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AMERICA'S
UTILITY FUND
[LOGO OF AMERICA'S UTILITY FUND APPEARS HERE]
NINETEEN
NINETY-NINE
SEMIANNUAL
REPORT
[LOGO OF AMERICA'S UTILITY FUND APPEARS HERE]
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To our shareholders:
On behalf of all the associates at Mentor Investment Group, we would like to
take this opportunity to thank you for your investment in the America's
Utility Fund. This Semiannual Report reaffirms our commitment to our
shareholders and details the financial performance of these investments for
the period ended June 30, 1999.
Founded in 1970, Mentor Investment Group is an investment advisory firm with
more than $15 billion under management. We pride ourselves on a strong
heritage of providing quality service and a variety of investment choices that
help meet our shareholders' financial objectives by offering mutual funds and
separately invested portfolios.
In the commentary that follows, Mentor's investment team presents insightful
perspectives on the markets and strategies that shaped their investment
decisions for the past fiscal year. Our investment teams operate with these
priorities:
Focus--In most money management companies, each investment manager has
multiple responsibilities. At Mentor, our investment managers are singularly
focused on enhancing the value of their portfolios. This means that you can be
assured of a consistent, proven approach to developing a winning financial
strategy.
Opportunities--By offering six different management styles, portfolio
diversification is simplified. These multiple styles give investors the tools
for long-term investment success through diversification and accommodation of
changing investment needs.
Service--To help serve our shareholders, Mentor has a fully dedicated
Investor Relations Center. Our Relationship Coordinators are professionally
trained and licensed to serve clients' needs.
Technology--Abreast of the most advanced technology and using the latest
analytical tools, our investment managers have the ability to survey the
financial markets and make informed investment decisions about the best places
to invest.
We, at Mentor, are honored to be a partner in the management of your
financial assets. Mentor Investment Group provides diversified investment
styles and services to over one million shareholders. We serve individuals,
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corporations, endowments, foundations, public funds and municipalities. To
learn more about Mentor, please contact your consultant or call us at (800)
382-0016.
Important News for Shareholders
Shareholders of record as of August 17, 1999 will receive a Proxy/Prospectus
Statement outlining several changes that have been approved by the Fund's
Trustees. The first proposal requests that shareholders consider and vote on
the conversion of the Fund to a series of Evergreen Equity Trust, a Delaware
business trust. The second proposal requests that shareholders consider the
adoption of standardized investment restrictions, which will provide
consistency and flexibility throughout the Evergreen fund family. The third
proposal requests that shareholders consider and act upon an Agreement and
Plan of Reorganization whereby all of the assets of the Fund would be acquired
by Evergreen Utility Fund.
Please note that the current investment advisors to the Fund will continue
to manage the portfolio in the near future.
We look forward to making the Mentor formula work for you, and to a mutually
beneficial relationship.
Sincerely,
/s/ Daniel J. Ludeman /s/ Paul F. Costello
Daniel J. Ludeman Paul F. Costello
Chairman President
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Management Discussion
by Doris A. Kelley-Watkins and Matthew D. Finn
Portfolio Managers
For the six months ended June 30, 1999, America's Utility Fund had a return
of 0.86%. During the same period, the Standard & Poor's Utility Index returned
1.17%, while the average utilities mutual fund had a return of 7.02%, according
to Lipper Inc., an independent monitor of mutual fund performance.
The first six months of 1999 provided muted returns for investors in
traditional utility stocks. At the same time, telephone and telecommunications
equipment stocks continued to perform well, fueled by expanding demand for
communications services and systems.
During the first quarter, investors tended to bypass gas and electric
utilities in favor of more growth-oriented stocks. In the second quarter,
rising interest rates held back electric utility stocks, which traditionally
have moved in sympathy with the bond market. Throughout the period, the effects
of an unusually warm winter in northern sections of the country pressured
performance of gas-related stocks.
Portfolio Focus
The present portfolio management team took responsibility for the Fund in
late June 1999. The team focuses primarily on the stocks of regulated electric,
telephone and natural gas industries plus non or less regulated companies with
businesses in the same sectors.
This universe of companies is continually evaluated for stocks which the team
believes have good long-term prospects that are selling at reasonable
valuations. While the heaviest weightings in the portfolio may be in the stocks
offering the greatest growth (currently telecommunications), there will be
diversity within the portfolio reflecting the best growth opportunities from
the utility universe.
Portfolio Changes
In implementing its investment discipline, the portfolio management team has
emphasized telecommunications companies, which are forecast to have greater
relative growth. Telecom-related acquisitions included: AT&T Corp. and Bell
Atlantic Corp.
The Fund added two electric utility names: Niagara-Mohawk Holdings Inc., and
PacifiCorp.
Outlook
We believe telecommunication companies will continue to offer greater growth
opportunity on average,
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and Analysis
when compared with electric or natural gas companies. However we believe close
scrutiny of telecom shares is called for, in part because of the explosive
demand for telecom services which requires increased capital spending to
satisfy. Should interest rates rise materially, greater than anticipated costs
to some telecom companies could result.
For electric power companies, we expect continued movement toward
competition, less regulation, more mergers and acquisitions and financial
restructuring, all of which can be favorable for shareholder interests.
Among gas stocks, we expect continued consolidation and convergence between
gas and electric companies. The last several heating seasons have been
lackluster resulting in earnings pressure. The impact of weather on
performance for these stocks remains an important variable. Successful
business diversification can neutralize this concern and lift investment
appeal of gas stocks.
Fundamental change is occurring within the utility universe; the greatest of
all being the introduction of competition. This has created and will likely
continue to create tremendous investment opportunity, albeit problematic.
Top 5 Industries*
(as a percentage of net assets)
<TABLE>
<S> <C>
Utilities -- Electric 38.5%
Utilities -- Telephone 23.7%
Oil/Energy 4.8%
Communication Systems & Services 3.5%
Utilities -- Gas 3.3%
</TABLE>
Top Ten Long Term Holdings*
(as a percentage of net assets)
<TABLE>
<S> <C>
Bell Atlantic Corp. 4.5%
Ameritech Corp. 4.4%
SBC Communications, Inc. 4.4%
GTE Corp. 3.9%
Enron Corp. 3.7%
MCI WorldCom, Inc. 3.5%
Sprint Corp. 3.2%
Potomac Electric Power Co. 3.1%
Firstenergy Corp. 2.8%
DPL Inc. 2.8%
</TABLE>
* Portfolio composition subject to change.
Must be preceded or accompanied by a prospectus. Please read the prospectus
carefully before investing or sending money.
The S & P Utility is an unmanaged index which does not include transaction
costs associated with buying and selling securities nor any management fees.
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.
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America's Utility Fund, Inc.
Schedule of Investments
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Common Stocks - 91.9% Value
------ --------------------- -----
<C> <S> <C>
Banks - 1.4%
------------
60,500 SouthTrust Corp. $ 2,321,688
------------
Building, Construction & Furnishings - 0.9%
-------------------------------------------
53,400 Sherwin Williams Co. 1,481,850
------------
Communication Systems & Services - 3.5%
---------------------------------------
66,921 MCI WorldCom, Inc.* 5,759,389
------------
Energy - 2.0%
-------------
170,000 Questar Corp. 3,251,250
------------
Finance & Insurance - 1.2%
--------------------------
29,800 Federal National Mortgage Assoc. 2,037,575
------------
Food & Beverage Products - 2.0%
-------------------------------
108,600 Sysco Corp. 3,237,638
------------
Healthcare Products & Services - 2.6%
-------------------------------------
30,000 Bristol-Myers Squibb Co. 2,113,125
21,500 Johnson & Johnson 2,107,000
------------
4,220,125
------------
Industrial Specialty Products & Services - 2.8%
-----------------------------------------------
253,800 DPL, Inc. 4,663,575
------------
Oil/Energy - 4.8%
----------------
30,000 Consolidated Natural Gas Co. 1,822,500
74,000 Enron Corp. 6,049,500
------------
7,872,000
------------
Retailing & Wholesale - 1.0%
----------------------------
31,200 W.W. Grainger, Inc. 1,678,950
------------
Telecommunication Services & Equipment - 1.7%
---------------------------------------------
19,293 Telefonica de Espana SA de CV, ADR (a) 2,838,527
------------
Utilities - Electric - 38.5%
----------------------------
94,100 Allegheny Energy, Inc. 3,017,081
78,800 Duke Power Co. 4,284,750
77,000 Eastern Utilities Associates 2,242,625
82,000 Endesa SA, ADS (a) 1,742,500
150,600 Firstenergy Corp. 4,668,600
67,000 FPL Group, Inc. (a) 3,659,875
73,810 Gener S A (a) 1,310,128
77,600 GPU, Inc. 3,273,750
165,700 LG & E Energy Corp. (a) 3,479,700
90,800 New Century Energies, Inc. (a) 3,524,175
219,000 Niagara Mohawk Holdings, Inc.* 3,517,687
120,600 Nisource, Inc. (a) 3,112,987
150,800 Northern State Power Corp. 3,647,475
211,000 PacifiCorp 3,877,125
171,400 Potomac Electric Power Co. 5,045,587
89,700 Scana Corp. 2,096,738
142,710 Sempra Energy (a) 3,228,814
161,500 Southern Co. (a) 4,279,750
154,600 Teco Energy, Inc. (a) 3,517,150
------------
63,526,497
------------
Utilities - Gas - 3.3%
----------------------
93,000 Keyspan Corp. 2,452,875
78,000 NICOR, Inc. 2,968,875
------------
5,421,750
------------
</TABLE>
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America's Utility Fund, Inc.
Schedule of Investments (continued)
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
------ -----
<C> <S> <C>
Utilities - Telephone - 23.7%
-----------------------------
100,000 Ameritech Corp. $ 7,350,000
74,900 AT&T Corp. 4,180,356
112,800 Bell Atlantic Corp. (a) 7,374,300
84,000 GTE Corp. 6,363,000
124,000 SBC Communications, Inc. 7,192,000
99,200 Sprint Corp. 5,239,000
24,800 Sprint Corp. (PCS Group)* 1,416,700
------------
39,115,356
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Utilities - 2.5%
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156,700 Western Resources, Inc. 4,172,137
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Total Common Stocks
(cost $106,121,368) $151,598,307
------------
Preferred Stocks - 0.3%
-----------------------
Banks - 0.3%
------------
20,000 BankAmerica Capital I, 7.75%
(cost $500,000) 502,500
------------
<CAPTION>
Principal
Amount
---------
<C> <S> <C>
Corporate Bonds - 4.2%
----------------------
Utilities - Electric - 4.2%
---------------------------
$2,000,000 Appalachian Power Co. 7.38%, 8/15/2002 2,005,334
1,250,000 Duke Energy Co. (a) 8.00%, 11/1/1999 1,257,285
2,000,000 Texas Utilities Electric Co. 8.25%, 4/1/2004 2,138,454
1,500,000 Wisconsin Public Service Corp. 7.30%, 10/1/2002 1,545,019
------------
Total Corporate Bonds
(cost $6,921,782) 6,946,092
------------
Short-Term Investments - 23.2%
------------------------------
U.S. Government Agency Obligations - 3.3%
-----------------------------------------
5,450,000 Federal Farm Credit Bank Discount Notes 4.60%,
7/1/1999 5,450,000
------------
Money Market Shares - 19.9%
---------------------------
32,883,291 Navigator Prime Portfolio(b) 32,883,291
------------
Total Short-Term Investments
(cost $38,333,291) 38,333,291
------------
Total Investments - 119.6%
(cost $151,876,441) 197,380,190
Other Assets and Liabilities - (19.6%) (32,328,121)
------------
Net Assets - 100.00% $165,052,069
============
</TABLE>
* Non-income producing securities.
(a) All or a portion of this security is on loan.
(b) Represents investment of cash collateral received for securities on loan.
Summary of Abbreviations
ADRAmerican Depository Receipts
ADSAmerican Depository Shares
See Notes to Financial Statements.
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Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
<TABLE>
<S> <C>
Assets
Identified cost of securities $151,876,441
Net unrealized gains on securities 45,503,749
------------
Market value of securities 197,380,190
Receivable for Fund shares sold 16,844
Dividends and interest receivable 551,570
Prepaid expenses and other assets 159,019
------------
Total assets 198,107,623
------------
Liabilities
Payable for Fund shares redeemed 52,146
Payable for securities on loan 32,883,291
Due to custodian bank 58,542
Accrued expenses and other liabilities 61,575
------------
Total liabilities 33,055,554
------------
Net Assets $165,052,069
============
Net Assets represented by
Paid-in capital $118,879,365
Undistributed net investment income 102,494
Accumulated net realized gains on securities 566,461
Net unrealized gains on securities 45,503,749
------------
Total net assets $165,052,069
============
Net Asset Value per Share $ 30.99
============
Shares Outstanding 5,325,802
</TABLE>
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Financial Highlights
(For a share outstanding throughout each period)
Net asset value, beginning of period
Income from investment operations
Net investment income
Net realized and unrealized gains or losses on securities
Total from investment operations
Distributions to shareholders from
Net investment income
Net realized gains
Total distributions
Net asset value, end of period
Total return
Ratios and supplemental data
Net assets, end of period (millions)
Ratios to average net assets
Expenses
Net investment income
Portfolio turnover rate
+Annualized.
See Notes to Financial Statements.
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America's Utility Fund, Inc.
Statement of Operations
Six Months Ended June 30, 1999 (Unaudited)
<TABLE>
<S> <C>
Investment income
Dividends (net of foreign withholding taxes of $20,913) $2,686,442
Interest 449,261
----------
Total investment income 3,135,703
----------
Expenses
Advisory fee 203,158
Administrative services fees 316,087
Transfer agent fee 231,645
Distribution plan expenses 199,710
Trustees' fees and expenses 2,653
Other 62,253
----------
Total expenses 1,015,506
----------
Net investment income 2,120,197
----------
Net realized and unrealized losses on securities
Net realized losses on securities (584,451)
Net change in unrealized losses on securities (282,374)
----------
Net realized losses on securities (866,825)
----------
Net increase in net assets resulting from operations $1,253,372
==========
</TABLE>
See Notes to Financial Statements.
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<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
June 30, 1999 -----------------------
(Unaudited) 1998 1997 1996 1995 1994
- ---------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
$31.12 $29.03 $25.07 $24.72 $19.50 $ 23.54
------ ------ ------ ------ ------ -------
0.40 0.76 0.92 0.98 0.96 0.96
(0.15) 3.65 4.79 0.33 5.22 (4.04)
------ ------ ------ ------ ------ -------
0.25 4.41 5.71 1.31 6.18 (3.08)
------ ------ ------ ------ ------ -------
(0.38) (0.76) (0.96) (0.96) (0.96) (0.96)
0 (1.56) (0.79) 0 0 0
------ ------ ------ ------ ------ -------
(0.38) (2.32) (1.75) (0.96) (0.96) (0.96)
------ ------ ------ ------ ------ -------
$30.99 $31.12 $29.03 $25.07 $24.72 $ 19.50
====== ====== ====== ====== ====== =======
0.86% 15.47% 23.31% 5.46% 32.30% (13.10%)
$ 165 $ 168 $ 157 $ 144 $ 163 $ 125
1.27%+ 1.31% 1.21% 1.27% 1.21% 1.21%
2.65%+ 2.71% 3.46% 3.90% 4.40% 4.66%
10% 11% 26% 24% 28% 29%
</TABLE>
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America's Utility Fund, Inc.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
June 30, 1999 Year Ended
(Unaudited) December 31, 1998
------------- -----------------
<S> <C> <C>
Operations
Net investment income $ 2,120,197 $ 4,252,792
Net realized gains or losses on securities (584,451) 7,218,482
Net change in unrealized gains or losses on
securities (282,374) 11,651,258
------------ ------------
Net increase in net assets resulting from
operations 1,253,372 23,122,532
------------ ------------
Distributions to Shareholders from
Net investment income (2,023,121) (4,247,374)
Net realized gains 0 (7,764,700)
------------ ------------
Total distributions to shareholders (2,023,121) (12,012,074)
------------ ------------
Capital Share Transactions
Proceeds from shares sold 4,158,007 10,490,427
Payment for shares redeemed (8,470,293) (21,767,705)
Net asset value of shares issued in
reinvestment of distributions 1,905,577 11,341,961
------------ ------------
Net increase (decrease) in net assets
resulting from capital share transactions (2,406,709) 64,683
------------ ------------
Total increase (decrease) in net assets (3,176,458) 11,175,141
Net Assets
Beginning of period 168,228,527 157,053,386
------------ ------------
End of period $165,052,069 $168,228,527
============ ============
Undistributed net investment income $ 102,494 $ 5,418
============ ============
</TABLE>
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America's Utility Fund, Inc.
Notes to Financial Statements (Unaudited)
1. Organization
America's Utility Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "1940 Act") as a diversified, open-end
management investment company. The Fund was organized as a Maryland corporation
on January 28, 1992. On February 14, 1992 (initial investment date), the Fund
sold 500,000 shares of common stock to Dominion Resources, Inc. for
$10,000,000. The Fund commenced sales to the public on May 5, 1992.
The Fund's investment objective is to seek current income and moderate capital
growth by investing primarily in securities issued by utility companies. The
Fund's investments in utility companies may include equity securities, (common
and preferred stocks) and debt securities.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles, which
require management to make estimates and assumptions that effect amounts
reported herein. Actual results could differ from these estimates.
A. Valuation of Securities Securities traded on a national securities exchange
or included on the Nasdaq National Market System ("NMS") at the last reported
sales price on the exchange where primarily traded. The Fund values securities
traded on NMS for which there has been no sale and other securities traded in
the over-the-counter market at the mean between the last reported bid and asked
price.
Corporate bonds 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 relationships between similar securities,
which are generally recognized by institutional traders. Securities for which
valuations are not available from an independent pricing service, including
restricted securities, are valued at fair value as determined in good faith
according to procedures established by the Board of Directors. Short-term
securities with remaining maturities of 60 days or less are carried at
amortized cost, which approximates market value.
B. Repurchase Agreements The Fund may invest in repurchase agreements. The 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 repurchased agreement, including
accrued interest. The Fund will only enter into repurchase agreements with
banks and other financial institutions, which are deemed by the investment
advisor to be creditworthy pursuant to guidelines established by the Board of
Directors.
C. 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
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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 may be subject to foreign
withholding taxes, which are accrued as applicable. Capital gains realized on
some foreign securities are subject to foreign taxes, which are accrued as
applicable.
D. Federal Taxes The Fund has qualified and intends to continue to qualify as
a regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"). Thus, the Fund will not incur any federal income tax
liability to the extent it distributes all of its net investment company
taxable income and net capital gains, if any, to their shareholders. The Fund
also intends to avoid excise tax liability by making the required
distributions under the Code. Accordingly, no provisions for federal taxes are
required. To the extent that realized capital gains can be offset by capital
loss carryforwards, it is the Fund's policy not to distribute such gains.
E. Distributions Distributions from net investment income are declared and
paid quarterly. Capital gains are distributed annually. Distributions to
shareholders are recorded at the close of business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles.
F. Securities Lending In order to generate income and offset expenses, the
Fund may lend portfolio securities to brokers, dealers and other financial
organizations. The Fund's investment advisor will monitor the creditworthiness
of such borrowers. Loans of securities may not exceed 331/3% of the 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, including
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 the securities
on loan. While such securities are on loan, the borrower will pay the Fund any
income accruing thereon, and the Fund may invest any cash collateral received
in portfolio securities, thereby increasing its return. The 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 the Fund
and its investors. A fund may pay fees in connection with such loans.
3. Capital Share Transactions
As of June 30, 1999, the Fund had 500,000,000 shares of $0.0001 par value
capital stock authorized. Transactions in shares of the Fund were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 30, 1999
---------------- -----------------
<S> <C> <C>
Shares sold 138,595 350,374
Shares redeemed (282,393) (724,206)
Shares issued in reinvestment of
distributions 64,345 369,078
-------- --------
Net decrease (79,453) (4,754)
======== ========
</TABLE>
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Notes to Financial Statements (Unaudited) (continued)
4. Securities Transactions
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) were $14,700,606 and $16,530,099, respectively.
During the six months ended June 30, 1999, the Fund loaned securities to
certain brokers who paid the Funds a negotiated lenders' fee. These fees are
included in interest income. At June 30, 1999, the value of securities on loan
was $31,895,663 and the value of collateral was $32,883,291.
During the six months ended June 30, 1999, the Fund earned $17,411 in income
from securities lending.
5. Investment Advisory Agreement and Other Affiliated Transactions
Mentor Investment Advisors, LLC ("Mentor Advisors") serves as investment
manager to the Fund. Mentor Advisors is a wholly owned subsidiary or Mentor
Investment Group, LLC ("Mentor") which is in turn a partially owned subsidiary
of Wheat First Union. EVEREN Capital Corporation ("EVEREN") owns 20% of the
outstanding interest in Mentor. Mentor Advisors receives for its services an
investment management fee expressed as a percentage of the average daily net
assets of the Fund as follows: 0.75% of the first $5 million of average daily
net assets, 0.50% of the next $5 million, 0.25% of the next $90 million, 0.20%
of the next $100 million, 0.15% of the next $100 million and 0.10% of the
average daily net assets in excess of $300 million.
Prior to June 21, 1999, Mentor provided administrative personnel and services
to the Fund. The Fund paid Mentor a fee at the annual rate of 0.65% of the
Fund's average daily net assets, less the amount of any management fees paid to
Mentor Advisors.
Effective June 21, 1999, Evergreen Investment Services ("EIS"), a subsidiary of
First Union Corporation ("First Union"), became the administrator. As
administrator, EIS provides the Fund with facilities, equipment and personnel.
The fees and rates paid to EIS for administrative services have remained
unchanged from the fees paid to Mentor.
Officers of the Fund and affiliated Trustees receive no compensation directly
from the Fund.
6. Distribution Plans
The Fund has entered into a Shareholder Services Agreement with Mentor,
pursuant to which Mentor, itself through America's Utility Fund Service Company
("AUFSC"), or through other financial institutions, provided shareholder
support services to the Fund and its shareholders. The Fund pays Mentor a fee
at an annual rate of 0.25% of the Fund's average daily net assets.
7. Concentration of Risk
The Fund invests a substantial portion of its assets in issuers in the
utilities industry, therefore, it may be more affected by economic and
political developments in that industry than would be a comparable general
equity fund.
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8. Additional Information
On March 25, 1999, First Union and EVEREN announced an agreement to form an
asset management joint venture that would combine the Evergreen mutual fund
complex with the Mentor Investment Group.
Under the agreement, First Union will contribute its ownership interests in
Evergreen and Mentor and receive 95 percent ownership interest in the new
venture. EVEREN will contribute its ownership interest in Mentor and receive a
5 percent ownership interest in the new venture.
On April 26, 1999, First Union announced an agreement to acquire EVEREN as part
of this acquisition the Mentor Investment Group will be combined with the
Evergreen mutual fund complex.
The acquisition is subject to regulatory and other approvals and is expected to
be complete in October 1999.
Assuming the acquisition takes place as planned the joint venture announced in
March will not occur.
9. Year 2000
Like other investment companies, the Fund could be adversely affected if the
computer systems used by the Fund's investment advisor and the Fund's 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 Fund's 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 Fund's other major service providers. At this time, however,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on the Fund from this problem.
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<PAGE>
[LOGO OF AMERICA'S UTILITY FUND BULK RATE
APPEARS HERE] U.S. POSTAGE
PAID
Permit No. 19
901 East Byrd Street Hudson, MA
P. O. Box 26501
Richmond, Virginia 23261-6501
550577 08/99
