5.32% 5.51% 2.08%
- --------------------------------------------------------------------------------
Maximum Sales Charge 4.75% 4.00% n/a
Front End CDSC
- --------------------------------------------------------------------------------
12-month income dividends per share $0.69 $0.60 $0.22
- --------------------------------------------------------------------------------
* Adjusted for maximum applicable sales charges unless noted.
LONG TERM GROWTH
[GRAPH]
Consumer Price Lehman Brothers
Date Index - US Municipal Bond Index Class A
-------------- -------------------- -------
4/30/92 10,000 10,000 9,527
9/30/92 10,129 10,561 10,035
9/30/93 10,401 11,907 11,607
9/30/94 10,710 11,616 11,074
9/30/95 10,982 12,916 12,135
9/30/96 11,312 13,696 12,917
9/30/97 11,556 14,931 14,065
9/30/98 11,728 16,232 15,223
9/30/99 12,007 16,119 14,675
Comparison of a $10,000 investment in Evergreen Municipal Income Fund Class A/2/
shares, versus a similar investment in the Lehman Brothers Municipal Bond Index
(LBMBI), and the Consumer Price Index (CPI).
The LBMBI is an unmanaged market index which does not include transaction costs
associated with buying and selling securities nor any management fees. The CPI
is a commonly used measure of inflation and does not represent an investment
return. It is not possible to invest directly in an index.
24
<PAGE>
EVERGREEN
Municipal Income Fund
Portfolio Manager Interview
How did the Fund Perform?
For the twelve-month period ended September 30, 1999, the Fund's Class A shares
returned -3.60%, before deduction of any applicable sales charges, trailing the
average return produced by the Lipper General Municipal Bond Funds, which was
- -3.07% for the same period. The Fund's benchmark, the Lehman Brothers Municipal
Bond Index, returned -0.70% for the same period.
Portfolio
Characteristics
---------------
(as of 9/30/1999)
Total Net Assets $108,603,285
- --------------------------------------------------------------------------------
Number of Holdings 98
- --------------------------------------------------------------------------------
Average Duration 9.4 Years
- --------------------------------------------------------------------------------
Effective Maturity 15.6 Years
- --------------------------------------------------------------------------------
What was the investment environment like over the past year?
Rising interest rates and dramatically changing market conditions presented a
challenging environment for bond investors over the past twelve months. As the
Fund's fiscal year opened, global interest rates fell in response to coordinated
easing moves by the world's central bankers. At that time, the credit markets
were recovering from a turbulent summer of 1998. Russia had effectively
defaulted on its debt, sending shock waves throughout the international credit
markets. The situation had particularly strong implications for the largest
hedge fund in the United States, which announced the need for financial
assistance to avoid bankruptcy. A hedge fund is a private investment account
that often engages in highly complex, leveraged trading techniques, and is not
subject to the same regulations as mutual funds. Investors became increasingly
concerned about the far-reaching global effects of unwinding the hedge fund's
trades, prompting unusually strong demand for only the safest and most liquid
securities--primarily U.S. Treasuries. This "flight-to-quality" drove Treasury
yields to extraordinarily low levels, and their prices correspondingly higher.
At the same time, investors penalized securities with risk, forcing the yield
advantages of other securities versus U.S. Treasuries to levels that were high
by historical standards.
Top 5 Industries
----------------
(as a percentage of net assets)
Industrial Development 24.1%
- ---------------------------------------------------------------------------
Housing - Single Family 16.1%
- ---------------------------------------------------------------------------
Hospital 12.2%
- ---------------------------------------------------------------------------
General Obligation - Local 9.4%
- ---------------------------------------------------------------------------
Water & Sewer 6.4%
- ---------------------------------------------------------------------------
Municipal bond prices rallied as interest rates fell, although a smaller
investor audience for tax-exempt securities relative to U.S. Treasuries limited
price appreciation. Also, the municipal bond market experienced record new
supply in 1998, which also put a lid on rising prices. By December 1998, the
combination gave municipal bonds increasing relative value versus U.S.
Treasuries, however, with tax-exempt yields rivaling those of their taxable
counterparts.
Many investors expected fragile international economies to weaken U.S. economic
growth in 1999. However, the U.S. economy continued to show strength, and many
foreign economies demonstrated faster and more durable recoveries than investors
expected. Market sentiment reversed course. Investors began to watch for signs
of excessive growth and inflationary pressures, pushing interest rates higher in
anticipation of a more restrictive monetary policy. Many foreign interest rates
followed suit, as international investors shared concerns about inflation and
also sought to attract global cash flows. In the summer of 1999, investor
expectations were realized when the Federal Reserve Board did, in fact, raise
interest rates.
25
<PAGE>
EVERGREEN
Municipal Income Fund
Portfolio Manager Interview
Municipal bonds outperformed U.S. Treasuries as interest rates rose. On an
annualized basis year-to-date, municipal bond supply fell by over 20% in 1999,
relieving pressure and allowing prices to improve. Further, while municipal
bonds were still attractively priced by historical standards, their yield
relationship to Treasuries began to return to more normal levels. This enabled
prices to rise further.
Top 10 Holdings
---------------
(as a percentage of net assets)
Coupon Maturity
------ --------
Jefferson Cnty., CO RB 5.00% 11/1/2018 2.5%
- ---------------------------------------------------------
Wisconsin Hsg. & EDA RB 5.75% 4/1/2030 2.2%
- ---------------------------------------------------------
American Pub. Energy
Agcy. RB 4.38% 6/1/2010 2.2%
- ---------------------------------------------------------
Montana Hsg. Board SFHRB 5.65% 12/1/2020 2.1%
- ---------------------------------------------------------
Harrison Cnty., WV Solid
Wst. Disposal RB 6.75% 8/1/2024 2.0%
- ---------------------------------------------------------
Kane Cnty., IL Sch. Dist. GO 5.50% 2/1/2011 1.9%
- ---------------------------------------------------------
Alliance, TX Arpt. Auth.,
Inc., Spl. Facs. RB 6.38% 4/1/2021 1.9%
- ---------------------------------------------------------
New Orleans, LA GO 5.50% 12/1/2021 1.8%
- ---------------------------------------------------------
Idaho Hsg. & Fin. Assn.
SFHRB 5.70% 7/1/2019 1.8%
- ---------------------------------------------------------
Nassau Cnty., NY GO 5.25% 6/1/2015 1.8%
- ---------------------------------------------------------
How would you describe the investment strategy for the past year?
The Portfolio's investment strategy emphasized income and interest rate
sensitivity through the spring of 1999, by maintaining a long duration and
substantial positions in higher-yielding, lower-rated credits. This benefited
performance in the last quarter of 1998, when the credit markets stabilized and
many lower-rated bonds outperformed higher-rated counterparts. The Portfolio's
sensitivity to interest rate changes, as well as positions in higher-yielding
but less liquid securities, caused performance to lag by the middle of the
fiscal year when interest rates began to rise.
The Portfolio experienced considerable restructuring in the second half of the
period. We focused on building liquidity and improving credit quality by selling
less liquid, lower-rated bonds. We increased yield by selling bonds that had
been purchased at lower yields and replaced these with higher yielding bonds
when conditions permitted. We also shortened duration, which enhances price
stability when interest rates rise. As of September 30, 1999, the Fund's average
quality was "A", its duration was 9.4 years and its effective maturity stood at
15.6 years.
What is your outlook?
Near term, we think the bond market in general could be a little unsettled as
investors and issuers prepare for Y2K. While there may be some Y2K challenges
with smaller issuers we think, as a whole, municipalities are pretty well set.
Longer term, we believe municipal bonds offer very attractive relative value.
"Real" interest rates--or the rate earned by investors when inflation is
removed--are high by historical standards. Also, in our opinion, the tax-exempt
sector as an asset class offers attractive value, with "AAA"-rated bonds
providing 87%-90% of the yield of U.S. Treasuries with comparable maturities.
The combination bodes well for total return potential over the long term.
26
<PAGE>
EVERGREEN (formerly Mentor
Quality Income Fund Quality Income
Fund at a Glance as of September 30, 1999 Portfolio)
Portfolio Management
- --------------------------------------------------------------------------------
[PHOTO] [PHOTO]
P. Michael Jones Timothy Anderson
Tenure: March 1995 Tenure: June 1998
[PHOTO] [PHOTO]
Jan Buskop Dennis Clary
Tenure: March 1999 Tenure: May 1998
[PHOTO]
Todd Kuimjian
Tenure: January 1997
CURRENT INVESTMENT STYLE/1/
[GRAPHIC]
Morningstar's Style Box is based on a portfolio date as of 9/30/1999.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
/1/ Source: 1999 Morningstar, Inc.
PERFORMANCE AND RETURNS/2/
Portfolio Inception Date: 4/29/1992 Class A Class B Class Y
Class Inception Date 4/29/1992 4/29/1992 11/19/1997
Average Annual Returns*
1 year with sales charge -7.51% -7.00% n/a
1 year w/o sales charge -2.89% -3.34% -2.63%
3 years 3.77% 4.37% n/a
5 years 5.40% 5.77% n/a
Since Class Inception 4.33% 4.51% 3.21%
Maximum Sales Charge 4.75% 4.00% n/a
Front End CDSC
12-month income dividends per share $0.79 $0.73 $0.24
* Adjusted for maximum applicable sales charges unless noted.
LONG TERM GROWTH
[LINE GRAPH]
Merrill Lynch
5-7 Year
Class A CPI Treasury Index
4/30/92 9,527 10,000 10,000
9/30/92 9,848 10,129 11,020
9/30/93 10,341 10,401 12,185
9/30/94 10,002 10,710 11,691
9/30/95 11,185 10,982 13,294
9/30/96 11,649 11,312 13,859
9/30/97 12,798 11,556 15,110
9/30/98 14,072 11,728 17,272
9/30/99 13,596 12,007 16,936
Comparison of a $10,000 investment in the Evergreen Quality Income Fund
Class A/2/ shares, versus a similar investment in the Merrill Lynch 5-7 Year
Treasury Index (ML5-7YTI) and the Consumer Price Index (CPI).
The ML5-7YTI is an unmanaged market index which does not include transaction
costs associated with buying and selling securities nor any management fees. The
CPI is a commonly used measure of inflation and does not represent an investment
return. It is not possible to invest directly in an index.
/2/ Past performance is no guarantee of future results. The investment return
and principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than original cost. The performance of each class may
vary based on differences in loads and fees paid by the shareholders investing
in each class. The advisor is waiving a portion of its advisory fee. Had the fee
not been waived, returns would have been lower. Effective October 18, 1999,
shareholders of Mentor Quality Income Portfolio Class A, Class B and Class Y
became owners of that number of full and fractional shares of Class A, Class C
and Class Y shares, respectively, of the Evergreen Quality Income Fund. In
addition, the Evergreen Fund added a new class of shares designated as Class B
shares. Class A shares of the Fund are currently sold with a maximum front-end
sales charge of 4.75%. Class B and Class C shares are sold without a front-end
sales charge, but are subject to a contingent deferred sales charge ("CDSC"),
when shares are redeemed within six years and one year of their purchase,
respectively. Class A, Class B and Class C shares are also assessed a
distribution fee at an annual rate of 0.25%, 1.00% and 1.00%, respectively, of
the average daily net assets of each Class. Class Y shares are sold at net asset
value and are not subject to CDSC or ongoing distribution fees.
27
<PAGE>
EVERGREEN
Quality Income Fund
Portfolio Manager Interview
How did the Fund perform?
Evergreen Quality Income Fund Class A shares returned -2.89% for the
twelve-month period ended September 30, 1999, unadjusted for sales charges. The
Fund's benchmark, the Merrill Lynch 5-7 Year Treasury Index returned -1.94% for
the same period. The average return of the Lipper A-Rated Corporate Bond peer
group was -2.19% and the 7-year U.S. Treasury notes return was -3.53% in the
same period.
Portfolio
Characteristics
---------------
(as of 9/30/1999)
Total Net Assets $201,197,816
- --------------------------------------------------------------------------------
Number of Holdings 113
- --------------------------------------------------------------------------------
Average Duration 5.3 Years
- --------------------------------------------------------------------------------
Effective Maturity 6.2 Years
- --------------------------------------------------------------------------------
What factors affected performance?
The past twelve months were extremely difficult for bond investors.
Stronger-than-expected economic growth drove interest rates 1.00% to 1.50%
higher across all maturities, putting 1999 on track to be the second worst year
for bonds in the history of the credit markets.
The fiscal year started with interest rates moving lower. The summer of 1998
left world economies and financial markets in a state of upheaval. Russia's
effective default on its debt revealed a strong connection between emerging
markets and Wall Street firms through extensive use of leveraged trading. The
situation pushed the largest hedge fund in the United States to the brink of
bankruptcy; and investors became increasingly concerned about the widespread
global effects of traders unwinding their positions. Hedge funds are private
investment accounts that often engage in highly leveraged, complex trading
activity, and are not subject to the same regulations as mutual funds. Corporate
bond and mortgage-backed security prices spiraled lower as selling continued
into a market with severely reduced liquidity. Investors sought only the highest
quality and most liquid securities. Demand for U.S. Treasuries soared, but faded
for bonds with even a hint of risk. To restabilize global economies and
financial markets, the world's central bankers flooded their economies with
liquidity in the fourth quarter of 1999, pushing interest rates to
extraordinarily low levels.
As we entered 1999, many investors expected fragile international economies to
limit U.S. economic growth. However, thanks to aggressive easing by the Federal
Reserve Board and other central banks across the world, the U.S. economy
remained robust, and growth in many global economies was faster and more durable
than many investors anticipated. Market sentiment shifted from concerns that
weak international growth would dampen the U.S. economy to concerns about an
overheated economy fostering inflation and prompting the need for a more
restrictive monetary policy. By the end of the Fund's fiscal year, the Federal
Reserve Board had raised interest rates twice. Many foreign interest rates
followed U.S. interest rates higher, as global investors shared concerns about
inflation and sought to attract international cash flows.
Top 5 Industries
----------------
(as a percentage of net assets)
U.S. Government & Agency Obligations 38.1%
- --------------------------------------------------------------------------------
Collateralized Mortgaged Obligations 19.2%
- --------------------------------------------------------------------------------
Asset-Backed Securities 13.9%
- --------------------------------------------------------------------------------
Communication Systems & Services 8.2%
- --------------------------------------------------------------------------------
Finance & Insurance 7.4%
- --------------------------------------------------------------------------------
28
<PAGE>
EVERGREEN
Quality Income Fund
Portfolio Manager Interview
The market's volatility created longer-term opportunity, however, as changing
market conditions caused yield relationships between U.S. Treasuries and other
sectors to shift. Corporate bonds and mortgage-backed securities began to offer
yield advantages versus Treasuries that were extremely high by historical
standards. Market psychology also changed. Although global markets recovered
somewhat from the turmoil of last fall, many Wall Street firms--hurt by last
year's use of extensive leverage--became unusually cautious about adding to
their security inventories. This reluctance on the part of dealers to make
markets in many types of securities limited the potential price appreciation for
bonds, particularly those considered to be less liquid. Liquidity is a measure
of how easily a particular security can be bought or sold, and how high the
transaction costs associated with such purchases and sales will be. In light of
reduced overall liquidity in the market, the liquidity of individual securities
became a top priority for investors.
Top 10 Holdings
---------------
(as a percentage of net assets)
Coupon Maturity
------ --------
FNMA 7.0% 8/1/2029 10.7%
FNMA 7.5% 12/1/1999 4.5%
FNMA 7.0% 9/1/2014 4.0%
FHLMC 6.5% 7/25/2018 3.3%
CS First Boston Mtge.
Sec. Corp. 7.18% 2/25/2018 3.2%
FHLMC 6.0% 3/15/2009 3.0%
Norwest Asset Secs. Corp. 6.25% 9/25/2028 2.8%
FNMA 6.5% 4/1/2014 2.5%
GNMA 7.0% 12/15/2028 2.5%
General Elec. Capital
Mtge. Svcs., Inc. 6.27% 4/25/2029 2.2%
How would you describe the investment strategy over the past year?
Our management strategies focused on asset allocation and active management of
the Fund's duration. We entered the fiscal year with a heavy weighting in U.S.
Treasuries, a minimal position in investment grade corporate bonds and no high
yield bond holdings. The Fund also had a long duration. The Fund's asset
allocation and long duration enhanced total return when demand was unusually
strong for U.S. Treasuries and interest rates fell. We reduced holdings in U.S.
Treasuries toward the end of 1998, reinvesting assets in mortgage-backed
securities and investment grade corporate bonds. At that time, market conditions
had stabilized and yield advantages were at attractive levels. The new asset
allocation benefited performance when mortgage-backed securities and corporate
bonds outperformed U.S. Treasuries as yield relationships returned to more
normal historical standards. We then shortened the Fund's duration in May,
maintaining a defensive stance through the end of the fiscal period. A shorter
duration enhanced price stability as interest rates rose.
What is your outlook?
At current levels, we think bonds have very attractive relative value and offer
the potential for solid returns longer term. "Real" interest rates--the rate
earned by the investor in excess of inflation--is high by historical standards.
The value is enhanced further by current yield advantages provided by
mortgage-backed securities and corporate bonds.
Heavy new supply has weighed on the market, as issuers come to market prior to
Y2K. Further, we think the Federal Reserve Board may need to raise short-term
interest rates, to continue draining some of the liquidity it provided last
year. We would not be surprised to see short-term rates reach the 6% area. Much
of the economy's strength has come from consumer spending, which has been fueled
by the "wealth effect" of rising stock prices. In our opinion, stock prices
would respond negatively to such an increase in short-term interest rates,
dampening the "wealth effect" and curbing consumer spending. We think rates in
this range also would slow the housing market by reducing real estate activity.
A slower economy with continued low inflation should improve market sentiment
and combined with the market's attractive relative value give a substantial lift
to bond prices.
29
<PAGE>
EVERGREEN (formerly Mentor
Short-Duration Income Fund Short-Duration
Fund at a Glance as of September 30, 1999 Income Portfolio)
Portfolio
Management
- --------------------------------------------------------------------------------
[PHOTO] [PHOTO]
P. Michael Jones Timothy Anderson
Tenure: April 1994 Tenure: June 1998
[PHOTO] [PHOTO]
Jan Buskop Dennis Clary
Tenure: March 1999 Tenure: May 1998
[PHOTO]
Todd Kuimjian
Tenure: January 1997
CURRENT INVESTMENT STYLE/1/
[GRAPHIC]
Morningstar's Style Box is based on a portfolio date as of 9/30/1999.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
/1/ Source: 1999 Morningstar, Inc.
PERFORMANCE AND RETURNS/2/
Portfolio Inception Date: 4/29/1994 Class A Class B Class Y
Class Inception Date 6/16/1995 4/29/1994 11/19/1997
Average Annual Returns*
1 year with sales charge 0.37% -2.84% n/a
1 year w/o sales charge 1.38% 0.99% 1.63%
3 years 4.84% 4.24% n/a
5 years n/a 5.50% n/a
Since Class Inception 4.86% 5.22% 4.41%
Maximum Sales Charge 1.00% 4.00% n/a
Front End CDSC
12-month income dividends per share $0.71 $0.66 $0.20
* Adjusted for maximum applicable sales charges unless noted.
LONG TERM GROWTH
[LINE GRAPH]
Merrill Lynch
1-3 Year Treasury
Class B CPI Index
4/30/94 10,000 10,000 10,000
9/30/94 10,084 10,136 10,143
9/30/95 11,022 10,394 10,982
9/30/96 11,519 10,706 11,599
9/30/97 12,321 10,936 12,398
9/30/98 13,145 11,099 13,387
9/30/99 13,217 11,364 13,819
Comparison of a $10,000 investment in the Evergreen Short-Duration Income
Fund, Class B/2/ shares, versus a similar investment in the Merrill Lynch 1-3 Yr
Treasury Index (ML1-3YTI) and the Consumer Price Index (CPI).
The ML1-3YTI is an unmanaged market index which does not include transaction
costs associated with buying and selling securities nor any management fees. The
CPI is a commonly used measure of inflation and does not represent an investment
return. It is not possible to invest directly in an index.
/2/ Past performance is no guarantee of future results. The investment return
and principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than original cost. The performance of each class may
vary based on differences in loads and fees paid by the shareholders investing
in each class. The advisor is waiving a portion of its advisory fee and waiving
the Fund's administration fee. Had the fees not been waived, returns would have
been lower. Effective October 25, 1999, shareholders of Mentor Short-Duration
Income Portfolio Class A, Class B and Class Y became owners of that number of
full and fractional shares of Class A, Class C and Class Y shares, respectively,
of the Evergreen Short-Duration Income Fund. Class A shares of the Fund are
currently sold with a maximum front-end sales charge of 3.25% and Class C shares
are sold without a front-end sales charge, but are subject to a contingent
deferred sales charge ("CDSC"), when shares are redeemed within one year of
their purchase, respectively. Class A and Class C shares are also assessed a
distribution fee at an annual rate of 0.25% and 1.00%, respectively, of the
average daily net assets of each Class. Class Y shares are sold at net asset
value and are not subject to CDSC or ongoing distribution fees.
30
<PAGE>
EVERGREEN
Short-Duration Income Fund
Portfolio Manager Interview
How did the Fund perform?
Evergreen Short-Duration Income Fund Class B shares produced returns of 0.99%
for the twelve-month period ended September 30, 1999, unadjusted for any
applicable sales charges. In comparison, the average return of the Lipper
Short-Intermediate Investment Grade peer group stood at 1.15% for the same
period while the fund's benchmark, the Merrill Lynch 1-3 Year Treasury Index,
returned 3.22% for the same period.
Portfolio
Characteristics
---------------
(as of 9/30/1999)
Total Net Assets $160,961,147
Number of Holdings 90
Average Duration 2.6 Years
Effective Maturity 3.7 Years
After declining in the early part of the period, interest rates closed the
fiscal year 1.00% to 1.50% higher than they were a year ago. Rising interest
rates and changing yield relationships have created difficult conditions for
bond investors and put 1999, year-to-date, on track to be the second worst year
in the history of the credit markets.
As we entered the final quarter of 1998, investors were recovering from a near
collapse of the global financial markets. Russia's effective default of its debt
and extensive use of leveraged trading by many U.S. institutions put bond prices
into a downward spiral. With liquidity severely restricted, the largest U.S.
hedge fund announced the need for financial assistance to remain solvent. A
hedge fund is a private investment account that often engages in highly complex,
leveraged trading techniques. Hedge funds are not subject to the same
regulations as mutual funds. Investors became increasingly concerned about the
global effects of unwinding these trades, and in seeking the safety and
liquidity of U.S. Treasuries, sparked a classic "flight-to-quality" which drove
Treasury yields to the lowest levels of the decade. To restore stability to
world economies and financial markets, the Federal Reserve Board and other
central bankers embarked on a coordinated round of interest rate cuts. Many
investors entered 1999 expecting weak international recoveries to slow U.S.
economic growth.
The U.S. economy remained strong, however; and international economies tended to
improve with faster and more sustainable growth than many investors anticipated.
Investors' focus turned to potentially excessive growth with rising inflation
prompting the need for a more restrictive monetary policy. Domestic interest
rates rose, pulling many foreign interest rates higher, as international
investors shared concerns about inflation and sought to attract global cash
flows. By mid-1999, the Federal Reserve Board and other central bankers began to
drain the liquidity they had provided earlier, raising interest rates as a
preemptive strike against inflation.
Market conditions reflected this challenging and shifting environment. Demand
for U.S. Treasuries was extraordinary during 1998's "flight-to-quality". While
investors emphasized quality and liquidity, however, they penalized risk by
demanding higher yield advantages relative to Treasuries. Yield advantages for
corporate bonds and mortgage-backed securities rose, with "spreads" increasing
as investors incurred greater risk. These sectors began to offer extremely
attractive relative value, however; and when the markets stabilized and later
showed improvement, yield relationships began to return to more historical
levels. As this occurred, lower-rated bonds outperformed their higher-rated
counterparts. Lower-rated bonds gave back some of their gains in the summer of
1999, however, as a rising default rate and heavy supply in anticipation of Y2K
caused yield advantages to once again begin to increase.
31
<PAGE>
EVERGREEN
Short-Duration Income Fund
Portfolio Manager Interview
Liquidity remained a prime consideration for investors. Liquidity is a measure
of how easily a particular security can be bought and sold, and how high the
transaction costs associated with such purchases will be. Many trading desks had
sharply curtailed capital in the aftermath of last year's leverage fiasco, and
were considerably less aggressive in adding to their security inventories. This
cautiousness on the part of dealers to make markets in many types of
securities--particularly in advance of Y2K--limited the potential price
appreciation for bonds, particularly those considered to be less liquid. In
light of overall reduced liquidity in the market, the liquidity of individual
securities became a top priority for investors.
Top 5 Industries
----------------
(as a percentage of net assets)
U.S. Government Agency Obligations 40.5%
Collateralized Mortgage Obligations 20.0%
Asset-Backed Securities 19.5%
Finance & Insurance 6.3%
Retailing & Wholesale 3.2%
How would you describe the investment strategy over the past year?
The Fund's investment strategy was two-fold. We emphasized total return and
income by actively managing the Fund's duration, and by taking advantage of the
changing yield relationships provided by mortgage-backed and asset-backed
securities, investment grade corporate bonds and high yield bonds. The Fund had
a long duration when interest rates fell, increasing portfolio sensitivity to
interest rate changes and improving total return. We then shortened the Fund's
duration in May, maintaining a defensive stance through the end of the fiscal
period. A shorter duration enhanced price stability as interest rates rose.
We also took advantage of shifting yield relationships caused by the market's
changing conditions, which made a positive contribution to total return. We
reduced holdings in Treasuries toward the end of 1998, tilting the Fund's
positions toward mortgage-backed securities, investment grade corporate bonds
and high yield securities. At that time, market conditions had stabilized and
yield advantages were at attractive levels. The new asset allocation benefited
performance when these sectors outperformed U.S. Treasuries when yield
relationships returned to more normal historical standards. We found
particularly good relative value in "BB"-rated bonds. The yield advantage
increased dramatically for "BB"-rated bonds versus bonds rated "BBB" because
many investors are restricted to buying investment grade credits, reducing the
investment audience for "BB"-rated securities. The Fund's high yield holdings
are thoroughly analyzed and constantly monitored by our staff of investment
professionals.
Top 10 Holdings
---------------
(as a percentage of net assets)
Coupon Maturity
------ --------
FNMA 6.0% 4/1/2014 5.8%
FHLMC 6.0% 6/1/2006 5.7%
Citicorp Mtge. Secs. Inc. 6.52% 11/25/2022 4.0%
U.S. Treasury 5.25% 5/15/2004 3.5%
Notes
FNMA 6.0% 3/1/2014 2.9%
GNMA 6.38% 4/20/2022 2.8%
FNMA 7.0% 8/1/2029 2.7%
Perpetual Savings Bank
Collat. Strip Interest 6.97% 3/1/2020 2.7%
Glendale Federal
Savings Bank 6.49% 10/25/2009 2.7%
FHLMC 6.23% 5/1/2014 2.5%
32
<PAGE>
EVERGREEN
Short-Duration Income Fund
Portfolio Manager Interview
What is your outlook?
At current levels, we think bonds have very attractive relative value and offer
the potential for solid returns longer term. "Real" interest rates--the rate
earned by the investor in excess of inflation--is high by historical standards.
The value is enhanced further by current yield advantages provided by
mortgage-backed securities and corporate bonds.
Near term, however, we believe that interest rates could rise. Heavy new supply
has weighed on bond prices, as issuers come to market prior to Y2K. Further, we
think the Federal Reserve Board still could need to raise short-term interest
rates by draining some of the liquidity it provided last year. We would not be
surprised to see short-term rates reach the 6% area. In our opinion, such a move
would have a negative effect on stock prices and slow economic growth. Much of
the economy's strength has come from consumer spending, which has been fueled by
the "wealth effect" of rising stock prices. Historically, consumer spending
accounts for two-thirds of the economy's growth. In our opinion, a correction in
stock prices would dampen the "wealth effect" and curb consumer spending. We
think rates in this range also would slow the housing market by reducing
mortgage activity. A slower economy with continued low inflation should improve
market sentiment and, combined with the market's attractive relative value, give
a substantial lift to bond prices.
33
<PAGE>
EVERGREEN
Capital Balanced Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------
1999 1998 (a)
<S> <C> <C>
CLASS A
Net asset value, beginning of period $ 13.69 $ 13.69
------------- -----------
Income from investment operations
Net investment income 0.29 0
Net realized and unrealized gains or losses on
securities and futures contracts 1.44 0
------------- -----------
Total from investment operations 1.73 0
------------- -----------
Distributions to shareholders from
Net investment income (0.22) 0
Net realized gains (0.05) 0
------------- -----------
Total distributions to shareholders (0.27) 0
------------- -----------
Net asset value, end of period $ 15.15 $ 13.69
------------- -----------
Total return* 12.67% 0.00%
Ratios and supplemental data
Net assets, end of period (thousands) $ 138,686 $ 3,534
Ratios to average net assets
Expenses** 1.50% 1.35%+
Net investment income 1.83% 1.52%+
Portfolio turnover rate 140% 89%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------- Period Ended
1999 1998 (c) 1997 1996 1995 (d) December 31, 1994 (e)
<S> <C> <C> <C> <C> <C> <C>
CLASS B (b)
Net asset value,
beginning of period $ 13.69 $17.61 $16.28 $14.85 $12.44 $12.50
-------- ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.17 0.45 0.43 0.42 0.36 0.22
Net realized and
unrealized gains or
losses on securities
and futures contracts 1.45 1.43 3.35 2.09 2.08 (0.09)
-------- ------ ------ ------ ------ ------
Total from investment
operations 1.62 1.88 3.78 2.51 2.44 0.13
-------- ------ ------ ------ ------ ------
Distributions to
shareholders from
Net investment income (0.14) (0.71) (0.43) (0.48) (0.03) (0.19)
Net realized gains (0.05) (5.09) (2.02) (0.60) 0 0
-------- ------ ------ ------ ------ ------
Total distributions to
shareholders (0.19) (5.80) (2.45) (1.08) (0.03) (0.19)
-------- ------ ------ ------ ------ ------
Net asset value, end of
period $ 15.12 $13.69 $17.61 $16.28 $14.85 $12.44
-------- ------ ------ ------ ------ ------
Total return* 11.87% 11.86% 26.09% 18.00% 19.28% 1.00%
Ratios and supplemental
data
Net assets, end of
period (thousands) $218,816 $5,645 $4,102 $3,825 $3,210 $2,911
Ratios to average net
assets
Expenses** 2.23% 0.52% 0.50% 0.50% 0.50%+ 0.50%+
Net investment income 1.05% 2.63% 2.78% 2.83% 3.26%+ 3.32%+
Portfolio turnover rate 140% 89% 80% 103% 65% 71%
</TABLE>
(a) For the period from September 16, 1998 (commencement of class operations)
to September 30, 1998.
(b) Effective October 18, 1999, shareholders of Mentor Balanced Portfolio Class
A, Class B and Class Y shares became owners of that number of full and
fractional shares of Class A, Class C and Class Y shares, respectively, of
Evergreeen Capital Balanced Fund. Additionally, the accounting and perfor-
mance history of Class B shares of Mentor Balanced Portfolio was
redesignated as that of Class C shares of Evergreen Capital Balanced Fund.
(c) Prior to September 16, 1998, all shareholders of the Balanced Fund were
Class B shareholders. On September 16, 1998 shares of Class B were con-
verted to Class Y shares.
(d) For the period from January 1, 1995 to September 30, 1995.
(e) For the period from June 21, 1994 (commencement of operations) to December
31,1994.
* Excluding applicable sales charges.
** Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
See Combined Notes to Financial Statements.
34
<PAGE>
EVERGREEN
Capital Balanced Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------
1999 1998 (a) (b)
<S> <C> <C>
CLASS Y
Net asset value, beginning of period $ 13.69 $ 13.69
------------ ------------
Income from investment operations
Net investment income 0.19 0.01
Net realized and unrealized gains or losses on
securities and futures contracts 1.57 (0.01)
------------ ------------
Total from investment operations 1.76 0
------------ ------------
Distributions to shareholders from
Net investment income (0.28) 0
Net realized gains (0.05) 0
------------ ------------
Total distributions to shareholders (0.33) 0
------------ ------------
Net asset value, end of period $ 15.12 $ 13.69
------------ ------------
Total return 12.91% 0.00%
Ratios and supplemental data
Net assets, end of period (thousands) $ 26 $ 3,642
Ratios to average net assets
Expenses* 1.14% 1.10%+
Net investment income 1.59% 2.31%+
Portfolio turnover rate 140% 89%
</TABLE>
(a) For the period from September 16, 1998 (commencement of class operations)
to September 30, 1998.
(b) Prior to September 16, 1998, all shareholders of the Balanced Fund were
Class B shareholders. On September 16, 1998 shares of Class B were con-
verted to Class Y shares.
* Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
See Combined Notes to Financial Statements.
35
<PAGE>
EVERGREEN
Capital Growth Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
CLASS A
Net asset value, beginning of
period $ 22.71 $ 22.42 $ 19.36 $ 16.02 $ 14.88
-------- -------- ------- ------- -------
Income from investment
operations
Net investment income (loss) (0.05) (0.10) (0.02) 0.11 0.02
Net realized and unrealized
gains or losses on securities
and futures contracts 4.27 2.34 5.87 3.73 2.91
-------- -------- ------- ------- -------
Total from investment
operations 4.22 2.24 5.85 3.84 2.93
-------- -------- ------- ------- -------
Distributions to shareholders
from
Net investment income 0 (0.01) 0 0 0
Net realized gains (2.55) (1.94) (2.79) (0.50) (1.79)
-------- -------- ------- ------- -------
Total distributions to
shareholders (2.55) (1.95) (2.79) (0.50) (1.79)
-------- -------- ------- ------- -------
Net asset value, end of period $ 24.38 $ 22.71 $ 22.42 $ 19.36 $ 16.02
-------- -------- ------- ------- -------
Total return* 20.21% 10.72% 34.78% 24.63% 20.18%
Ratios and supplemental data
Net assets, end of period
(thousands) $285,690 $145,117 $65,703 $31,889 $29,852
Ratios to average net assets
Expenses** 1.39% 1.34% 1.41% 1.43% 1.87%
Net investment income (0.21%) 0.06% 0.53% 0.51% 0.27%
Portfolio turnover rate 82% 104% 64% 98% 157%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
CLASS B (a)
Net asset value,
beginning of period $ 21.72 $ 21.68 $ 18.92 $ 15.79 $ 14.80
-------- -------- -------- ------- -------
Income from investment
operations
Net investment income
(loss) (0.22) (0.08) 0 (0.04) 0.25
Net realized and
unrealized gains or
losses on securities
and futures contracts 4.02 2.07 5.55 3.67 2.53
-------- -------- -------- ------- -------
Total from investment
operations 3.80 1.99 5.55 3.63 2.78
-------- -------- -------- ------- -------
Distributions to
shareholders from
Net investment income 0 (0.01) 0 0 0
Net realized gains (2.55) (1.94) (2.79) (0.50) (1.79)
-------- -------- -------- ------- -------
Total distributions to
shareholders (2.55) (1.95) (2.79) (0.50) (1.79)
-------- -------- -------- ------- -------
Net asset value, end of
period $ 22.97 $ 21.72 $ 21.68 $ 18.92 $ 15.79
-------- -------- -------- ------- -------
Total return* 19.08% 9.86% 33.88% 23.64% 19.26%
Ratios and supplemental
data
Net assets, end of
period (thousands) $253,281 $196,751 $113,587 $68,213 $57,648
Ratios to average net
assets
Expenses** 2.14% 2.09% 2.16% 2.18% 2.56%
Net investment income (0.96%) (0.70%) (0.22%) (0.24%) (0.41%)
Portfolio turnover rate 82% 104% 64% 98% 157%
</TABLE>
(a) Effective October 25, 1999, shareholders of Mentor Capital Growth Portfolio
Class A, Class B and Class Y shares became owners of that number of full
and fractional shares of Class A, Class C and Class Y shares, respectively,
of Evergreen Capital Growth Fund. Additionally, the accounting and perfor-
mance history of Class B shares of Mentor Capital Growth Portfolio was
redesignated as that of Class C shares of Evergreen Capital Growth Fund.
* Excluding applicable sales charges.
** Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
See Combined Notes to Financial Statements.
36
<PAGE>
EVERGREEN
Capital Growth Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------
1999 1998 (a)
<S> <C> <C>
CLASS Y
Net asset value, beginning of period $ 22.74 $ 20.81
------------ ------------
Income from investment operations
Net investment income 0 0.02
Net realized and unrealized gains or losses on
securities and futures contracts 4.31 2.16
------------ ------------
Total from investment operations 4.31 2.18
------------ ------------
Distributions to shareholders from
Net realized gains (2.55) (0.25)
------------ ------------
Total distributions to shareholders (2.55) (0.25)
------------ ------------
Net asset value, end of period $ 24.50 $ 22.74
------------ ------------
Total return 20.57% 10.56%
Ratios and supplemental data
Net assets, end of period (thousands) $ 1 $ 1
Ratios to average net assets
Expenses* 1.14% 1.09%+
Net investment income 0.08% 0.38%+
Portfolio turnover rate 82% 104%
</TABLE>
(a) For the period from November 19, 1997 (commencement of class operations) to
September 30, 1998.
* Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
See Combined Notes to Financial Statements.
37
<PAGE>
EVERGREEN
Capital Income and Growth Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
CLASS A
Net asset value, beginning of
period $ 19.54 $ 20.60 $ 19.16 $ 17.13 $ 15.27
-------- ------- ------- ------- -------
Income from investment
operations
Net investment income 0.51 0.51 0.44 0.37 0.40
Net realized and unrealized
gains or losses on securities
and futures contracts 0.98 0.60 3.39 2.75 2.14
-------- ------- ------- ------- -------
Total from investment operations 1.49 1.11 3.83 3.12 2.54
-------- ------- ------- ------- -------
Distributions to shareholders
from
Net investment income (0.51) (0.51) (0.47) (0.35) (0.43)
Net realized gains (0.98) (1.66) (1.92) (0.74) (0.25)
-------- ------- ------- ------- -------
Total distributions to
shareholders (1.49) (2.17) (2.39) (1.09) (0.68)
-------- ------- ------- ------- -------
Net asset value, end of period $ 19.54 $ 19.54 $ 20.60 $ 19.16 $ 17.13
-------- ------- ------- ------- -------
Total return* 7.85% 5.81% 22.11% 19.13% 17.24%
Ratios and supplemental data
Net assets, end of period
(thousands) $108,815 $98,794 $63,509 $24,210 $19,888
Ratios to average net assets
Expenses** 1.37% 1.32% 1.35% 1.36% 1.69%
Net investment income 2.59% 2.70% 2.63% 2.08% 2.53%
Portfolio turnover rate 126% 40% 75% 72% 62%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
CLASS B (a)
Net asset value, beginning of
period $ 19.53 $ 20.59 $ 19.18 $ 17.14 $ 15.28
-------- -------- -------- ------- -------
Income from investment
operations
Net investment income 0.37 0.37 0.34 0.23 0.28
Net realized and unrealized
gains or losses on securities
and futures contracts 0.98 0.59 3.35 2.76 2.14
-------- -------- -------- ------- -------
Total from investment
operations 1.35 0.96 3.69 2.99 2.42
-------- -------- -------- ------- -------
Distributions to shareholders
from
Net investment income (0.38) (0.36) (0.36) (0.21) (0.31)
Net realized gains (0.98) (1.66) (1.92) (0.74) (0.25)
-------- -------- -------- ------- -------
Total distributions to
shareholders (1.36) (2.02) (2.28) (0.95) (0.56)
-------- -------- -------- ------- -------
Net asset value, end of period $ 19.52 $ 19.53 $ 20.59 $ 19.18 $ 17.14
-------- -------- -------- ------- -------
Total return* 7.06% 5.01% 21.24% 18.26% 16.32%
Ratios and supplemental data
Net assets, end of period
(thousands) $136,593 $143,846 $107,816 $66,548 $46,678
Ratios to average net assets
Expenses** 2.11% 2.07% 2.10% 2.13% 2.43%
Net investment income 1.83% 1.95% 1.87% 1.32% 1.78%
Portfolio turnover rate 126% 40% 75% 72% 62%
</TABLE>
(a) Effective October 25, 1999, shareholders of Mentor Income and Growth Port-
folio Class A, Class B and Class Y shares became owners of that number of
full and fractional shares of Class A, Class C and Class Y shares, respec-
tively, of Evergreen Capital Income and Growth Fund. Additionally, the ac-
counting and performance history of Class B shares of Mentor Income and
Growth Portfolio was redesignated as that of Class C shares of Evergreen
Capital Income and Growth Fund.
* Excluding applicable sales charges.
** Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
See Combined Notes to Financial Statements.
38
<PAGE>
EVERGREEN
Capital Income and Growth Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------
1999 1998 (a)
<S> <C> <C>
CLASS Y
Net asset value, beginning of period $ 19.54 $ 18.75
------------ ------------
Income from investment operations
Net investment income 0.59 0.54
Net realized and unrealized gains or losses on
securities and futures contracts 0.97 0.82
------------ ------------
Total from investment operations 1.56 1.36
------------ ------------
Distributions to shareholders from
Net investment income (0.17) (0.54)
Net realized gains (0.98) (0.03)
------------ ------------
Total distributions to shareholders (1.15) (0.57)
------------ ------------
Net asset value, end of period $ 19.95 $ 19.54
------------ ------------
Total return 8.21% 7.29%
Ratios and supplemental data
Net assets, end of period (thousands) $ 1 $ 1
Ratios to average net assets
Expenses* 1.02% 1.07%+
Net investment income 2.93% 3.15%+
Portfolio turnover rate 126% 40%
</TABLE>
(a) For the period from November 19, 1997 (commencement of class operations) to
September 30, 1998.
* Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
See Combined Notes to Financial Statements.
39
<PAGE>
EVERGREEN
Growth Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------
1999 1998 1997 1996 1995 (a)
<S> <C> <C> <C> <C> <C>
CLASS A
Net asset value,
beginning of period $ 14.60 $ 19.94 $ 18.47 $ 16.08 $ 13.37
------- ------- -------- ------- -------
Income from investment
operations
Net investment income
(loss) (0.12) (0.12) (0.17) (0.10) (0.01)
Net realized and
unrealized gains or
losses on securities
and futures contracts 2.07 (4.03) 4.19 4.23 2.72
------- ------- -------- ------- -------
Total from investment
operations 1.95 (4.15) 4.02 4.13 2.71
------- ------- -------- ------- -------
Distributions to
shareholders from
Net realized gains (0.56) (1.19) (2.55) (1.74) 0
------- ------- -------- ------- -------
Total distributions to
shareholders (0.56) (1.19) (2.55) (1.74) 0
------- ------- -------- ------- -------
Net asset value, end of
period $ 15.99 $ 14.60 $ 19.94 $ 18.47 $ 16.08
------- ------- -------- ------- -------
Total return* 13.90% (22.08%) 25.81% 29.15% 20.27%
Ratios and supplemental
data
Net assets, end of
period (thousands) $92,229 $77,720 $105,033 $40,272 $20,368
Ratios to average net
assets
Expenses** 1.30% 1.26% 1.28% 1.28% 1.36%+
Net investment income (0.71%) (0.56%) (0.67%) (0.39%) (0.65%)+
Portfolio turnover rate 108% 88% 77% 105% 70%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------- Year Ended
1999 1998 1997 1996 1995 (c) December 31, 1994
<S> <C> <C> <C> <C> <C> <C>
CLASS B (b)
Net asset value,
beginning of period $ 14.18 $ 19.53 $ 18.29 $ 16.05 $ 12.15 $ 13.78
-------- -------- -------- -------- -------- --------
Income from investment
operations
Net investment income
(loss) (0.25) (0.23) (0.22) (0.17) (0.13) (0.15)
Net realized and
unrealized gains or
losses on securities
and futures contracts 2.02 (3.93) 4.01 4.15 4.03 (0.47)
-------- -------- -------- -------- -------- --------
Total from investment
operations 1.77 (4.16) 3.79 3.98 3.90 (0.62)
-------- -------- -------- -------- -------- --------
Distributions to
shareholders from
Net realized gains (0.56) (1.19) (2.55) (1.74) 0 (1.01)
-------- -------- -------- -------- -------- --------
Total distributions to
shareholders (0.56) (1.19) (2.55) (1.74) 0 (1.01)
-------- -------- -------- -------- -------- --------
Net asset value, end of
period $ 15.39 $ 14.18 $ 19.53 $ 18.29 $ 16.05 $ 12.15
-------- -------- -------- -------- -------- --------
Total return* 13.01% (22.62%) 24.66% 28.18% 32.10% (4.48%)
Ratios and supplemental
data
Net assets, end of
period (thousands) $334,484 $383,188 $506,230 $371,578 $246,326 $190,126
Ratios to average net
assets
Expenses** 2.05% 2.01% 2.03% 2.03% 2.08%+ 2.01%
Net investment income (1.45%) (1.30%) (1.42%) (1.13%) (1.20%)+ (1.20%)
Portfolio turnover rate 108% 88% 77% 105% 70% 77%
</TABLE>
(a) For the period from June 5, 1995 (commencement of class operations) to Sep-
tember 30, 1995.
(b) Effective October 18, 1999, shareholders of Mentor Growth Portfolio Class
A, Class B and Class Y shares became owners of that number of full and
fractional shares of Class A, Class C and Class Y shares, respectively, of
Evergreen Growth Fund. Additionally, the accounting and performance history
of Class B shares of Mentor Growth Portfolio was redesignated as that of
Class C shares of Evergreen Growth Fund.
(c) For the nine months ended September 30, 1995. The Fund changed its fiscal
year end from December 30 to September 30, effective September 30, 1995.
* Excluding applicable sales charges.
** Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
See Combined Notes to Financial Statements.
40
<PAGE>
EVERGREEN
Growth Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------
1999 1998 (a)
<S> <C> <C>
CLASS Y
Net asset value, beginning of period $ 14.63 $ 18.12
------------ ------------
Income from investment operations
Net investment income (loss) (0.07) (0.02)
Net realized and unrealized gains or losses on
securities and futures contracts 2.05 (3.28)
------------ ------------
Total from investment operations 1.98 (3.30)
------------ ------------
Distributions to shareholders from
Net realized gains (0.56) (0.19)
------------ ------------
Total distributions to shareholders (0.56) (0.19)
------------ ------------
Net asset value, end of period $ 16.05 $ 14.63
------------ ------------
Total return 14.08% 18.36%
Ratios and supplemental data
Net assets, end of period (thousands) $ 35,427 $ 25,353
Ratios to average net assets
Expenses* 1.05% 1.01%+
Net investment income (0.47%) (0.04%)+
Portfolio turnover rate 108% 88%
</TABLE>
(a) For the period from November 19, 1997 (commencement of class operations) to
September 30, 1998.
* Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
See Combined Notes to Financial Statements.
41
<PAGE>
EVERGREEN
High Income Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------
1999 1998 (a)
<S> <C> <C>
CLASS A
Net asset value, beginning of period $ 10.92 $ 12.00
------------ -----------
Income from investment operations
Net investment income 1.04 0.24
Net realized and unrealized gains or losses on
securities and futures contracts (0.58) (1.04)
------------ -----------
Total from investment operations 0.46 (0.80)
------------ -----------
Distributions to shareholders from
Net investment income (1.09) (0.28)
------------ -----------
Total distributions to shareholders (1.09) (0.28)
------------ -----------
Net asset value, end of period $ 10.29 $ 10.92
------------ -----------
Total return* 4.07% (6.75)%
Ratios and supplemental data
Net assets, end of period (thousands) $ 146,179 $ 50,887
Ratios to average net assets
Expenses** 1.11% 0.60%+
Net investment income 9.00% 7.36%+
Portfolio turnover rate 79% 27%
<CAPTION>
Year Ended September 30,
---------------------------
1999 1998 (a)
<S> <C> <C>
CLASS B (b)
Net asset value, beginning of period $ 10.91 $ 12.00
------------ -----------
Income from investment operations
Net investment income 0.97 0.22
Net realized and unrealized gains or losses on
securities and futures contracts (0.57) (1.05)
------------ -----------
Total from investment operations 0.40 (0.83)
------------ -----------
Distributions to shareholders from
Net investment income (1.02) (0.26)
------------ -----------
Total distributions to shareholders (1.02) (0.26)
------------ -----------
Net asset value, end of period $ 10.29 $ 10.91
------------ -----------
Total return* 3.64% (6.95)%
Ratios and supplemental data
Net assets, end of period (thousands) $ 107,565 $ 62,869
Ratios to average net assets
Expenses** 1.58% 1.10%+
Net investment income 8.53% 6.87%+
Portfolio turnover rate 79% 27%
</TABLE>
(a) For the period from June 23, 1998 (commencement of operations) to September
30, 1998.
(b) Effective October 18, 1999, shareholders of Mentor High Income Portfolio
Class A and Class B shares became owners of that number of full and frac-
tional shares of Class A and Class C shares, respectively, of Evergreen
High Income Fund. Additionally, the accounting and performance history of
Class B shares of Mentor High Income Portfolio was redesignated as that of
Class C shares of Evergreen High Income Fund.
* Excluding applicable sales charges.
** Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
See Combined Notes to Financial Statements.
42
<PAGE>
EVERGREEN
Muncipal Income Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
CLASS A
Net asset value, beginning of
period $ 15.99 $ 15.50 $ 15.04 $ 14.92 $ 14.42
------- ------- ------- ------- -------
Income from investment
operations
Net investment income 0.69 0.66 0.81 0.82 0.81
Net realized and unrealized
gains or losses on securities
and futures contracts (1.24) 0.59 0.49 0.12 0.51
------- ------- ------- ------- -------
Total from investment operations (0.55) 1.25 1.30 0.94 1.32
------- ------- ------- ------- -------
Distributions to shareholders
from
Net investment income (0.69) (0.76) (0.81) (0.82) (0.82)
Net realized gains 0 0 (0.03) 0 0
------- ------- ------- ------- -------
Total distributions to
shareholders (0.69) (0.76) (0.84) (0.82) (0.82)
------- ------- ------- ------- -------
Net asset value, end of period $ 14.75 $ 15.99 $ 15.50 $ 15.04 $ 14.92
------- ------- ------- ------- -------
Total return* (3.60%) 8.24% 8.89% 6.46% 9.46%
Ratios and supplemental data
Net assets, end of period
(thousands) $57,456 $51,757 $29,394 $17,558 $20,460
Ratios to average net assets
Expenses** 1.16% 1.17% 1.22% 1.24% 1.43%
Net investment income 4.38% 4.63% 5.09% 5.47% 5.56%
Portfolio turnover rate 146% 62% 59% 46% 43%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
CLASS B (a)
Net asset value, beginning of
period $ 15.94 $ 15.49 $ 15.05 $ 14.95 $ 14.43
------- ------- ------- ------- -------
Income from investment
operations
Net investment income 0.60 1.30 0.71 0.75 0.74
Net realized and unrealized
gains or losses on securities
and futures contracts (1.21) (0.14) 0.52 0.11 0.52
------- ------- ------- ------- -------
Total from investment operations (0.61) 1.16 1.23 0.86 1.26
------- ------- ------- ------- -------
Distributions to shareholders
from
Net investment income (0.60) (0.71) (0.71) (0.76) (0.74)
Net realized gains 0 0 (0.08) 0 0
------- ------- ------- ------- -------
Total distributions to
shareholders (0.60) (0.71) (0.79) (0.76) (0.74)
------- ------- ------- ------- -------
Net asset value, end of period $ 14.73 $ 15.94 $ 15.49 $ 15.05 $ 14.95
------- ------- ------- ------- -------
Total return* (3.93%) 7.70% 8.33% 5.87% 9.01%
Ratios and supplemental data
Net assets, end of period
(thousands) $51,146 $59,351 $44,272 $37,191 $39,493
Ratios to average net assets
Expenses** 1.66% 1.67% 1.72% 1.74% 1.92%
Net investment income 3.89% 4.13% 4.60% 4.95% 5.07%
Portfolio turnover rate 146% 62% 59% 46% 43%
</TABLE>
(a) Effective October 18, 1999, shareholders of Mentor Municipal Income Portfo-
lio Class A, Class B and Class Y shares became owners of that number of
full and fractional shares of Class A, Class C and Class Y shares, respec-
tively, of Evergreen Municipal Income Fund. Additionally, the accounting
and performance history of Class B shares of Mentor Municipal Income Port-
folio was redesignated as that of Class C shares of Evergreen Municipal In-
come Fund.
* Excluding applicable sales charges.
** Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
See Combined Notes to Financial Statements.
43
<PAGE>
EVERGREEN
Muncipal Income Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------
1999 1998 (a)
<S> <C> <C>
CLASS Y
Net asset value, beginning of period $ 16.00 $ 15.51
------------ ------------
Income from investment operations
Net investment income 0.83 1.39
Net realized and unrealized gains or losses on
securities and futures contracts (1.37) (0.23)
------------ ------------
Total from investment operations (0.54) 1.16
------------ ------------
Distributions to shareholders from
Net investment income (0.22) (0.67)
------------ ------------
Total distributions to shareholders (0.22) (0.67)
------------ ------------
Net asset value, end of period $ 15.24 $ 16.00
------------ ------------
Total return (3.36%) 7.51%
Ratios and supplemental data
Net assets, end of period (thousands) $ 1 $ 1
Ratios to average net assets
Expenses* 0.89% 0.92%+
Net investment income 4.78% 5.66%+
Portfolio turnover rate 146% 62%
</TABLE>
(a) For the period from November 19, 1997 (commencement of class operations) to
September 30, 1998.
* Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
See Combined Notes to Financial Statements.
44
<PAGE>
EVERGREEN
Quality Income Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
CLASS A
Net asset value, beginning of
period $ 13.61 $ 13.18 $ 12.91 $ 13.29 $ 12.75
-------- ------- ------- ------- -------
Income from investment
operations
Net investment income 0.79 0.79 0.97 0.89 0.84
Net realized and unrealized
gains or losses on securities
and futures contracts (1.18) 0.47 0.26 (0.37) 0.61
-------- ------- ------- ------- -------
Total from investment operations (0.39) 1.26 1.23 0.52 1.45
-------- ------- ------- ------- -------
Distributions to shareholders
from
Net investment income (0.79) (0.83) (0.96) (0.90) (0.91)
-------- ------- ------- ------- -------
Total distributions to
shareholders (0.79) (0.83) (0.96) (0.90) (0.91)
-------- ------- ------- ------- -------
Net asset value, end of period $ 12.43 $ 13.61 $ 13.18 $ 12.91 $ 13.29
-------- ------- ------- ------- -------
Total return* (2.89%) 9.95% 9.86% 4.09% 11.82%
Ratios and supplemental data
Net assets, end of period
(thousands) $103,794 $94,279 $53,176 $21,092 $24,472
Ratios to average net assets
Expenses** 1.05% 1.05% 1.05% 1.05% 1.32%
Net investment income 6.08% 5.73% 7.01% 6.84% 6.73%
Portfolio turnover rate 171% 114% 100% 254% 368%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
CLASS B (a)
Net asset value, beginning of
period $ 13.61 $ 13.18 $ 12.93 $ 13.31 $ 12.76
------- -------- ------- ------- -------
Income from investment
operations
Net investment income 0.71 0.72 0.86 0.84 0.79
Net realized and unrealized
gains or losses on securities
and futures contracts (1.16) 0.48 0.30 (0.38) 0.61
------- -------- ------- ------- -------
Total from investment
operations (0.45) 1.20 1.16 0.46 1.40
------- -------- ------- ------- -------
Distributions to shareholders
from
Net investment income (0.73) (0.77) (0.91) (0.84) (0.85)
------- -------- ------- ------- -------
Total distributions to
shareholders (0.73) (0.77) (0.91) (0.84) (0.85)
------- -------- ------- ------- -------
Net asset value, end of period $ 12.43 $ 13.61 $ 13.18 $ 12.93 $ 13.31
------- -------- ------- ------- -------
Total return* (3.34%) 9.46% 9.29% 3.57% 11.33%
Ratios and supplemental data
Net assets, end of period
(thousands) $97,403 $112,901 $75,046 $58,239 $62,155
Ratios to average net assets
Expenses** 1.55% 1.55% 1.55% 1.55% 1.74%
Net investment income 5.57% 5.22% 6.51% 6.36% 6.24%
Portfolio turnover rate 171% 114% 100% 254% 368%
</TABLE>
(a) Effective October 18, 1999, shareholders of Mentor Quality Income Portfolio
Class A, Class B and Class Y shares became owners of that number of full
and fractional shares of Class A, Class C and Class Y shares, respectively,
of Evergreen Quality Income Fund. Additionally, the accounting and perfor-
mance history of Class B shares of Mentor Quality Income Portfolio was
redesignated as that of Class C shares of Evergreen Quality Income Fund.
* Excluding applicable sales charges.
** Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
See Combined Notes to Financial Statements.
45
<PAGE>
EVERGREEN
Quality Income Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------
1999 1998 (a)
<S> <C> <C>
CLASS Y
Net asset value, beginning of period $ 13.69 $ 13.20
------------ ------------
Income from investment operations
Net investment income 0.84 0.78
Net realized and unrealized gains or losses on
securities and futures contracts (1.20) 0.39
------------ ------------
Total from investment operations (0.36) 1.17
------------ ------------
Distributions to shareholders from
Net investment income (0.24) (0.68)
------------ ------------
Total distributions to shareholders (0.24) (0.68)
------------ ------------
Net asset value, end of period $ 13.09 $ 13.69
------------ ------------
Total return (2.63%) 8.94%
Ratios and supplemental data
Net assets, end of period (thousands) $ 1 $ 1
Ratios to average net assets
Expenses* 0.80% 0.80%+
Net investment income 6.30% 7.09%+
Portfolio turnover rate 171% 114%
</TABLE>
(a) For the period from November 19, 1997 (commencement of class operations) to
September 30, 1998.
* Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
See Combined Notes to Financial Statements.
46
<PAGE>
EVERGREEN
Short-Duration Income Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------
1999 1998 1997 1996 1995 (a)
<S> <C> <C> <C> <C> <C>
CLASS A
Net asset value, beginning of
period $ 12.74 $ 12.62 $ 12.50 $12.68 $12.74
-------- ------- ------- ------ ------
Income from investment
operations
Net investment income 0.68 0.70 0.77 0.82 0.22
Net realized and unrealized
gains or losses on securities
and futures contracts (0.51) 0.15 0.12 (0.23) (0.03)
-------- ------- ------- ------ ------
Total from investment operations 0.17 0.85 0.89 0.59 0.19
-------- ------- ------- ------ ------
Distributions to shareholders
from
Net investment income (0.71) (0.73) (0.77) (0.77) (0.25)
-------- ------- ------- ------ ------
Total distributions to
shareholders (0.71) (0.73) (0.77) (0.77) (0.25)
-------- ------- ------- ------ ------
Net asset value, end of period $ 12.20 $ 12.74 $ 12.62 $12.50 $12.68
-------- ------- ------- ------ ------
Total return* 1.38% 6.98% 7.33% 4.80% 1.51%
Ratios and supplemental data
Net assets, end of period
(thousands) $116,886 $93,135 $27,619 $7,450 $1,002
Ratios to average net assets
Expenses** 0.88% 0.86% 0.86% 0.86% 0.71%+
Net investment income 5.29% 5.24% 6.00% 5.90% 4.10%+
Portfolio turnover rate 218% 171% 75% 411% 126%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------- Year Ended
1999 1998 1997 1996 1995 (c) December 31, 1994 (d)
<S> <C> <C> <C> <C> <C> <C>
CLASS B (b)
Net asset value,
beginning of period $ 12.75 $ 12.62 $ 12.50 $ 12.67 $ 12.18 $ 12.50
------- ------- ------- ------- ------- -------
Income from investment
operations
Net investment income 0.62 0.66 0.73 0.73 0.59 0.41
Net realized and
unrealized gains or
losses on securities
and futures contracts (0.50) 0.16 0.12 (0.17) 0.52 (0.29)
------- ------- ------- ------- ------- -------
Total from investment
operations 0.12 0.82 0.85 0.56 1.11 0.12
------- ------- ------- ------- ------- -------
Distributions to
shareholders from
Net investment income (0.66) (0.69) (0.73) (0.73) (0.62) (0.44)
------- ------- ------- ------- ------- -------
Total distributions to
shareholders (0.66) (0.69) (0.73) (0.73) (0.62) (0.44)
------- ------- ------- ------- ------- -------
Net asset value, end of
period $ 12.21 $ 12.75 $ 12.62 $ 12.50 $ 12.67 $ 12.18
------- ------- ------- ------- ------- -------
Total return* 0.99% 6.68% 6.96% 4.53% 9.22% 0.95%
Ratios and supplemental
data
Net assets, end of
period (thousands) $44,074 $53,908 $27,089 $24,517 $19,871 $17,144
Ratios to average net
assets
Expenses** 1.19% 1.16% 1.16% 1.16% 1.20%+ 1.29%+
Net investment income 5.00% 4.94% 5.70% 5.60% 5.04%+ 4.90%+
Portfolio turnover rate 218% 171% 75% 411% 126% 166%
</TABLE>
(a) For the period from June 16, 1995 (commencement of class operations) to
September 30, 1995.
(b) Effective October 25, 1999, shareholders of Mentor Short-Duration Income
Portfolio Class A, Class B and Class Y shares became owners of that number
of full and fractional shares of Class A, Class C and Class Y shares, re-
spectively, of Evergreen Short-Duration Income Fund. Additionally, the ac-
counting and performance history of Class B shares of Mentor Short-Duration
Income Portfolio was redesignated as that of Class C shares of Evergreen
Short-Duration Income Fund.
(c) For the period from January 1, 1995 to September 30, 1995. The Fund changed
its fiscal year end from December 31 to September 30, effective September
30, 1996.
(d) For the period from April 29, 1994 (commencement of class operations) to
December 31, 1994.
* Excluding applicable sales charges.
** Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
See Combined Notes to Financial Statements.
47
<PAGE>
EVERGREEN
Short-Duration Income Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1999++ 1998 (a)
<S> <C> <C>
CLASS Y
Net asset value, beginning of period $ 12.79 $ 12.57
------------ ------------
Income from investment operations
Net investment income 0.88 0.67
Net realized and unrealized gains or losses on
securities and futures contracts (0.67) 0.16
------------
Total from investment operations 0.21 0.83
------------ ------------
Distributions to shareholders from
Net investment income (0.20) (0.61)
------------ ------------
Total distributions to shareholders (0.20) (0.61)
------------ ------------
Net asset value, end of period $ 12.80 $ 12.79
------------ ------------
Total return 1.63% 6.64%
Ratios and supplemental data
Net assets, end of period (thousands) $ 1 $ 1
Ratios to average net assets
Expenses * 0.62% 0.61%+
Net investment income 5.46% 6.10%+
Portfolio turnover rate 218% 171%
</TABLE>
(a) For the period from November 19, 1997 (commencement of class operations) to
September 30, 1998.
* Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
++ Calulation based on average shares outstanding.
See Combined Notes to Financial Statements.
48
<PAGE>
EVERGREEN
Capital Balanced Fund
Schedule of Investments
September 30, 1999
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 46.2%
Advertising & Related
Services - 2.0%
174,670 Interpublic Group of Companies, Inc. ............... $ 7,183,304
------------
Banks - 4.3%
102,766 Charter One Financial, Inc. (b)..................... 2,376,455
2,901 M&T Bank Corp. ..................................... 1,331,559
173,100 SouthTrust Corp. ................................... 6,209,962
140,495 Wells Fargo Co. (b)................................. 5,567,114
------------
15,485,090
------------
Building, Construction & Furnishings - 0.8%
134,985 Sherwin Williams Co. ............................... 2,826,248
------------
Business Equipment &
Services - 7.9%
174,800 Automatic Data Processing, Inc. .................... 7,800,450
128,645 * Computer Sciences Corp. .......................... 9,045,352
162,100 First Data Corp. ................................... 7,112,137
156,600 * SunGard Data Systems, Inc. (b).................... 4,120,538
------------
28,078,477
------------
Communication Systems & Services - 1.7%
84,585 * MCI WorldCom, Inc. ............................... 6,079,547
------------
Diversified Companies - 2.5%
86,645 Tyco International Ltd. (b)......................... 8,946,096
------------
Finance & Insurance - 4.1%
45,860 American Express Co. ............................... 6,173,903
103,910 Federal National Mortgage Assoc. (b)................ 6,513,858
70,880 Washington Mutual, Inc. ............................ 2,073,240
------------
14,761,001
------------
Food & Beverage Products - 3.0%
150,000 Albertsons, Inc. ................................... 5,934,375
145,000 Philip Morris Companies, Inc. ...................... 4,957,187
------------
10,891,562
------------
Healthcare Products &
Services - 5.9%
108,890 Bristol-Myers Squibb Co. ........................... 7,350,075
80,205 Johnson & Johnson................................... 7,368,834
367,970 * Tenet Healthcare Corp. ........................... 6,462,473
------------
21,181,382
------------
Industrial Specialty Products & Services - 2.0%
94,435 Illinois Tool Works, Inc............................ 7,041,310
------------
Information Services & Technology - 4.7%
108,000 Intel Corp. ........................................ 8,025,750
93,050 * Sun Microsystems, Inc. ........................... 8,653,650
------------
16,679,400
------------
Manufacturing - Distributing - 2.4%
245,935 Sysco Corp. ........................................ 8,623,096
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Paper & Packaging - 1.5%
104,600 Kimberly-Clark Corp. .............................. $ 5,491,500
------------
Printing, Publishing, Broadcasting &
Entertainment - 2.5%
113,600 * AMFM, Inc. (b)................................... 6,915,400
24,800 Omnicom Group, Inc. ............................... 1,963,850
------------
8,879,250
------------
Transportation - 0.9%
174,272 Werner Enterprises, Inc. .......................... 3,071,544
------------
Total Common Stocks (cost $143,773,335)............ 165,218,807
------------
<CAPTION>
Principal
Amount Value
<C> <S> <C>
ASSET-BACKED SECURITIES - 5.0%
$ 16,825 AFG Receivables Trust, Series 1997-A Cl. B
6.65%, 10/15/2002................................. 16,872
1,000,000 Capital Auto Receivables Asset, Series 1999-2 Cl.
A4
6.30%, 10/15/1999................................. 1,001,285
2,900,000 Capital One Master Trust, Series 1998-4 Cl. A
5.43%, 1/15/2007.................................. 2,792,917
1,691,872 Continental Airlines Trust, Series 1997-1A
7.461%, 4/1/2015.................................. 1,646,251
25,000 CS First Boston Mortgage Securities Corp., Series
1996-2 Cl. A6
7.18%, 2/25/2018.................................. 24,910
Discover Card Master Trust I:
1,125,000 Series 1998-7 Cl. A,
5.60%, 5/16/2006................................... 1,083,516
2,025,000 Series 1996-3 Cl. A,
6.05%, 8/18/2008................................... 1,957,658
2,500,000 EQCC Home Equity Loan Trust, Series 1999-2 Cl. A6F
6.685%, 2/25/2010................................. 2,434,137
1,200,000 Ford Credit Auto Owner Trust, Series 1999-C Cl. A4
6.08%, 9/16/2002.................................. 1,197,006
1,500,000 Key Auto Finance Trust, Series 1999-1 Cl. A3
5.63%, 7/15/2003.................................. 1,487,093
1,700,000 Northwest Airlines Trust, Series 1999-2 Cl. B
7.95%, 3/1/2015................................... 1,687,501
2,500,000 Saxon Asset Securities Trust, Series 1999-2 Cl. Af6
6.415%, 3/25/2014................................. 2,378,555
Union Acceptance Corp.:
250,000 Series 1998-D,
5.75%, 6/9/2003.................................... 248,791
45,000 Series 1997-A Cl. A3,
6.48%, 5/10/2004................................... 44,909
------------
Total Asset-Backed Securities (cost $18,524,831)... 18,001,401
------------
</TABLE>
49
<PAGE>
EVERGREEN
Capital Balanced Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - 9.2%
Banks - 0.0%
$ 60,000 Norwest Corp.
6.80%, 5/15/2002.................................. $ 60,419
------------
Diversified Companies - 0.4%
1,500,000 Rothmans Nederland Holdings BV
6.875%, 5/6/2008.................................. 1,409,777
------------
Finance & Insurance - 1.6%
1,500,000 Associates Corp. of North America 6.25%,
11/1/2008......................................... 1,414,170
1,250,000 Ford Motor Credit Co.
5.80%, 1/12/2009.................................. 1,137,487
300,000 General Electric Capital Corp.
6.29%, 12/15/2007................................. 300,166
1,580,000 Goldman Sachs Group, Inc.
6.65%, 5/15/2009.................................. 1,505,024
1,450,000 Household Finance Corp.
6.40%, 6/17/2008.................................. 1,363,310
100,000 Toyota Motor Credit Corp.
5.625%, 11/13/2003................................ 96,452
------------
5,816,609
------------
Food & Beverage Products - 0.9%
1,500,000 Kroger Co.
7.25%, 6/1/2009................................... 1,467,561
1,800,000 Pepsi Bottling Holdings, Inc.
5.625%, 2/17/2009................................. 1,619,048
------------
3,086,609
------------
Healthcare Products &
Services - 0.1%
330,000 SmithKline Beecham Corp.
6.625%, 10/1/2001................................. 333,041
------------
Information Services & Technology - 1.0%
1,800,000 IBM Corp. (b)
6.50%, 1/15/2028.................................. 1,651,469
2,000,000 Sun Microsystems, Inc.
7.65%, 8/15/2009.................................. 2,030,640
------------
3,682,109
------------
Oil/Energy - 1.1%
1,400,000 Atlantic Richfield Co.
5.90%, 4/15/2009.................................. 1,302,323
1,800,000 Conoco, Inc.
6.35%, 4/15/2009.................................. 1,716,021
1,000,000 Enron Corp.
6.725%, 11/17/2008................................ 955,788
------------
3,974,132
------------
Retailing & Wholesale - 0.4%
1,500,000 Wal-Mart Stores, Inc. 6.875%, 8/10/2009............ 1,505,222
------------
Sovereign Government - 0.3%
1,150,000 Quebec Province Canada 7.50%, 9/15/2029............ 1,150,840
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Telecommunication Services & Equipment - 1.4%
$ 1,540,000 Cable & Wireless Communication 6.625%, 3/6/2005.... $ 1,554,214
1,500,000 Lucent Technologies, Inc. 6.45%, 3/15/2029......... 1,352,265
2,000,000 Tyco International Group SA 6.875%, 9/5/2002....... 2,005,108
------------
4,911,587
------------
Utilities - Electric - 1.2%
2,000,000 Alabama Power Co. 7.125%, 8/15/2004................ 2,016,272
Georgia Power Co.:
1,500,000 5.50%, 12/1/2005................................... 1,400,668
1,000,000 6.00%, 3/1/2000.................................... 1,000,833
------------
4,417,773
------------
Utilities - Telephone - 0.5%
1,850,000 Sprint Capital Corp. 6.90%, 5/1/2019............... 1,722,898
------------
Utilities - 0.3%
1,000,000 PSI Energy, Inc. 6.00%, 12/14/2001................. 977,601
------------
Total Corporate Bonds (cost $34,032,642)........... 33,048,617
------------
<CAPTION>
Shares Value
<C> <S> <C>
UNIT INVESTMENT TRUST - 1.3%
Finance & Insurance - 1.3%
36,000 S&P 500 Depositary Receipt (SPDR Trust)
(cost $4,605,660)................................. 4,635,000
------------
<CAPTION>
Principal
Amount Value
<C> <S> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 28.0%
U.S. Treasury Notes & Bonds - 3.6%
U.S. Treasury Bonds:
$ 1,700,000 5.25%, 11/15/2028 (b).............................. 1,474,220
500,000 6.00%, 2/15/2026................................... 476,875
9,350,000 6.50%, 11/15/2026 (b)(c)........................... 9,501,937
1,250,000 U.S. Treasury Notes 6.00%, 8/15/2009............... 1,260,157
------------
12,713,189
------------
</TABLE>
50
<PAGE>
EVERGREEN
Capital Balanced Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS - continued
U.S. Government Agency Obligations - 24.4%
$ 2,250,000 Federal Home Loan Bank 7.00%, 9/22/2004............. $ 2,242,062
Federal National Mortgage Assoc.:
3,687,244 6.00%, 8/1/2014..................................... 3,548,087
10,400,000 6.50%, 4/1/2014..................................... 10,227,673
4,750,000 6.625%, 9/15/2009................................... 4,733,693
31,336,000 7.00%, 9/1/2014 - 8/1/2029.......................... 31,113,297
25,000,000 7.50%, 9/1/2029..................................... 25,105,277
10,716,191 Government National Mortgage Assoc.
6.50%, 5/15/2009 - 4/15/2029........................ 10,321,154
------------
87,291,243
------------
Total U.S. Government & Agency Obligations
(cost $99,334,674)................................. 100,004,432
------------
<CAPTION>
Shares Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - 18.0%
Mutual Fund Shares - 6.4%
22,733,449 Navigator Prime Portfolio (d)....................... 22,733,449
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - continued
Repurchase Agreement - 11.6%
$41,410,701 State Street Bank & Trust Co., purchased 9/30/1999,
5.28%, maturing 10/1/1999, maturity value
$41,416,775 (cost $41,410,701) (a)................ $ 41,410,701
------------
Total Short-Term Investments (cost $64,144,150).... 64,144,150
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -(cost $364,415,292)...... 107.7% 385,052,407
Other Assets and Liabilities - net.......... (7.7) (27,523,995)
----- ------------
Net Assets.................................. 100.0% $357,528,412
===== ============
</TABLE>
(a) The repurchase agreement is fully collateralized by the U.S.
government and/or agency obligations based on market prices plus
accrued interest at September 30, 1999.
(b) All or a portion of this security is on loan.
(c) All or a portion of the principal amount of this security was pledged
to cover initial margin requirements for open future contracts.
(d) Represents investment in cash collateral received for securities on
loan.
* Non-income producing security.
FUTURES CONTRACTS - SHORT POSITIONS
<TABLE>
<CAPTION>
Number of Initial Contract Value at Net
Expiration Contracts Amount September 30, 1999 Unrealized Loss
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December
1999 87 5 Yr. T-Note $9,389,204 $9,436,786 ($47,582)
December
1999 43 2 Yr. T-Note 8,894,954 8,923,841 (28,887)
--------
($76,469)
========
</TABLE>
See Combined Notes to Financial Statements.
51
<PAGE>
EVERGREEN
Capital Growth Fund
Schedule of Investments
September 30, 1999
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 92.3%
Advertising & Related
Services - 4.4%
575,600 Interpublic Group of Companies, Inc. ............... $ 23,671,550
------------
Banks - 7.2%
512,500 SouthTrust Corp. ................................... 18,385,938
519,800 Wells Fargo Co. .................................... 20,597,075
------------
38,983,013
------------
Building, Construction & Furnishings - 2.9%
754,600 Sherwin Williams Co. ............................... 15,799,438
------------
Business Equipment &
Services - 16.3%
515,000 Automatic Data Processing, Inc. .................... 22,981,875
376,150 * Computer Sciences Corp. .......................... 26,448,047
467,000 First Data Corp .................................... 20,489,625
675,000 * SunGard Data Systems, Inc. (b) ................... 17,760,937
------------
87,680,484
------------
Communication Systems & Services - 3.3%
245,750 * MCI WorldCom, Inc. ............................... 17,663,281
------------
Diversified Companies - 4.6%
241,600 Tyco International Ltd. ............................ 24,945,200
------------
Finance & Insurance - 10.1%
156,500 American Express Co. ............................... 21,068,812
304,600 Federal National Mortgage Assoc. ................... 19,094,613
483,640 Washington Mutual, Inc. ............................ 14,146,470
------------
54,309,895
------------
Food & Beverage Products - 6.4%
462,500 Albertsons, Inc. ................................... 18,297,656
470,000 Philip Morris Companies, Inc. ...................... 16,068,125
------------
34,365,781
------------
Healthcare Products &
Services - 11.3%
311,500 Bristol-Myers Squibb Co. ........................... 21,026,250
220,600 Johnson & Johnson................................... 20,267,625
1,131,000 * Tenet Healthcare Corp. (b)........................ 19,863,188
------------
61,157,063
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Industrial Specialty Products & Services - 3.9%
283,700 Illinois Tool Works, Inc. ......................... $ 21,153,381
------------
Information Services &
Technology - 8.1%
300,210 Intel Corp. ....................................... 22,309,356
227,700 * Sun Microsystems, Inc. .......................... 21,176,100
------------
43,485,456
------------
Manufacturing - Distributing - 4.9%
756,500 Sysco Corp. ....................................... 26,524,781
------------
Paper & Packaging - 3.1%
318,400 Kimberly-Clark Corp. .............................. 16,716,000
------------
Printing, Publishing, Broadcasting &
Entertainment - 4.3%
379,750 * AMFM, Inc. (b)................................... 23,117,281
------------
Transportation - 1.5%
446,312 Werner Enterprises, Inc. .......................... 7,866,249
------------
Total Common Stocks
(cost $427,362,541)............................... 497,438,853
------------
SHORT-TERM INVESTMENTS - 8.7%
Mutual Fund Shares - 0.7%
3,687,316 Navigator Prime Portfolio (c)...................... 3,687,316
------------
<CAPTION>
Principal
Amount Value
<C> <S> <C>
Repurchase Agreement - 8.0%
$43,350,457 State Street Bank & Trust Co., purchased 9/30/1999,
5.28%, maturing 10/1/1999, maturity value
$43,356,815 (cost $43,350,457) (a)................ 43,350,457
------------
Total Short-Term Investments
(cost $47,037,773)................................ 47,037,773
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -
(cost $474,400,314)........................ 101.0% 544,476,626
Other Assets and Liabilities - net.......... (1.0) (5,504,008)
----- ------------
Net Assets.................................. 100.0% $538,972,618
===== ============
</TABLE>
(a) The repurchase agreement is fully collateralized by the U.S. government
and/or agency obligations based on market prices plus accrued interest
at September 30, 1999.
(b) All or a portion of this security is on loan.
(c) Represents investment in cash collateral received for securities on loan.
* Non-income producing security.
See Combined Notes to Financial Statements.
52
<PAGE>
EVERGREEN
Capital Income and Growth Fund
Schedule of Investments
September 30, 1999
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 49.6%
Advertising & Related
Services - 1.7%
104,000 Interpublic Group of Companies, Inc. ................ $ 4,277,000
------------
Automotive Equipment & Manufacturing - 1.3%
62,200 Ford Motor Co........................................ 3,121,662
------------
Banks - 4.6%
73,500 SouthTrust Corp. .................................... 2,636,812
100,900 U.S. Bancorp......................................... 3,045,919
39,000 Wachovia Corp. (b)................................... 3,066,375
65,000 Wells Fargo Co. ..................................... 2,575,625
------------
11,324,731
------------
Building, Construction & Furnishings - 1.0%
113,400 Sherwin Williams Co. ................................ 2,374,313
------------
Business Equipment &
Services - 7.0%
110,000 Automatic Data Processing, Inc....................... 4,908,750
70,000 * Computer Sciences Corp. ........................... 4,921,875
91,000 First Data Corp. .................................... 3,992,625
130,000 * SunGard Data Systems, Inc. ........................ 3,420,625
------------
17,243,875
------------
Communication Systems & Services - 1.3%
43,000 * MCI WorldCom, Inc. ................................ 3,090,625
------------
Diversified Companies - 2.1%
51,000 Tyco International Ltd............................... 5,265,750
------------
Finance & Insurance - 6.2%
29,000 American Express Co. (b)............................. 3,904,125
92,550 Citigroup, Inc. ..................................... 4,072,200
77,600 Federal National Mortgage
Assoc. (b).......................................... 4,864,550
80,000 Washington Mutual, Inc. (b).......................... 2,340,000
------------
15,180,875
------------
Food & Beverage Products - 2.6%
92,900 Albertsons, Inc...................................... 3,675,356
77,000 Philip Morris Companies, Inc. ....................... 2,632,438
------------
6,307,794
------------
Healthcare Products &
Services - 6.2%
65,000 Bristol-Myers Squibb Co. ............................ 4,387,500
45,500 Johnson & Johnson.................................... 4,180,312
61,000 Pharmacia & Upjohn, Inc.............................. 3,027,125
207,000 * Tenet Healthcare Corp.............................. 3,635,438
------------
15,230,375
------------
Industrial Specialty Products & Services - 1.5%
50,000 Illinois Tool Works, Inc............................. 3,728,125
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Information Services & Technology - 5.5%
57,000 Intel Corp. ......................................... $ 4,235,812
28,800 International Business Machines Corp. (b)............ 3,495,600
61,000 * Sun Microsystems, Inc. ............................ 5,673,000
------------
13,404,412
------------
Manufacturing - Distributing - 2.1%
143,600 Sysco Corp........................................... 5,034,975
------------
Oil Field Services - 1.4%
118,800 Baker Hughes, Inc. .................................. 3,445,200
------------
Paper & Packaging - 1.4%
66,000 Kimberly-Clark Corp. ................................ 3,465,000
------------
Printing, Publishing, Broadcasting &
Entertainment - 1.7%
70,000 * AMFM, Inc. (b)..................................... 4,261,250
------------
Transportation - 0.6%
85,000 Werner Enterprises, Inc. ............................ 1,498,125
------------
Utilities - Telephone - 1.4%
69,300 SBC Communications, Inc. ............................ 3,538,631
------------
Total Common Stocks
(cost $116,374,004)................................. 121,792,718
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
ASSET-BACKED SECURITIES - 2.2%
$1,300,000 American Express Credit Account, Series 1999 2Nctf
Cl. A
5.95%, 12/15/2006.................................. 1,267,585
1,800,000 Capital Auto Receivables Asset, Series 1999-2 Cl. A4
6.30%, 5/15/2004................................... 1,802,313
1,250,000 Discover Card Master Trust I, Series 1998-7 Cl. A
5.60%, 5/16/2006................................... 1,203,906
1,000,000 Ford Credit Auto Owner Trust, Series 1999-C Cl. A4
6.08%, 9/16/2002................................... 997,505
------------
Total Asset-Backed Securities
(cost $5,258,396).................................. 5,271,309
------------
CORPORATE BONDS - 12.4%
Aerospace & Defense - 1.0%
2,500,000 Raytheon Co.
6.45%, 8/15/2002................................... 2,480,538
------------
Banks - 0.1%
250,000 Chase Manhattan Corp.
7.75%, 11/1/1999................................... 250,420
------------
Finance & Insurance - 2.4%
1,000,000 Allstate Corp. 6.75%, 5/15/2018..................... 909,455
2,500,000 Associates Corporation North America 5.75%,
11/1/2003.......................................... 2,407,677
</TABLE>
53
<PAGE>
EVERGREEN
Capital Income and Growth Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Finance & Insurance - continued
$ 1,500,000 Household Finance Corp.
7.20%, 7/15/2006................................... $ 1,499,550
500,000 Security Benefit Life Co.
8.75%, 5/15/2016................................... 488,700
785,000 United States West Capital Funding, Inc.
6.875%, 7/15/2028.................................. 701,129
------------
6,006,511
------------
Food & Beverage Products - 1.0%
2,500,000 Kroger Co.
7.25%, 6/1/2009.................................... 2,445,935
------------
Information Services & Technology - 1.6%
2,500,000 International Business Machines
6.50%, 1/15/2028................................... 2,293,707
1,500,000 Sun Microsystems, Inc.
7.65%, 8/15/2009................................... 1,522,980
------------
3,816,687
------------
Oil/Energy - 1.0%
2,500,000 Atlantic Richfield Co.
5.90%, 4/15/2009................................... 2,325,577
250,000 Pacific Gas & Electric Co.
5.93%, 10/8/2003................................... 243,696
------------
2,569,273
------------
Retailing & Wholesale - 1.0%
1,000,000 Gap, Inc.
6.90%, 9/15/2007................................... 995,226
1,500,000 Wal-Mart Stores, Inc.
6.875%, 8/10/2009.................................. 1,505,221
------------
2,500,447
------------
Sovereign Government - 2.0%
2,500,000 Province of Ontario, Canada
7.75%, 6/4/2002.................................... 2,579,350
2,500,000 Quebec Province, Canada
5.75%, 2/15/2009................................... 2,282,950
------------
4,862,300
------------
Telecommunication Services & Equipment - 0.5%
1,250,000 Lucent Technologies, Inc.
6.45%, 3/15/2029................................... 1,126,888
------------
Thrift Institutions - 0.2%
250,000 Great Western Financial Corp.
6.375%, 7/1/2000................................... 250,688
250,000 Home Svgs America, Irwindale California
6.00%, 11/1/2000................................... 248,328
------------
499,016
------------
Utilities - Electric - 0.8%
1,000,000 Duke Energy Co.
6.00%, 12/1/2028................................... 814,466
250,000 Florida Power & Light Co.
5.375%, 4/1/2000................................... 249,622
250,000 Southwestern Public Service Co.
6.875%, 12/1/1999.................................. 250,451
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Utilities - Electric - continued
$ 500,000 System Energy Resources, Inc.
7.71%, 8/1/2001................................... $ 507,250
250,000 Union Electric Co.
6.75%, 10/15/1999................................. 250,088
------------
2,071,877
------------
Utilities - Telephone - 0.8%
2,000,000 Worldcom, Inc.
6.95%, 8/15/2028.................................. 1,866,392
------------
Total Corporate Bonds (cost $31,249,108)........... 30,496,284
------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 26.0%
U.S. Treasury Bonds - 2.0%
5,600,000 U.S. Treasury Bonds
5.25%, 11/15/2028 (b)............................. 4,856,253
------------
U.S. Government Agency Obligations - 24.0%
Federal National Mortgage Assoc.
2,591,036 6.00%, 8/1/2014.................................... 2,493,250
5,950,000 6.50%, 4/1/2014.................................... 5,851,409
3,360,000 6.625%, 9/15/2009.................................. 3,348,465
13,695,703 7.00%, 9/1/2014 - 8/1/2029......................... 13,636,129
20,000,000 7.50%, 9/1/2029 - 10/1/2029........................ 20,084,200
Government National Mortgage Assoc.
4,997,101 6.00%, 12/15/2028.................................. 4,642,507
6,212,287 6.50%, 7/15/2014 - 6/15/2028....................... 5,983,442
2,925,433 7.00%, 1/15/2024 - 7/15/2024....................... 2,885,530
------------
58,924,932
------------
Total U.S. Government & Agency Obligations
(cost $63,843,424)................................ 63,781,185
------------
<CAPTION>
Shares Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - 15.1%
Mutual Fund Shares - 5.5%
13,385,847 Navigator Prime Portfolio (c)...................... 13,385,847
------------
<CAPTION>
Principal
Amount Value
<C> <S> <C>
Repurchase Agreement - 9.6%
$23,655,068 State Street Bank & Trust Co., purchased 9/30/1999,
5.28%, maturing 10/1/1999, maturity value
$23,658,537
(cost $23,655,068) (a)............................ 23,655,068
------------
Total Short-Term Investments (cost $37,040,915).... 37,040,915
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -
(cost $253,765,847)........................ 105.3% 258,382,411
Other Assets and Liabilities - net.......... (5.3) (12,972,562)
----- ------------
Net Assets.................................. 100.0% $245,409,849
===== ============
</TABLE>
(a) The repurchase agreement is fully collateralized by the U.S. govern-
ment and/or agency obligations based on market prices plus accrued
interest at September 30, 1999.
(b) All or a portion of this security is on loan.
(c) Represents investment in cash collateral received for securities on
loan.
* Non-income producing security.
See Combined Notes to Financial Statements.
54
<PAGE>
EVERGREEN
Growth Fund
Schedule of Investments
September 30, 1999
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 91.1%
Advertising & Related Services - 1.7%
83,350 * Lamar Advertising Co. Cl. A (b)............... $ 4,125,825
106,289 * Outdoor Systems, Inc. ........................ 3,799,832
------------
7,925,657
------------
Banks - 2.9%
88,250 Commerce Bancorp, Inc. ......................... 3,662,375
285,784 National Commerce Bancorp....................... 6,278,317
40,950 U.S. Trust Corp. ............................... 3,291,356
------------
13,232,048
------------
Building, Construction & Furnishings - 0.3%
57,850 * Shaw Group, Inc. ............................. 1,298,009
------------
Business Equipment & Services - 9.6%
199,000 AHL Services, Inc. (b).......................... 5,186,437
175,925 Butler International, Inc. ..................... 1,539,344
119,450 C&D Technologies................................ 4,337,528
105,550 Circle International Group, Inc. ............... 2,157,178
232,374 Concord EFS, Inc. .............................. 4,792,714
51,200 Corporate Executive Board Co. .................. 2,086,400
83,500 * CSG System International, Inc. ............... 2,288,422
240,400 Heidrick & Struggles International, Inc. ....... 4,582,625
198,250 Imax Corp. (b).................................. 3,965,000
199,022 Nova Corp. (b).................................. 4,975,550
76,300 Polycom, Inc. .................................. 3,636,172
380,150 Sensormatic Electronics Corp. (b)............... 4,823,153
------------
44,370,523
------------
Communication Systems & Services - 6.7%
112,600 Exar Corp. ..................................... 4,215,463
41,000 Focal Communications Corp. ..................... 1,050,625
219,550 Kemet Corp. .................................... 7,018,739
65,050 Nielsen Media Research, Inc. ................... 2,419,047
201,750 * Pinnacle Holdings, Inc. ...................... 5,270,719
75,800 Powerwave Technologies, Inc. ................... 3,654,981
117,900 Westwood One, Inc. (b).......................... 5,320,237
47,150 * Winstar Communications, Inc. (b).............. 1,841,797
------------
30,791,608
------------
Consumer Products & Services - 3.5%
119,000 * Action Performance Companies, Inc. (b)........ 2,506,438
175,550 Chattem, Inc. .................................. 3,873,072
88,150 Jakks Pacific, Inc. ............................ 3,305,625
160,750 Rent-Way, Inc. (b).............................. 3,054,250
152,625 SCP Pool Corp. ................................. 3,586,687
------------
16,326,072
------------
Electrical Equipment & Services - 11.6%
134,700 Asyst Technologies, Inc. (b).................... 4,445,100
186,000 * Atmel Corp. (b)............................... 6,289,125
135,650 Atmi, Inc. (b).................................. 5,061,441
225,140 * Benchmark Electronics, Inc. (b)............... 7,950,256
59,750 * Black Box Corp. (b)........................... 3,136,875
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Electrical Equipment & Services - continued
280,650 Cypress Semiconductor Corp. ...................... $ 6,033,975
303,300 * Parlex Corp. ................................... 4,663,237
111,100 Photronic, Inc. .................................. 2,492,806
178,950 Power One, Inc. (b)............................... 4,563,225
91,000 * PRI Automation, Inc. (b)........................ 3,287,375
69,900 Radisys Corp. .................................... 2,743,575
201,000 * Sipex Corp. .................................... 2,876,813
------------
53,543,803
------------
Electronic Equipment & Services - 4.2%
67,450 Alpha Industries, Inc. ........................... 3,804,602
315,300 Cerprobe Corp. ................................... 1,497,675
51,500 CTS Corp. ........................................ 2,961,250
257,350 International Rectifier Corp. .................... 3,924,587
189,600 Memc Electronic Materials, Inc. (b)............... 2,607,000
104,300 Micrel, Inc. (b).................................. 4,524,012
------------
19,319,126
------------
Finance & Insurance - 1.4%
35,410 Markel Corp. ..................................... 6,446,833
------------
Food & Beverage Products - 1.9%
262,000 * United States Foodservice (b)................... 4,716,000
104,000 Wild Oats Markets, Inc. (b)....................... 4,108,000
------------
8,824,000
------------
Healthcare Products & Services - 8.7%
121,250 Bindley Western Industries, Inc. ................. 1,735,391
226,100 * Brookdale Living Communities, Inc. ............. 3,250,187
90,850 * Chirex, Inc. ................................... 2,345,066
54,550 * Dendrite International, Inc. (b)................ 2,577,488
124,300 Medicis Pharmaceutical Corp. ..................... 3,542,550
99,600 * MedQuist, Inc. ................................. 3,330,375
148,000 Molecular Devices Corp. .......................... 4,070,000
140,100 Pharmaceutical Product Development, Inc. (b)..... 1,900,106
42,100 Priority Healthcare Corp. Cl. A................... 1,299,837
142,150 Priority Healthcare Corp. Cl. B................... 4,388,881
353,300 Province Healthcare Co. .......................... 4,062,950
261,100 United Payors & United Providers.................. 4,601,887
94,750 * Wesley Jessen Visioncare, Inc. ................. 2,955,016
------------
40,059,734
------------
Industrial Specialty Products & Services - 0.5%
54,000 * Dionex Corp. ................................... 2,308,500
------------
Information Services & Technology - 10.4%
53,200 * Applied Micro Circuits Corp. ................... 3,032,400
106,900 Bea Systems, Inc. (b)............................. 3,774,906
206,450 Braun Consulting, Inc. (b)........................ 3,432,231
119,300 Burr-Brown Corp. ................................. 4,712,350
271,200 * Corsair Communications, Inc. ................... 1,915,350
106,350 Datastream Systems, Inc. ......................... 1,395,844
34,900 Factset Research Systems Inc. (b)................. 1,984,938
</TABLE>
55
<PAGE>
EVERGREEN
Growth Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Information Services & Technology - continued
165,900 Galileo Technology Ltd. ........................... $ 4,147,500
220,400 * Mecon, Inc. ..................................... 1,405,050
39,750 * Network Appliance, Inc. ......................... 2,847,094
282,600 Newgen Results Corp. .............................. 3,073,275
278,350 Peerless Systems Corp. ............................ 3,688,137
109,700 Remedy Corp. ...................................... 3,112,738
17,250 * Sandisk Corp. ................................... 1,124,484
54,350 Verity, Inc. ...................................... 3,739,959
111,300 Visual Networks, Inc. ............................. 4,723,294
------------
48,109,550
------------
Oil/Energy - 1.7%
189,200 Basin Exploration, Inc. ........................... 4,540,800
19,050 Evergreen Resources ............................... 458,391
128,550 Precision Drilling Corp. (b)....................... 2,980,753
------------
7,979,944
------------
Oil Field Services - 5.6%
209,050 * Core Laboratories NV (b)......................... 3,932,753
110,450 Ensign Resource Group, Inc. ....................... 2,439,327
166,400 * Global Industries Ltd. .......................... 1,352,000
229,200 Gulf Islands Fabrication, Inc. .................... 3,022,575
181,350 Hanover Compressor Co. (b)......................... 5,769,197
132,250 National Oilwell, Inc. (b)......................... 2,173,859
402,700 Pride International, Inc. (b)...................... 5,713,306
177,400 Trico Marine Services, Inc. ....................... 1,474,638
------------
25,877,655
------------
Pharmaceuticals - 0.1%
14,350 King Pharmaceuticals, Inc. (b) .................... 502,250
------------
Printing, Publishing, Broadcasting &
Entertainment - 6.0%
121,050 Cadmus Communications Corp. ....................... 1,346,681
120,450 Citadel Communications Corp. ...................... 4,110,357
114,400 Cox Radio, Inc. Cl. A.............................. 6,806,800
69,350 Cumulus Media, Inc. ............................... 2,266,878
119,600 * Emmis Broadcasting Corp. Cl. A................... 7,901,075
89,150 * Entercom Communications Corp. (b)................ 3,209,400
199,550 Medialink Worldwide, Inc. ......................... 2,095,275
------------
27,736,466
------------
Retailing & Wholesale - 6.7%
258,500 Copart, Inc. ...................................... 4,766,094
53,395 Dollar General Corp. .............................. 1,648,570
126,725 Dollar Tree Stores, Inc. (b)....................... 5,061,080
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Retailing & Wholesale - continued
291,150 Family Dollar Stores, Inc. ........................ $ 6,150,544
152,050 * Men's Wearhouse, Inc. ........................... 3,269,075
171,750 Papa John's International, Inc. (b)................ 7,084,687
160,450 Ruby Tuesday, Inc. ................................ 3,128,775
------------
31,108,825
------------
Telecommunication Services & Equipment - 4.8%
104,500 * Advanced Fibre Communications.................... 2,325,125
61,900 * CapRock Communications Corp. (b)................. 1,439,175
50,700 Commonwealth Telephone Enterprises................. 2,230,800
200,650 CTC Communications Corp. .......................... 3,298,184
249,400 Digital Microwave Corp. ........................... 3,912,462
262,500 * ITC DeltaCom, Inc. .............................. 7,218,750
165,050 Precision Response Corp. .......................... 2,021,863
------------
22,446,359
------------
Transportation - 2.8%
141,700 Carey International, Inc. ......................... 3,542,500
75,900 Expeditores International Washington, Inc. ........ 2,435,916
106,100 Forward Air Corp. ................................. 2,506,612
212,325 * Mesaba Holdings, Inc. ........................... 2,494,819
176,425 * MotivePower Industries, Inc. .................... 1,940,675
------------
12,920,522
------------
Total Common Stocks
(cost $353,956,917)............................... 421,127,484
------------
SHORT-TERM INVESTMENTS - 24.8%
Mutual Fund Shares - 16.0%
74,111,928 Navigator Prime Portfolio (c)... 74,111,928
------------
<CAPTION>
Principal
Amount Value
<C> <S> <C>
Repurchase Agreement - 8.8%
$40,429,320 State Street Bank & Trust Co., purchased 9/30/1999,
5.28%, maturing 10/1/1999, maturity value
$40,435,250
(cost $40,429,320) (a)............................ 40,429,320
------------
Total Short-Term Investments (cost $114,541,248)... 114,541,248
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -
(cost $468,498,165)........................ 115.9% 535,668,732
Other Assets and
Liabilities - net.......................... (15.9) (73,529,009)
----- ------------
Net Assets.................................. 100.0% $462,139,723
===== ============
</TABLE>
(a) The repurchase agreement is fully collateralized by the U.S. government
and/or agency obligations based on market prices plus accrued interest at
September 30, 1999.
(b) All or a portion of this security is on loan.
(c) Represents investment in cash collateral received for securities on loan.
* Non-income producing security.
See Combined Notes to Financial Statements.
56
<PAGE>
EVERGREEN
High Income Fund
Schedule of Investments
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - 85.9%
Advertising & Related Services - 0.8%
$ 2,000,000 Ackerley Group, Inc.,
Sr. Sub. Note,
9.00%, 1/15/2009................................... $ 1,927,500
------------
Aerospace & Defense - 2.5%
Atlas Air, Inc.,
Sr. Note:
1,250,000 9.375%, 11/15/2006.................................. 1,181,250
1,350,000 10.75%, 8/1/2005.................................... 1,356,750
2,250,000 Compass Aerospace Corp., Sr. Sub. Note,
10.125%, 4/15/2005 (a)............................. 1,971,563
2,000,000 K & F Inds., Inc.,
Sr. Sub. Note, Ser. B,
9.25%, 10/15/2007.................................. 1,950,000
------------
6,459,563
------------
Automotive Equipment & Manufacturing - 3.2%
2,000,000 Budget Group, Inc.,
Sr. Note,
9.125%, 4/1/2006................................... 1,770,000
2,000,000 Dura Operating Corp.,
Sr. Sub. Note,
9.00%, 5/1/2009 (a)................................ 1,860,000
1,500,000 Hayes Wheels Int'l., Inc.,
Sr. Sub. Note, Ser. B,
9.125%, 7/15/2007.................................. 1,417,500
2,000,000 Oxford Automotive, Inc., Sr. Sub. Note,
10.125%, 6/15/2007................................. 1,850,000
2,000,000 Universal Compression, Inc.,
Sr. Note,
9.875%, 2/15/2008.................................. 1,200,000
------------
8,097,500
------------
Building, Construction & Furnishings - 1.9%
1,000,000 Cathay Int'l. Ltd.,
Sr. Note,
13.00%, 4/15/2008 (a) ............................. 515,000
2,000,000 Del Webb Corp.,
Sr. Sub. Debs.,
10.25%, 2/15/2010.................................. 1,850,000
750,000 Schuler Homes, Inc.,
Sr. Note,
9.00%, 4/15/2008................................... 680,625
2,000,000 Splitrock Services, Inc.,
Sr. Note, Ser. B,
11.75%, 7/15/2008.................................. 1,810,000
------------
4,855,625
------------
Cable/Other Video Distribution - 0.4%
1,000,000 Classic Cable, Inc.,
Sr. Sub. Note,
9.375%, 8/1/2009 (a)............................... 970,000
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Chemical & Agricultural Products - 1.8%
$ 3,000,000 Agriculture Minerals & Chemicals, Sr. Note,
10.75%, 9/30/2003................................. $ 1,425,000
1,700,000 Huntsman ICI Chemicals, Inc., Sr. Sub. Note,
10.125%, 7/1/2009 (a)............................. 1,674,500
1,750,000 United Inds. Corp.,
Sr. Sub. Note,
9.875%, 4/1/2009 (a).............................. 1,513,750
------------
4,613,250
------------
Commercial Services - 2.5%
1,000,000 AEP Industries,
Sr. Sub. Note,
9.875%, 11/15/2007................................ 950,000
600,000 Anchor Lamina, Inc.,
Sr. Sub. Note,
9.875%, 2/1/2008.................................. 519,000
2,600,000 Biovail Corp. Int'l.,
Sr. Note,
10.875%, 11/15/2005............................... 2,697,500
1,000,000 Building One Services Corp.,
Sr. Sub. Note,
10.50%, 5/1/2009.................................. 927,500
1,250,000 Group Maintenance America Corp.,
Sr. Sub. Note,
9.75%, 1/15/2009.................................. 1,228,125
------------
6,322,125
------------
Communication Systems & Services - 15.0%
1,000,000 Airgate PCS, Inc.,
Sr. Disc. Note, Step Bond,
(Eff. Yield 13.50%),
0.00%, 10/1/2009 (b).............................. 550,000
1,000,000 Cadmus Communications Corp., Sr. Sub. Note,
9.75%, 6/1/2009................................... 1,001,250
1,000,000 Capstar Broadcasting Partners, Sr. Disc. Note,
12.75%, 2/1/2009.................................. 845,000
4,000,000 Century Communications Corp., Sr. Disc. Note, Step
Bond, (Eff. Yield 8.85%),
0.00%, 1/15/2008 (b).............................. 1,740,000
1,500,000 Chancellor Media Corp.,
Sr. Sub. Note,
9.00%, 10/1/2008.................................. 1,526,250
Charter Communications Holdings, Sr. Note:
1,300,000 8.25%, 4/1/2007 (a)................................ 1,220,375
1,200,000 8.625%, 4/1/2009 (a)............................... 1,140,000
400,000 Citadel Broadcasting Co., Sr. Sub. Note,
9.25%, 11/15/2008................................. 394,000
1,500,000 Crown Castle Int'l. Corp., Sr. Disc. Note, Step
Bond, (Eff. Yield 10.74%),
0.00%, 11/15/2007 (b)............................. 1,050,000
</TABLE>
57
<PAGE>
EVERGREEN
High Income Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Communication Systems & Services - continued
$ 1,500,000 Diamond Cable Communications, Sr. Disc. Note, Step
Bond, (Eff. Yield 10.29%),
0.00%, 12/15/2005 (b)............................... $ 1,342,500
1,175,000 Frontiervision Holdings LP, Sr. Disc. Note, Step
Bond, (Eff. Yield 9.98%),
0.00%, 9/15/2007 (b)................................ 998,750
3,500,000 Intermedia Communications, Inc., Sr. Disc. Note, Step
Bond, (Eff. Yield 11.08%),
0.00%, 5/15/2006 (b)................................ 2,800,000
Level 3 Communications, Inc.:
2,000,000 Sr. Disc. Note, Step Bond,
(Eff. Yield 10.58%),
0.00%, 12/1/2008 (b)................................. 1,132,500
1,000,000 Sr. Note,
9.125%, 5/1/2008..................................... 908,750
1,900,000 Metromedia Fiber Network, Inc., Sr. Note,
10.00%, 11/15/2008.................................. 1,843,000
1,500,000 Metronet Communications Corp., Sr. Disc. Note, Step
Bond, (Eff. Yield 9.87%),
0.00%, 6/15/2008 (b)................................ 1,170,000
2,000,000 Microcell Telecommunications, Inc., Sr. Disc. Note,
Step Bond, Ser. B, (Eff. Yield 11.42%),
0.00%, 6/1/2006 (b)................................. 1,680,000
Nextel Communications, Inc.:
2,000,000 Sr. Disc. Note,
9.75%, 8/15/2004..................................... 2,027,500
2,000,000 Sr. Disc. Note, Step Bond, (Eff. Yield 10.67%),
0.00%, 9/15/2007 (b)................................. 1,490,000
1,000,000 Sr. Secd. Note,
12.00%, 11/1/2008.................................... 1,120,000
1,950,000 Nextlink Communications, Inc., Sr. Note,
10.75%, 6/1/2009.................................... 1,964,625
700,000 Northland Cable Television, Inc., Sr. Sub. Note,
10.25%, 11/15/2007.................................. 701,750
2,000,000 NTL Communications Corp., Sr. Disc. Note, Step Bond,
(Eff. Yield 11.09%),
0.00%, 10/1/2008 (b)................................ 1,365,000
1,000,000 Paging Network, Inc.,
Sr. Sub. Note,
8.875%, 2/1/2006.................................... 285,000
2,000,000 Price Communications Wireless, Inc., Sr. Sub. Note,
11.75%, 7/15/2007................................... 2,195,000
2,000,000 Startec Global Communications Corp., Sr. Note,
12.00%, 5/15/2008................................... 1,820,000
3,000,000 United Int'l. Holdings, Inc.,
Sr. Secd. Note, Step Bond,
(Eff. Yield 10.39%)
0.00%, 2/15/2008.................................... 1,826,250
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Communication Systems & Services - continued
Worldwide Fiber, Inc.:
$ 1,000,000 Sr. Note,
12.50%, 12/15/2005................................. $ 1,017,500
1,000,000 Sr. Note,
12.00%, 8/1/2009 (a)............................... 985,000
------------
38,140,000
------------
Consumer Products & Services - 7.7%
2,100,000 Amazon.com, Inc.,
Sr. Disc. Note, Step Bond,
(Eff. Yield 10.08%),
0.00%, 5/1/2008 (b)............................... 1,375,500
1,500,000 Decision One Holdings Corp.,
Sr. Disc. Note, Step Bond,
(Eff. Yield 12.11%),
0.00%, 8/1/2008 (b)............................... 13,125
2,500,000 Musicland Group, Inc.,
Sr. Sub. Note,
9.875%, 3/15/2008................................. 2,312,500
2,000,000 Nationsrent, Inc.,
Sr. Sub. Note,
10.375%, 12/15/2008............................... 1,985,000
1,150,000 Outsourcing Services Group, Inc.,
Sr. Sub. Note, Ser. B, 10.875%, 3/1/2006.......... 1,063,750
2,500,000 Pantry, Inc.,
Gtd. Note,
10.25%, 10/15/2007................................ 2,506,250
2,000,000 Pinnacle Holdings, Inc.,
Sr. Disc. Note, Step Bond,
(Eff. Yield 10.10%),
0.00%, 3/15/2008 (b).............................. 1,150,000
2,500,000 Premier Graphics, Inc.,
Sr. Gtd. Note,
11.50%, 12/1/2005................................. 2,325,000
2,000,000 Sleepmaster LLC,
Sr. Sub. Note,
11.00%, 5/15/2009 (a)............................. 2,005,000
Verio, Inc.,
Sr. Note:
1,500,000 10.375%, 4/1/2005.................................. 1,496,250
1,000,000 11.25%, 12/1/2008.................................. 1,027,500
2,400,000 Weight Watchers Int'l., Inc., Sr. Sub. Note,
13.00%, 10/1/2009 (a)............................. 2,400,000
------------
19,659,875
------------
Diversified Companies - 1.1%
1,000,000 Blount, Inc.,
Sr. Note,
13.00%, 8/1/2009 (a).............................. 1,036,250
2,450,000 Pioneer Amers Acquisition Corp., Sr. Secd. Note,
Ser. B, 9.25%, 6/15/2007.......................... 1,886,500
------------
2,922,750
------------
Education - 0.4%
1,250,000 La Petite Academy, Inc.,
Sr. Note, Ser. B,
10.00%, 5/15/2008................................. 1,056,250
------------
</TABLE>
58
<PAGE>
EVERGREEN
High Income Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Electrical Equipment & Services - 0.2%
$ 500,000 Integrated Electrical Services, Sr. Sub. Note,
9.375%, 2/1/2009................................... $ 492,500
------------
Electronic Equipment & Services - 0.9%
2,000,000 CHS Electronics, Inc.,
Sr. Note,
9.875%, 4/15/2005.................................. 310,000
2,000,000 Fairchild Semiconductor Corp.,
Sr. Sub. Note,
10.375%, 10/1/2007 (a)............................. 1,995,000
------------
2,305,000
------------
Finance & Insurance - 0.7%
1,500,000 Aetna Inds., Inc.,
Sr. Note,
11.875%, 10/1/2006................................. 1,693,125
------------
Food & Beverage Products - 3.3%
2,500,000 Agrilink Foods, Inc.,
Sr. Sub. Note,
11.875%, 11/1/2008................................. 2,212,500
2,625,000 Del Monte Foods Co.,
Sr. Disc. Note, Step Bond,
(Eff. Yield 10.51%),
0.00%, 12/15/2007 (b).............................. 1,995,000
2,500,000 Luiginos, Inc.,
Sr. Sub. Note,
10.00%, 2/1/2006................................... 2,350,000
2,000,000 Vlasic Foods Int'l., Inc.,
Sr. Sub. Note,
10.25%, 7/1/2009 (a)............................... 1,810,000
------------
8,367,500
------------
Gaming - 5.9%
2,375,000 Argosy Gaming Co.,
Sr. Sub. Note,
10.75%, 6/1/2009 (a)............................... 2,461,094
1,500,000 Coast Hotels & Casinos, Inc., Sr. Sub. Note,
9.50%, 4/1/2009.................................... 1,417,500
1,500,000 Hollywood Casino Corp., Sr. Secd. Note,
11.25%, 5/1/2007 (a)............................... 1,515,000
2,225,000 Hollywood Park, Inc.,
Sr. Sub. Note, Ser. B,
9.50%, 8/1/2007.................................... 2,180,500
1,000,000 Horseshoe Gaming LLC, Sr. Sub. Note,
8.625%, 5/15/2009 (a).............................. 955,000
2,125,000 Isle Capri Casinos, Inc.,
Sr. Sub. Note,
8.75%, 4/15/2009................................... 1,960,312
1,500,000 Majestic Star Casino LLC, Sr. Secd. Note,
10.875%, 7/1/2006 (a).............................. 1,477,500
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Gaming - continued
Premier Parks, Inc.,
$ 3,000,000 Sr. Disc. Note, Step Bond, (Eff. Yield 9.55%),
0.00%, 4/1/2008 (b)............................... $ 1,920,000
1,000,000 Sr. Note,
9.75%, 6/15/2007................................... 975,000
------------
14,861,906
------------
Hospitals/Nursing Homes/
Healthcare - 3.2%
1,400,000 Lifepoint Hospitals Holdings, Inc.,
Sr. Sub. Note,
10.75%, 5/15/2009 (a)............................. 1,393,000
2,500,000 Oxford Health Plans, Inc.,
Sr. Note,
11.00%, 5/15/2005 (a)............................. 2,493,750
2,500,000 Tenet Healthcare Corp.,
Sr. Sub. Note,
8.625%, 1/15/2007................................. 2,387,500
2,000,000 Triad Hospitals Holdings,
11.00%, 5/15/2009................................. 1,990,000
------------
8,264,250
------------
Industrial Specialty Products & Services - 1.9%
1,000,000 American Plumbing & Mechanical Co., Sr. Sub. Note,
11.625%, 10/15/2008 (a)........................... 895,000
1,000,000 Hydrochemical Industrial Services, Inc., Sr. Sub.
Note, Ser. B, 10.375%, 8/1/2007................... 875,000
1,000,000 Intersil Corp.,
Sr. Sub. Note,
13.25%, 8/15/2009................................. 1,042,500
2,000,000 Muzak LLC/Muzak Finance Corp., Sr. Sub. Note,
9.875%, 3/15/2009 (a)............................. 1,910,000
------------
4,722,500
------------
Iron & Steel - 0.6%
1,500,000 Ucar Global Enterprises, Inc., Sr. Sub. Note,
12.00%, 1/15/2005................................. 1,569,375
------------
Machinery - Diversified - 1.4%
2,000,000 Terex Corp.,
Sr. Sub. Note,
8.875%, 4/1/2008.................................. 1,890,000
2,000,000 W.R. Carpenter North America, Inc., Sr. Sub. Note,
10.625%, 6/15/2007................................ 1,680,000
------------
3,570,000
------------
Manufacturing - Distributing - 2.8%
2,000,000 Decora Inds., Inc.,
Sr. Secd. Note,
11.00%, 5/1/2005.................................. 1,820,000
1,500,000 Delta Mills, Inc.,
Sr. Note, Ser. B,
9.625%, 9/1/2007.................................. 1,177,500
</TABLE>
59
<PAGE>
EVERGREEN
High Income Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Manufacturing -
Distributing - continued
$ 2,500,000 Tekni Plex, Inc.,
Sr. Sub. Note, Ser. B,
11.25%, 4/1/2007.................................. $ 2,625,000
1,475,000 Venture Holdings Trust,
Sr. Note,
11.00%, 6/1/2007 (a).............................. 1,452,875
------------
7,075,375
------------
Oil/Energy - 4.9%
1,000,000 Canadian Forest Oil Ltd., Sr. Sub. Note,
8.75%, 9/15/2007.................................. 967,500
Cross Timbers Oil Co.,
Sr. Sub. Note, Ser. B:
1,120,000 8.75%, 11/1/2009................................... 1,083,600
1,000,000 9.25%, 4/1/2007.................................... 992,500
1,200,000 Eott Energy Partners LP,
Sr. Note,
11.00%, 10/1/2009................................. 1,212,000
1,500,000 Forest Oil Corp.,
Sub. Gtd. Note,
10.50%, 1/15/2006................................. 1,552,500
1,000,000 Houston Exploration Co., Sr. Sub. Note,
8.625%, 1/1/2008.................................. 975,000
2,000,000 Pride Petroleum Services, Inc., Sr. Note,
9.375%, 5/1/2007.................................. 2,020,000
2,600,000 Swift Energy Co.,
Sr. Sub. Note,
10.25%, 8/1/2009.................................. 2,613,000
1,000,000 Tesoro Petroleum Corp., Sr. Sub. Note, Ser. B,
9.00%, 7/1/2008................................... 985,000
------------
12,401,100
------------
Paper & Packaging - 2.3%
2,000,000 Pacific Papers, Inc.,
Sr. Note,
10.00%, 3/15/2009................................. 2,040,000
1,750,000 Packaging Corp. America, Sr. Sub. Note,
9.625%, 4/1/2009 (a).............................. 1,776,250
2,000,000 Repap New Brunswick, Inc., Sr. Secd. Note, 1st
Priority,
9.00%, 6/1/2004................................... 1,920,000
------------
5,736,250
------------
Pharmaceuticals - 1.4%
525,000 Express Scripts, Inc.,
Sr. Note,
9.625%, 6/15/2009................................. 535,500
3,000,000 King Pharmaceuticals, Inc., Sr. Sub. Note,
10.75%, 2/15/2009................................. 3,105,000
------------
3,640,500
------------
Real Estate - 0.8%
2,000,000 Intrawest Corp.,
Sr. Note,
9.75%, 8/15/2008.................................. 1,930,000
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Retailing & Wholesale - 4.7%
$ 2,000,000 Big 5 Corp.,
Sr. Note, Ser. B,
10.875%, 11/15/2007............................... $ 1,975,000
1,250,000 Community Distributors, Inc., Sr. Note, Ser. B,
10.25%, 10/15/2004................................ 1,071,875
1,500,000 French Fragrances, Inc.,
Sr. Note, Ser. B,
10.375%, 5/15/2007................................ 1,432,500
2,500,000 K Mart Corp.,
Debentures,
7.95%, 2/1/2023................................... 2,272,960
2,000,000 Owens & Minor, Inc.,
Sr. Sub. Note,
10.875%, 6/1/2006................................. 2,030,000
1,500,000 Pathmark Stores, Inc.,
Sub. Note,
11.625%, 6/15/2002................................ 1,477,500
1,635,000 Phar Mor, Inc.,
Note,
11.72%, 9/11/2002................................. 1,618,650
------------
11,878,485
------------
Telecommunication Services & Equipment - 10.8%
1,000,000 Allegiance Telecom, Inc.,
Sr. Note,
12.875%, 5/15/2008................................ 1,085,000
500,000 American Cellular Corp.,
Sr. Note,
10.50%, 5/15/2008................................. 516,250
2,000,000 AMSC Acquisition, Inc.,
Sr. Note,
12.25%, 4/1/2008.................................. 1,430,000
2,350,000 Centennial Cellular Operating Co., Sr. Sub. Note,
10.75%, 12/15/2008................................ 2,455,750
2,000,000 Filtronic Plc,
Sr. Note,
10.00%, 12/1/2005 (a)............................. 1,955,000
2,000,000 Hermes Europe Railtel BV,
Sr. Note,
11.50%, 8/15/2007................................. 2,025,000
1,770,000 ICG Holdings, Inc.,
Sr. Disc. Note, Step Bond,
(Eff. Yield 12.32%),
0.00%, 5/1/2006 (b)............................... 1,354,050
1,200,000 Insight Midwest LP,
Sr. Note,
9.75%, 10/1/2009 (a).............................. 1,209,000
1,650,000 KMC Telecom Holdings, Inc.,
Sr. Note,
13.50%, 5/15/2009 (a)............................. 1,625,250
2,000,000 McLeod USA, Inc.,
Sr. Disc. Note, Step Bond,
(Eff. Yield 9.75%),
0.00%, 3/1/2007 (b)............................... 1,585,000
1,000,000 Omnipoint Corp.,
Sr. Note,
11.50%, 9/15/2009 (a)............................. 1,035,000
</TABLE>
60
<PAGE>
EVERGREEN
High Income Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Telecommunication Services & Equipment - continued
Primus Telecommunications Group, Sr. Note:
$ 750,000 11.25%, 1/15/2009................................... $ 712,500
1,000,000 11.75%, 8/1/2004.................................... 980,000
PSINet, Inc.:
Sr. Note,
2,000,000 11.50%, 11/1/2008................................... 2,025,000
1,000,000 11.00%, 8/1/2009 (a)................................ 992,500
Sprint Spectrum LP:
1,000,000 Sr. Disc. Note, Step Bond,
(Eff. Yield 9.80%),
0.00%, 8/15/2006 (b) ............................... 925,000
1,000,000 Sr. Note,
11.00%, 8/15/2006................................... 1,125,000
Telewest Communications PLC,
Sr. Disc. Note, Step Bond:
1,500,000 (Eff. Yield 11.09%),
0.00%, 10/1/2007 (b)................................ 1,346,250
500,000 (Eff. Yield 9.55%),
0.00%, 4/15/2009 (a)(b)............................. 305,000
4,000,000 Triton PCS, Inc.,
Sr. Disc. Note, Step Bond,
(Eff. Yield 12.57%),
0.00%, 5/1/2008 (b)................................ 2,710,000
------------
27,396,550
------------
Textile & Apparel - 1.8%
200,000 Consoltex Group,
Sr. Sub. Note, Ser. B,
11.00%, 10/1/2003.................................. 201,000
1,000,000 Panolam Inds. Int'l., Inc.,
Sr. Sub. Note,
11.50%, 2/15/2009 (a).............................. 1,005,000
1,500,000 Simmons Co.,
Sr. Sub. Note,
10.25%, 3/15/2009.................................. 1,485,000
2,000,000 Supreme Int'l. Corp.,
Sr. Sub. Note,
12.25%, 4/1/2006................................... 1,970,000
------------
4,661,000
------------
Transportation - 1.0%
1,000,000 American Commercial Lines LLC,
Sr. Note,
10.25%, 6/30/2008.................................. 987,500
1,335,000 Greyhound Lines, Inc.,
Sr. Note, Ser. B,
11.50%, 4/15/2007.................................. 1,503,911
------------
2,491,411
------------
Total Corporate Bonds
(cost $230,528,488)................................ 218,081,265
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
YANKEE OBLIGATIONS - 0.9%
Communication Systems & Services - 0.9%
$ 2,500,000 Clearnet Communications, Inc.,
Sr. Disc. Note, Step Bond,
(Eff. Yield 13.65%),
0.00%, 12/15/2005 (b) (cost $2,355,839)........... $ 2,368,750
------------
<CAPTION>
Shares Value
<C> <S> <C>
WARRANTS - 0.1%
Commercial Services - 0.1%
2,000* Splitrock Services, Inc., ......................... 144,000
------------
Communication Systems & Services - 0.0%
2,000* Startec Global Communications Corp................. 2,000
------------
Telecommunication Services & Equipment - 0.0%
2,000* American Mobile Satellite Corp., .................. 79,000
------------
Total Warrants
(cost $33,218).................................... 225,000
------------
COMMON STOCKS - 0.6%
Communication Systems & Services - 0.6%
64,002* Price Communications Wireless, Inc.,
(cost $819,062)................................... 1,604,050
------------
PREFERRED STOCKS - 0.5%
Telecommunication Services & Equipment - 0.5%
11,170* Rural Cellular Corp.
(cost $898,635)................................... 1,139,340
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - 11.2%
Repurchase Agreement -
11.2%
$28,330,545 State Street Bank &
Trust Co.,
5.28%, purchased
9/30/1999, maturing
10/1/1999
maturity value
$28,334,700
(cost $28,330,545)
(c)......................................... 28,330,545
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -
(cost $262,965,787)........................ 99.2% 251,748,950
Other Assets and
Liabilities - net.......................... 0.8 1,994,796
----- ------------
Net Assets.................................. 100.0% $253,743,746
===== ============
</TABLE>
(a) Securities that may be sold to qualified institutional buyers under Rule
144A or securities offered pursuant to Section 4(2) of the Securities Act
of 1933, as amended. These securities have been determined to be liquid un-
der guidelines established by the Board of Trustees.
(b) Effective yield (calculated at the time of purchase) is the yield at which
the bond accretes on an annual basis until maturity date.
(c) The repurchase agreement is fully collateralized by the U.S. government
and/or agency obligations based on market prices plus accrued interest at
September 30, 1999.
* Non-income producing security.
See Combined Notes to Financial Statements.
61
<PAGE>
EVERGREEN
Municipal Income Fund
Schedule of Investments
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MUNICIPAL OBLIGATIONS - 99.2%
Alaska - 1.4%
$ 1,580,000 Alaska Hsg. Fin. Corp. RB, Ser. A2, 5.75%,
6/1/2024.......................................... $ 1,533,295
------------
Arizona - 1.4%
1,430,000 Pima Cnty., AZ
IDRB, Lease Obl.,
7.25%, 7/15/2010, (FSA)........................... 1,551,235
------------
California - 6.5%
2,500,000 Alameda Corridor Trans. Auth. RB, Ser. 1999A,
(Eff. Yield 5.26%)
0.00%, 10/1/2033, (MBIA) (a)...................... 338,525
1,070,000 California Statewide CDA, Spl. Assmt., RB, United
Air Lines Inc. Proj., 5.625%, 10/1/2034........... 978,226
1,915,000 East Bay, CA
Muni. Util. Dist. Wst. Wtr. RB, Refunding Sub.,
4.75%, 6/1/2021, (FGIC)........................... 1,672,963
1,000,000 Fontana, CA
COP, Refunding Proj.,
5.00%, 9/1/2017, (AMBAC).......................... 931,590
1,000,000 San Diego, CA
Unified Sch. Dist. GO, Ser. A,
(Eff. Yield 5.30%)
0.00%, 7/1/2019, (FGIC) (a)....................... 319,180
1,000,000 San Francisco, CA
City & Cnty. RB, Int'l. Arpt. Proj., Ser. 8A,
6.30%, 5/1/2025, (FGIC)........................... 1,038,870
2,000,000 Univ. of CA RB, Multiple Purpose Proj., Ser. C,
4.75%, 9/1/2016, (AMBAC).......................... 1,809,580
------------
7,088,934
------------
Colorado - 5.5%
405,000 Colorado HFA, SFHRB, Ser. A3, 7.00%, 11/1/2024..... 422,338
Denver, CO, City & Cnty., Arpt. RB:
1,000,000 Ser. D,
7.75%, 11/15/2013.................................. 1,176,490
1,555,000 Unrefunded Balance, Ser. A, 8.50%, 11/15/2023...... 1,647,305
3,000,000 Jefferson Cnty., CO RB 5.00%, 11/1/2018, (FGIC).... 2,751,060
------------
5,997,193
------------
Connecticut - 0.9%
1,000,000 Connecticut Dev. Auth. Wtr. Facs. RB, Bridgeport
Hydraulic Proj., 6.15%, 4/1/2035.................. 1,011,490
------------
District of Columbia - 0.8%
1,000,000 District Columbia GO, Ser. B, 5.25%, 6/1/2026,
(FSA)............................................. 902,000
------------
Florida - 1.2%
1,250,000 Hillsborough Cnty., FL
IDA PCRB, Tampa Elec. Co. Proj.,
6.25%, 12/1/2034, (MBIA).......................... 1,307,737
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MUNICIPAL OBLIGATIONS - continued
Georgia - 2.3%
$1,500,000 George L. Smith, GA
World Congress Ctr. Auth. RB, Domed Stadium Proj.,
5.50%, 7/1/2020, (MBIA)............................ $ 1,384,800
1,000,000 Monroe Cnty., GA
IDA PCRB, Oglethorpe Pwr. Corp. Scherer,
6.75%, 1/1/2010.................................... 1,100,870
------------
2,485,670
------------
Idaho - 2.7%
Idaho HFA SFHRB:
2,000,000 Sr. Ser. E2,
5.70%, 7/1/2019, (FHA).............................. 1,958,080
1,000,000 Sr. Ser. G2,
6.00%, 7/1/2029..................................... 1,001,460
------------
2,959,540
------------
Illinois - 9.2%
970,000 Broadview, IL
Tax Increment RB, Sr. Lien,
8.25%, 7/1/2013 (b)................................ 1,116,305
2,475,000 Chicago Heights, IL
Mtge. RB, Ser. B,
(Eff. Yield 7.375%)
0.00%, 6/1/2009 (a)................................ 1,258,909
2,000,000 Chicago, IL, O'Hare Intl. Arpt. Spl. Fac. RB, United
Air Lines Proj., Ser. B,
5.20%, 4/1/2011.................................... 1,874,840
2,000,000 Chicago, IL, Capital Appreciation GO
(Eff. Yield 6.90%)
0.00%, 7/1/2016, (AMBAC) (a)....................... 706,100
1,000,000 Illinois Hlth. Facs. Auth. RB, Midwest Physician
Group Ltd., 5.50%, 11/15/2019...................... 890,630
2,000,000 Kane Cnty., IL
Sch. Dist. No. 129 GO, Aurora West Side Proj.,
5.50%, 2/1/2011, (FGIC)............................ 2,029,160
Metropolitan Pier & Exposition, IL Auth. RB:
1,950,000 McCormick Plan Expansion:
(Eff. Yield 6.75%)
0.00%, 6/15/2021, (FGIC) (a)........................ 541,944
1,000,000 5.50%, 12/15/2024, (FGIC)........................... 952,810
1,650,000 St. Clair Cnty., IL
Pub. Bldg. RB, Capital Appreciation, Ser. B,
(Eff. Yield 5.95%)
0.00%, 12/1/2016, (FGIC) (a)....................... 613,585
------------
9,984,283
------------
Indiana - 0.3%
1,000,000 Indiana Trans. Fin. Auth. Hwy. RB, Ser. A,
(Eff. Yield 6.25%)
0.00%, 6/1/2017, (AMBAC) (a)....................... 361,930
------------
Iowa - 0.6%
625,000 Iowa Student Loan Liquidity Corp. RB, Ser. I, (Gtd.
Student Loans)
6.95%, 3/1/2006.................................... 655,800
------------
</TABLE>
62
<PAGE>
EVERGREEN
Municipal Income Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MUNICIPAL OBLIGATIONS - continued
Kentucky - 1.4%
$1,400,000 Kenton Cnty., KY
Arpt. Board, Arpt. RB, Spl. Facs. Delta Airlines
Proj., 7.50%, 2/1/2020............................. $ 1,484,784
------------
Louisiana - 1.8%
2,000,000 New Orleans, LA
GO, Refunding,
5.50%, 12/1/2021................................... 1,969,640
------------
Maine - 0.6%
575,000 Maine Hsg. Auth. Mtge. Purchase RB, Ser. C2,
6.875%, 11/15/2023................................. 597,822
------------
Massachusetts - 3.1%
Massachusetts HFA SFHRB:
960,000 Ser. 59,
5.40%, 6/1/2020, (MBIA)............................ 904,128
1,500,000 Ser. 73,
5.90%, 12/1/2019, (FSA)............................. 1,502,055
1,000,000 Massachusetts Hlth. & Edl. Fac. Auth. RB, St. Mem.
Med. Ctr., Ser. A, 6.00%, 10/1/2023................ 923,720
------------
3,329,903
------------
Michigan - 1.6%
1,000,000 Muskegon Cnty., MI
Bldg. Auth. RB, Refunding,
4.70%, 9/1/2014, (AMBAC)........................... 903,220
1,000,000 Wayne Charter Cnty., MI
Arpt. RB, Detroit Metropolitan Wayne Cnty. Arpt.
Proj.,
5.00%, 12/1/2028................................... 860,550
------------
1,763,770
------------
Minnesota - 0.6%
750,000 Marshall, MN
Med. Ctr. Gross RB, Weiner Mem. Med. Ctr. Proj.,
6.00%, 11/1/2028................................... 700,328
------------
Mississippi - 2.1%
Mississippi Business Fin. Corp. PCRB, Sys. Energy
1,500,000 Resources Inc. Proj.: 5.875%, 4/1/2022............. 1,394,985
1,000,000 5.90%, 5/1/2022..................................... 932,770
------------
2,327,755
------------
Montana - 2.1%
2,355,000 Montana Hsg. Board SFHRB, Ser. A2, 5.65%,
12/1/2020.......................................... 2,284,162
------------
Nebraska - 3.1%
2,560,000 American Pub. Energy Agcy. NE Gas Supply RB, NE Pub.
Gas Agcy. Proj., Ser. A,
4.375%, 6/1/2010, (AMBAC).......................... 2,378,803
1,000,000 Nebraska Pub. Gas Agcy. Supply RB, Ser. A,
5.00%, 4/1/2000.................................... 1,004,160
------------
3,382,963
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MUNICIPAL OBLIGATIONS - continued
Nevada - 2.1%
$2,000,000 Clark Cnty., NV
IDRB, NV Pwr. Co. Proj., Ser. B,
5.90%, 10/1/2030................................... $ 1,881,240
395,000 Henderson, NV
Local Impt. Dist. RB, No. T4, Ser. A,
8.50%, 11/1/2012................................... 408,146
------------
2,289,386
------------
New Hampshire - 0.8%
890,000 New Hampshire Higher Edl. & Fac. RB, Daniel Webster
College Issue, 6.10%, 7/1/2009..................... 868,186
------------
New Jersey - 2.7%
New Jersey EDA RB:
1,000,000 Arbor Glen Proj., Ser. A, 6.00%, 5/15/2028.......... 939,020
1,000,000 Continental Airlines, Inc. Proj., 6.25%, 9/15/2019.. 979,880
1,040,000 Ocean Cnty., NJ
Util. Auth. Wst. Wtr. RB, Ser. A,
4.00%, 1/1/2008.................................... 969,072
------------
2,887,972
------------
New Mexico - 1.5%
1,750,000 New Mexico Edl. Assistance Foundation RB, Ser. C1,
(Gtd. Student Loans)
5.50%, 11/1/2010 .................................. 1,657,040
------------
New York - 7.8%
455,000 Clifton Springs, NY
Hosp. & Clinic RB, Refunding,
8.00%, 1/1/2020.................................... 495,277
1,000,000 Metro Trans. Auth. NY Svcs. RB, Transport Facs.
Proj., Ser. 7, 4.75%, 7/1/2019..................... 858,510
2,005,000 Nassau Cnty., New York GO, General Impt., Ser. B,
5.25%, 6/1/2015.................................... 1,940,419
New York City, NY GO:
60,000 Prerefunded, Ser. H, 7.20%, 2/1/2013................ 64,644
1,500,000 Ser. L,
5.625%, 8/1/2007.................................... 1,562,925
120,000 Unrefunded Balance, Ser. H, 7.20%, 2/1/2013......... 127,613
1,000,000 New York Dormitory Auth. RB, Secd. Hosp. Wyckoff
Hts. Proj., 5.20%, 2/15/2014....................... 949,460
1,000,000 New York Mtge. Agcy. RB, Ser. 69, 5.50%, 10/1/2028.. 940,800
1,500,000 Port Auth. NY & NJ RB 5.875%, 9/15/2015, (FGIC)..... 1,522,335
------------
8,461,983
------------
North Carolina - 2.2%
1,000,000 North Carolina, Eastern Muni. Pwr. Agcy., Pwr. Sys
RB, Ser. A, 5.70%, 1/1/2013, (MBIA)................ 1,020,770
</TABLE>
63
<PAGE>
EVERGREEN
Municipal Income Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MUNICIPAL OBLIGATIONS - continued
North Carolina - continued
Sampson Area Dev. Corp. NC RB: 4.70%, 6/1/2014,
$1,000,000 (MBIA)............................................. $ 904,250
500,000 4.75%, 6/1/2024, (MBIA)............................. 422,310
------------
2,347,330
------------
North Dakota - 0.9%
1,000,000 Devils Lake, ND
Hlth. Care Facs. RB, Refunding & Impt. Lake Region
Lutheran Proj.,
6.10%, 10/1/2023................................... 924,390
------------
Ohio - 1.9%
1,000,000 Cuyahoga Cnty., OH
Hlth. Care Facs. RB, Refunding Benjamin Rose
Institute Proj.,
5.50%, 12/1/2028................................... 882,880
1,260,000 Toledo Lucas Cnty., OH
Port Auth. RB, Northwest OH Bond Fund Superior,
5.40%, 5/15/2019................................... 1,154,437
------------
2,037,317
------------
Oklahoma - 0.5%
540,000 Oklahoma City, OK
Indl. & Cultural Facs. RB, Trigen Proj.,
6.75%, 9/15/2017................................... 541,080
------------
Oregon - 2.2%
1,000,000 Klamath Falls, OR
Elec. RB, Refunding Sr. Lien Klamath Cogen Proj.,
6.00%, 1/1/2025.................................... 946,550
1,550,000 Multnomah Cnty., OR,
COP, Ser. A,
4.125%, 8/1/2007................................... 1,471,663
------------
2,418,213
------------
Pennsylvania - 1.9%
1,000,000 Pennsylvania EDA Solid Wst. Disposal RB, USG Corp.
Proj., 6.00%, 6/1/2031............................. 962,940
1,075,000 Philadelphia, PA
Hosp. & Higher Edl. Facs. RB, Temple Univ. Proj.,
6.50%, 11/15/2008.................................. 1,101,606
------------
2,064,546
------------
Rhode Island - 0.3%
286,000 West Warwick, RI
GO, Ser. A,
7.30%, 7/15/2008................................... 308,874
------------
South Dakota - 0.9%
1,000,000 South Dakota Hsg. Dev. Auth. RB, Refunding
Homeownership Mtge., Ser. G,
5.95%, 5/1/2020.................................... 996,420
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MUNICIPAL OBLIGATIONS - continued
Tennessee - 1.5%
$1,500,000 Memphis Shelby Cnty., TN
Arpt. Auth. RB, Federal Express Corp. Proj.,
7.875%, 9/1/2009................................... $ 1,612,035
------------
Texas - 12.6%
1,000,000 Abilene, TX
Hlth. Facs. Dev. RB, Sears Methodist Retirement
Proj.,
5.90%, 11/15/2025.................................. 922,630
2,000,000 Alliance Arpt. Auth., Inc., TX
Spl. Facs. RB, Federal Express Corp. Proj.,
6.375%, 4/1/2021................................... 2,017,560
2,000,000 Brazos River Auth., TX
RB, Refunding Houston Inds. Proj.,
4.90%, 10/1/2015, (MBIA)........................... 1,837,500
416,000 Brazos, TX
Higher Ed. Auth. Inc. RB,
Sub. Ser. C2,
(Gtd. Student Loans)
7.10%, 11/1/2004................................... 435,178
1,000,000 Dallas Fort Worth, TX
Int'l. Arpt. Fac. RB, American Airlines, Inc.
Proj.,
7.25%, 11/1/2030................................... 1,065,140
2,000,000 Fort Worth, TX
Higher Ed. Fin. Corp. RB, TX Christian Proj.,
5.00%, 3/15/2027, (AMBAC).......................... 1,749,360
1,000,000 Houston, TX
Wtr. & Swr. Sys. RB, Jr. Lien, Ser. A,
6.20%, 12/1/2025, (MBIA)........................... 1,083,180
1,000,000 Lufkin, TX
Hlth. Facs. Dev. Corp. RB, Mem. Hlth. Sys. of East
TX, 5.70%, 2/15/2028............................... 910,070
Matagorda Cnty., TX
Navigation Dist. No. 1 RB:
2,000,000 Houston Lighting Pwr. Co., 5.125%, 11/1/2028,
(AMBAC)............................................. 1,788,200
1,000,000 Reliant Energy Proj., 5.95%, 5/1/2030............... 943,500
1,000,000 Texas GO, Veterans Hsg. Assistance Program Fund,
Ser. A, 5.65%, 12/1/2017........................... 978,820
------------
13,731,138
------------
Utah - 1.6%
230,000 Bountiful, UT
Hosp. RB, South Davis Community Hosp.,
9.50%, 12/15/2018.................................. 274,899
Utah HFA SFHRB:
425,000 Ser. A,
7.20%, 1/1/2027, (FHA).............................. 439,675
1,000,000 Sub. Ser. C2, Cl. II,
5.75%, 7/1/2021, (FHA).............................. 978,060
------------
1,692,634
------------
</TABLE>
64
<PAGE>
EVERGREEN
Municipal Income Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MUNICIPAL OBLIGATIONS - continued
Vermont - 1.4%
$1,500,000 Vermont EDA RB, Wake Robin Corp. Proj., Ser. A,
6.30%, 3/1/2033, (ACA)............................. $ 1,495,740
------------
Virginia - 0.8%
800,000 Metropolitan Washington DC Arpt. Auth. RB, Ser. A,
6.625%, 10/1/2019, (MBIA).......................... 846,272
------------
Washington - 0.9%
1,000,000 Washington HFA SFHRB, Ser. 4A, 5.40%, 12/1/2024,
(GNMA/FNMA)........................................ 938,530
------------
West Virginia - 2.0%
2,000,000 Harrison Cnty., WV
Solid Wst. Disposal RB, West PA Pwr. Co. Proj.,
6.75%, 8/1/2024, (AMBAC)........................... 2,141,380
------------
Wisconsin - 3.5%
1,500,000 Wisconsin Hlth. & Edl. Facs. RB, Franciscan Sisters
Christian Proj., 5.50%, 2/15/2028.................. 1,318,965
2,500,000 Wisconsin Hsg. & EDA RB, Ser. G, 5.75%, 4/1/2030.... 2,423,175
------------
3,742,140
------------
Total Municipal Obligations (cost $109,254,300)..... 107,682,840
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - 1.1%
Mutual Fund Shares - 0.2%
232,586 Federated Municipal Obligation Fund.................. $ 232,586
------------
<CAPTION>
Principal
Amount Value
<C> <S> <C>
Alabama - 0.9%
$1,000,000 Stevenson, AL
IDRB, The Mead Corp. Proj.,
4.00%, 10/1/1999,
(LOC: Toronto Dominion Bank)........................ 1,000,000
------------
Total Short-Term Investments
(cost $1,232,586)................................... 1,232,586
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -
(cost $110,486,886)......................... 100.3% 108,915,426
Other Assets and
Liabilities - net........................... (0.3) (312,141)
----- ------------
Net Assets................................... 100.0% $108,603,285
===== ============
</TABLE>
The Fund invests primarily in debt securities issued by municipalities. The
ability of the issuers of debt securities to meet their obligations may be
affected by economic developments in a specific industry or municipality. In
order to reduce risk associated with such economic developments, at September
30, 1999, 46.7% of the securities, as a percentage of net assets, are backed by
bond insurance of various financial institutions and financial guaranty
assurance agencies. At September 30, 1999, the Fund had securities backed by
bond insurance of the following financial institutions representing more than
5% of net assets:
FGIC 13.2%
AMBAC 11.8%
MBIA 9.3%
(a) Effective yield (calculated at date of purchase) is the annual yield at
which the bond accrues until its maturity date.
(b) All or a portion of the principal amount of this security was pledged to
cover initial margin requirements for open future contracts.
Summary of Abbreviations:
ACA American Capital Access
AMBAC American Municipal Bond Assurance Corporation
CDA Community Development Authority
COP Certificates of Participation
EDA Environmental Development Authority
FGIC Financial Guaranty Insurance Corporation
FHA Federal Housing Authority
FNMA Federal National Mortgage Association
FSA Financial Security Assurance Corporation
GNMA Government National Mortgage Association
GO General Obligation
HFA Housing Finance Authority
IDA Industrial Development Authority
IDRB Industrial Development Revenue Bond
LOC Letter of Credit
MBIA Municipal Bond Investors Assurance Corporation
PCRB Pollution Control Revenue Bond
RB Revenue Bond
SFHRB Single Family Housing Revenue Bond
FUTURES CONTRACTS - SHORT POSITIONS
<TABLE>
<CAPTION>
Initial Contract Value at Unrealized
Expiration Number of Contracts Amount September 30, 1999 Gain
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December
1999 48 Municipal Bond Index $5,407,497 $5,389,500 $17,997
</TABLE>
See Combined Notes to Financial Statements.
65
<PAGE>
EVERGREEN
Quality Income Fund
Schedule of Investments
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
ASSET-BACKED SECURITIES - 13.9%
Advanta Mtge. Loan Trust:
$ 811,090 Ser. 1993-3, Class A-5,
5.55%, 1/25/2025................................. $ 782,925
563,144 Ser. 1993-4, Class A-2,
5.55%, 3/25/2010................................. 553,540
678,826 AFG Receivables Trust,
7.00%, 2/15/2003................................ 679,868
2,535,000 Capital One Master Trust,
5.43%, 1/15/2007................................ 2,441,395
6,500,000 CS First Boston Mtge. Secs. Corp., Ser. 1996-2,
Class A-6,
7.18%, 2/25/2018................................ 6,476,567
3,005,000 Discover Card Master Trust I,
Ser. 1998-7, Class A,
5.60%, 5/16/2006................................ 2,894,191
Equifax Credit Corp. Home Equity Loan Trust:
1,026,838 Ser. 1994-1, Class B,
5.75%, 3/15/2009................................. 1,010,536
2,370,000 Ser. 1998-2, Class A-F,
6.159%, 4/15/2008................................ 2,300,097
225,470 Fifth Third Bank Auto Grantor Trust,
6.20%, 9/15/2001................................ 225,715
2,700,000 First USA Credit Card Master Trust,
5.28%, 9/18/2006................................ 2,571,467
3,900,000 Green Tree Fin. Corp.,
Ser. 1999-A, Class A-5,
6.13%, 2/15/2019................................ 3,791,560
4,000,000 JCP Master Credit Card Trust,
5.50%, 6/15/2007................................ 3,849,820
416,074 Old Stone Credit Corp. Home Equity Loan Trust,
Ser. 1993-1, Class B-1,
6.00%, 3/15/2008................................ 416,043
------------
Total Asset-Backed Securities
(cost $28,702,767).............................. 27,993,724
------------
CORPORATE BONDS - 28.2%
Airlines - 1.0%
2,000,000 Northwest Airlines,
Ser. 1999-2, Class B,
7.95%, 3/1/2015................................. 1,985,295
------------
Automotive Equipment & Manufacturing - 1.5%
3,000,000 Daimler Chrysler AG,
Guaranteed Note,
6.90%, 9/1/2004 (c)............................. 3,014,229
------------
Cable/Other Video Distribution - 1.7%
1,400,000 Century Communications Corp.,
Sr. Note,
9.50%, 8/15/2000................................ 1,407,000
750,000 CSC Holdings, Inc.,
Sr. Sub. Note,
9.875%, 5/15/2006 (c)........................... 785,625
1,100,000 Rogers Cablesystems Ltd.,
Sr. Secd. Note, Ser. B,
10.00%, 3/15/2005............................... 1,182,500
------------
3,375,125
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Chemical & Agricultural
Products - 0.3%
$ 550,000 Lyondell Chemical Co.,
Sr. Secd. Note, Ser. B,
9.875%, 5/1/2007.................................. $ 547,938
------------
Consumer Products & Services - 0.5%
1,000,000 Playtex Prods. Inc.,
Sr. Note, Ser. B,
8.875%, 7/15/2004 (c)............................. 1,007,500
------------
Communication Systems &
Services - 8.0%
625,000 Adelphia Communications Corp.,
Sr. Note,
9.875%, 3/1/2005.................................. 639,062
1,200,000 Chancellor Media Corp.,
Sr. Sub. Note,
9.00%, 10/1/2008.................................. 1,221,000
1,200,000 Charter Communications Holdings,
Sr. Note,
8.625%, 4/1/2009 (a).............................. 1,140,000
430,000 Intermedia Communications, Inc.,
Sr. Note,
8.60%, 6/1/2008................................... 370,875
750,000 JCAC Inc., Sr. Sub. Note,
10.125%, 6/15/2006................................ 806,250
3,000,000 Lucent Technologies, Inc., Deb.,
6.45%, 3/15/2029.................................. 2,704,530
1,400,000 McLeod USA, Inc., Sr. Note,
9.25%, 7/15/2007.................................. 1,407,000
1,120,000 Metromedia Fiber Network Inc.,
Sr. Note,
10.00%, 11/15/2008................................ 1,086,400
420,000 Microcell Telecommunications, Inc., Sr. Disc. Note,
Ser. B,
14.00%, 6/1/2006.................................. 352,800
750,000 Nextel Communications, Inc.,
Sr. Disc. Note, Step Bond,
(Eff. Yield 10.97%),
0.00%, 9/15/2007 (c)(e) .......................... 558,750
1,250,000 Rogers Cantel, Inc.,
Sr. Sub. Note,
8.80%, 10/1/2007.................................. 1,281,250
Sprint Capital Corp.:
2,000,000 Note,
6.90%, 5/1/2019.................................... 1,862,592
3,000,000 Note (c),
6.125%, 11/15/2008................................. 2,787,900
------------
16,218,409
------------
Electronic Equipment &
Services - 0.4%
800,000 Amkor Technologies, Inc.,
Sr. Note,
9.25%, 5/1/2006 (a)............................... 798,000
------------
Finance & Insurance - 5.1%
3,000,000 CIT Group, Inc.,
5.91%, 11/23/2005................................. 2,819,655
2,200,000 Goldman Sachs Group, Inc., Note,
6.65%, 5/15/2009.................................. 2,095,604
</TABLE>
66
<PAGE>
EVERGREEN
Quality Income Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Finance & Insurance - continued
$1,300,000 Household Fin. Corp., Note,
6.40%, 6/17/2008 (c).............................. $ 1,222,278
2,000,000 Principal Finl. Group Australia, Guaranteed Sr.
Note,
8.20%, 8/15/2009 (a).............................. 2,021,394
2,000,000 Salomon, Inc., Note,
7.30%, 5/15/2002.................................. 2,039,824
------------
10,198,755
------------
Food & Beverage Products - 1.6%
1,250,000 Canandaigua Brands Inc.,
Sr. Note,
8.625%, 8/1/2006.................................. 1,231,250
2,000,000 Kroger Co., Sr. Note,
7.25%, 6/1/2009 (a)............................... 1,956,748
------------
3,187,998
------------
Gaming - 0.6%
600,000 Casino Magic Louisiana Corp.,
Mtge. Note, Ser. B,
13.00%, 8/15/2003................................. 679,500
500,000 Isle Capri Casinos, Inc.,
Sr. Sub. Note,
8.75%, 4/15/2009.................................. 461,250
------------
1,140,750
------------
Information Services &
Technology - 1.0%
2,000,000 Sun Microsystems, Inc.,
Sr. Note,
7.65%, 8/15/2009 (c)............................... 2,030,640
------------
Leisure & Tourism - 0.2%
480,000 Cinemark USA, Inc.,
Sr. Sub. Note, Ser. D,
9.625%, 8/1/2008.................................. 415,200
------------
Oil/Energy - 4.4%
3,000,000 Alabama Power Co.,
Sr. Warrants,
7.125%, 8/15/2004................................. 3,024,408
900,000 CMS Energy Corp., Sr. Note,
6.75%, 1/15/2004.................................. 846,373
4,000,000 Enron Corp.,
6.725%, 11/17/2008................................ 3,823,152
250,000 Eott Energy Partners LP,
Sr. Note,
11.00%, 10/1/2009................................. 252,500
500,000 Ocean Energy, Inc.,
Sr. Sub. Note, Ser. B,
8.375%, 7/1/2008 (c).............................. 485,000
550,000 Pride Petroleum Svcs., Inc.,
Sr. Note,
9.375%, 5/1/2007.................................. 555,500
------------
8,986,933
------------
Retailing & Wholesale - 1.9%
1,145,000 Randall's Food Mkts. Inc.,
Sr. Sub. Note, Ser. B,
9.375%, 7/1/2007.................................. 1,253,775
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Retailing & Wholesale - continued
$2,500,000 Wal-Mart Stores, Inc., Note,
6.875%, 8/10/2009.................................. $ 2,508,702
------------
3,762,477
------------
Total Corporate Bonds
(cost $57,893,906)................................. 56,669,249
------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 19.2%
Bank America Mtge. Secs., Inc.:
2,040,281 Ser. 1999-3, Sub. Class B-1,
6.25%, 5/25/2014.................................... 1,906,326
952,787 Ser. 1999-3, Sub. Class B-2,
6.25%, 5/25/2014.................................... 876,752
1,046,915 Ser. 1998-3,
6.50%, 7/25/2013.................................... 1,000,225
2,744,935 Chase Mtge. Fin. Trust,
Ser. 1993-L, Class 2-M,
7.00%, 10/25/2024.................................. 2,679,509
General Electric Capital Mtge. Svcs., Inc.:
1,706,169 Ser. 1993-18, Class B-1,
6.00%, 2/25/2009.................................... 1,644,448
4,750,000 Ser. 1999-H, Class A-7,
6.265%, 4/25/2029................................... 4,525,539
1,098,789 Ser. 1998-11, Class 3-M,
6.50%, 6/25/2013.................................... 1,052,711
700,375 Ser. 1998-1, Class M,
6.75%, 1/25/2013.................................... 681,329
1,207,359 Key Auto Fin. Trust,
Ser. 1997-2, Class A-4,
6.15%, 10/15/2001.................................. 1,209,430
Nationsbanc Montgomery Funding:
2,999,261 Ser. 1998-5, Class B,
6.00%, 11/25/2013................................... 2,757,809
2,569,864 Ser. 1998-4,
6.25%, 10/25/2028................................... 2,251,722
Norwest Asset Secs. Corp.:
6,062,113 Ser. 1998-22,
6.25%, 9/25/2028.................................... 5,528,789
1,659,002 Class M,
7.00%, 9/25/2011.................................... 1,642,454
Prudential Home Mtge. Security:
1,119,935 Ser. 1996-4, Class B-1,
6.50%, 4/25/2026.................................... 1,053,643
3,633,761 Ser. 1995-7, Class M,
7.00%, 11/25/2025................................... 3,549,068
1,434,674 Ser. 1995-5, Class B-1,
7.25%, 9/25/2025 (a)................................ 1,408,590
2,529,809 Ser. 1995-5, Class M,
7.25%, 9/25/2025.................................... 2,487,649
2,500,000 Saxon Asset Securities Trust,
Ser. 1999-2, Class A-6,
6.415%, 3/25/2014.................................. 2,378,556
------------
Total Collateralized Mortgage Obligations
(cost $39,947,831)................................. 38,634,549
------------
</TABLE>
67
<PAGE>
EVERGREEN
Quality Income Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 38.1%
U.S. Government Agency Obligations - 38.1%
Federal Home Loan Mortgage Corp:
$ 6,493,261 6.00%, 3/15/2009.................................... $ 6,088,334
8,633,540 6.50%, 11/15/2008 - 7/25/2018....................... 8,308,902
Federal National Mortgage Assoc:
3,197,380 6.00%, 12/1/2013 (f)................................ 3,058,134
7,942,826 6.50%, 9/25/2008 - 5/18/2028........................ 7,745,928
29,955,673 7.00%, 9/1/2014 - 8/1/2029 (g)...................... 29,609,860
9,000,000 7.50%, 12/1/2099 (h)................................ 9,135,000
Government National Mortgage Assoc:
2,060,805 6.00%, 3/15/2029.................................... 1,913,478
1,885,879 6.125%, 12/15/2001.................................. 1,913,564
1,245,632 6.50%, 7/15/2014.................................... 1,224,083
542,800 6.875%, 4/20/2022................................... 551,409
7,274,876 7.00%, 12/15/2008 - 12/15/2028...................... 7,192,572
------------
Total U.S. Government & Agency Obligations
(cost $77,341,765)................................. 76,741,264
------------
<CAPTION>
Shares Value
<C> <S> <C>
PREFERRED STOCK - 1.8%
4,350,000 Home Ownership Funding
(cost $3,796,225).................................. 3,593,126
------------
<CAPTION>
Principal
Amount Value
<C> <S> <C>
RESIDUAL INTERESTS (a) - 3.5%
Capital Mtge. Funding I, Inc.:
$ 11,874 1999-1, 10/20/2022.................................. 338,453
12,907 1999-2, 10/20/2023.................................. 343,937
13,438 1999-3, 12/20/2027.................................. 352,052
20,896 1999-6, 11/20/2022.................................. 369,365
General Mtge. Securities II, Inc.:
5,752 1995-1, 1997, 6/25/2020............................. 241,249
3,300 1995-4, 1998, 6/25/2023............................. 273,932
8,024 1997-4, 1998, 5/20/2022............................. 367,229
14,717 1997-5, 7/20/2023................................... 549,505
18,228 1998-1, 10/20/2024.................................. 492,135
23,724 1998-2, 10/20/2024.................................. 370,974
24,990 1998-5, 9/20/2021................................... 551,414
35,016 1999-1, 8/20/2024................................... 525,467
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
RESIDUAL INTERESTS (a) - continued
National Mtge. Funding I, Inc.:
$ 23,324 1999-2, 1/20/2022.................................. $ 375,412
10,899 1998-3, 1/20/2023.................................. 394,399
44,156 1998-4, 5/20/2023.................................. 516,789
25,580 1998-6, 7/20/2022.................................. 541,606
24,266 1998-8, 5/20/2024.................................. 411,412
------------
Total Residual Interests
(cost $8,465,563)................................. 7,015,330
------------
YANKEE OBLIGATIONS - 2.5%
Communication Systems & Services - 0.2%
550,000 Clearnet Communications, Inc.,
Sr. Disc. Note, Step Bond,
(Eff. Yield 13.54%),
0.00%, 12/15/2005 (e)............................. 521,125
------------
Finance & Insurance - 2.3%
2,525,000 Ford Capital BV,
9.875%, 5/15/2002................................. 2,719,821
2,000,000 Rothmans Nederland Holdings BV,
6.875%, 5/6/2008.................................. 1,879,702
------------
4,599,523
------------
Total Yankee Obligations
(cost $5,191,051)................................. 5,120,648
------------
<CAPTION>
Shares Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - 4.6%
Mutual Fund Shares - 2.8%
5,605,710 Navigator Prime Portfolio (d)...................... 5,605,710
------------
<CAPTION>
Principal
Amount Value
<C> <S> <C>
Repurchase Agreement - 1.8%
$ 3,601,471 State Street Bank & Trust Co.,
5.28%, purchased 9/30/1999, maturing 10/01/1999,
maturity value $3,601,999 (cost $3,601,471) (b)... 3,601,471
------------
Total Short-Term Investments
(cost $9,207,181)................................. 9,207,181
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -
(cost $230,546,289)........................ 111.8% 224,975,071
Other Assets and Liabilities - net.......... (11.8) (23,777,255)
----- ------------
Net Assets -................................ 100.0% $201,197,816
===== ============
</TABLE>
(a) Securities that may be sold to qualified institutional buyers under Rule
144A or securities offered pursuant to Section 4(2) of the Securities Act
of 1933, as amended. These securities have been determined to be liquid un-
der guidelines established by the Board of Trustees.
(b) The repurchase agreement is fully collateralized by the U.S. government
and/or agency obligations based on market prices plus accrued interest at
September 30, 1999.
(c) All or a portion of this security is currently on loan.
(d) Represents investment in cash collateral received for securities on loan.
(e) Effective yield (calculated at the time of purchase) is the yield at which
the bond accretes on an annual basis until maturity date.
(f) All or a portion of the principal amount of this security was pledged to
cover initial margin requirements for open future contracts.
(g) All or a portion of the principal amount of this security was pledged as
collateral for open mortgage dollar roll agreement.
(h) Security acquired under mortgage dollar roll agreement.
FUTURES CONTRACTS-SHORT POSITIONS
<TABLE>
<CAPTION>
Number of Initial Contract Value at Net
Expiration Contracts Amount September 30, 1999 Unrealized Loss
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December
1999 22 5 Yr. T-Note $2,375,875 $2,386,312 ($10,437)
December
1999 32 2 Yr. T-Note 6,619,500 6,641,000 (21,500)
--------
($31,937)
========
</TABLE>
See Combined Notes to Financial Statements.
68
<PAGE>
EVERGREEN
Short-Duration Income Fund
Schedule of Investments
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
ASSET-BACKED SECURITIES - 19.5%
$ 516,192 Advanta Home Equity Loan Trust,
Ser. 1993-2, Class A-2,
6.15%, 10/25/2009................................... $ 507,729
Advanta Mtge. Loan Trust,
Ser. 1993-3, Class A-3:
267,486 4.75%, 11/25/2009.................................... 265,053
225,352 5.55%, 3/25/2010..................................... 221,509
169,191 AFC Mtge. Loan Trust,
6.60%, 2/25/2027.................................... 168,647
AFG Receivables Trust:
139,793 Ser. 1996-B, Class B,
7.05%, 4/15/2001 (a)................................. 139,928
729,089 Ser. 1997-A, Class A,
6.35%, 10/15/2002.................................... 729,239
67,883 Ser. 1997-B, Class A,
6.20%, 2/15/2003..................................... 67,752
509,120 Ser. 1997-B, Class C,
7.00%, 2/15/2003 (a)................................. 509,901
2,000,000 Capital One Master Trust,
Ser. 1998-4, Class A,
5.43%, 1/15/2007.................................... 1,926,150
4,000,000 CS First Boston Mtge. Secs. Corp., Ser. 1996-2, Class
A-6,
7.18%, 2/25/2018.................................... 3,985,580
2,000,000 Discover Card Master Trust I,
Ser. 1998-7, Class A,
5.60%, 5/16/2006.................................... 1,926,250
Equifax Credit Corp. Home Equity Loan Trust:
326,465 Ser. 1994-1, Class B,
5.75%, 3/15/2009..................................... 321,283
3,006,750 Ser. 1998-2, Class A-6F,
6.159%, 4/15/2008.................................... 2,918,066
1,225,000 Ser. 1999-2, Class A-6F,
6.685%, 2/25/2010.................................... 1,192,727
112,851 Fifth Third Bank Auto Grantor Trust, Ser. 1996,
6.20%, 9/15/2001.................................... 112,973
3,575,000 JCP Master Credit Card Trust,
Ser. E, Class A,
5.50%, 6/15/2007.................................... 3,440,776
3,000,000 MMCA Auto Owner Trust,
Ser. 1999-1, Class A-3,
5.50%, 7/15/2005.................................... 2,976,555
187,239 Old Stone Credit Corp. Home Equity Loan Trust, Ser.
1993-2, Class B-1,
6.20%, 6/15/2008.................................... 185,793
Olympic Automobile Receivables Trust:
244,209 Ser. 1994-B, Class A2,
6.85%, 6/15/2001..................................... 244,469
407,684 Ser. 1995-B, Class A2,
7.35%, 10/15/2001.................................... 408,203
4,000,000 The Money Store Home Equity Loan Trust, Ser. 1994-A,
Class A-4,
6.275%, 12/15/2022.................................. 3,955,940
Union Acceptance Corp. Auto Trust:
434,228 Ser. 1996-B, Class A,
6.45%, 7/9/2003...................................... 435,225
430,000 Ser. 1997-A,
6.48%, 5/10/2004..................................... 429,129
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
ASSET-BACKED SECURITIES - continued
Union Acceptance Corp. Auto Trust -continued
$ 1,937,251 Ser. 1997-B, Class A-2,
6.70%, 6/8/2003................................... $ 1,943,964
2,400,000 Ser. 1998-D,
5.75%, 6/9/2003................................... 2,388,396
------------
Total Asset-Backed Securities
(cost $31,900,826)............................... 31,401,237
------------
CORPORATE BONDS - 17.8%
Cable/Other Video Distribution - 1.3%
1,207,000 Century Communications Corp.,
Sr. Note,
9.50%, 8/15/2000................................. 1,213,035
1,000,000 CMS Energy Corp.,
Sr. Note,
6.75%, 1/15/2004................................. 940,415
------------
2,153,450
------------
Chemical & Agricultural
Products - 0.3%
550,000 Lyondell Chemical Co.,
Sr. Secd. Note, Ser. B,
9.875%, 5/1/2007................................. 547,938
------------
Communication Systems &
Services - 2.1%
1,000,000 Adelphia Communications Corp.,
Sr. Note,
7.50%, 1/15/2004................................. 947,500
1,250,000 JCAC, Inc.,
Sr. Sub. Note,
10.125%, 6/15/2006............................... 1,343,750
1,000,000 Nextel Communications, Inc.,
Sr. Disc. Note,
9.75%, 8/15/2004................................. 1,013,750
------------
3,305,000
------------
Consumer Products & Services - 0.6%
1,000,000 Playtex Prods., Inc.,
Sr. Note, Ser. B,
8.875%, 7/15/2004................................ 1,007,500
------------
Diversified Companies - 1.1%
1,800,000 Tyco Int'l. Group S.A.,
Note,
6.875%, 9/5/2002 (a)............................. 1,804,597
------------
Electronic Equipment &
Services - 0.4%
600,000 Amkor Technologies, Inc.,
Sr. Note,
9.25%, 5/1/2006 (a).............................. 598,500
------------
Finance & Insurance - 4.6%
1,000,000 Associates Corp. North America,
Note,
7.875%, 9/30/2001................................ 1,026,168
750,000 CSC Holdings, Inc.,
Sr. Sub. Note,
9.875%, 5/15/2006................................ 785,625
2,250,000 General Motors Acceptance Corp., Note,
6.875%, 7/15/2001................................ 2,272,700
</TABLE>
69
<PAGE>
EVERGREEN
Short-Duration Income Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Finance & Insurance - continued
Salomon, Inc.:
$1,000,000 Note,
7.30%, 5/15/2002..................................... $ 1,019,912
2,250,000 Sr. Note,
7.25%, 5/1/2001...................................... 2,283,372
------------
7,387,777
------------
Gaming - 0.7%
1,000,000 Casino Magic Louisiana Corp.,
Mtge.,
Note, Ser. B,
13.00%, 8/15/2003................................... 1,132,500
------------
Information Services &
Technology - 1.3%
2,000,000 Sun Microsystems, Inc.,
Sr. Note,
7.00%, 8/15/2002.................................... 2,013,334
------------
Leisure & Tourism - 0.5%
950,000 Cinemark USA, Inc.,
Sr. Sub. Note, Ser. D,
9.625%, 8/1/2008.................................... 821,750
------------
Oil/Energy - 1.7%
200,000 Eott Energy Partners LP,
Sr. Note,
11.00%, 10/1/2009................................... 202,000
550,000 Pride Petroleum Svcs., Inc.,
Sr. Note,
9.375%, 5/1/2007.................................... 555,500
2,000,000 PSI Energy Inc.,
Note,
6.00%, 12/14/2001................................... 1,955,202
------------
2,712,702
------------
Retailing & Wholesale - 3.2%
925,000 Randal's Food Mkts., Inc.,
Sr. Sub. Note, Ser. B,
9.375%, 7/1/2007.................................... 1,012,875
1,500,000 Shoppers Food Warehouse Corp.,
Sr. Note,
9.75%, 6/15/2004.................................... 1,612,500
2,500,000 Wal-Mart Stores, Inc.,
Note,
6.15%, 8/10/2001.................................... 2,501,307
------------
5,126,682
------------
Total Corporate Bonds
(cost $29,046,194).................................. 28,611,730
------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 20.0%
Chase Mtge. Fin. Trust:
394,404 Ser. 1999-S3, Class B-1,
6.25%, 3/25/2014..................................... 359,494
1,239,558 Ser. 1999-S3, Class M,
6.25%, 3/25/2014..................................... 1,166,517
6,335,957 Citicorp Mtge. Secs. Inc.,
Ser. 1992-18, Class A-1,
6.52%, 11/25/2022................................... 6,466,533
2,118,833 DLJ Mtge. Acceptance Corp.,
Ser. 1991-3, Class A-1,
6.59%, 2/20/2021.................................... 2,082,082
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS - continued
$ 2,300,000 First USA Credit Card Master Trust, Ser. 1998-9,
Class A,
5.28%, 9/18/2006.................................. $ 2,190,509
Glendale Federal Savings Bank:
4,262,585 Ser. 1990-1, Class A,
6.49%, 10/25/2029.................................. 4,289,284
2,167,554 Ser. 1990-3, Class A-1,
6.84%, 3/25/2030................................... 2,143,267
3,100,000 Green Tree Fin. Corp.,
Ser. 1999-A, Class A-5,
6.13%, 2/15/2019.................................. 3,013,804
3,219,624 Key Auto Fin. Trust,
Ser. 1997-2, Class A-4,
6.15%, 10/15/2001................................. 3,225,145
4,329,526 Perpetual Savings Bank, Structured Asset Secs.
Corp. Trust,
Ser. 1990-1, Class 1,
6.97%, 3/1/2020................................... 4,296,297
2,887,163 Saxon Mtge. Secs. Corp.,
Ser. 1995-1, Class 1,
7.15%, 4/25/2025.................................. 2,911,406
------------
Total Collateralized Mortgage Obligations
(cost $32,366,887)................................ 32,144,338
------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 40.5%
U.S. Treasury Notes - 3.5%
U.S. Treasury Notes:
5,700,000 5.25%, 5/15/2004................................... 5,571,750
------------
U.S. Government Agency Obligations - 37.0%
Federal Home Loan Mortgage
Corp.:
9,459,827 6.00%, 6/1/2006.................................... 9,195,709
3,982,142 6.23%, 5/1/2014.................................... 4,007,695
3,178,937 6.50%, 9/1/2006.................................... 3,140,853
Federal National Mortgage
Assoc.:
14,584,741 6.00%, 3/1/2014 - 4/1/2014......................... 14,034,313
10,606,461 7.00%, 9/1/2010 - 8/1/2029......................... 10,543,858
108,583 10.00%, 6/1/2005................................... 113,776
Government National Mortgage Assoc.:
4,283,334 6.00%, 11/15/2013 - 12/15/2013..................... 4,117,954
5,461,338 6.125%, 10/20/2022 - 12/20/2022.................... 5,541,510
4,521,851 6.375%, 4/20/2022.................................. 4,593,568
3,352,728 6.625%, 7/20/2022 - 9/20/2023...................... 3,405,038
843,487 7.00%, 12/15/2008.................................. 845,233
------------
59,539,507
------------
Total U.S. Government & Agency Obligations
(cost $65,798,318)................................ 65,111,257
------------
RESIDUAL INTERESTS (a) - 1.5%
General Mtge. Securities II, Inc.:
2,675 1997-4, 1998, 5/20/2022............................ 121,441
12,152 1998-1, 10/20/2024................................. 328,090
26,262 1999-1, 8/20/2024.................................. 394,100
17,493 1999-2, 1/20/2022.................................. 281,559
</TABLE>
70
<PAGE>
EVERGREEN
Short-Duration Income Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
RESIDUAL INTERESTS (a) - continued
National Mtge. Funding I, Inc.:
$ 16,177 1998-8, 5/20/2024................................ $ 276,459
42,076 1999-4, 1/20/2023................................ 530,925
39,423 1999-5, 7/20/2023................................ 553,528
------------
Total Residual Interests
(cost $2,945,585)............................... 2,486,102
------------
YANKEE OBLIGATIONS - 3.3%
Cable/Other Video Distribution - 1.1%
1,700,000 Rogers Cablesystems Ltd.,
Sr. Secd. Note, Ser. B,
10.00%, 3/15/2005............................... 1,827,500
------------
Communication Systems & Services - 0.5%
850,000 Clearnet Communications, Inc.,
Sr. Disc. Note, Step Bond,
(Eff. Yield 12.13%)
0.00%, 12/15/2005 (b)........................... 805,375
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
YANKEE OBLIGATIONS - continued
Finance & Insurance - 1.7%
$2,525,000 Ford Capital BV,
Deb.,
9.875%, 5/15/2002.................................. $ 2,719,822
------------
Total Yankee Obligations
(cost $5,422,125).................................. 5,352,697
------------
SHORT-TERM INVESTMENTS - 1.1%
Repurchase Agreement - 1.1%
1,804,424 State Street Bank & Trust Co.,
5.28%, purchased 9/30/1999, maturing 10/1/1999,
maturity value $1,804,689 (cost $1,804,424) (c).... 1,804,424
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -
(cost $169,284,359)......................... 103.7% 166,911,785
Other Assets and
Liabilities - net........................... (3.7) (5,950,638)
----- ------------
Net Assets................................... 100.0% $160,961,147
===== ============
</TABLE>
(a) Securities that may be sold to qualified institutional buyers under Rule
144A or securities offered pursuant to Section 4(2) of the Securities Act
of 1933, as amended. These securities have been determined to be liquid un-
der guidelines established by the Board of Trustees.
(b) Effective yield (calculated at the time of purchase) is the yield at which
the bond accretes on an annual basis until maturity date.
(c) The repurchase agreement is fully collateralized by the U.S. government
and/or agency obligations based on market prices plus accrued interest at
September 30, 1999.
See Combined Notes to Financial Statements.
71
<PAGE>
EVERGREEN
Equity and Fixed Income Funds (formerly Mentor Funds)
Statements of Assets and Liabilities
September 30, 1999
<TABLE>
<CAPTION>
Capital
Capital Capital Income and
Balanced Growth Growth Growth
Fund Fund Fund Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Identified cost of
securities............... $323,004,591 $431,049,857 $230,110,779 $428,068,845
Repurchase agreements at
amortized cost........... 41,410,701 43,350,457 23,655,068 40,429,320
Net unrealized gains or
losses on securities..... 20,637,115 70,076,312 4,616,564 67,170,567
- --------------------------------------------------------------------------------
Market value of
securities............... 385,052,407 544,476,626 258,382,411 535,668,732
Cash...................... 0 0 141 0
Receivable for securities
sold..................... 4,112,072 6,120,268 0 3,784,568
Receivable for Fund shares
sold..................... 745,757 501,769 123,663 50,573
Dividends and interest
receivable............... 1,665,792 456,183 1,122,402 61,784
Deferred organization
expenses................. 0 0 0 0
Prepaid expenses and other
assets................... 64,760 34,737 22,947 43,740
- --------------------------------------------------------------------------------
Total assets.............. 391,640,788 551,589,583 259,651,564 539,609,397
- --------------------------------------------------------------------------------
Liabilities
Distributions payable..... 0 0 0 0
Payable for securities
purchased................ 10,498,619 7,373,854 0 2,008,587
Payable for Fund shares
redeemed................. 837,292 1,554,611 854,746 1,347,897
Deferred mortgage dollar
roll income payable...... 0 0 0 0
Payable for reverse
repurchase agreements.... 0 0 0 0
Payable for securities on
loan..................... 22,733,449 3,687,316 13,385,847 74,111,928
Payable for mortgage
dollar roll.............. 0 0 0 0
Payable for daily
variation margin on open
futures contracts........ 42,688 0 0 0
Due to custodian bank..... 0 0 0 0
Accrued expenses and other
liabilities.............. 328 1,184 1,122 1,262
- --------------------------------------------------------------------------------
Total liabilities......... 34,112,376 12,616,965 14,241,715 77,469,674
- --------------------------------------------------------------------------------
Net assets................. $357,528,412 $538,972,618 $245,409,849 $462,139,723
- --------------------------------------------------------------------------------
Net assets represented by
Paid-in capital........... $330,560,987 $465,630,652 $223,798,393 $374,305,296
Undistributed
(overdistributed) net
investment income or
loss..................... 20,038 0 0 0
Accumulated net realized
gains or losses on
securities and
futures contracts........ 6,386,741 3,265,654 16,994,892 20,663,819
Net unrealized gains on
securities and futures
contracts................ 20,560,646 70,076,312 4,616,564 67,170,608
- --------------------------------------------------------------------------------
Total net assets........... $357,528,412 $538,972,618 $245,409,849 $462,139,723
- --------------------------------------------------------------------------------
Net assets consists of
Class A................... $138,686,469 $285,690,223 $108,815,447 $ 92,228,603
Class B................... 218,816,199 253,281,072 136,593,245 334,484,299
Class Y................... 25,744 1,323 1,157 35,426,821
- --------------------------------------------------------------------------------
Total net assets........... $357,528,412 $538,972,618 $245,409,849 $462,139,723
- --------------------------------------------------------------------------------
Shares outstanding
Class A................... 9,151,723 11,718,143 5,568,885 5,768,901
Class B................... 14,469,304 11,024,546 6,999,329 21,737,662
Class Y................... 1,703 54 58 2,207,033
- --------------------------------------------------------------------------------
Net asset value per share
Class A................... $ 15.15 $ 24.38 $ 19.54 $ 15.99
- --------------------------------------------------------------------------------
Class A--Offering price
based on sales charge.... $ 16.07 $ 25.87 $ 20.73 $ 16.97
- --------------------------------------------------------------------------------
Class B................... $ 15.12 $ 22.97 $ 19.52 $ 15.39
- --------------------------------------------------------------------------------
Class Y................... $ 15.12 $ 24.50 $ 19.95 $ 16.05
- --------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
72
<PAGE>
EVERGREEN
Equity and Fixed Income Funds (formerly Mentor Funds)
Statements of Assets and Liabilities
September 30, 1999
<TABLE>
<CAPTION>
High Municipal Quality Short-Duration
Income Income Income Income
Fund Fund Fund Fund
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Identified cost of
securities............ $234,635,242 $110,486,886 $226,944,818 $167,479,935
Repurchase agreements
at amortized cost..... 28,330,545 0 3,601,471 1,804,424
Net unrealized gains on
securities............ (11,216,837) (1,571,460) (5,571,218) (2,372,574)
- ----------------------------------------------------------------------------------
Market value of
securities............ 251,748,950 108,915,426 224,975,071 166,911,785
Cash................... 0 1,343 907 0
Receivable for
securities sold....... 32,750 2,436,887 623,513 34,224
Receivable for Fund
shares sold........... 575,246 27,841 397,241 130,873
Dividends and interest
receivable............ 6,119,271 1,894,329 2,322,327 1,593,692
Deferred organization
expenses.............. 13,037 0 0 9,259
Prepaid expenses and
other assets.......... 136,818 62,369 162,752 49,148
- ----------------------------------------------------------------------------------
Total assets.......... 258,626,072 113,338,195 228,481,811 168,728,981
- ----------------------------------------------------------------------------------
Liabilities
Distributions payable.. 2,010,036 386,040 972,239 746,321
Payable for securities
purchased............. 2,400,000 3,967,581 958,524 200,000
Payable for Fund shares
redeemed.............. 463,584 348,885 583,483 205,558
Deferred mortgage
dollar roll income
payable............... 0 0 12,220 0
Payable for reverse
repurchase
agreements............ 0 0 10,003,028 6,564,948
Payable for securities
on loan............... 0 0 5,605,710 0
Payable for mortgage
dollar roll........... 0 0 9,129,375 0
Payable for daily
variation margin on
open futures
contracts............. 0 25,500 16,406 0
Due to custodian bank.. 213 0 0 326
Accrued expenses and
other liabilities..... 8,493 6,904 3,010 50,681
- ----------------------------------------------------------------------------------
Total liabilities..... 4,882,326 4,734,910 27,283,995 7,767,834
- ----------------------------------------------------------------------------------
Net assets.............. $253,743,746 $108,603,285 $201,197,816 $160,961,147
- ----------------------------------------------------------------------------------
Net assets represented
by
Paid-in capital........ $280,553,185 $113,070,780 $226,794,868 $166,649,350
Undistributed
(overdistributed) net
investment income or
loss.................. (2,010,036) (354,075) (972,239) (746,321)
Accumulated net
realized gains on
securities and futures
contracts............. (13,582,566) (2,559,957) (19,021,658) (2,569,308)
Net unrealized gains on
securities and futures
contracts............. (11,216,837) (1,553,463) (5,603,155) (2,372,574)
- ----------------------------------------------------------------------------------
Total net assets........ $253,743,746 $108,603,285 $201,197,816 $160,961,147
- ----------------------------------------------------------------------------------
Net assets consists of
Class A................ $146,179,228 $ 57,456,295 $103,793,931 $116,886,218
Class B................ 107,564,518 51,145,969 97,402,838 44,073,867
Class Y................ 0 1,021 1,047 1,062
- ----------------------------------------------------------------------------------
Total net assets........ $253,743,746 $108,603,285 $201,197,816 $160,961,147
- ----------------------------------------------------------------------------------
Shares outstanding
Class A................ 14,200,357 3,896,157 8,351,828 9,580,772
Class B................ 10,448,961 3,472,523 7,837,510 3,609,532
Class Y................ 0 67 80 83
- ----------------------------------------------------------------------------------
Net asset value per
share
Class A................ $ 10.29 $ 14.75 $ 12.43 $ 12.20
- ----------------------------------------------------------------------------------
Class A--Offering price
based on sales
charge................ $ 10.80 $ 15.49 $ 13.05 $ 12.32
- ----------------------------------------------------------------------------------
Class B................ $ 10.29 $ 14.73 $ 12.43 $ 12.21
- ----------------------------------------------------------------------------------
Class Y................ -- $ 15.24 $ 13.09 $ 12.80
- ----------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
73
<PAGE>
EVERGREEN
Equity and Fixed Income Funds
Statements of Operations
Year Ended September 30, 1999
<TABLE>
<CAPTION>
Capital
Capital Capital Income and
Balanced Growth Growth Growth
Fund Fund Fund Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income
Dividends (net of foreign
withholding taxes of $0,
$0, $36,407, and $1,261,
respectively)............. $ 1,573,116 $ 4,715,103 $ 3,243,007 $ 529,238
Securities lending income.. 115,962 47,858 88,553 432,703
Interest................... 8,056,698 1,274,313 7,189,972 2,116,893
- --------------------------------------------------------------------------------
Total investment income..... 9,745,776 6,037,274 10,521,532 3,078,834
- --------------------------------------------------------------------------------
Expenses
Advisory fee............... 2,216,232 4,069,089 2,001,452 3,600,834
Distribution and service
fees...................... 2,221,946 3,159,378 1,807,959 4,057,806
Administrative services
fees...................... 367,370 650,694 334,638 637,352
Transfer agent fee......... 435,200 509,095 411,719 845,912
Trustees' fees and
expenses.................. 5,328 10,562 6,540 16,022
Printing and postage
expenses.................. 218,701 88,465 36,103 119,726
Custodian fee.............. 82,005 107,413 53,001 109,233
Registration and filing
fees...................... 181,604 79,323 69,586 17,374
Professional fees.......... 59,665 27,290 12,921 40,815
Organization expenses...... 0 0 0 0
Other...................... 97,274 287,304 46,160 14,064
- --------------------------------------------------------------------------------
Total expenses............. 5,885,325 8,988,613 4,780,079 9,459,138
Fee waivers............... 0 0 0 0
- --------------------------------------------------------------------------------
Net expenses............... 5,885,325 8,988,613 4,780,079 9,459,138
- --------------------------------------------------------------------------------
Net investment income
(loss).................... 3,860,451 (2,951,339) 5,741,453 (6,380,304)
- --------------------------------------------------------------------------------
Net realized and unrealized
gains or losses on
securities and
futures contracts
Net realized gains or
losses on:
Securities................. 7,191,289 6,966,212 18,940,632 21,528,448
Futures contracts.......... 0 0 0 0
- --------------------------------------------------------------------------------
Net realized gains or
losses on securities and
futures contracts......... 7,191,289 6,966,212 18,940,632 21,528,448
- --------------------------------------------------------------------------------
Net change in unrealized
gains or losses on
securities and
futures contracts......... 5,962,995 63,612,291 (6,082,843) 50,477,009
- --------------------------------------------------------------------------------
Net realized and unrealized
gains or losses on
securities and
futures contracts......... 13,154,284 70,578,503 12,857,789 72,005,457
- --------------------------------------------------------------------------------
Net increase in net assets
resulting from
operations................ $17,014,735 $67,627,164 $18,599,242 $65,625,153
- --------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
74
<PAGE>
EVERGREEN
Equity and Fixed Income Funds
Statements of Operations
Year Ended September 30, 1999
<TABLE>
<CAPTION>
High Municipal Quality Short-Duration
Income Income Income Income
Fund Fund Fund Fund
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income
Dividends (net of
foreign withholding
taxes of $0, $0, $0,
and $0, respective-
ly)................... $ 0 $ 0 $ 144,975 $ 0
Securities lending
income................ 0 0 18,603 0
Interest (a)........... 23,684,944 6,733,358 14,786,226 11,218,934
- ---------------------------------------------------------------------------------
Total investment
income................. 23,684,944 6,733,358 14,949,804 11,218,934
- ---------------------------------------------------------------------------------
Expenses
Advisory fee........... 1,635,473 729,071 1,258,891 906,876
Distribution and
service fees.......... 1,078,822 596,230 1,058,124 610,596
Administrative services
fees.................. 222,888 121,471 209,815 181,548
Transfer agent fee..... 186,633 115,868 240,192 197,477
Trustees' fees and
expenses.............. 4,905 2,987 4,330 4,152
Printing and postage
expenses.............. 38,275 14,170 24,733 18,509
Custodian fee.......... 87,268 33,405 31,164 33,329
Registration and filing
fees.................. 64,568 70,767 168,883 12,290
Professional fees...... 31,301 9,793 34,915 8,484
Organization expenses.. 4,449 0 0 7,337
Other.................. 16,045 3,607 15,878 13,119
- ---------------------------------------------------------------------------------
Total expenses......... 3,370,627 1,697,369 3,046,925 1,993,717
Fee waivers........... (308,131) 0 (312,164) (230,905)
- ---------------------------------------------------------------------------------
Net expenses........... 3,062,496 1,697,369 2,734,761 1,762,812
- ---------------------------------------------------------------------------------
Net investment income.. 20,622,448 5,035,989 12,215,043 9,456,122
- ---------------------------------------------------------------------------------
Net realized and
unrealized gains or
losses on securities
and futures contracts
Net realized gains or
losses on:
Securities............ (13,493,851) (1,268,792) (4,581,576) (2,567,317)
Futures contracts..... 0 712,881 (307,773) (106,091)
- ---------------------------------------------------------------------------------
Net realized gains or
losses on securities
and futures
contracts............. (13,493,851) (555,911) (4,889,349) (2,673,408)
- ---------------------------------------------------------------------------------
Net change in
unrealized gains or
losses on securities
and futures
contracts............. (1,893,351) (9,175,621) (14,077,222) (4,282,494)
- ---------------------------------------------------------------------------------
Net realized and
unrealized gains or
losses on securities
and futures
contracts............. (15,387,202) (9,731,532) (18,966,571) (6,955,902)
- ---------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ $ 5,235,246 $(4,695,543) $ (6,751,528) $ 2,500,220
- ---------------------------------------------------------------------------------
</TABLE>
(a) Net of interest expense of $0, $0, $2,331,502, and $281,846, respectively,
related to reverse repurchase agreements.
See Combined Notes to Financial Statements.
75
<PAGE>
EVERGREEN
Equity and Fixed Income Funds
Statements of Changes in Net Assets
Year Ended September 30, 1999
<TABLE>
<CAPTION>
Capital
Capital Capital Income and
Balanced Growth Growth Growth
Fund Fund Fund Fund
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income
(loss)................ $ 3,860,451 $ (2,951,339) $ 5,741,453 $ (6,380,304)
Net realized gains or
losses on securities
and futures
contracts............. 7,191,289 6,966,212 18,940,632 21,528,448
Net change in
unrealized gains or
losses on securities
and
futures contracts..... 5,962,995 63,612,291 (6,082,843) 50,477,009
- -----------------------------------------------------------------------------------
Net increase in net
assets resulting from
operations............ 17,014,735 67,627,164 18,599,242 65,625,153
- -----------------------------------------------------------------------------------
Distributions to
shareholders from
Net investment income
Class A............... (1,667,411) 0 (2,977,681) 0
Class B............... (2,118,036) 0 (2,835,751) 0
Class Y............... (912) 0 (10) 0
Net realized gains
Class A............... (206,847) (16,362,218) (4,931,114) (2,988,098)
Class B............... (736,381) (23,300,909) (7,248,972) (15,033,436)
Class Y............... (655) (125) (54) (1,016,636)
- -----------------------------------------------------------------------------------
Total distributions to
shareholders......... (4,730,242) (39,663,252) (17,993,582) (19,038,170)
- -----------------------------------------------------------------------------------
Capital share
transactions
Proceeds from shares
sold.................. 190,802,847 289,520,215 48,128,352 543,766,956
Payment for shares
redeemed.............. (84,513,846) (159,195,434) (61,742,682) (632,970,382)
Net asset value of
shares issued in
reinvestment of
distributions......... 3,532,642 38,814,981 15,777,543 18,495,507
Net asset value of
shares issued in
acquisition........... 222,601,303 0 0 0
- -----------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from capital
share transactions... 332,422,946 169,139,762 2,163,213 (70,707,919)
- -----------------------------------------------------------------------------------
Total increase
(decrease) in net
assets.............. 344,707,439 197,103,674 2,768,873 (24,120,936)
Net assets
Beginning of period... 12,820,973 341,868,944 242,640,976 486,260,659
- -----------------------------------------------------------------------------------
End of period......... $357,528,412 $ 538,972,618 $245,409,849 $ 462,139,723
- -----------------------------------------------------------------------------------
Undistributed
(overdistributed) net
investment income or
loss................... $ 20,038 $ 0 $ 0 $ 0
- -----------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
76
<PAGE>
EVERGREEN
Equity and Fixed Income Funds
Statements of Changes in Net Assets
Year Ended September 30, 1999
<TABLE>
<CAPTION>
High Municipal Quality Short-Duration
Income Income Income Income
Fund Fund Fund Fund
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income.. $ 20,622,448 $ 5,035,989 $ 12,215,043 $ 9,456,122
Net realized gains or
losses on securities
and futures
contracts............. (13,493,851) (555,911) (4,889,349) (2,673,408)
Net change in
unrealized gains or
losses on securities
and futures
contracts............. (1,893,351) (9,175,621) (14,077,222) (4,282,494)
- -----------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ 5,235,246 (4,695,543) (6,751,528) 2,500,220
- -----------------------------------------------------------------------------------
Distributions to
shareholders from
Net investment income..
Class A............... (13,172,505) (2,771,545) (6,334,342) (7,224,733)
Class B............... (9,182,508) (2,268,587) (6,056,792) (2,740,563)
Class Y............... 0 (10) (19) (3)
Net realized gains
Class A............... 0 0 0 (110,579)
Class B............... 0 0 0 (46,577)
Class Y............... 0 0 0 (1)
- -----------------------------------------------------------------------------------
Total distributions to
shareholders.......... (22,355,013) (5,040,142) (12,391,153) (10,122,456)
- -----------------------------------------------------------------------------------
Capital share
transactions
Proceeds from shares
sold.................. 188,593,421 35,564,410 111,477,462 126,350,364
Payment for shares
redeemed.............. (41,516,220) (31,211,348) (106,436,056) (112,171,940)
Net asset value of
shares issued in
reinvestment of
distributions......... 10,030,172 2,876,771 8,117,826 7,360,520
Net asset value of
shares issued in
acquisition........... 0 0 0 0
- -----------------------------------------------------------------------------------
Net increase in net
assets resulting from
capital share
transactions......... 157,107,373 7,229,833 13,159,232 21,538,944
- -----------------------------------------------------------------------------------
Total increase
(decrease) in net
assets.............. 139,987,606 (2,505,852) (5,983,449) 13,916,708
Net assets
Beginning of period... 113,756,140 111,109,137 207,181,265 147,044,439
- -----------------------------------------------------------------------------------
End of period......... $253,743,746 $108,603,285 $ 201,197,816 $ 160,961,147
- -----------------------------------------------------------------------------------
Undistributed
(overdistributed) net
investment income
(loss)................. $ (2,010,036) $ (354,075) $ (972,239) $ (746,321)
- -----------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
77
<PAGE>
EVERGREEN
Equity and Fixed Income Funds
Statements of Changes in Net Assets
Year Ended September 30, 1998
<TABLE>
<CAPTION>
Capital
Capital Capital Income and
Balanced Growth Growth Growth
Fund Fund Fund Fund
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income.. $ 110,202 $ (1,099,960) $ 4,930,518 $ (6,962,845)
Net realized gains on
securities and futures
contracts............. 822,291 45,438,253 10,845,766 37,565,972
Net change in
unrealized losses on
securities and futures
contracts............. (583,942) (32,273,002) (5,423,416) (173,567,460)
- ---------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ 348,551 12,065,291 10,352,868 (142,964,333)
- ---------------------------------------------------------------------------------
Distributions to
shareholders from
Net investment income
Class A............... 0 (29,728) (2,350,498) 0
Class B............... 0 (52,910) (2,488,039) 0
Class Y............... (159,807) 0 (29) 0
Net realized gains
Class A............... 0 (5,934,313) (5,325,307) (6,599,466)
Class B............... 0 (10,484,517) (8,807,307) (31,307,757)
Class Y............... (1,140,442) (12) (1) (10)
- ---------------------------------------------------------------------------------
Total distributions to
shareholders.......... (1,300,249) (16,501,480) (18,971,181) (37,907,233)
- ---------------------------------------------------------------------------------
Capital share
transactions
Proceeds from shares
sold.................. 9,280,672 220,347,637 101,090,596 313,753,597
Payment for shares
redeemed.............. (910,125) (69,421,744) (39,059,107) (294,819,420)
Net asset value of
shares issued in
reinvestment of
distributions......... 1,300,249 16,089,732 17,902,342 36,935,409
- ---------------------------------------------------------------------------------
Net increase in net
assets resulting from
capital share
transactions......... 9,670,796 167,015,625 79,933,831 55,869,586
- ---------------------------------------------------------------------------------
Total increase
(decrease) in net
assets.............. 8,719,098 162,579,436 71,315,518 (125,001,980)
Net assets
Beginning of period... 4,101,875 179,289,508 171,325,458 611,262,639
- ---------------------------------------------------------------------------------
End of period......... $12,820,973 $341,868,944 $242,640,976 $ 486,260,659
- ---------------------------------------------------------------------------------
Undistributed
(overdistributed) net
investment income...... $ 18,259 0 $ 91,952 0
- ---------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
78
<PAGE>
EVERGREEN
Equity and Fixed Income Funds
Statements of Changes in Net Assets
Year Ended September 30, 1998
<TABLE>
<CAPTION>
High Municipal Quality Short-Duration
Income Income Income Income
Fund (a) Fund Fund Fund
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income.. $ 1,818,180 $ 4,054,279 $ 9,334,606 $ 5,167,036
Net realized gains or
losses on securities
and futures
contracts............. (88,715) (41,138) 713,191 325,954
Net change in
unrealized gains or
losses on securities
and futures
contracts............. (9,323,486) 3,077,428 6,558,180 1,608,387
- ----------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ (7,594,021) 7,090,569 16,605,977 7,101,377
- ----------------------------------------------------------------------------------
Distributions to
shareholders from
Net investment income
Class A............... (1,040,534) (1,979,908) (4,831,082) (3,203,099)
Class B............... (1,178,956) (2,308,071) (5,431,749) (2,394,223)
Class Y............... 0 (43) (51) (49)
Net realized gains
Class A............... 0 0 0 0
Class B............... 0 0 0 0
Class Y............... 0 0 0 0
- ----------------------------------------------------------------------------------
Total distributions to
shareholders.......... (2,219,490) (4,288,022) (10,262,882) (5,597,371)
- ----------------------------------------------------------------------------------
Capital share
transactions
Proceeds from shares
sold.................. 126,286,107 45,477,369 106,644,051 169,053,248
Payment for shares
redeemed.............. (3,998,009) (13,461,719) (40,705,601) (82,572,822)
Net asset value of
shares issued in
reinvestment of
distributions......... 1,281,553 2,625,084 6,677,759 4,352,285
- ----------------------------------------------------------------------------------
Net increase in net
assets resulting from
capital share
transactions.......... 123,569,651 34,640,734 72,616,209 90,832,711
- ----------------------------------------------------------------------------------
Total increase in net
assets................ 113,756,140 37,443,281 78,959,304 92,336,717
Net assets
Beginning of period.... -- 73,665,856 128,221,961 54,707,722
- ----------------------------------------------------------------------------------
End of period.......... $113,756,140 $111,109,137 $207,181,265 $147,044,439
- ----------------------------------------------------------------------------------
Undistributed
(overdistributed) net
investment income
(loss)................. $ (371,874) $ (349,922) $ (923,573) $ (512,293)
- ----------------------------------------------------------------------------------
</TABLE>
(a) For the period from June 23, 1998 (commencement of operations) to September
30, 1998.
See Combined Notes to Financial Statements.
79
<PAGE>
EVERGREEN
Equity and Fixed Income Funds (formerly Mentor Funds)
Combined Notes to Financial Statements
1. ORGANIZATION
Evergreen Equity and Fixed Income Funds (formerly Mentor Funds) consist of Ev-
ergreen Capital Balanced Fund ("Capital Balanced Fund") (formerly Mentor Bal-
anced Portfolio), Evergreen Capital Growth Fund ("Capital Growth Fund") (for-
merly Mentor Capital Growth Portfolio), Evergreen Capital Income and Growth
Fund ("Capital Income and Growth Fund") (formerly Mentor Income and Growth
Portfolio), Evergreen Growth Fund ("Growth Fund") (formerly Mentor Growth Port-
folio), Evergreen High Income Fund ("High Income Fund") (formerly Mentor High
Income Portfolio), Evergreen Municipal Income Fund ("Municipal Income Fund")
(formerly Mentor Municipal Income Portfolio), Evergreen Quality Income Fund
("Quality Income Fund") (formerly Mentor Quality Income Portfolio) and Ever-
green Short-Duration Income Fund ("Short-Duration Income Fund") (formerly Men-
tor Short-Duration Income Portfolio), (collectively, the "Funds"). Each Fund
was a diversified series of a Massachusetts business trust, an open-end manage-
ment investment company organized on January 20, 1992 and registered under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Funds changed
their form of organization to diversified series of various Evergreen Delaware
business trusts as of the following dates: October 15, 1999 for the Capital
Balanced Fund, Growth Fund, High Income Fund, Municipal Income Fund, and Qual-
ity Income Fund; October 22, 1999 for the Capital Income and Growth Fund, Capi-
tal Growth Fund and Short-Duration Income Fund. (See Note 10 and Additional
Information.)
Until the date of the approved share classes restructuring (see Note 10), the
Funds offered Class A, Class B, and, except for High Income Fund, Class Y
shares. Class A shares were sold with a maximum front-end sales charge of 5.75%
for Capital Balanced Fund, Capital Growth Fund, Capital Income and Growth Fund,
and Growth Fund; 4.75% for High Income Fund, Municipal Income Fund and Quality
Income Fund; and 1.00% for Short-Duration Income Fund, payable at the time of
purchase. Class B shares were sold subject to a contingent deferred sales
charge that was payable upon redemption and decreased depending on how long the
shares have been held. Class Y shares are sold at net asset value and are not
subject to contingent deferred sales charges or distribution fees. Class Y
shares were sold only to certain institutional investors and high net-worth in-
dividual investors.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently fol-
lowed by the Funds in the preparation of their financial statements. The poli-
cies are in conformity with generally accepted accounting principles, which re-
quire management to make estimates and assumptions that affect amounts reported
herein. Actual results could differ from these estimates.
A. Valuation of Securities
Securities traded on an established securities exchange or included on the
Nasdaq National Market System ("NMS") and other securities traded in the over-
the-counter market are valued at the last reported sales price on the exchange
where primarily traded. Securities traded on an exchange or NMS and other secu-
rities traded in the over-the-counter market for which there has been no sale
are valued at the mean between the last reported bid and asked price.
Corporate bonds, municipal bonds, U.S. government obligations, mortgage and
other asset-backed securities and other fixed-income securities are valued at
prices provided by an independent pricing service. In determining a price for
normal institutional-size transactions, the pricing service uses methods based
on market transactions for comparable securities and analysis of various rela-
tionships between similar securities, which are generally recognized by insti-
tutional traders. In evaluating the fair value of a Fund's municipal bonds an
independent pricing service uses a variety of factors which may include yield,
liquidity, interest rate risk, credit quality, coupon, maturity and type of is-
sue.
Securities for which valuations are not available from an independent pricing
service may be valued by brokers which use prices provided by market makers or
estimates of market value obtained from yield data relating to investments or
securities with similar characteristics. Otherwise, securities for which market
quota-
80
<PAGE>
EVERGREEN
Equity and Fixed Income Funds
Combined Notes to Financial Statements (continued)
tions are not readily available or valuations are not available from an inde-
pendent pricing service (including restricted securities) are valued at fair
value as determined in good faith according to procedures established by the
Board of Trustees.
Mutual Fund shares held as short term investments are valued at net asset val-
ue. Short-term investments with remaining maturities of 60 days or less are
carried at amortized cost, which approximates market value.
B. Repurchase Agreements
Each Fund, other than Municipal Income Fund, may invest in repurchase agree-
ments. The custodian holds securities pledged as collateral for repurchase
agreements in a segregated account on the Fund's behalf. Collateral for certain
tri-party repurchase agreements is held at the counterparty's custodian in a
segregated account for the benefit of the Fund and the counterparty. Each Fund
monitors the adequacy of the collateral daily and will 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 ad-
visor to be creditworthy pursuant to guidelines established by the Board of
Trustees.
C. Reverse Repurchase Agreements
To obtain short-term financing, each Fund, except for Growth Fund, may enter
into reverse repurchase agreements with qualified third-party broker-dealers.
Interest on the value of reverse repurchase agreements is based upon competi-
tive market rates at the time of issuance. At the time the Fund enters into a
reverse repurchase agreement, it will establish and maintain a segregated ac-
count with the custodian containing qualifying assets having a value not less
than the repurchase price, including accrued interest. If the counterparty to
the transaction is rendered insolvent, the ultimate realization of the securi-
ties to be repurchased by the Fund may be delayed or limited.
D. Dollar Roll Transactions
Each of the Funds, except for the Growth Fund and Municipal Income Fund, may
engage in dollar roll transactions with respect to mortgage-backed securities
issued by GNMA, FNMA, and FHLMC. In a dollar-roll transaction, a Fund sells a
mortgage-backed security to a financial institution, such as a bank or
broker/dealer, and simultaneously agrees to repurchase a substantially similar
(i.e., same type, coupon, and maturity) security from the institution at a
later date at an agreed upon price. The mortgage-backed securities that are re-
purchased will bear the same interest rate as those sold, but generally will be
collateralized by different pools of mortgages with different prepayment histo-
ries.
E. Residual Interests
Capital Balanced Fund, High Income Fund, Quality Income Fund and Short-Duration
Income Fund may invest in mortgage security residual interests ("residuals"). A
residual is a derivative security, which is any investment that derives its
value from an underlying security, asset, or market index. The Funds' invest-
ments in residuals are primarily in securities issued by proprietary mortgage
trusts. While these entities have been highly leveraged, often having indebted-
ness of up to 95% of their total value, the Funds have not incurred any indebt-
edness in the course of making these residual investments; nor have the Funds'
assets been pledged to secure the indebtedness of the issuing structure or the
Funds' investment in the residuals. In consideration of the risk associated
with investment in residual securities, it is the Funds' policy to limit their
exposure at the time of purchase to no more than 20% of their total assets.
F. Interest-Rate Swaps
Capital Balanced Fund, High Income Fund, Quality Income Fund and Short-Duration
Income Fund may invest in interest-rate swap transactions. An interest-rate
swap is a contract between two parties on a specified principal amount, re-
ferred to as the notional principal, for a specified period. In the most common
instance, a swap involves the exchange of streams of variable and fixed-rate
interest payments. During the term of the swap, changes in the value of the
swap are recognized as unrealized gains or losses by marking-to-market the
value of the swap. When the swap is terminated, the Fund will record a realized
gain or loss.
81
<PAGE>
EVERGREEN
Equity and Fixed Income Funds
Combined Notes to Financial Statements (continued)
G. Foreign Currency
The books and records of the Funds are maintained in United States (U.S.) dol-
lars. Each Fund, other than Growth Fund and Municipal Income Fund, may invest
in securities principally traded in foreign markets. Foreign currency amounts
are translated into U.S. dollars as follows: market value of investments, other
assets and liabilities at the daily rate of exchange; purchases and sales of
investments and income and expenses at the rate of exchange prevailing on the
respective dates of such transactions. Net unrealized foreign exchange gain or
loss resulting from changes in foreign currency exchange rates is a component
of net unrealized gains or losses on securities and foreign currency related
transactions. Net realized foreign currency gain or loss on foreign currency
related transactions includes foreign currency gains and losses between trade
date and settlement date on investment securities transactions, foreign cur-
rency related transactions and the difference between the amounts of interest
and dividends recorded on the books of the Fund and the amount actually re-
ceived. The portion of foreign currency gains or losses related to fluctuations
in exchange rates between the initial purchase trade date and subsequent sale
trade date is included in realized gain or loss on securities.
H. Futures Contracts
In order to gain exposure to or protect against changes in security values, the
Funds may buy and sell futures contracts.
The initial margin deposited with a broker when entering into a futures trans-
action is subsequently adjusted by daily payments or receipts ("variation mar-
gin") as the value of the contract changes. Such changes are recorded as
unrealized gains or losses. Realized gains or losses are recognized on closing
the contract.
Risks of entering into futures contracts include (i) the possibility of an il-
liquid market for the contract, (ii) the possibility that a change in the value
of the contract may not correlate with changes in the value of the underlying
instrument or index, and (iii) the credit risk that the other party will not
fulfill their obligations under the contract. Futures contracts also involve
elements of market risk in excess of the amount reflected in the statement of
assets and liabilities.
I. Forward Foreign Currency Exchange Contracts
The Funds that may invest in foreign securities may enter into forward foreign
currency exchange contracts ("forward contracts") to settle Fund purchases and
sales of securities denominated in a foreign currency and to hedge certain for-
eign currency assets or liabilities. Forward contracts are recorded at the for-
ward rate and marked-to-market daily. Realized gains and losses arising from
such transactions are included in net realized gain or loss on foreign currency
related transactions. The Fund bears the risk of an unfavorable change in the
foreign currency exchange rate underlying the forward contract and is subject
to the credit risk that the other party will not fulfill their obligations un-
der the contract. Forward contracts involve elements of market risk in excess
of the amount reflected in the statement of assets and liabilities.
J. When-issued and Delayed Delivery Transactions
The Funds record when-issued or delayed delivery transactions on the trade date
and will segregate with the custodian qualifying assets having a value suffi-
cient to make payment for the securities purchased. Securities purchased on a
when-issued or delayed delivery basis are marked-to-market daily and the Fund
begins earning interest on the settlement date. Losses may arise due to changes
in the market value of the underlying securities or if the counterparty does
not perform under the contract.
K. Securities Lending
In order to generate income and to offset expenses, each Fund, except Municipal
Income Fund, may lend portfolio securities to brokers, dealers and other finan-
cial organizations. The Funds' investment advisor will monitor the creditwor-
thiness of such borrowers. Loans of securities may not exceed 33 1/3% of a
Fund's total assets and will be collateralized by cash, letters of credit or
U.S. Government securities that are maintained at all times in an amount equal
to at least 100% of the current market value of the loaned securities, includ-
ing accrued interest. The Fund monitors the adequacy of the collateral daily
and will require the borrower to provide additional collateral in the event the
value of the collateral falls below 100% of the market value of
82
<PAGE>
Combined Notes to Financial Statements (continued)
the securities on loan. While such securities are on loan, the borrower will
pay a Fund any income accruing thereon, and the Fund may invest any cash col-
lateral received in Fund securities, thereby increasing its return. A Fund will
have the right to call any such loan and obtain the securities loaned at any
time on five days' notice. Any gain or loss in the market price of the loaned
securities, which occurs during the term of the loan, would affect a Fund and
its investors. A Fund may pay fees in connection with such loans.
L. Security Transactions and Investment Income
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premiums. Dividend income is recorded on the
ex-dividend date or in the case of some foreign securities, on the date
thereafter when the Fund is made aware of the dividend. Foreign income and
capital gains realized on some foreign securities may be subject to foreign
taxes, which are accrued as applicable.
M. Federal Taxes
The Funds have qualified and intend to continue to qualify as regulated invest-
ment companies under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Funds will not incur any federal income tax liability since
they are expected to distribute all of their net investment company taxable in-
come, net tax-exempt income and net capital gains, if any, to their sharehold-
ers. The Funds also intend to avoid any excise tax liability by making the re-
quired distributions under the Code. Accordingly, no provision for federal
taxes is required. 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.
N. Distributions
Distributions from net investment income for the Funds are declared daily and
paid monthly to all shareholders invested in High Income Fund, Municipal Income
Fund, Quality Income Fund and Short-Duration Income Fund. Dividends are de-
clared and paid quarterly to all shareholders invested in the Capital Balanced
Fund and Capital Income and Growth Fund; and annually to all shareholders in-
vested in Capital Growth Fund and Growth Fund. Distributions from net realized
capital gains, if any, are paid at least annually. Distributions to sharehold-
ers are recorded at the close of business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in accor-
dance with income tax regulations, which may differ from generally accepted ac-
counting principles. The differences between financial statement amounts avail-
able for distributions and distributions made in accordance with income tax
regulations are primarily due to differing treatment for dollar roll transac-
tions, residual interests, Futures contracts, principal retirements on certain
asset backed securities and certain repurchases of securities sold at a loss.
To the extent these differences are permanent in nature, such amounts are re-
classified within the components of net assets.
O. Class Allocations
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the rela-
tive net assets of each class. Currently, class specific expenses are limited
to expenses incurred under the Distribution and Service Plans for each class.
P. Organization Expenses
Organization expenses for High Income Fund and Short-Duration Income Fund are
being amortized to operations over a five-year period on a straight-line basis.
In the event any of the initial shares of the Fund are redeemed by any holder
during the five-year amortization period, redemption proceeds will be reduced
by any unamortized organization expenses in the same proportion as the number
of initial shares being redeemed bears to the number of initial shares out-
standing at the time of the redemption.
83
<PAGE>
Combined Notes to Financial Statements (continued)
3. INVESTMENT ADVISORY AGREEMENT AND OTHER AFFILIATED TRANSACTIONS
Mentor Investment Advisors, LLC ("Mentor Advisors"), a wholly-owned subsidiary
of First Union Corporation ("First Union"), serves as the investment advisor
for each Fund.
Mentor Advisors receives for its services an investment advisory fee that is
calculated daily and paid monthly based on the average daily net assets of each
Fund as follows:
<TABLE>
<CAPTION>
Annual
Advisory Fee
------------
<S> <C>
Capital Balanced Fund............................... 0.75%
Capital Growth Fund................................. 0.80
Capital Income and Growth Fund...................... 0.75
Growth Fund......................................... 0.70
High Income Fund.................................... 0.70
Municipal Income Fund............................... 0.60
Quality Income Fund................................. 0.60
Short-Duration Income Fund.......................... 0.50
</TABLE>
Prior to June 14, 1999, Van Kampen American Capital Management, Inc. served as
the sub-advisor to High Income Fund and Municipal Income Fund and was paid by
Mentor Advisors for its services. Prior to July 1, 1999, Wellington Management
Company LLC served as the sub-advisor to Capital Income and Growth Fund and was
paid by Mentor Advisors for its services.
Each investment advisor may from time to time voluntarily waive some or their
entire investment advisory fee and may terminate any such voluntary waiver at
any time at its sole discretion. During the year ended September 30, 1999, the
amount of investment advisory fees waived for certain Funds by the investment
advisor and the impact on each Fund's expense ratio represented as a percentage
of its average net assets were as follows:
<TABLE>
<CAPTION>
Fees % of Average Daily
Waived Net Assets
-------- ------------------
<S> <C> <C>
High Income Fund.................... $269,733 0.12%
Quality Income Fund................. 312,164 0.15
Short-Duration Income Fund.......... 49,357 0.03
</TABLE>
Evergreen Investment Services, Inc. ("EIS"), a subsidiary of First Union,
serves as the administrator to the Funds. As administrator, EIS provides the
Funds with facilities, equipment and personnel. EIS is entitled to a fee at an
annual rate based on the average daily net assets of each Fund as follows:
<TABLE>
<CAPTION>
Administrative
Fee
--------------
<S> <C>
Capital Balanced Fund............................. 0.15%
Capital Growth Fund............................... 0.15
Capital Income and Growth Fund.................... 0.15
Growth Fund....................................... 0.15
High Income Fund.................................. 0.10
Municipal Income Fund............................. 0.10
Quality Income Fund............................... 0.10
Short-Duration Income Fund........................ 0.10
</TABLE>
Prior to June 14, 1999, Mentor Investment Group, LLC ("Mentor"), a wholly-owned
subsidiary of First Union, provided administrative personnel and services for
each Fund at the same rates indicated above. Prior to April 1, 1999, the fees
paid to Mentor for administrative services by the Capital Balanced Fund, Capi-
tal Growth Fund, Capital Income and Growth Fund and Growth Fund were 0.10% of
each Fund's average daily net assets.
84
<PAGE>
Combined Notes to Financial Statements (continued)
For the year ended September 30, 1999, the Funds paid or accrued to EIS and
Mentor, the following amounts for administrative services:
<TABLE>
<CAPTION>
EIS Mentor
------- --------
<S> <C> <C>
Capital Balanced Fund......................... $150,798 $216,572
Capital Growth Fund........................... 253,350 397,344
Capital Income and Growth Fund................ 224,781 109,857
Growth Fund................................... 218,689 418,663
High Income Fund.............................. 74,245 148,643
Municipal Income Fund......................... 34,925 86,546
Quality Income Fund........................... 56,686 153,129
Short-Duration Income Fund.................... 52,226 129,322
</TABLE>
During the year ended September 30, 1999, the High Income Fund and Short-Dura-
tion Income Fund waived $38,398 and $181,548, respectively, in administrative
expenses, representing 0.02% and 0.10%, respectively, of the average daily net
assets of each Fund.
Evergreen Service Company ("ESC"), an indirectly, wholly owned subsidiary of
First Union, serves as the transfer and dividend disbursing agent for the
Funds. Prior to September 13, 1999, Boston Financial Data Services, Inc. served
as each Fund"s transfer and disbursing agent.
For the year ended September 30, 1999, the Funds paid or accrued the following
amounts to ESC:
<TABLE>
<CAPTION>
ESC
------
<S> <C>
Capital Balanced Fund........................... $35,182
Capital Growth Fund............................. 44,276
Capital Income and Growth Fund.................. 24,599
Growth Fund..................................... 52,616
High Income Fund................................ 8,727
Municipal Income Fund........................... 5,228
Quality Income Fund............................. 14,126
Short-Duration Income Fund...................... 11,108
4. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN
Mentor Distributors, LLC ("Mentor Distributors") serves as principal under-
writer to the Funds. Mentor Distributors is a wholly owned subsidiary of BISYS
Fund Service, Inc.
Each Fund has adopted a Distribution Plan (the "Distribution Plan") under Rule
12b-1 of the 1940 Act for its Class B shares. To compensate Mentor Distributors
for the services it provides and for the expenses it incurred under the Distri-
bution Plan, Class B shares of the Funds paid a distribution fee, which was ac-
crued daily and paid monthly at the following annual rates for each Fund:
<CAPTION>
Distribution Fee
----------------
<S> <C>
Capital Balanced Fund........................... 0.75%
Capital Growth Fund............................. 0.75
Capital Income and Growth Fund.................. 0.75
Growth Fund..................................... 0.75
High Income Fund................................ 0.50
Municipal Income Fund........................... 0.50
Quality Income Fund............................. 0.50
Short-Duration Income Fund...................... 0.30
</TABLE>
Each Fund has also adopted a Shareholder Servicing Plan (the "Service Plan")
with Mentor Distributors with respect to Class A and Class B shares of each
Fund. Under the Service Plan, financial institutions will enter into share-
holder service agreements with the Funds to provide administrative support
services to their customers who from time to time might be owners of record or
beneficial owners of Class A or Class B shares of one or more Funds. In return
for providing these support services, a financial institution might receive
payments from one or more Funds at an annual rate of 0.25% of the average daily
net assets of the Class A or Class B shares of the particular Fund or Funds
beneficially owned by the financial institution's customers for whom it was a
holder of record or with whom it had a servicing relationship.
85
<PAGE>
Combined Notes to Financial Statements (continued)
During the year ended September 30, 1999, amounts paid or accrued to Mentor
Distributors pursuant to the Distribution and Service Plans were as follows:
<TABLE>
<CAPTION>
Shareholder Shareholder Distribution
Servicing Fee Servicing Fee Fee
Class A Class B Class B
------------- ------------- ------------
<S> <C> <C> <C>
Capital Balanced
Fund................. $240,418 $495,382 $1,486,146
Capital Growth Fund... 642,323 629,264 1,887,791
Capital Income and
Growth Fund.......... 286,877 380,270 1,140,812
Growth Fund........... 251,717 951,522 2,854,567
High Income Fund...... 340,268 243,829 494,725
Municipal Income
Fund................. 157,398 146,277 292,555
Quality Income Fund... 257,763 266,787 533,574
Short-Duration Income
Fund................. 322,468 130,967 157,161
</TABLE>
The Distribution Plan and Service Plan may be terminated at any time by vote of
the Independent Trustees or by vote of a majority of the outstanding voting
shares of the respective class.
5. ACQUISITIONS
Effective November 16, 1998, the Capital Balanced Fund acquired substantially
all the assets and assumed the liabilities of Mentor Strategy Portfolio
("Strategy Portfolio") in exchange for Class A, Class B and Class Y shares of
the Capital Balanced Fund. The acquisition was accomplished by a tax-free ex-
change of the respective shares of the Capital Balanced Fund for the net assets
of the Strategy Portfolio. The net assets acquired amounted to $222,601,303.
The acquired net assets consisted primarily of the portfolio securities and
futures contracts with unrealized appreciation (depreciation) of $15,536,901
and ($1,142,275), respectively. The aggregate net assets of the Capital Bal-
anced Fund immediately after the acquisition were $255,551,169.
86
<PAGE>
Combined Notes to Financial Statements (continued)
6. CAPITAL SHARE TRANSACTIONS
The Funds have an authorized unlimited number of shares of beneficial interest.
Shares of beneficial interest of the Funds are currently divided into Class A,
Class B and Class Y. Transactions in shares of the Funds were as follows:
Capital Balanced Fund
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------
1999 1998
------------------------ ---------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold.................. 9,086,010 $143,511,236 258,246 $ 3,577,935
Shares redeemed.............. (1,949,361) (30,839,772) 0 0
Shares issued in reinvestment
of distributions............ 89,104 1,341,038 0 0
Shares issued in acquisition
of Mentor Strategy
Portfolio................... 1,667,724 24,198,670 0 0
- -------------------------------------------------------------------------------
Net increase................. 8,893,477 138,211,172 258,246 3,577,935
- -------------------------------------------------------------------------------
Class B
Shares sold.................. 3,086,070 47,290,308 412,403 5,702,737
Conversion of Class B Shares
to Class Y shares........... 0 0 (273,416) (3,350,117)
Shares redeemed.............. (3,307,503) (49,837,695) (48,378) (810,125)
Shares issued in reinvestment
of distributions............ 146,658 2,190,038 88,886 1,300,249
Shares issued in acquisition
of Mentor Strategy
Portfolio................... 14,131,685 198,402,633 0 0
- -------------------------------------------------------------------------------
Net increase................. 14,056,910 198,045,284 179,495 2,842,744
- -------------------------------------------------------------------------------
Class Y (a)
Shares sold.................. 89 1,303 0 0
Conversion of Class B Shares
to Class Y shares........... 0 0 273,416 3,350,117
Shares redeemed.............. (264,603) (3,836,379) (7,305) (100,000)
Shares issued in reinvestment
of distributions............ 106 1,566 0 0
- -------------------------------------------------------------------------------
Net increase (decrease)...... (264,408) (3,833,510) 266,111 3,250,117
- -------------------------------------------------------------------------------
Net increase................. $332,422,946 $ 9,670,796
</TABLE>
- --------------------------------------------------------------------------------
Capital Growth Fund
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------
1999 1998
------------------------- ------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold.............. 8,969,729 $ 218,527,291 5,110,051 $121,415,173
Shares redeemed.......... (4,384,818) (107,572,611) (1,926,775) (45,709,577)
Shares issued in
reinvestment of
distributions........... 741,724 16,054,923 278,288 5,833,664
- ------------------------------------------------------------------------------
Net increase............. 5,326,635 127,009,603 3,461,564 81,539,260
- ------------------------------------------------------------------------------
Class B
Shares sold.............. 3,100,435 70,992,924 4,375,173 98,931,464
Shares redeemed.......... (2,242,187) (51,622,823) (1,063,324) (23,712,167)
Shares issued in
reinvestment of
distributions........... 1,106,815 22,759,933 507,715 10,256,056
- ------------------------------------------------------------------------------
Net increase............. 1,965,063 42,130,034 3,819,564 85,475,353
- ------------------------------------------------------------------------------
Class Y (b)
Shares sold.............. 0 0 48 1,000
Shares redeemed.......... 0 0 0 0
Shares issued in
reinvestment of
distributions........... 5 125 1 12
- ------------------------------------------------------------------------------
Net increase............. 5 125 49 1,012
- ------------------------------------------------------------------------------
Net increase............. $ 169,139,762 $167,015,625
</TABLE>
- --------------------------------------------------------------------------------
(a) For the period from September 16, 1998 (commencement of class operations)
to September 30, 1998.
(b) For the period from November 19, 1997 (commencement of class operations) to
September 30, 1998.
87
<PAGE>
Combined Notes to Financial Statements (continued)
Capital Income and Growth Fund
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------
1999 1998
------------------------ ------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold............... 1,535,653 $ 30,363,881 2,515,923 $ 49,323,113
Shares redeemed........... (1,369,583) (27,336,486) (915,370) (18,005,450)
Shares issued in
reinvestment of
distributions............ 347,798 6,756,517 371,373 7,153,831
- ------------------------------------------------------------------------------
Net increase.............. 513,868 9,783,912 1,971,926 38,471,494
- ------------------------------------------------------------------------------
Class B
Shares sold............... 922,461 17,764,471 2,642,784 51,766,483
Shares redeemed........... (1,753,193) (34,406,196) (1,074,795) (21,053,657)
Shares issued in
reinvestment of
distributions............ 465,134 9,020,962 559,471 10,748,481
- ------------------------------------------------------------------------------
Net increase (decrease)... (365,598) (7,620,763) 2,127,460 41,461,307
- ------------------------------------------------------------------------------
Class Y (a)
Shares sold............... 0 0 53 1,000
Shares redeemed........... 0 0 0 0
Shares issued in
reinvestment of
distributions............ 3 64 2 30
- ------------------------------------------------------------------------------
Net increase.............. 3 64 55 1,030
- ------------------------------------------------------------------------------
Net increase.............. $ 2,163,213 $ 79,933,831
</TABLE>
- --------------------------------------------------------------------------------
Growth Fund
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------------
1999 1998
-------------------------- --------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold............. 31,738,871 $ 498,194,431 12,016,618 $ 210,103,016
Shares redeemed......... (31,503,018) (497,861,464) (12,306,743) (213,035,017)
Shares issued in
reinvestment of
distributions.......... 209,823 2,939,628 346,751 6,474,795
- --------------------------------------------------------------------------------
Net increase............ 445,676 3,272,595 56,626 3,542,794
- --------------------------------------------------------------------------------
Class B
Shares sold............. 2,136,351 27,314,195 4,138,131 73,047,883
Shares redeemed......... (8,496,928) (122,872,448) (4,698,527) (80,890,251)
Shares issued in
reinvestment of
distributions.......... 1,070,622 14,539,245 1,667,456 30,460,604
- --------------------------------------------------------------------------------
Net increase
(decrease)............. (5,289,955) (81,019,008) 1,107,060 22,618,236
- --------------------------------------------------------------------------------
Class Y (a)
Shares sold............. 1,189,938 18,258,330 1,786,672 30,602,698
Shares redeemed......... (788,128) (12,236,470) (53,808) (894,152)
Shares issued in
reinvestment of
distributions.......... 72,358 1,016,634 1 10
- --------------------------------------------------------------------------------
Net increase............ 474,168 7,038,494 1,732,865 29,708,556
- --------------------------------------------------------------------------------
Net increase
(decrease)............. $ (70,707,919) $ 55,869,586
</TABLE>
- --------------------------------------------------------------------------------
High Income Fund
<TABLE>
<CAPTION>
Year Ended Period Ended
September 30, 1999 September 30, 1998 (b)
------------------------ -----------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold................ 11,606,611 $127,776,306 4,775,208 $ 56,602,255
Shares redeemed............ (2,587,728) (28,057,661) (168,561) (1,889,222)
Shares issued in
reinvestment of
distributions............. 523,286 5,731,421 51,541 580,207
- ------------------------------------------------------------------------------
Net increase............... 9,542,169 105,450,066 4,658,188 55,293,240
- ------------------------------------------------------------------------------
Class B
Shares sold................ 5,534,821 60,817,115 5,890,307 69,683,852
Shares redeemed............ (1,241,203) (13,458,559) (190,546) (2,108,787)
Shares issued in
reinvestment of
distributions............. 393,141 4,298,751 62,441 701,346
- ------------------------------------------------------------------------------
Net increase............... 4,686,759 51,657,307 5,762,202 68,276,411
- ------------------------------------------------------------------------------
Net increase............... $157,107,373 $123,569,651
</TABLE>
- --------------------------------------------------------------------------------
(a) For the period from November 19, 1997 (commencement of class operations) to
September 30, 1998.
(b) For the period from June 23, 1998 (commencement of class operations) to
September 30, 1998.
88
<PAGE>
Combined Notes to Financial Statements (continued)
Municipal Income Fund
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------
1999 1998
------------------------ ----------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold................. 1,730,028 $ 27,697,748 1,688,990 $25,509,509
Shares redeemed............. (1,167,496) (18,298,845) (423,337) (6,641,364)
Shares issued in
reinvestment of
distributions.............. 95,949 1,495,527 75,715 1,188,701
- ------------------------------------------------------------------------------
Net increase................ 658,481 10,894,430 1,341,368 20,056,846
- ------------------------------------------------------------------------------
Class B
Shares sold................. 505,740 7,866,662 1,208,341 18,966,860
Shares redeemed............. (844,406) (12,912,503) (436,001) (6,820,355)
Shares issued in
reinvestment of
distributions.............. 88,642 1,381,234 91,662 1,436,340
- ------------------------------------------------------------------------------
Net increase (decrease)..... (250,024) (3,664,607) 864,002 13,582,845
- ------------------------------------------------------------------------------
Class Y (a)
Shares sold................. 0 0 64 1,000
Shares redeemed............. 0 0 0 0
Shares issued in
reinvestment of
distributions.............. 0 10 3 43
- ------------------------------------------------------------------------------
Net increase................ 0 10 67 1,043
- ------------------------------------------------------------------------------
Net increase................ $ 7,229,833 $33,640,734
</TABLE>
- --------------------------------------------------------------------------------
Quality Income Fund
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------
1999 1998
------------------------ ------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold............... 6,870,812 $ 86,944,421 4,256,782 $ 56,191,423
Shares redeemed........... (5,746,275) (71,969,150) (1,597,720) (21,178,895)
Shares issued in
reinvestment of
distributions............ 300,159 3,883,017 233,015 3,077,659
- ------------------------------------------------------------------------------
Net increase.............. 1,424,696 18,858,288 2,892,077 38,090,187
- ------------------------------------------------------------------------------
Class B
Shares sold............... 1,882,214 24,533,041 3,811,046 50,451,628
Shares redeemed........... (2,669,108) (34,466,906) (1,478,885) (19,526,706)
Shares issued in
reinvestment of
distributions............ 327,045 4,234,809 272,551 3,600,049
- ------------------------------------------------------------------------------
Net increase (decrease)... (459,849) (5,699,056) 2,604,712 34,524,971
- ------------------------------------------------------------------------------
Class Y (a)
Shares sold............... 0 0 76 1,000
Shares redeemed........... 0 0 0 0
Shares issued in
reinvestment of
distributions............ 0 0 4 51
- ------------------------------------------------------------------------------
Net increase.............. 0 0 80 1,051
- ------------------------------------------------------------------------------
Net increase.............. $ 13,159,232 $ 72,616,209
</TABLE>
- --------------------------------------------------------------------------------
(a) For the period from November 19, 1997 (commencement of class operations) to
September 30, 1998.
89
<PAGE>
Combined Notes to Financial Statements (continued)
Short-Duration Income Fund
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------
1999 1998
------------------------ ------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold............... 8,743,015 $109,426,581 9,921,692 $124,978,729
Shares redeemed........... (6,891,134) (85,442,151) (4,997,458) (62,897,886)
Shares issued in
reinvestment of
distributions............ 415,576 5,165,194 200,895 2,525,409
- ------------------------------------------------------------------------------
Net increase.............. 2,267,457 29,149,624 5,125,129 64,606,252
- ------------------------------------------------------------------------------
Class B
Shares sold............... 1,353,089 16,923,783 3,500,465 44,073,519
Shares redeemed........... (2,148,019) (26,729,789) (1,563,684) (19,674,936)
Shares issued in
reinvestment of
distributions............ 175,996 2,195,326 145,226 1,826,827
- ------------------------------------------------------------------------------
Net increase (decrease)... (618,934) (7,610,680) 2,082,007 26,225,410
- ------------------------------------------------------------------------------
Class Y (a)
Shares sold............... 0 0 79 1,000
Shares redeemed........... 0 0 0 0
Shares issued in
reinvestment of
distributions............ 0 0 4 49
- ------------------------------------------------------------------------------
Net increase.............. 0 0 83 1,049
- ------------------------------------------------------------------------------
Net increase.............. $ 21,538,944 $ 90,832,711
</TABLE>
- --------------------------------------------------------------------------------
(a) For the period from November 19, 1997 (commencement of class operations) to
September 30, 1998.
7. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities and mortgage dollar roll transactions) were as follows
for the year ended September 30, 1999:
<TABLE>
<CAPTION>
Cost of Purchases Proceeds from Sales
------------------------- -------------------------
U.S. Non-U.S. U.S. Non-U.S.
Government Government Government Government
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Capital Balanced
Fund........... $324,124,906 $317,474,616 $220,169,427 $150,656,567
Capital Growth
Fund........... 0 485,192,062 0 390,571,941
Capital Income and Growth
Fund........... 128,359,577 198,430,306 122,751,166 217,073,220
Growth Fund..... 0 516,201,245 0 576,320,792
High Income
Fund........... 0 308,383,817 0 165,849,562
Municipal Income
Fund........... 0 178,602,438 0 170,912,646
Quality Income
Fund........... 229,795,325 223,837,300 440,523,399 64,354,626
Short-Duration
Income Fund.... 304,466,078 140,005,551 353,250,418 56,318,659
</TABLE>
Short-Duration Income Fund and Quality Income Fund had the following reverse
repurchase agreement outstanding at September 30, 1999:
<TABLE>
<CAPTION>
Repurchase Interest Maturity
Amount Counterparty Rate Date
----------- ----------------------------- -------- ---------
<S> <C> <C> <C> <C>
Quality Income
Fund........... $10,003,028 State Street Bank & Trust Co. 5.45% 10/6/1999
Short-Duration
Income Fund.... 6,564,948 State Street Bank & Trust Co. 5.20 10/6/1999
</TABLE>
During the year ended September 30, 1999, Capital Balanced Fund, Quality Income
Fund and Short-Duration Income Fund entered into reverse repurchase agreements.
The average daily balance, weighted average interest rate and maximum amount
outstanding under these agreements were as follows:
<TABLE>
<CAPTION>
Average Daily Weighted Maximum
Balance Average Amount
Outstanding Interest Rate Outstanding*
------------- ------------- ------------
<S> <C> <C> <C>
Capital Balanced
Fund................. $ 62,378 1.75% $ 2,846,968
Quality Income Fund... 21,559,331 4.90 81,054,844
Short-Duration Income
Fund................. 8,739,347 4.56 22,005,806
</TABLE>
-------
* The Maximum Amount Outstanding under reverse repurchase agree-
ments includes accrued interest.
At September 30, 1999, Quality Income Fund had a dollar roll agreements out-
standing as follows:
<TABLE>
<CAPTION>
Dollar Roll Interest Maturity
Amount Counterparty Rate Date
------------------------ ------------------ -------- ----------
<S> <C> <C> <C>
$9,095,625.............. Piper Jaffray Inc. 7.50% 10/16/1999
</TABLE>
90
<PAGE>
Combined Notes to Financial Statements (continued)
During the year ended September 30, 1999, Capital Balanced Fund, Capital Income
and Growth Fund, Quality Income Fund and Short-Duration Income Fund earned in-
come on mortgage dollar roll transactions as follows:
<TABLE>
<CAPTION>
Income Earned on
Dollar Roll Transactions
------------------------
<S> <C>
Capital Balanced Fund................... $70,313
Capital Income and Growth Fund.......... 56,451
Quality Income Fund..................... 18,450
Short-Duration Income Fund.............. 44,801
</TABLE>
The Funds loaned securities during the year ended September 30, 1999 to certain
brokers who paid the Fund a negotiated lender's fee. These fees are included in
interest income. At September 30, 1999, the value of securities on loan and the
value of collateral were as follows:
<TABLE>
<CAPTION>
Value of Securities on Loan Value of Collateral
--------------------------- -------------------
<S> <C> <C>
Capital Balanced
Fund........... $22,502,324 $22,733,449
Capital Growth
Fund........... 3,710,844 3,687,316
Capital Income
and Growth
Fund........... 13,251,295 13,385,847
Growth Fund..... 71,648,214 74,111,928
Quality Income
Fund........... 5,488,562 5,605,710
</TABLE>
On September 30, 1999, the composition of unrealized appreciation and deprecia-
tion on securities based on the aggregate cost of securities for federal income
tax purposes were as follows:
<TABLE>
<CAPTION>
Gross Gross Net Unrealized
Unrealized Unrealized Appreciation
Tax Cost Appreciation Depreciation (Depreciation)
------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
Capital
Balanced
Fund.......... $364,494,014 $29,044,073 $ (8,485,680) $ 20,558,393
Capital Growth
Fund.......... 474,404,827 94,015,303 (23,943,504) 70,071,799
Capital Income
and Growth
Fund.......... 253,769,604 12,142,042 (7,529,235) 4,612,807
Growth Fund.... 469,866,310 91,391,664 (25,589,242) 65,802,422
High Income
Fund.......... 262,966,662 3,177,339 (14,395,051) (11,217,712)
Municipal
Income Fund... 110,486,886 1,626,259 (3,197,719) (1,571,460)
Quality Income
Fund.......... 230,458,983 456,333 (5,940,245) (5,483,912)
Short-Duration
Income Fund... 169,441,212 473,157 (3,002,584) (2,529,427)
</TABLE>
As of September 30, 1999, the Funds had capital loss carryovers for federal in-
come tax purposes as follows:
<TABLE>
<CAPTION>
Expiration
---------------------------------------------------------------
Capital Loss 2002 2003 2004 2005 2006 2007
Carryover ---------- ---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
High Income Fund........ $ 1,128,619 $ 0 $ 0 $ 0 $ 0 $ 0 $1,128,619
Municipal Income Fund... 1,920,439 0 8,142 1,616,817 0 295,480
Quality Income Fund..... 13,907,548 3,547,591 7,326,035 1,708,773 1,325,149 0
</TABLE>
Capital (Currency) losses incurred after October 31, within a Fund's fiscal
year, are deemed to arise on the first business day of the Fund's following
fiscal year. The High Income Fund, Municipal Income Fund, Quality Income Fund
and Short-Duration Income Fund have incurred and will elect to defer post Octo-
ber (currency) losses of $12,453,072, $621,521, $5,233,354 and $2,726,161, re-
spectively.
8. EXPENSE OFFSET ARRANGEMENTS
The Funds have entered into expense offset arrangements with their custodian as
of June 14, 1999, and with ESC on September 13, 1999, whereby credits realized
as a result of uninvested cash balances were used to reduce a portion of each
Fund's related expenses. The assets deposited with ESC and the custodian under
these expense offset arrangements could have been invested in income-producing
assets. The Funds did not receive any fee credits for the year ended September
30, 1999.
9. FINANCING AGREEMENTS
On August 6, 1999 the Evergreen Equity and Fixed Income Funds became party to a
credit agreement between Evergreen Funds and a group of banks (the "Lenders").
Under this agreement, effective for all other Evergreen Funds on July 27, 1999,
the Lenders provide an unsecured revolving credit commitment in the
91
<PAGE>
Combined Notes to Financial Statements (continued)
aggregate amount of $1.050 billion. The credit facility is allocated, under the
terms of the financing agreement, among the Lenders. The credit facility is ac-
cessed by the Funds for temporary or emergency purposes to fund the redemption
of their shares or as general working capital as permitted by each Fund's bor-
rowing restrictions. Borrowings under this facility are assessed interest at
0.75% per annum above the Federal Funds rate (1.50% per annum above the Federal
Funds rate during the period from and including December 1, 1999 through and
including January 31, 2000). A commitment fee of 0.10% per annum is incurred on
the average daily unused portion of the revolving credit commitment. The com-
mitment fee is allocated to all Funds. For its assistance in arranging this fi-
nancing agreement, First Union Capital Markets Corp. was paid a one-time ar-
rangement fee of $250,000. State Street Bank & Trust Co. serves as paying agent
for the Funds, and as paying agent is entitled to a fee of $20,000 per annum
which is allocated to all of the Funds. During the year ended September 30,
1999 the Funds had no borrowings under this agreement.
10. SUBSEQUENT EVENTS (unaudited)
Acquisition of EVEREN by First Union
On April 26, 1999, First Union announced an agreement to acquire EVEREN Capital
Corporation ("EVEREN"). As part of this acquisition Mentor would be combined
with the Evergreen mutual funds complex and Mentor Funds would convert from a
series of a Massachusetts business trust to various Evergreen Delaware business
trusts. On October 1, 1999, the acquisition of EVEREN by First Union was
completed.
Special Meetings of Shareholders
Special meetings of the Mentor Funds shareholders were held on October 15, 1999
for the Capital Balanced Fund, Growth Fund, High Income Fund, Municipal Income
Fund, and Quality Income Fund, and on October 22, 1999 for the Capital Growth
Fund, Capital Income and Growth Fund, and Short-Duration Income Fund. (See Ad-
ditional Information.)
Class Restructuring
Upon approval by shareholders of each Fund on the conversion of the Mentor
Funds to various series of Evergreen Delaware business trusts, the shareholders
of Class A, Class B and Class Y of the Mentor Funds became owners of that num-
ber of full and fractional shares of Class A, Class C and Class Y shares, re-
spectively, of the corresponding Evergreen Equity and Fixed Income Funds. In
addition, effective October 18, 1999 for the Capital Balanced Fund, Growth
Fund, High Income Fund, and Quality Income Fund; October 25, 1999 for the Capi-
tal Growth Fund, each of the Funds added a new class of shares designated as
Class B, and High Income Fund added Class Y shares.
Class A shares of the Funds are currently sold with a maximum front-end sales
charge of 4.75%. Class B and Class C shares are sold without a front-end sales
charge, but pay a higher ongoing distribution fee than Class A. The distribu-
tion fee is paid by the Funds at an annual rate of 0.25%, 1.00% and 1.00% of
the average daily net assets of the Class A, Class B and Class C shares, re-
spectively. Class B shares are sold subject to a contingent deferred sales
charge that is payable upon redemption and decreases depending on how long the
shares have been held. Class B shares will automatically convert to Class A
shares after seven years. Class C shares are sold subject to a contingent de-
ferred sales charge ("CDSC") payable on shares redeemed within one year after
the month of purchase. Holders of Class C shares received in the conversion are
subject to the schedule of CDSC applicable to Class B shares of the former Men-
tor Funds. Class Y shares are sold only to investment advisory clients of First
Union Corporation ("First Union") and its affiliates, certain institutional in-
vestors or Class Y shareholders of record of certain other Funds managed by
First Union and its affiliates as of December 30, 1994.
92
<PAGE>
Independent Auditors' Report
The Board of Trustees and Shareholders
Evergreen Equity Trust
Evergreen Fixed Income Trust
Evergreen Municipal Trust
(formerly Mentor Funds)
We have audited the accompanying statements of assets and liabilities, includ-
ing the schedules of investments of the Evergreen Capital Balanced Fund (for-
merly Mentor Balanced Portfolio), Evergreen Capital Growth Fund (formerly Men-
tor Capital Growth Portfolio), Evergreen Capital Income and Growth Fund (for-
merly Mentor Income and Growth Portfolio), Evergreen Growth Fund (formerly Men-
tor Growth Portfolio), portfolios of the Evergreen Equity Trust, and Evergreen
High Income Fund (formerly Mentor High Income Portfolio), Evergreen Quality In-
come Fund (formerly Mentor Quality Income Portfolio), Evergreen Short-Duration
Income Fund (formerly Mentor Short-Duration Income Portfolio), portfolios of
the Evergreen Fixed Income Trust, and Evergreen Municipal Income Fund (formerly
Mentor Municipal Income Portfolio), a portfolio of Evergreen Municipal Trust
(all Trusts formerly Mentor Funds), as of September 30, 1999, and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the years or periods in the two-year period then ended
and financial highlights for each of the years of periods in the five-year pe-
riod ended September 30, 1999. These financial statements and financial high-
lights 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 stan-
dards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of Sep-
tember 30, 1999 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 pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Evergreen Capital Balanced Fund, Evergreen Capital Growth Fund, Evergreen
Capital Income and Growth Fund, Evergreen Growth Fund, Evergreen High Income
Fund, Evergreen Quality Income Fund, Evergreen Short-Duration Income Fund and
Evergreen Municipal Income Fund as of September 30, 1999, the results of their
operations, changes in their net assets and financial highlights for each of
the years or periods described above in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Boston, Massachusetts
November 5, 1999
93
<PAGE>
Additional Information (unaudited)
DISTRIBUTIONS TO SHAREHOLDERS
On November 1, 1999 the following Funds declared net investment income divi-
dends, payable on November 2, 1999 to shareholders of record on November 1,
1999:
<TABLE>
<CAPTION>
Class C
Class A Class B (former Class B) Class Y
------- ------- ---------------- -------
<S> <C> <C> <C> <C>
High Income Fund..... $0.09 $0.09 $0.08 $0.09
Municipal Income
Fund................ 0.06 0 0.05 0.07
Quality Income Fund.. 0.07 0.06 0.06 0.07
Short-Duration Income
Fund................ 0.06 0 0.06 0.07
</TABLE>
These distributions are not reflected in the accompanying financial statements.
SPECIAL MEETINGS OF SHAREHOLDERS
Special meetings of the Mentor Funds shareholders were held on October 15, 1999
for the Capital Balanced Fund, Capital Income and Growth Fund, Growth Fund,
High Income Fund, Municipal Income Fund, Quality Income Fund and Short-Duration
Income Fund, and on October 22, 1999 for the Capital Growth Fund to approve
each Fund's conversion into a series of an Evergreen Delaware business trust
and other related matters. Shareholders of record on August 17, 1999 were enti-
tled to notice of and to vote at the meetings and any adjournments thereof. The
record date shares and the number of shares voted and represented at the meet-
ings were as follows:
<TABLE>
<CAPTION>
Shares Voted as
Total Percentage of
Record Date Total Record Date
Share Position Shares Voted Shares
-------------- ------------ -----------------
<S> <C> <C> <C>
Capital Balanced
Fund........... 23,922,217 12,187,097 50.94%
Capital Growth
Fund........... 23,394,963 11,828,888 50.56%
Capital Income
and Growth
Fund........... 13,103,400 7,452,701 56.88%
Growth Fund..... 31,252,368 16,241,039 51.97%
High Income
Fund........... 24,989,893 12,604,633 50.44%
Municipal Income
Fund........... 7,718,454 4,610,379 59.73%
Quality Income
Fund........... 16,037,390 9,605,132 59.89%
Short-Duration
Income Fund.... 15,022,761 9,404,050 62.60%
</TABLE>
During each of the special meetings the shareholders of the Funds voted the
following:
1. To approve an Agreement and Plan of Conversion and Termination providing for
the conversion of each of the above-named Funds into a corresponding series
of Evergreen Delaware business trust;
2. To approve the proposed changes of the Fund's investment objectives from
fundamental to non-fundamental;
3. To approve the proposed changes to the Fund's investment restrictions (for
Short-Duration Income Fund this vote was designated as vote number 2 on the
shareholders' proxy cards):
3A.Diversification
3B.Concentration
3C.Senior securities
3D.Borrowing
3E.Underwriting
3F.Real Estate
3G.Commodities
3H.Lending
3I. To reclassify as non-fundamental certain fundamental restrictions that
are no longer required to be fundamental:
3I(i).Short sales
3I(ii).Margin purchases
94
<PAGE>
Additional Information (unaudited) (continued)
3I(iii).Pledging
3I(iv).Restricted securities
3I(v).Unseasoned issuers
3I(vi).Illiquid securities
3I(vii).Officers' and directors' ownership of securities
3I(viii).Control of management
3I(ix).Joint trading
3I(x).Other investment companies
3I(xi).Oil, gas and minerals
3I(xii).Foreign securities
3I(xiii).Warrants
4. To transact any other business that may properly come before the meeting or
any adjournment thereof (for Capital Income and Growth Fund and Municipal
Income Fund this vote was designated as vote number 5 on the shareholders'
voting cards).
The results were as follows:
Capital Balanced Fund
<TABLE>
<CAPTION>
Vote 1.
Shares Voted % Voted
------------ -------
<S> <C> <C>
FOR..................... 10,994,733 90.22%
AGAINST................. 348,910 2.86%
ABSTAIN................. 843,454 6.92%
TOTAL................... 12,187,097 100.00%
</TABLE>
<TABLE>
<CAPTION>
Vote 2.
Shares Voted % Voted
------------ -------
<S> <C> <C>
FOR..................... 10,909,586 89.52%
AGAINST................. 388,502 3.19%
ABSTAIN................. 889,009 7.29%
TOTAL................... 12,187,097 100.00%
</TABLE>
<TABLE>
<CAPTION>
Vote 3.
Shares Voted % Shares Voted % Shares Voted %
FOR Voted AGAINST Voted ABSTAIN Voted
------------ ------ ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
3A. ................. 10,905,238 89.48% 336,515 2.76% 945,344 7.76%
3B. ................. 10,905,199 89.48% 336,554 2.76% 945,344 7.76%
3C. ................. 10,894,243 89.39% 347,510 2.85% 945,344 7.76%
3D. ................. 10,864,360 89.15% 377,393 3.10% 945,344 7.76%
3E. ................. 10,892,480 89.38% 349,273 2.87% 945,344 7.76%
3F. ................. 10,875,315 89.24% 366,438 3.01% 945,344 7.76%
3G. ................. 10,866,717 89.17% 375,036 3.08% 945,344 7.76%
3H. ................. 10,879,211 89.27% 362,542 2.97% 945,344 7.76%
3I(i). .............. 10,893,042 89.38% 348,711 2.86% 945,344 7.76%
3I(ii). ............. 10,892,031 89.37% 349,722 2.87% 945,344 7.76%
3I(iii). ............ 10,898,547 89.43% 343,206 2.82% 945,344 7.76%
3I(iv). ............. 10,893,828 89.39% 347,925 2.85% 945,344 7.76%
3I(v). .............. 10,893,828 89.39% 347,925 2.85% 945,344 7.76%
3I(vi). ............. 10,890,301 89.36% 351,452 2.88% 945,344 7.76%
3I(vii). ............ 10,889,042 89.35% 352,711 2.89% 945,344 7.76%
3I(viii). ........... 10,893,755 89.39% 347,998 2.86% 945,344 7.76%
3I(ix). ............. 10,899,333 89.43% 342,420 2.81% 945,344 7.76%
3I(x). .............. 10,899,333 89.43% 342,420 2.81% 945,344 7.76%
3I(xi). ............. 10,899,333 89.43% 342,420 2.81% 945,344 7.76%
3I(xii). ............ 10,896,592 89.41% 345,161 2.83% 945,344 7.76%
3I(xiii). ........... 10,909,327 89.52% 332,426 2.73% 945,344 7.76%
</TABLE>
<TABLE>
<CAPTION>
Vote 4.
Shares Voted % Voted
------------ -------
<S> <C> <C>
FOR..................... 11,034,747 90.55%
AGAINST................. 235,770 1.93%
ABSTAIN................. 916,580 7.52%
TOTAL................... 12,187,097 100.00%
</TABLE>
95
<PAGE>
Additional Information (unaudited) (continued)
Capital Growth Fund
<TABLE>
<CAPTION>
Vote 1.
Shares Voted % Voted
------------ -------
<S> <C> <C>
FOR..................... 10,630,330 89.87%
AGAINST................. 405,804 3.43%
ABSTAIN................. 792,754 6.70%
TOTAL................... 11,828,888 100.00%
</TABLE>
<TABLE>
<CAPTION>
Vote 2.
Shares Voted % Voted
------------ -------
<S> <C> <C>
FOR..................... 10,545,591 89.15%
AGAINST................. 474,312 4.01%
ABSTAIN................. 808,985 6.84%
TOTAL................... 11,828,888 100.00%
</TABLE>
<TABLE>
<CAPTION>
Vote 3.
Shares Voted % Shares Voted % Shares Voted %
FOR Voted AGAINST Voted ABSTAIN Voted
------------ ------ ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
3A. ................. 10,540,789 89.11% 399,374 3.38% 888,725 7.51%
3B. ................. 10,531,371 89.03% 408,792 3.46% 888,725 7.51%
3C. ................. 10,538,320 89.09% 401,843 3.40% 888,725 7.51%
3D. ................. 10,532,404 89.04% 407,759 3.45% 888,725 7.51%
3E. ................. 10,539,383 89.10% 400,780 3.39% 888,725 7.51%
3F. ................. 10,534,491 89.06% 405,672 3.43% 888,725 7.51%
3G. ................. 10,522,752 88.96% 417,411 3.53% 888,725 7.51%
3H. ................. 10,528,667 89.01% 411,496 3.48% 888,725 7.51%
3I(i). .............. 10,534,592 89.06% 405,571 3.43% 888,725 7.51%
3I(ii). ............. 10,532,514 89.04% 407,649 3.45% 888,725 7.51%
3I(iii). ............ 10,532,775 89.04% 407,388 3.44% 888,725 7.51%
3I(iv). ............. 10,534,795 89.06% 405,368 3.43% 888,725 7.51%
3I(v). .............. 10,534,942 89.06% 405,221 3.43% 888,725 7.51%
3I(vi). ............. 10,529,745 89.02% 410,418 3.47% 888,725 7.51%
3I(vii). ............ 10,535,657 89.07% 404,506 3.42% 888,725 7.51%
3I(viii). ........... 10,536,127 89.07% 404,036 3.42% 888,725 7.51%
3I(ix). ............. 10,536,163 89.07% 404,000 3.42% 888,725 7.51%
3I(x). .............. 10,535,992 89.07% 404,171 3.42% 888,725 7.51%
3I(xi). ............. 10,536,249 89.07% 403,914 3.41% 888,725 7.51%
3I(xii). ............ 10,536,153 89.07% 404,010 3.42% 888,725 7.51%
3I(xiii). ........... 10,541,990 89.12% 398,173 3.37% 888,725 7.51%
</TABLE>
<TABLE>
<CAPTION>
Vote 4.
Shares Voted % Voted
------------ -------
<S> <C> <C>
FOR..................... 10,696,920 90.43%
AGAINST................. 285,472 2.41%
ABSTAIN................. 846,496 7.16%
TOTAL................... 11,828,888 100.00%
</TABLE>
96
<PAGE>
Additional Information (unaudited) (continued)
Capital Income and Growth Fund
<TABLE>
<CAPTION>
Vote 1.
Shares Voted % Voted
------------ -------
<S> <C> <C>
FOR..................... 6,620,618 88.84%
AGAINST................. 330,476 4.43%
ABSTAIN................. 501,607 6.73%
TOTAL................... 7,452,701 100.00%
</TABLE>
<TABLE>
<CAPTION>
Vote 2.
Shares Voted % Voted
------------ -------
<S> <C> <C>
FOR..................... 6,665,453 89.44%
AGAINST................. 300,698 4.03%
ABSTAIN................. 486,550 6.53%
TOTAL................... 7,452,701 100.00%
</TABLE>
<TABLE>
<CAPTION>
Vote 3.
Shares Voted % Shares Voted % Shares Voted %
FOR Voted AGAINST Voted ABSTAIN Voted
------------ ------ ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
3A. ................. 6,710,597 90.04% 254,043 3.41% 488,061 6.55%
3B. ................. 6,710,348 90.04% 254,292 3.41% 488,061 6.55%
3C. ................. 6,703,616 89.95% 261,024 3.50% 488,061 6.55%
3D. ................. 6,706,503 89.99% 258,137 3.46% 488,061 6.55%
3E. ................. 6,707,785 90.00% 256,855 3.45% 488,061 6.55%
3F. ................. 6,696,672 89.86% 267,968 3.60% 488,061 6.55%
3G. ................. 6,703,089 89.94% 261,551 3.51% 488,061 6.55%
3H. ................. 6,706,320 89.99% 258,320 3.47% 488,061 6.55%
3I(i). .............. 6,702,543 89.93% 262,097 3.52% 488,061 6.55%
3I(ii). ............. 6,707,752 90.00% 256,888 3.45% 488,061 6.55%
3I(iii). ............ 6,702,825 89.94% 261,815 3.51% 488,061 6.55%
3I(iv). ............. 6,708,034 90.01% 256,606 3.44% 488,061 6.55%
3I(v). .............. 6,708,034 90.01% 256,606 3.44% 488,061 6.55%
3I(vi). ............. 6,702,496 89.93% 262,144 3.52% 488,061 6.55%
3I(vii). ............ 6,703,715 89.95% 260,925 3.50% 488,061 6.55%
3I(viii). ........... 6,708,034 90.01% 256,606 3.44% 488,061 6.55%
3I(ix). ............. 6,707,752 90.00% 256,888 3.45% 488,061 6.55%
3I(x). .............. 6,708,034 90.01% 256,606 3.44% 488,061 6.55%
3I(xi). ............. 6,708,034 90.01% 256,606 3.44% 488,061 6.55%
3I(xii). ............ 6,702,825 89.94% 261,815 3.51% 488,061 6.55%
3I(xiii). ........... 6,708,034 90.01% 256,606 3.44% 488,061 6.55%
</TABLE>
<TABLE>
<CAPTION>
Vote 4.
Shares Voted % Voted
------------ -------
<S> <C> <C>
FOR..................... 6,670,205 89.50%
AGAINST................. 301,630 4.05%
ABSTAIN................. 480,866 6.45%
TOTAL................... 7,452,701 100.00%
</TABLE>
97
<PAGE>
Additional Information (unaudited) (continued)
Growth Fund
<TABLE>
<CAPTION>
Vote 1.
Shares Voted % Voted
------------ -------
<S> <C> <C>
FOR..................... 14,895,816 91.72%
AGAINST................. 541,540 3.33%
ABSTAIN................. 803,683 4.95%
TOTAL................... 16,241,039 100.00%
</TABLE>
<TABLE>
<CAPTION>
Vote 2.
Shares Voted % Voted
------------ -------
<S> <C> <C>
FOR..................... 14,804,165 91.16%
AGAINST................. 634,137 3.90%
ABSTAIN................. 802,737 4.94%
TOTAL................... 16,241,039 100.00%
</TABLE>
<TABLE>
<CAPTION>
Vote 3.
Shares Voted % Shares Voted % Shares Voted %
FOR Voted AGAINST Voted ABSTAIN Voted
------------ ------ ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
3A. ................. 14,793,159 91.09% 555,808 3.42% 892,072 5.49%
3B. ................. 14,789,499 91.06% 559,468 3.44% 892,072 5.49%
3C. ................. 14,790,192 91.07% 558,775 3.44% 892,072 5.49%
3D. ................. 14,772,975 90.96% 575,992 3.55% 892,072 5.49%
3E. ................. 14,787,626 91.05% 561,341 3.46% 892,072 5.49%
3F. ................. 14,761,844 90.89% 587,123 3.62% 892,072 5.49%
3G. ................. 14,757,964 90.87% 591,003 3.64% 892,072 5.49%
3H. ................. 14,761,461 90.89% 587,506 3.62% 892,072 5.49%
3I(i). .............. 14,771,461 90.95% 577,506 3.56% 892,072 5.49%
3I(ii). ............. 14,775,676 90.98% 573,291 3.53% 892,072 5.49%
3I(iii). ............ 14,776,563 90.98% 572,404 3.52% 892,072 5.49%
3I(iv). ............. 14,779,578 91.00% 569,389 3.51% 892,072 5.49%
3I(v). .............. 14,782,407 91.02% 566,560 3.49% 892,072 5.49%
3I(vi). ............. 14,778,607 91.00% 570,360 3.51% 892,072 5.49%
3I(vii). ............ 14,784,662 91.03% 564,305 3.47% 892,072 5.49%
3I(viii). ........... 14,784,304 91.03% 564,663 3.48% 892,072 5.49%
3I(ix). ............. 14,786,029 91.04% 562,938 3.47% 892,072 5.49%
3I(x). .............. 14,786,029 91.04% 562,938 3.47% 892,072 5.49%
3I(xi). ............. 14,784,919 91.03% 564,048 3.47% 892,072 5.49%
3I(xii). ............ 14,782,977 91.02% 565,990 3.48% 892,072 5.49%
3I(xiii). ........... 14,789,803 91.06% 559,164 3.44% 892,072 5.49%
</TABLE>
<TABLE>
<CAPTION>
Vote 4.
Shares Voted % Voted
------------ -------
<S> <C> <C>
FOR..................... 15,002,311 92.38%
AGAINST................. 370,883 2.28%
ABSTAIN................. 867,845 5.34%
TOTAL................... 16,241,039 100.00%
</TABLE>
98
<PAGE>
Additional Information (unaudited) (continued)
High Income Fund
<TABLE>
<CAPTION>
Vote 1.
Shares Voted % Voted
------------ -------
<S> <C> <C>
FOR..................... 11,564,156 91.75%
AGAINST................. 385,038 3.05%
ABSTAIN................. 655,439 5.20%
TOTAL................... 12,604,633 100.00%
</TABLE>
<TABLE>
<CAPTION>
Vote 2.
Shares Voted % Voted
------------ -------
<S> <C> <C>
FOR..................... 11,551,119 91.64%
AGAINST................. 367,058 2.91%
ABSTAIN................. 686,456 5.45%
TOTAL................... 12,604,633 100.00%
</TABLE>
<TABLE>
<CAPTION>
Vote 3.
Shares Voted % Shares Voted % Shares Voted %
FOR Voted AGAINST Voted ABSTAIN Voted
------------ ------ ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
3A. ................. 11,648,084 92.41% 269,758 2.14% 686,791 5.45%
3B. ................. 11,648,084 92.41% 269,758 2.14% 686,791 5.45%
3C. ................. 11,644,985 92.39% 272,857 2.16% 686,791 5.45%
3D. ................. 11,642,623 92.37% 275,219 2.18% 686,791 5.45%
3E. ................. 11,648,084 92.41% 269,758 2.14% 686,791 5.45%
3F. ................. 11,646,949 92.40% 270,893 2.15% 686,791 5.45%
3G. ................. 11,639,174 92.34% 278,668 2.21% 686,791 5.45%
3H. ................. 11,642,739 92.37% 275,103 2.18% 686,791 5.45%
3I(i). .............. 11,650,689 92.43% 267,153 2.12% 686,791 5.45%
3I(ii). ............. 11,644,459 92.38% 273,383 2.17% 686,791 5.45%
3I(iii). ............ 11,645,635 92.39% 272,207 2.16% 686,791 5.45%
3I(iv). ............. 11,646,542 92.40% 271,300 2.15% 686,791 5.45%
3I(v). .............. 11,649,225 92.42% 268,617 2.13% 686,791 5.45%
3I(vi). ............. 11,649,225 92.42% 268,617 2.13% 686,791 5.45%
3I(vii). ............ 11,648,802 92.42% 269,040 2.13% 686,791 5.45%
3I(viii). ........... 11,651,308 92.44% 266,534 2.11% 686,791 5.45%
3I(ix). ............. 11,651,308 92.44% 266,534 2.11% 686,791 5.45%
3I(x). .............. 11,651,308 92.44% 266,534 2.11% 686,791 5.45%
3I(xi). ............. 11,651,308 92.44% 266,534 2.11% 686,791 5.45%
3I(xii). ............ 11,649,225 92.42% 268,617 2.13% 686,791 5.45%
3I(xiii). ........... 11,651,308 92.44% 266,534 2.11% 686,791 5.45%
</TABLE>
<TABLE>
<CAPTION>
Vote 4.
Shares Voted % Voted
------------ -------
<S> <C> <C>
FOR..................... 11,826,369 93.83%
AGAINST................. 190,649 1.51%
ABSTAIN................. 587,615 4.66%
TOTAL................... 12,604,633 100.00%
</TABLE>
99
<PAGE>
Additional Information (unaudited) (continued)
Municipal Income Fund
<TABLE>
<CAPTION>
Vote 1.
Shares Voted % Voted
------------ -------
<S> <C> <C>
FOR..................... 4,210,871 91.33%
AGAINST................. 94,439 2.05%
ABSTAIN................. 305,069 6.62%
TOTAL................... 4,610,379 100.00%
</TABLE>
<TABLE>
<CAPTION>
Vote 2.
Shares Voted % Voted
------------ -------
<S> <C> <C>
FOR..................... 4,154,796 90.12%
AGAINST................. 128,272 2.78%
ABSTAIN................. 327,311 7.10%
TOTAL................... 4,610,379 100.00%
</TABLE>
<TABLE>
<CAPTION>
Vote 3.
Shares Voted % Shares Voted % Shares Voted %
FOR Voted AGAINST Voted ABSTAIN Voted
------------ ------ ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
3A. ................. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3B. ................. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3C. ................. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3D. ................. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3E. ................. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3F. ................. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3G. ................. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3H. ................. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3I(i). .............. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3I(ii). ............. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3I(iii). ............ 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3I(iv). ............. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3I(v). .............. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3I(vi). ............. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3I(vii). ............ 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3I(viii). ........... 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3I(ix). ............. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3I(x). .............. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3I(xi). ............. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3I(xii). ............ 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3I(xiii). ........... 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
</TABLE>
<TABLE>
<CAPTION>
Vote 4.
Shares Voted % Voted
------------ -------
<S> <C> <C>
FOR..................... 4,137,428 89.75%
AGAINST................. 106,685 2.31%
ABSTAIN................. 366,266 7.94%
TOTAL................... 4,610,379 100.00%
</TABLE>
100
<PAGE>
Additional Information (unaudited) (continued)
Quality Income Fund
<TABLE>
<CAPTION>
Vote 1.
Shares Voted % Voted
------------ -------
<S> <C> <C>
FOR..................... 8,744,290 91.04%
AGAINST................. 275,788 2.87%
ABSTAIN................. 585,054 6.09%
TOTAL................... 9,605,132 100.00%
</TABLE>
<TABLE>
<CAPTION>
Vote 2.
Shares Voted % Voted
------------ -------
<S> <C> <C>
FOR..................... 8,747,045 91.07%
AGAINST................. 232,637 2.42%
ABSTAIN................. 625,450 6.51%
TOTAL................... 9,605,132 100.00%
</TABLE>
<TABLE>
<CAPTION>
Vote 3.
Shares Voted % Shares Voted % Shares Voted %
FOR Voted AGAINST Voted ABSTAIN Voted
------------ ------ ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
3A. ................. 8,749,090 91.09% 202,285 2.11% 653,756 6.81%
3B. ................. 8,747,677 91.07% 203,698 2.12% 653,756 6.81%
3C. ................. 8,746,448 91.06% 204,927 2.13% 653,756 6.81%
3D. ................. 8,741,284 91.01% 210,091 2.19% 653,756 6.81%
3E. ................. 8,741,944 91.01% 209,431 2.18% 653,756 6.81%
3F. ................. 8,734,969 90.94% 216,406 2.25% 653,756 6.81%
3G. ................. 8,744,549 91.04% 206,826 2.15% 653,756 6.81%
3H. ................. 8,742,143 91.02% 209,232 2.18% 653,756 6.81%
3I(i). .............. 8,741,828 91.01% 209,547 2.18% 653,756 6.81%
3I(ii). ............. 8,743,750 91.03% 207,625 2.16% 653,756 6.81%
3I(iii). ............ 8,744,064 91.04% 207,311 2.16% 653,756 6.81%
3I(iv). ............. 8,743,750 91.03% 207,625 2.16% 653,756 6.81%
3I(v). .............. 8,749,598 91.09% 201,777 2.10% 653,756 6.81%
3I(vi). ............. 8,749,598 91.09% 201,777 2.10% 653,756 6.81%
3I(vii). ............ 8,749,206 91.09% 202,169 2.10% 653,756 6.81%
3I(viii). ........... 8,749,598 91.09% 201,777 2.10% 653,756 6.81%
3I(ix). ............. 8,749,598 91.09% 201,777 2.10% 653,756 6.81%
3I(x). .............. 8,749,598 91.09% 201,777 2.10% 653,756 6.81%
3I(xi). ............. 8,749,206 91.09% 202,169 2.10% 653,756 6.81%
3I(xii). ............ 8,749,598 91.09% 201,777 2.10% 653,756 6.81%
3I(xiii). ........... 8,749,771 91.09% 201,604 2.10% 653,756 6.81%
</TABLE>
<TABLE>
<CAPTION>
Vote 4.
Shares Voted % Voted % of Total
------------ ------- ----------
<S> <C> <C> <C>
FOR............. 8,846,098 92.10% 55.16%
AGAINST......... 197,970 2.06% 1.23%
ABSTAIN......... 561,064 5.84% 3.50%
TOTAL........... 9,605,132 100.00% 59.89%
</TABLE>
101
<PAGE>
Additional Information (unaudited) (continued)
Short-Duration Income Fund
<TABLE>
<CAPTION>
Vote 1.
Shares Voted % Voted
------------ -------
<S> <C> <C>
FOR..................... 7,510,210 76.92%
AGAINST................. 1,529,577 15.66%
ABSTAIN................. 724,797 7.42%
TOTAL................... 9,764,584 100.00%
</TABLE>
Vote 2.--N/A
<TABLE>
<CAPTION>
Vote 3.
Shares Voted % Shares Voted % Shares Voted %
FOR Voted AGAINST Voted ABSTAIN Voted
------------ ------ ------------ ------ ------------ -----
<S> <C> <C> <C> <C> <C> <C>
3A. ................ 7,508,794 76.90% 1,502,932 15.39% 752,858 7.71%
3B. ................ 7,508,794 76.90% 1,502,932 15.39% 752,858 7.71%
3C. ................ 7,508,794 76.90% 1,502,932 15.39% 752,858 7.71%
3D. ................ 7,502,468 76.83% 1,509,258 15.46% 752,858 7.71%
3E. ................ 7,508,794 76.90% 1,502,932 15.39% 752,858 7.71%
3F. ................ 7,510,074 76.91% 1,501,652 15.38% 752,858 7.71%
3G. ................ 7,504,493 76.85% 1,507,233 15.44% 752,858 7.71%
3H. ................ 7,508,794 76.90% 1,502,932 15.39% 752,858 7.71%
3I(i). ............. 7,503,748 76.85% 1,507,978 15.44% 752,858 7.71%
3I(ii). ............ 7,503,748 76.85% 1,507,978 15.44% 752,858 7.71%
3I(iii). ........... 7,503,748 76.85% 1,507,978 15.44% 752,858 7.71%
3I(iv). ............ 7,503,748 76.85% 1,507,978 15.44% 752,858 7.71%
3I(v). ............. 7,503,748 76.85% 1,507,978 15.44% 752,858 7.71%
3I(vi). ............ 7,510,074 76.91% 1,501,652 15.38% 752,858 7.71%
3I(vii). ........... 7,510,074 76.91% 1,501,652 15.38% 752,858 7.71%
3I(viii). .......... 7,510,074 76.91% 1,501,652 15.38% 752,858 7.71%
3I(ix). ............ 7,510,074 76.91% 1,501,652 15.38% 752,858 7.71%
3I(x). ............. 7,510,074 76.91% 1,501,652 15.38% 752,858 7.71%
3I(xi). ............ 7,510,074 76.91% 1,501,652 15.38% 752,858 7.71%
3I(xii). ........... 7,510,074 76.91% 1,501,652 15.38% 752,858 7.71%
3I(xiii). .......... 7,510,074 76.91% 1,501,652 15.38% 752,858 7.71%
</TABLE>
<TABLE>
<CAPTION>
Vote 4.
Shares Voted % Voted
------------ -------
<S> <C> <C>
FOR..................... 7,490,714 76.71%
AGAINST................. 1,520,990 15.58%
ABSTAIN................. 752,880 7.71%
TOTAL................... 9,764,584 100.00%
</TABLE>
In addition, Capital Income and Growth Fund, Municipal Income Fund and Short-
Duration Income Fund shareholders voted to approve a Plan of Reorganization
whereby each Fund will transfer all of its assets and have its identified lia-
bilities assumed by another Evergreen fund in exchange for shares of the ac-
quiring Evergreen fund as follows:
Acquired Fund Acquiring Fund
Capital Income and Capital Balanced Fund
Growth Fund Evergreen Municipal Bond
Municipal Income Fund Fund
Short-Duration Income Evergreen Short-Intermedi-
Fund ate Bond Fund
The shareholders of Capital Income and Growth Fund, Municipal Income Fund and
Short-Duration Income Fund voted to approve the Plan of Reorganization during
the meetings held on October 22, 1999, October 15, 1999 and October 29, 1999,
respectively.
For Capital Income and Growth Fund and Municipal Income Fund this vote was des-
ignated as vote number 4 and for Short-Duration Income Fund this vote was des-
ignated as vote number 3 on the shareholders' voting cards. The results of the
vote were as follows:
Capital Income and Growth Fund
<TABLE>
<CAPTION>
Vote
Shares Voted % of Voted
------------ ----------
<S> <C> <C>
FOR.................. 6,756,644 90.66%
AGAINST.............. 230,077 3.09%
ABSTAIN.............. 465,980 6.25%
TOTAL................ 7,452,701 100.00%
</TABLE>
102
<PAGE>
Additional Information (unaudited) (continued)
Municipal Income Fund
<TABLE>
<CAPTION>
Vote
Shares Voted % of Voted
------------ ----------
<S> <C> <C>
FOR.................. 4,155,092 90.12%
AGAINST.............. 87,960 1.91%
ABSTAIN.............. 367,327 7.97%
TOTAL................ 4,610,379 100.00%
</TABLE>
Short-Duration Income Fund
<TABLE>
<CAPTION>
Vote
Shares Voted % of Voted
------------ ----------
<S> <C> <C>
FOR.................. 7,514,233 76.96%
AGAINST.............. 1,524,681 15.61%
ABSTAIN.............. 725,670 7.43%
TOTAL................ 9,764,584 100.00%
</TABLE>
YEAR 2000
Like other investment companies, the Funds could be adversely affected if the
computer systems used by the Funds' investment advisor and the Funds' other
service providers are not able to perform their intended functions effectively
after 1999 because of the inability of computer software to distinguish the
year 2000 from the year 1900. The Funds' investment advisor is taking steps to
address this potential year 2000 problem with respect to the computer systems
that they use and to obtain satisfactory assurances that comparable steps are
being taken by the Funds' other major service providers. At this time, however,
there can be no assurance that these steps will be sufficient to avoid any ad-
verse impact on the Funds from this problem.
FEDERAL TAX STATUS OF DISTRIBUTIONS
Pursuant to section 852 of the Internal Revenue code, the Funds have designated
the following amounts as long-term capital gain distributions for the fiscal
year ended September 30, 1999:
<TABLE>
<CAPTION>
Aggregate Per Share
----------- ---------
<S> <C> <C>
Capital Balanced Fund..................................... $ 755,106 $0.050
Capital Growth Fund....................................... 27,486,789 2.630
Capital Income and Growth Fund............................ 9,316,482 0.980
Growth Fund............................................... 19,038,170 0.560
Short-Duration Income Fund................................ 70,058 0.005
</TABLE>
For corporate shareholders, the following percentages of ordinary income divi-
dends paid during the fiscal year ended September 30, 1999 qualified for the
dividends received deduction:
<TABLE>
<S> <C>
Capital Balanced Fund.................................................... 39.61%
Capital Income and Growth Fund........................................... 27.10
</TABLE>
For the fiscal year ended September 30, 1999, the percentage representing the
portion of distributions from net investment income exempt form Federal income
taxes, other than alternative minimum tax, for Municipal Income Fund is 98.45%
103
<PAGE>
Evergreen Funds
Money Market
Treasury Money Market Fund
Money Market Fund
Municipal Money Market Fund
Florida Municipal Money Market Fund
New Jersey Municipal Money Market Fund
Pennsylvania Municipal Money Market Fund
Tax Advantaged
Short Intermediate Municipal Fund
High Grade Municipal Bond Fund
Municipal Bond Fund
Municipal Income Fund
Connecticut Municipal Bond Fund
Florida Municipal Bond Fund
Florida High Income Municipal Bond Fund
Georgia Municipal Bond Fund
Maryland Municipal Bond Fund
New Jersey Municipal Bond Fund
North Carolina Municipal Bond Fund
Pennsylvania Municipal Bond Fund
South Carolina Municipal Bond Fund
Virginia Municipal Bond Fund
Income
Capital Preservation and Income Fund
Short Intermediate Bond Fund
Intermediate Term Bond Fund
U.S. Government Fund
Diversified Bond Fund
Strategic Income Fund
High Yield Bond Fund
Quality Income Fund
Short-Duration Income Fund
High Income Fund
Balanced
Balanced Fund
Tax Strategic Foundation Fund
Foundation Fund
Capital Balanced Fund
Capital Income and Growth Fund
Growth & Income
Utility Fund
Income and Growth Fund
Equity Income Fund
Value Fund
Blue Chip Fund
Growth and Income Fund
Small Cap Value Fund
Select Equity Index Fund
Domestic Growth
Tax Strategic Equity Fund
Strategic Growth Fund
Stock Selector Fund
Evergreen Fund
Masters Fund
Omega Fund
Small Company Growth Fund
Aggressive Growth Fund
Growth Fund
Capital Growth Fund
Select Special Equity Fund
Global International
Global Leaders Fund
International Growth Fund
Global Opportunities Fund
Precious Metals Fund
Emerging Markets Growth Fund
Latin America Fund
Perpetual Global Fund
Perpetual International Fund
Express Line
800.346.3858
Investor Services
800.343.2898
www.evergreen-funds.com
28585 551386 11/99
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