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UNITED STATES
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21331
Evergreen Multi-Sector Income Fund
200 Berkeley Street Boston, Massachusetts 02116
Michael H. Koonce, Esq. 200 Berkeley Street Boston, Massachusetts 02116
Registrant's telephone number, including area code: (617) 210-3200
Date of fiscal year end: October 31, 2007
Date of reporting period: October 31, 2007 Item 1 - Reports to Stockholders.
The fund will file its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The funds Form N-Q will be available on the SECs Web site at
http://www.sec.gov. In addition, the funds Form N-Q may be reviewed and copied at the SECs Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling
800.SEC.0330.
A description of the funds proxy voting policies and procedures, as well as information regarding how the fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30,
is available by visiting our Web site at EvergreenInvestments.com or by visiting the SECs Web site at http://www.sec.gov. The funds proxy voting policies and procedures are also available without charge, upon request, by calling
800.343.2898.
Evergreen InvestmentsSM is a service mark of Evergreen Investment Management Company, LLC.
Evergreen Investment Management Company, LLC is a subsidiary of Wachovia Corporation and is an affiliate of Wachovia Corporations other Broker Dealer subsidiaries.
LETTER TO SHAREHOLDERS
December 2007
Dear Shareholder:
We are pleased to provide the Annual Report for Evergreen Multi-Sector Income Fund for the twelve-month period ended October 31, 2007.
Fixed income markets, both foreign and domestic, delivered generally modest but positive returns during the twelve-month period, despite increasing volatility in the final months of the period. During the early months of
the fiscal year, the expanding global economy combined with rising corporate earnings to propel outperformance by higher-yielding, lower-rated securities. Weakness in U.S. housing and deterioration in the subprime mortgage market, however, raised
questions in credit markets throughout the world in the final months of the period. These questions led to a general flight to quality that created strong demand for the highest-quality debt, especially U.S. Treasuries and other sovereign
debt.
In equity markets, persisting global growth and improving corporate profitability generally drove stock valuations higher. Stock markets were not immune to the worries emanating from the U.S. subprime mortgage market,
however, and the major indexes experienced several severe short-term sell-offs in the closing months of the period. International equity markets tended to outperform domestic stocks, while emerging markets continued to produce soaring
results.
Despite the weakness in the housing market and related problems in the subprime mortgage industry, the domestic economy continued to grow throughout the twelve-month
1
LETTER TO SHAREHOLDERS continued
period. Solid growth in exports and in business investment helped offset declining residential values, while steadily increasing employment levels and moderately rising wages improved prospects that consumer spending would
remain brisk. U.S. Gross Domestic Product grew at an annual rate of 4.9% in the third quarter of 2007 as personal spending climbed by 3% twice the level of consumer spending in the second quarter of 2007, when the economy expanded at a brisk
rate of 3.8% . Nevertheless, the capital markets, roiled by the subprime and housing industry concerns, became increasingly volatile, leading the U.S. Federal Reserve Board (the Fed) to adjust its policy late in the period and begin
injecting additional liquidity into the financial system. The nations central bank cut the influential fed funds rate from 5.25% to 4.75% in September and then to 4.50% at the end of October, while also cutting the discount rate in three consecutive months at the end of the fiscal year. Prospects for further easing were unclear, however, as the Fed adopted a cautious stance, balancing its interest in
reassuring markets and stimulating the economy with its responsibility to contain inflationary price pressures in the face of the declining value of the U.S. dollar and rising oil and gold prices.
During the twelve-month period, the management team for Evergreen Multi-Sector Income Fund continued to seek a high level of current income with limited exposure to the risks posed by changing interest rates. Assets of this
closed-end fund were allocated among sleeves of high-yield, domestic corporate bonds, investment-grade foreign debt securities and adjustable-rate, U.S. mortgage-backed securities.
2
LETTER TO SHAREHOLDERS continued
As always, we encourage investors to maintain diversified investment portfolios in pursuit of their long-term investment goals.
Please visit us at EvergreenInvestments.com for more information about our funds and other investment products available to you. From the Web site, you may also access details about daily fund prices,
yields, dividend rates and fund facts about Evergreen closed-end funds. Thank you for your continued support of Evergreen Investments.
Sincerely,
Special Notice to Shareholders:
Please visit our Web site at EvergreenInvestments.com for statements from President and Chief Executive Officer, Dennis Ferro, regarding the
firms recent settlement with the Securities and Exchange Commission (SEC) and prior settlement with the National Association of Securities Dealers (NASD).
3
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout each period)
1 For the period from June 25, 2003 (commencement of operations), to October 31,
2003.
2 Initial public offering price of $20.00 per share less underwriting discount of $0.90 per share.
3 Calculated based on average common shares
outstanding during the period.
4 Amount represents less than $0.005 per share.
5 Total return is calculated assuming a purchase of common stock on the first day and a sale on the last day
of the period reported. Dividends and distributions, if any, are assumed for purposes of these calculations to be reinvested at prices obtained under the Funds Automatic Dividend Reinvestment Plan. Total return does not reflect brokerage commissions or sales charges.
6 Annualized
7 The net investment income (loss) ratio reflects distributions paid to preferred shareholders .
See Notes to Financial Statements
4
SCHEDULE OF INVESTMENTS
October 31, 2007
See Notes to Financial Statements
5
SCHEDULE OF INVESTMENTS continued
October 31, 2007
See Notes to Financial Statements
6
SCHEDULE OF INVESTMENTS continued
October 31, 2007
See Notes to Financial Statements
7
SCHEDULE OF INVESTMENTS continued
October 31, 2007
See Notes to Financial Statements
8
SCHEDULE OF INVESTMENTS continued
October 31, 2007
See Notes to Financial Statements
9
SCHEDULE OF INVESTMENTS continued
October 31, 2007
See Notes to Financial Statements
10
SCHEDULE OF INVESTMENTS continued
October 31, 2007
See Notes to Financial Statements
11
SCHEDULE OF INVESTMENTS continued
October 31, 2007
See Notes to Financial Statements
12
SCHEDULE OF INVESTMENTS continued
October 31, 2007
See Notes to Financial Statements
13
SCHEDULE OF INVESTMENTS continued
October 31, 2007
See Notes to Financial Statements
14
SCHEDULE OF INVESTMENTS continued
October 31, 2007
See Notes to Financial Statements
15
SCHEDULE OF INVESTMENTS continued
October 31, 2007
See Notes to Financial Statements
16
SCHEDULE OF INVESTMENTS continued
October 31, 2007
See Notes to Financial Statements
17
SCHEDULE OF INVESTMENTS continued
October 31, 2007
See Notes to Financial Statements
18
SCHEDULE OF INVESTMENTS continued
October 31, 2007
See Notes to Financial Statements
19
SCHEDULE OF INVESTMENTS continued
October 31, 2007
See Notes to Financial Statements
20
SCHEDULE OF INVESTMENTS continued
October 31, 2007
See Notes to Financial Statements
21
SCHEDULE OF INVESTMENTS continued
October 31, 2007
See Notes to Financial Statements
22
SCHEDULE OF INVESTMENTS continued
October 31, 2007
See Notes to Financial Statements
23
SCHEDULE OF INVESTMENTS continued
October 31, 2007
See Notes to Financial Statements
24
SCHEDULE OF INVESTMENTS continued
October 31, 2007
The following table shows the percentage of total long-term investments by geographic location as of October 31, 2007:
The following table shows the percent of total investments (excluding equity positions, collateral from securities on loan and cash and cash equivalents) by credit quality based on Moodys and Standard &
Poors ratings as of October 31, 2007 (unaudited):
The following table shows the percent of total investments (excluding equity positions, collateral from securities on loan, and cash and cash equivalents) based on effective maturities as of October 31, 2007
(unaudited):
See Notes to Financial Statements
25
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2007
See Notes to Financial Statements
26
STATEMENT OF OPERATIONS
Year Ended October 31, 2007
See Notes to Financial Statements
27
STATEMENTS OF CHANGES IN NET ASSETS
See Notes to Financial Statements
28
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
2. SIGNIFICANT ACCOUNTING POLICIES
a. Valuation of investments
Listed equity securities are usually valued at the last sales price or official closing price on the national securities exchange where the securities are principally traded.
Short-term securities with remaining maturities of 60 days or less at the time of purchase are valued at amortized cost, which approximates market value.
Investments in open-end mutual funds are valued at net asset value. Securities for which market quotations are not readily available or not reflective of current market value are valued at fair value as determined by the
investment advisor in good faith, according to procedures approved by the Board of Trustees.
b. Repurchase agreements
c. Reverse repurchase agreements
29
NOTES TO FINANCIAL STATEMENTS continued
worthy. At the time the Fund enters into a reverse repurchase agreement, it will establish a segregated account with the custodian containing qualified assets having a value not less than the repurchase price, including
accrued interest. If the counterparty to the transaction is rendered insolvent, the Fund may be delayed or limited in the repurchase of the collateral securities.
d. Foreign currency translation
e. Forward foreign currency contracts
f. When-issued and delayed delivery transactions
g. Securities lending
h. Dollar roll transactions
30
NOTES TO FINANCIAL STATEMENTS continued
actions to invest in short-term investments, which may enhance the Funds current yield and total return. The Fund accounts for dollar roll transactions as purchases and sales. The Fund could be exposed to risks if the
counterparty defaults on its obligation to perform under the terms of the agreement, if the Fund receives inferior securities in comparison to what was sold to the coun-terparty at redelivery or if there are variances in paydown speed between the
mortgage-related pools.
i. Interest rate swaps
j. Credit default swaps
Payments received or made as a result of a credit event or termination of the contract are recognized as realized gains or losses. The Fund could be exposed to risks if the counterparty defaults on its obligation to
perform, or if there are unfavorable changes in the fluctuation of interest rates or in the price of the underlying security.
k. Security transactions and investment income
l. Federal taxes
m. Distributions
31
NOTES TO FINANCIAL STATEMENTS continued
Reclassifications have been made to the Funds components of net assets to reflect income and gains available for distribution (or available capital loss carryovers, as applicable) under income tax regulations. The
primary permanent differences causing such reclassifications are due to net realized foreign currency gains or losses, mortgage paydown gains and losses, premium amortization, interest rate swap contracts and consent fees on tendered bonds. During
the year ended October 31, 2007, the following amounts were reclassified:
3. ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
First International Advisors, Inc. (FIA) d/b/a Evergreen International Advisors, an indirect, wholly-owned subsidiary of Wachovia, is an investment sub-advisor to the Fund and is paid by EIMC for its services to
the Fund.
Tattersall Advisory Group, Inc. (TAG), an indirect, wholly-owned subsidiary of Wachovia is also an investment sub-advisor to the Fund and is paid by EIMC for its services to the Fund.
The Fund may invest in Evergreen-managed money market funds which are also advised by EIMC. Income earned on these investments is included in income from affiliate on the Statement of Operations.
Evergreen Investment Services, Inc. (EIS), an indirect, wholly-owned subsidiary of Wachovia, is the administrator to the Fund. As administrator, EIS provides the Fund with facilities, equipment and personnel and
is paid an annual administrative fee of 0.05% of the Funds average daily total assets. For the year ended October 31, 2007, the administrative fee was equivalent to 0.08% of the Funds average daily net assets applicable to common
shareholders.
The Fund has placed a portion of its portfolio transactions with brokerage firms that are affiliates of Wachovia. During the year ended October 31, 2007, the Fund paid brokerage commissions of $554 to Wachovia
Securities, LLC.
4. CAPITAL SHARE TRANSACTIONS
The Fund has issued 16,000 shares of Auction Market Preferred Shares (Preferred Shares) consisting of five series, each with a liquidation value of $25,000 plus accumulated but unpaid dividends (whether or
not earned or declared). Dividends on each series of Preferred Shares are cumulative at a rate, which is reset based on the result of an auction. The annualized dividend rate
32
NOTES TO FINANCIAL STATEMENTS continued
was 5.36% during the year ended October 31, 2007. The Fund will not declare, pay or set apart for payment any dividend to its common shareholders unless the Fund has declared and paid or contemporaneously declares and pays
full cumulative dividends on each series of Preferred Shares through its most recent dividend payment date.
Each series of Preferred Shares is redeemable, in whole or in part, at the option of the Fund on any dividend payment date at $25,000 per share plus any accumulated or unpaid dividends (whether or not earned or
declared). Each series of Preferred Shares is also subject to mandatory redemption at $25,000 per share plus any accumulated or unpaid dividends (whether or not earned or declared) if the asset coverage with respect to the outstanding Preferred
Shares fell below 200%.
The holders of Preferred Shares have voting rights equal to the holders of the Funds common shares and will vote together with holders of common shares as a single class. Holders of Preferred Shares, voting separately
as a single class, have the right to elect at least two Trustees at all times. The remaining Trustees will be elected by holders of common shares and preferred shares, voting together as a single class.
5. INVESTMENT TRANSACTIONS
At October 31, 2007, the Fund had forward foreign currency exchange contracts outstanding as follows:
Forward Foreign Currency Exchange Contracts to Buy:
During the year ended October 31, 2007, the Fund entered into reverse repurchase agreements that had an average daily balance outstanding of $2,714,669 with an average interest rate of 5.29% and paid interest of
$143,606 representing 0.02% of the Funds average daily net assets applicable to common shareholders. The maximum amount outstanding under reverse repur-
33
NOTES TO FINANCIAL STATEMENTS continued
chase agreements during the year ended October 31, 2007 was $12,179,050 (including accrued interest). At October 31, 2007, reverse repurchase agreements outstanding were as follows:
During the year ended October 31, 2007, the Fund loaned securities to certain brokers. At October 31, 2007, the value of securities on loan and the total value of collateral received for securities loaned amounted to
$64,269,246 and $67,550,197, respectively.
At October 31, 2007, the Fund had the following open interest rate swap agreements: 1 This rate represents the 1 month USD London InterBank Offered Rate (LIBOR) effective for the period from October 26, 2007 through November 26, 2007.
At October 31, 2007, the Fund had the following open credit default swap contracts outstanding:
On October 31, 2007, the aggregate cost of securities for federal income tax purposes was $1,240,183,033. The gross unrealized appreciation and depreciation on securities based on tax cost was $140,834,092 and
$122,130,622, respectively, with a net unrealized appreciation of $18,703,470.
As of October 31, 2007, the Fund had $18,342,604 in capital loss carryover for federal income tax purposes with $10,962,010 expiring in 2014 and $7,380,594 expiring in 2016.
6. DISTRIBUTIONS TO SHAREHOLDERS
The differences between the components of distributable earnings on a tax basis and the amounts reflected in the Statement of Assets and Liabilities are primarily due to wash sales, premium amortization, total return swaps,
and forwards contracts. The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses.
34
NOTES TO FINANCIAL STATEMENTS continued
The tax character of distributions paid was as follows:
7. EXPENSE REDUCTIONS
8. DEFERRED TRUSTEES FEES
9. REGULATORY MATTERS AND LEGAL PROCEEDINGS
EIS has entered into an agreement with the NASD (now known as the Financial Industry Regulatory Authority (FINRA)) settling allegations that EIS (i) arranged for Evergreen fund portfolio trades to be directed to
Wachovia Securities, LLC, an affiliate of EIS that sold Evergreen fund shares, during the period of January 2001 to December 2003 and (ii) provided non-cash compensation by sponsoring offsite meetings attended by Wachovia Securities, LLC brokers
during that period, where the eligibility of a broker to attend the meetings depended upon the broker meeting certain sales targets of Evergreen fund shares. Pursuant to the settlement agreement, EIS has agreed to a censure and a fine of
$4,200,000. EIS neither admitted nor denied the allegations and findings set forth in its agreement with the NASD.
In addition, the Evergreen funds and EIMC and certain of its affiliates are involved in various legal actions, including private litigation and class action lawsuits. EIMC does not expect that any
35
NOTES TO FINANCIAL STATEMENTS continued
of such legal actions currently pending or threatened will have a material adverse impact on the financial position or operations of any of the Evergreen funds or on EIMCs ability to provide services to the Evergreen
funds.
Although EIMC believes that none of the matters discussed above will have a material adverse impact on the Evergreen funds, there can be no assurance that these matters and any publicity surrounding or resulting from them
will not result in reduced sales or increased redemptions of Evergreen fund shares, which could increase Evergreen fund transaction costs or operating expenses, or that they will not have other adverse consequences on the Evergreen funds.
10. NEW ACCOUNTING PRONOUNCEMENTS
In September 2006, FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (FAS 157). FAS 157 establishes
a single authoritative definition of fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. FAS 157 applies to fair value measurements already required or permitted by existing standards.
The change to current generally accepted accounting principles from the application of FAS 157 relates to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. Management of
the Fund does not believe the adoption of FAS 157 will materially impact the financial statement amounts, however, additional disclosures may be required about the inputs used to develop the measurements and the effect of certain of the measurements
on changes in net assets for the period. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years.
11. SUBSEQUENT DISTRIBUTIONS
These distributions are not reflected in the accompanying financial statements.
36
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Trustees and Shareholders
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of the Evergreen Multi-Sector Income Fund (formerly Evergreen Managed Income Fund) as of October 31, 2007 and the
related statement of operations for the year then ended, statements of changes in net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the four-year period then ended and the period
from June 25, 2003 (commencement of operations) to October 31, 2003. These financial statements and financial highlights are the responsibility of the Funds management. Our responsibility is to express an opinion on these financial statements
and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of October 31, 2007 by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Evergreen Multi-Sector Income Fund as of October 31, 2007, the
results of its operations, changes in its net assets and financial highlights for each of the years or periods described above, in conformity with U.S. generally accepted accounting principles. Boston, Massachusetts
37
ADDITIONAL INFORMATION (unaudited)
FEDERAL TAX DISTRIBUTIONS
The Fund paid distributions of $76,798,352 during the year ended October 31, 2007 of which 98.6% was from taxable income and 1.4% was from a nontaxable return of capital. Shareholders of the Fund will receive in early
2008 a Form 1099-DIV that will inform them of the tax character of this distribution as well as all other distributions made by the Fund in calendar year 2007.
38
ADDITIONAL INFORMATION (unaudited) continued
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUNDS INVESTMENT ADVISORY AGREEMENT
Each year, the Funds Board of Trustees is required to consider whether to continue in place the Funds investment advisory agreements. In September 2007, the Trustees, including a majority of the Trustees who are
not interested persons (as that term is defined in the 1940 Act) of the Fund, of TAG, of FIA (together with TAG, the Sub-Advisors), or of EIMC, approved the continuation of the Funds investment advisory agreements. (References
below to the Fund are to Evergreen Multi-Sector Income Fund; references to the funds are to the Evergreen funds generally.)
At the same time, the Trustees considered the continuation of the investment advisory agreements for all of the funds, and the description below refers in many cases to the Trustees process and conclusions in
connection with their consideration of this matter for all of the funds. (See Certain Fund-Specific Considerations below for a discussion regarding certain factors considered by the Trustees relating specifically to the Fund.) In all of
its deliberations, the Board of Trustees and the disinterested Trustees were advised by independent counsel to the disinterested Trustees and counsel to the funds.
The review process. The 1940 Act requires that the Board of Trustees request and evaluate, and that EIMC and any sub-advisors furnish, such information as may reasonably be
necessary to evaluate the terms of a funds advisory agreements. The review process began at the time of the last advisory contract-renewal process in September 2006. In the course of that process, the Trustees identified a number of funds that
had experienced either short-term or longer-term performance issues. During the following months, the Trustees reviewed information relating to any changes in the performance of those funds and/or any changes in the investment process or the
investment teams responsible for the management of the funds. In addition, during the course of the year, the Trustees reviewed information regarding the investment performance of all of the funds and identified additional funds that they believed
warranted further attention based on performance since September 2006.
In spring 2007, a committee of the Board of Trustees (the Committee), working with EIMC management, determined generally the types of information the Board would review and set a timeline detailing the
information required and the dates for its delivery to the Trustees. The independent data provider Keil Fiduciary Strategies LLC (Keil) was engaged to provide fund-specific and industry-wide data to the Board containing information of a
nature and in a format generally prescribed by the Committee, and the Committee worked with Keil and EIMC to develop appropriate groups of peer funds for each fund. The Committee also identified a number of expense, performance, and other issues and
requested specific information as to those issues.
The Trustees reviewed, with the assistance of an independent industry consultant retained by the disinterested Trustees, the information provided by EIMC and the Sub-Advisors in response to the Committees requests and
the information provided by Keil. The Trustees formed small committees to review individual funds in greater detail. In addition, the Trustees requested information regarding, among other things, brokerage practices of the funds, the use of
derivatives by the funds, strategic planning for the funds, analyst and research support available to the portfolio management teams, and information regarding the various fall-out benefits received
39
ADDITIONAL INFORMATION (unaudited) continued
directly and indirectly by EIMC and its affiliates from the funds. The Trustees requested and received additional information following that review.
The Committee met several times by telephone to consider the information provided by EIMC. The Committee met with representatives of EIMC in early September. At a meeting of the full Board of Trustees later in September,
the Committee reported the results of its discussions with EIMC, and the full Board met with representatives of EIMC, engaged in further review of the materials provided to them, and approved the continuation of each of the advisory and sub-advisory
agreements.
The disinterested Trustees discussed the continuation of the funds advisory agreements with representatives of EIMC and in multiple private sessions with legal counsel at which no personnel of EIMC were present. In
considering the continuation of the agreements, the Trustees did not identify any particular information or consideration that was all-important or controlling, and each Trustee attributed different weights to various factors. The Trustees evaluated
information provided to them both in terms of the Evergreen mutual funds generally and with respect to each fund, including the Fund, specifically as they considered appropriate; although the Trustees considered the continuation of the agreements as
part of the larger process of considering the continuation of the advisory contracts for all of the funds, their determination to continue the advisory agreements for each of the funds was ultimately made on a fund-by-fund basis.
This summary describes a number of the most important, but not necessarily all, of the factors considered by the Board and the disinterested Trustees.
Information reviewed. The Board of Trustees and committees of the Board of Trustees meet periodically during the course of the year. At those meetings, the Board receives a
wide variety of information regarding the services performed by EIMC, the investment performance of the funds, and other aspects of the business and operations of the funds. At those meetings, and in the process of considering the continuation of
the agreements, the Trustees considered information regarding, for example, the funds investment results; the portfolio management teams for the funds and the experience of the members of those teams, and any recent changes in the membership
of the teams; portfolio trading practices; compliance by the funds, EIMC, and the Sub-Advisors with applicable laws and regulations and with the funds and EIMCs compliance policies and procedures; risk evaluation and oversight procedures
at EIMC; services provided by affiliates of EIMC to the funds and shareholders of the funds; and other information relating to the nature, extent, and quality of services provided by EIMC and the Sub-Advisors. The Trustees considered a number of
changes in portfolio management personnel at EIMC and its advisory affiliates in the year since September 2006, and recent changes in compliance personnel at EIMC, including the appointment of a new Chief Compliance Officer for the funds.
The Trustees considered the rates at which the funds pay investment advisory fees, and the efforts generally by EIMC and its affiliates as sponsors of the funds. The data provided by Keil showed the management fees paid by
each fund in comparison to the management fees of other peer mutual funds, in addition to data regarding the investment performance of the funds in comparison to other peer mutual funds. The Trustees were assisted by the independent industry
consultant in reviewing the information presented to them.
The Trustees also considered that EIS, an affiliate of EIMC, serves as administrator to the funds and receives a fee for its services as administrator. In their comparison of the advisory fee paid by
40
ADDITIONAL INFORMATION (unaudited) continued
the funds with those paid by other mutual funds, the Trustees took into account administrative fees paid by the funds and those other mutual funds. The Board considered that EIS serves as distributor to the funds generally
and receives fees from the funds for those services. They considered other so-called fall-out benefits to EIMC and its affiliates due to their other relationships with the funds, including, for example, soft-dollar services received by
EIMC attributable to transactions entered into by EIMC for the benefit of the funds and brokerage commissions received by Wachovia Securities, LLC, an affiliate of EIMC, from transactions effected by it for the funds. The Trustees also noted that an
affiliate of EIMC receives compensation for serving as a securities lending agent for the funds.
Nature and quality of the services provided. The Trustees considered that EIMC and its affili-ates generally provide a comprehensive investment management service to the funds.
They noted that EIMC and the Sub-Advisors formulate and implement an investment program for the Fund. They noted that EIMC makes its personnel available to serve as officers of the funds, and concluded that the reporting and management functions
provided by EIMC with respect to the funds were generally satisfactory. The Trustees considered the investment philosophy of the Funds portfolio management team, and considered the in-house research capabilities of EIMC and its affiliates, as
well as other resources available to EIMC, including research services available to it from third parties. The Board considered the managerial and financial resources available to EIMC and its affiliates, and the commitment that the Wachovia
organization has made to the funds generally. On the basis of these factors, they determined that the nature and scope of the services provided by EIMC and the Sub-Advisors were consistent with their respective duties under the investment advisory
agreements and appropriate and consistent with the investment programs and best interests of the funds.
The Trustees noted the resources EIMC and its affiliates have committed to the regulatory, compliance, accounting, tax and oversight of tax reporting, and shareholder servicing functions, and the number and quality of staff
committed to those functions, which they concluded were appropriate and generally in line with EIMCs responsibilities to the Fund and to the funds generally. The Board and the disinterested Trustees concluded, within the context of their
overall conclusions regarding the funds advisory agreements, that they were generally satisfied with the nature, extent, and quality of the services provided by the Sub-Advisors and EIMC, including services provided by EIS under its
administrative services agreements with the funds.
Investment performance. The Trustees considered the investment performance of each fund, both by comparison to other comparable mutual funds and to broad market indices. The
Trustees emphasized that the continuation of the investment advisory agreements for a fund should not be taken as any indication that the Trustees did not believe investment performance for any specific fund might not be improved, and they noted
that they would continue to monitor closely the investment performance of the funds going forward.
Advisory and administrative fees. The Trustees recognized that EIMC does not seek to provide the lowest cost investment advisory service, but to provide a high quality,
full-service investment management product at a reasonable price. They also noted that EIMC has in many cases sought to set its investment advisory fees at levels consistent with industry norms. The Trustees noted that, in certain cases, a
funds management fees were higher than many or most other mutual funds in the same Keil peer group. However, in each case, the Trustees determined on the basis of the information presented that the level of management fees was not
excessive.
41
ADDITIONAL INFORMATION (unaudited) continued
Certain Fund-specific considerations. The Trustees noted that, for the one- and three-year periods ended December 31, 2006, the Fund had underperformed a 50%/25%/25% blend of
the Merrill Lynch High Yield Market Index, the J.P. Morgan Global Government Bond Index Excluding U.S., and the Merrill Lynch Six-Month Treasury Bill Index, and had performed in the third quintile of the funds against which the Trustees compared the
Funds performance.
The Trustees noted that the management fee paid by the Fund was higher than the management fees paid by the limited number of the other funds against which the Trustees compared the Funds management fee, but noted
that the level of profitability realized by EIMC in respect of the fee did not appear excessive.
Economies of scale. The Trustees considered that, in light of the fact that the Fund is not making a continuous offering of its shares, the likelihood of substantial increases
in economies of scale was relatively low, although they determined to continue to monitor the Funds expense ratio and the profitability of the investment advisory agreements to EIMC in the future for reasonableness in light of future growth of
the Fund.
Profitability. The Trustees considered information provided to them regarding the profitability to the EIMC organization of the investment advisory, administration, and
transfer agency (with respect to the open-end funds only) fees paid to EIMC and its affiliates by each of the funds. They considered that the information provided to them was necessarily estimated, and that the profitability information provided to
them, especially on a fund-by-fund basis, did not necessarily provide a definitive tool for evaluating the appropriateness of each funds advisory fee. They noted that the levels of profitability of the funds to EIMC varied widely, depending on
among other things the size and type of fund. They considered the profitability of the funds in light of such factors as, for example, the information they had received regarding the relation of the fees paid by the funds to those paid by other
mutual funds, the investment performance of the funds, and the amount of revenues involved. In light of these factors, the Trustees concluded that the profitability of any of the funds, individually or in the aggregate, should not prevent the
Trustees from approving the continuation of the agreements.
42
AUTOMATIC DIVIDEND REINVESTMENT PLAN
All common shareholders are eligible to participate in the Automatic Dividend Reinvestment Plan (the Plan). Pursuant to the Plan, unless a common shareholder is ineligible or elects otherwise, all cash dividends
and capital gains distributions are automatically reinvested by Computershare Trust Company, N.A., as agent for shareholders in administering the Plan (Plan Agent), in additional common shares of the Fund. Whenever the Fund declares an
ordinary income dividend or a capital gain dividend (collectively referred to as dividends) payable either in shares or in cash, nonparticipants in the Plan will receive cash, and participants in the Plan will receive the equivalent in
shares of common shares. The shares are acquired by the Plan Agent for the participants account, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized common shares from the Fund
(newly issued common shares) or (ii) by purchase of outstanding common shares on the open market (open-market purchases) on the American Stock Exchange or elsewhere. If, on the payment date for any dividend or distribution, the net asset
value per share of the common shares is equal to or less than the market price per common share plus estimated brokerage commissions (market premium), the Plan Agent will invest the amount of such dividend or distribution in newly issued
shares on behalf of the participant. The number of newly issued common shares to be credited to the participants account will be determined by dividing the dollar amount of the dividend by the net asset value per share on the date the shares
are issued, provided that the maximum discount from the then current market price per share on the date of issuance may not exceed 5%. If on the dividend payment date the net asset value per share is greater than the market value or market premium
(market discount), the Plan Agent will invest the dividend amount in shares acquired on behalf of the participant in open-market purchases. There will be no brokerage charges with respect to shares issued directly by the Fund as a result
of dividends or capital gains distributions payable either in shares or in cash. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agents open-market purchases in connection with the
reinvestment of dividends. The automatic reinvestment of dividends and distributions will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on such dividends. All correspondence
concerning the Plan should be directed to the Plan Agent at P.O. Box 43010, Providence, Rhode Island 02940-3010.
43
TRUSTEES AND OFFICERS
TRUSTEES1
44
TRUSTEES AND OFFICERS continued
1 The Board of Trustees is classified into three classes of which one class is elected annually. Each Trustee serves a three-year term concurrent with the class from which the
Trustee is elected. Each Trustee oversees 91 Evergreen funds. Correspondence for each Trustee may be sent to Evergreen Board of Trustees, P.O. Box 20083, Charlotte, NC 28202.
2 Mr. Wagoner is an interested person of the Fund because of his ownership of shares in Wachovia Corporation, the parent to the Funds investment
advisor.
3 The address of the Officer is 401 S. Tryon Street, 20th Floor, Charlotte, NC 28288.
4 The address of the Officer is 200 Berkeley Street, Boston, MA 02116.
5 Mr. Guerins information is as of June 14, 2007, the effective date of his approval by the Board of Trustees as Chief Compliance Officer of the Evergreen funds.
45 568263 rv5 12/2007
Item 2 - Code of Ethics
(a) The Registrant has adopted a code of ethics that applies to the Registrant's principal executive officer and principal financial officer.
(b) During the period covered by this report, there were no amendments to the provisions of the code of ethics adopted in 2.(a) above.
(c) During the period covered by this report, there were no implicit or explicit waivers to the provisions of the code of ethics adopted in 2.(a) above.
Item 3 - Audit Committee Financial Expert
Charles A. Austin III and Patricia B. Norris have been determined by the Registrant's Board of Trustees to be audit committee financial experts within the meaning of Section 407 of the Sarbanes-Oxley Act. These financial
experts are independent of management.
Items 4 Principal Accountant Fees and Services
The following table represents fees for professional audit services rendered by KPMG LLP, for the audits of each of the 1 series of the Registrants annual financial statements for the fiscal years ended October 31, 2007 and October 31, 2006, and fees billed for other services rendered by KPMG LLP.
(1) Tax fees consists of fees for tax consultation, tax compliance and tax review. (2) Non-audit fees consists of the aggregate fees for non-audit services rendered to the Fund, EIMC (not including any sub-advisor
whose role is primarily portfolio management and is subcontracted with or overseen by another investment advisor) and EIS.
Evergreen Funds
Audit and Non-Audit Services Pre-Approval Policy
I. Statement of Principles
Under the Sarbanes-Oxley Act of 2002 (the Act), the Audit Committee of the Board of Trustees/Directors is responsible for the appointment, compensation and oversight of the work of the independent auditor. As
part of this responsibility, the Audit Committee is required to pre-approve the audit and non-audit services performed by the independent auditor in order to assure that they do not impair the auditors independence from the Funds. To implement
these provisions of the Act, the Securities and Exchange Commission (the SEC) has issued rules specifying the types of services that an independent auditor may not provide to its audit client, as well as the audit committees
administration of the engagement of the independent auditor. Accordingly, the Audit Committee has adopted, and the Board of Trustees/Directors has ratified, the Audit and Non-Audit Services Pre Approval Policy (the Policy), which sets forth the procedures and the conditions pursuant to which services proposed to be performed by the independent auditor may be pre-approved.
The SECs rules establish two different approaches to pre-approving services, which the SEC considers to be equally valid. Proposed services either: may be pre-approved without consideration of specific case-by-case
services by the Audit Committee (general pre-approval); or require the specific pre-approval of the Audit Committee (specified pre-approval). The Audit Committee believes that the combination of these two approaches in this
Policy will result in an effective and efficient procedure to pre-approve services performed by the independent auditor. As set forth in this Policy, unless a type of service has received general pre-approval, it will require specific pre-approval
by the Audit Committee if it is to be provided by the independent auditor. Any proposed services exceeding pre-approved cost levels or budgeted amounts will also require specific pre-approval by the Audit Committee.
For both types of pre-approval, the Audit Committee will consider whether such services are consistent with the SECs rules on auditor independence. The Audit Committee will also consider whether the independent
auditor is best positioned to provide the most effective and efficient service, for reasons such as its familiarity with the Funds business people, culture, accounting systems, risk profile and other factors, and whether the service might
enhance the Funds ability to manage or control risk or improve audit quality. All such factors will be considered as a whole, and no one factor should necessarily be determinative.
The Audit Committee is also mindful of the relationship between fees for audit and non-audit services in deciding whether to pre-approve any such services and may determine, for each fiscal year, the ratio between the total
amount of fees for Audit, Audit-related and Tax services and the total amount of fees for certain permissible non-audit services classified as All Other services.
The term of any general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee considers a different period and states otherwise. The Audit Committee will annually review and pre-approve the
services that may be provided by the independent auditor without obtaining specific pre-approval from the Audit Committee. The Audit Committee will add or subtract to the list of general pre-approved services from time to time, based on subsequent
determinations.
The purpose of this Policy is to set forth the procedures by which the Audit Committee intends to fulfill its responsibilities. It does not delegate the Audit Committees responsibilities to pre-approve services
performed by the independent auditor to management.
The independent auditor has reviewed this Policy and believes that implementation of the policy will not adversely affect the auditors independence.
II. Delegation
As provided in the Act and the SECs rules, the Audit Committee may delegate either type of pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for
informational purposes only, any pre-approval decisions of the Audit Committee at its next scheduled meeting.
III. Audit Services
The annual Audit services engagement terms and fees will be subject to the specific pre-approval of the Audit Committee. Audit services include the annual financial statement audit and other procedures required to be
performed by the independent auditor to be able to form an opinion on the Funds financial statements. These other procedures include information systems and procedural reviews and testing performed in order to understand and place reliance on
the systems of internal control, and consultations relating to the audit. Audit services also include the attestation engagement for the independent auditors report on managements report on internal controls for financial reporting. The
Audit Committee will monitor the Audit services engagement as necessary, but no less than on a quarterly basis, and will also approve, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope, Fund service
providers or other items. In addition to the annual Audit services engagement approved by the Audit Committee, the Audit Committee may grant general pre-approval to other Audit services, which are those services that only the independent auditor
reasonably can provide. Other Audit services may include services associated with SEC registration statements, periodic reports and other documents filed with the SEC or other documents issued in connection with mergers or acquisitions.
IV. Audit-related Services
Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the Funds financial statements or that are traditionally performed by the independent
auditor. Because the Audit Committee believes that the provision of Audit-related services does not impair the independence of the auditor and is consistent with SECs rules on auditor independence, the Audit Committee may grant general
pre-approval to Audit-related services. Audit-related services include, among others, due diligence services pertaining to potential business acquisitions/dispositions; accounting consultations related to accounting, financial reporting or
disclosure matters not classified as Audit services; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; agreed-upon or expanded audit procedures related to
accounting records required to respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal control reporting requirements.
V. Tax Services
The Audit Committee believes that the independent auditor can provide Tax services to the Funds such as tax compliance, tax planning and tax advice without impairing the auditors independence, and the SEC has stated
that the independent auditor may provide such services. Hence, the Audit Committee believes it may grant general pre-approval to those Tax services that have historically been provided by the auditor, that the Audit Committee has reviewed and
believes would not impair the independence of the auditor, and that are consistent with the SECs rules on auditor independence. The Audit Committee will not permit the retention of the independent auditor in connection with a transaction
initially recommended by the independent auditor, the sole business purpose of which may be tax avoidance and the tax treatment of which may not be supported in the Internal Revenue Code and related regulations. The Audit Committee will consult with
the Director of Fund Administration, the Vice President of Tax Services or outside counsel to determine that the tax planning and reporting positions are consistent with this policy.
All Tax services involving large and complex transactions must be specifically pre-approved by the Audit Committee, including: tax services proposed to be provide by the independent auditor to any executive officer or
director of the Funds, in his or her individual capacity, where such services are paid for by the Funds or the investment advisor.
VI. All Other Services
The Audit Committee believes, based on the SECs rules prohibiting the independent auditor from providing specific non-audit services, that other types of non-audit services are permitted. Accordingly, the Audit
Committee believes it may grant general pre-approval to those permissible non-audit services classified as All Other services that it believes are routine and recurring services, would not impair the independence of the auditor and are consistent
with the SECs rules on auditor independence.
The SECs rules and relevant guidance should be consulted to determine the precise definitions of the SECs prohibited non-audit services and the applicability of exceptions to certain of the prohibitions.
VII. Pre-Approval Fee Levels or Budgeted Amounts
Pre-approval fee levels or budgeted amounts for all services to be provided by the independent auditor will be established annually by the Audit Committee. Any proposed services exceeding these levels or amounts will
require specific pre-approval by the Audit Committee. The Audit Committee is mindful of the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services. For each fiscal year, the Audit
Committee may determine to ratio between the total amount of fees for Audit, Audit-related and Tax services, and the total amount of fees for services classified as All Other services.
VIII. Procedures
All requests or applications for services to be provided by the independent auditor that do not require specific approval by the Audit Committee will be submitted to the Director of Fund Administration or Assistant Director
of Fund Administration and must include a detailed description of the services to be rendered. The Director/Assistant Director of Fund Administration will determine whether such services are included within the list of services that have received
the general pre-approval of the Audit Committee. The Audit Committee will be informed on a quarterly basis (or more frequent if requested by the audit committee) of any such services rendered by the independent auditor.
Request or applications to provide services that require specific approval by the Audit Committee will be submitted to the Audit Committee by both the independent auditor and the Director/Assistant Director of Fund
Administration, and must include a joint statement as to whether, in their view, the request or application is consistent with the SECs rules on auditor independence.
The Audit Committee has designated the Chief Compliance Officer to monitor the performance of all services provided by the independent auditor and to determine whether such services are in compliance with this policy. The
Chief Compliance Officer will report to the Audit Committee on a periodic basis on the results of its monitoring. Both the Chief Compliance Officer and management will immediately report to the chairman of the Audit Committee any breach of this
policy that comes to the attention of the Chief Compliance Officer or any member of management.
The Audit Committee will also review the internal auditors annual internal audit plan to determine that the plan provides for the monitoring of the independent auditors services.
IX. Additional Requirements
The Audit Committee has determined to take additional measures on an annual basis to meet its responsibility to oversee the work of the independent auditor and to assure the auditors independence from the Funds, such
as reviewing a formal written statement from the independent auditor delineating all relationships between the independent auditor and the Funds, the Funds investment advisor and related parties of the investment advisor, consistent with
Independence Standards Board Standard No. 1, and discussing with the independent auditor its methods and procedures for ensuring independence.
Items 5 Audit Committee of Listed Registrants
The Fund has a separately designated standing audit committee established in accordance with
Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The audit committee of the Fund is comprised of Russell A. Salton, III, Patricia B. Norris and the Chairman of the Committee, Charles A. Austin III, each of whom
is an Independent Trustee.
Item 6 Schedule of Investments
Please see schedule of investments contained in the Report to Stockholders included under Item 1 of this Form N-CSR.
Item 7 Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
The Registrant has delegated the voting of proxies relating to its voting securities to its investment advisor, Evergreen Investment Management Company, LLC (the Advisor).
Proxy Voting Policy and Procedures
Evergreen Investment Management Company, LLC February 1, 2007
Statement of Principles
Evergreen Investment Management Company (Evergreen) recognizes it has a fiduciary duty to vote proxies on behalf of clients who have delegated such responsibility to Evergreen, and that in all cases proxies should be
voted in a manner reasonably believed to be in the clients' best interest.
Proxy Committee
Evergreen has established a proxy committee (Committee) which is a sub-committee of Evergreen's Investment Policy Committee. The Committee is responsible for approving Evergreen's proxy voting policies, procedures and
guidelines, for overseeing the proxy voting process, and for reviewing proxy voting on a regular basis. The Committee will meet quarterly to review reports of all proxies voted for the prior period and to conduct other business as required.
Share Blocking
Evergreen does not vote global proxies, with share blocking restrictions, requiring shares to be prohibited from sale.
Conflicts of Interest
Evergreen recognizes that under certain circumstances it may have a conflict of interest in voting proxies on behalf of its clients. Such circumstances may include, but are not limited to, situations where Evergreen or
one or more of its affiliates has a client or customer relationship with the issuer of the security that is the subject of the proxy vote.
In most cases, structural and informational barriers within Evergreen and Wachovia Corporation will prevent Evergreen from becoming aware of the relationship giving rise to the potential conflict of interest. In such
circumstances, Evergreen will vote the proxy according to its standard guidelines and procedures described above.
If persons involved in proxy voting on behalf of Evergreen become aware of a potential conflict of interest, the Committee shall consult with Evergreen's Legal Department and consider whether to implement special
procedures with respect to the voting of that proxy, including whether an independent third party should be retained to vote the proxy.
Concise Domestic Proxy Voting Guidelines
The following is a concise summary of the Evergreen Investments Management Company LLC proxy voting policy guidelines for 2007.
1. Auditors Ratifying Auditors
Vote FOR proposals to ratify auditors, unless:
2. Board of Directors
Voting on Director Nominees in Uncontested Elections
Vote CASE-BY-CASE on director nominees, examining, but not limited to, the following factors:
WITHHOLD from individual directors who:
WITHHOLD from the entire board (except for new nominees, who should be considered on a CASE-BY-CASE basis) if:
WITHHOLD from inside directors and affiliated outside directors when:
WITHHOLD from the members of the Audit Committee if:
WITHHOLD from the members of the Compensation Committee if:
WITHHOLD from directors, individually or the entire board, for egregious actions or failure to replace management as appropriate.
Classification/Declassification of the Board
Vote AGAINST proposals to classify the board. Vote FOR proposals to repeal classified boards and to elect all directors annually.
Independent Chair (Separate Chair/CEO)
Generally vote FOR shareholder proposals requiring the position of chair be filled by an independent director unless there are compelling reasons to recommend against the proposal, such as a counterbalancing governance
structure. This should include all of the following:
OMB APPROVAL
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________
(Exact name of registrant as specified in charter)
_____________________________________________________________
(Address of principal executive offices) (Zip code)
____________________________________________________________
(Name and address of agent for service)
Evergreen Multi-Sector Income Fund
table of contents
1
LETTER TO SHAREHOLDERS
4
FINANCIAL HIGHLIGHTS
5
SCHEDULE OF INVESTMENTS
26
STATEMENT OF ASSETS AND LIABILITIES
27
STATEMENT OF OPERATIONS
28
STATEMENTS OF CHANGES IN NET ASSETS
29
NOTES TO FINANCIAL STATEMENTS
37
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
38
ADDITIONAL INFORMATION
43
AUTOMATIC DIVIDEND REINVESTMENT PLAN
44
TRUSTEES AND OFFICERS
Mutual Funds:
NOT FDIC INSURED
MAY LOSE VALUE
NOT BANK GUARANTEED
Copyright 2007, Evergreen Investment
Management Company, LLC.
Dennis H. Ferro
President and Chief
Executive Officer
Dennis H. Ferro
President and Chief Executive Officer
Evergreen Investment Company, Inc.
Year Ended October 31,
2007
2006
2005
2004
20031
Net asset value, beginning of period
$ 18.55
$ 18.91
$
20.19
$ 19.38
$ 19.102
Income from investment operations
Net investment income (loss)
1.733
1.603
1.493
1.62
0.38
Net realized and unrealized gains or losses on investments
0.29
(0.06)
(1.06)
0.94
0.46
Distributions to preferred shareholders from3
Net investment income
(0.51)
(0.45)
(0.28)
(0.13)
(0.02)
Net realized gains
0
0
04
0
0
Total from investment operations
1.51
1.09
0.15
2.43
0.82
Distributions to common shareholders from
Net investment income
(1.29)
(1.34)
(1.43)
(1.62)
(0.39)
Net realized gains
0
(0.01)
0
0
0
Tax basis return of capital
(0.03)
(0.10)
0
0
0
Total distributions to common shareholders
(1.32)
(1.45)
(1.43)
(1.62)
(0.39)
Offering costs charged to capital for
Common shares
0
0
0
0
(0.04)
Preferred shares
0
0
04
0
(0.11)
Total offering costs
0
0
0
0
(0.15)
Net asset value, end of period
$ 18.74
$ 18.55
$
18.91
$ 20.19
$ 19.38
Market value, end of period
$ 16.22
$ 17.07
$
16.42
$ 18.49
$ 18.15
Total return5
Based on market value
2.64%
13.46%
(3.77%)
11.23%
(7.35%)
Ratios and supplemental data
Net assets of common shareholders, end of period (thousands)
$787,919
$780,321
$795,244
$849,127
$814,948
Liquidation value of preferred shares, end of period (thousands)
$400,475
$400,402
$400,309
$400,165
$400,098
Asset coverage ratio, end of period
296%
299%
299%
312%
304%
Ratios to average net assets applicable
to common shareholders
Expenses including waivers/reimbursements
but excluding expense reductions
1.15%
1.15%
1.11%
1.12%
0.95%6
Expenses excluding waivers/reimbursements
and expense reductions
1.15%
1.15%
1.11%
1.12%
0.95%6
Net investment income (loss)7
6.54%
6.18%
6.08%
6.99%
5.13%6
Portfolio turnover rate
95%
62%
80%
78%
8%
Principal
Amount
Value
AGENCY MORTGAGE-BACKED COLLATERALIZED
MORTGAGE OBLIGATIONS 10.2%
FIXED-RATE 0.8%
FNMA:
Ser. 2001-25, Class Z, 6.00%, 06/25/2031
$ 1,569,013
$
1,609,148
Ser. 2001-51, Class P, 6.00%, 08/25/2030 ##
984,490
988,990
Ser. 2006-93, Class PD, 5.50%, 04/25/2036 µ
3,432,704
3,445,983
6,044,121
FLOATING-RATE 9.4%
FHLMC:
Ser. 0196, Class A, 5.93%, 12/15/2021
190,901
193,880
Ser. 1500, Class FD, 4.18%, 05/15/2023
5,138,300
4,995,815
Ser. 2182, Class FE, 5.68%, 05/15/2028
795,694
801,089
Ser. 2247, Class FC, 5.69%, 08/15/2030
864,335
873,064
Ser. 2390, Class FD, 5.54%, 12/15/2031
182,982
184,452
Ser. 2411, Class F, 5.64%, 02/15/2032
215,525
217,405
Ser. 2567, Class FH, 5.49%, 02/15/2033
427,638
428,947
Ser. T-66, Class 2A1, 7.75%, 01/25/2036
8,749,307
9,177,922
Ser. T-67, Class 1A1C, 7.86%, 03/25/2036
26,445,144
28,485,921
Ser. T-67, Class 2A1C, 7.80%, 03/25/2036
1,786,926
1,913,549
FNMA:
Ser. 1996-46, Class FA, 5.375%, 08/25/2021
117,026
119,422
Ser. 2000-45, Class F, 5.32%, 12/25/2030
885,997
890,250
Ser. 2001-24, Class FC, 5.47%, 04/25/2031
329,724
333,450
Ser. 2001-35, Class F, 5.47%, 07/25/2031
75,480
76,384
Ser. 2001-37, Class F, 5.37%, 08/25/2031
325,021
327,335
Ser. 2001-57, Class F, 5.37%, 06/25/2031
75,991
76,961
Ser. 2001-62, Class FC, 5.52%, 11/25/2031
998,902
1,013,096
Ser. 2002-77, Class F, 5.47%, 12/25/2032 ##
5,317,186
5,385,406
Ser. 2002-77, Class FH, 5.44%, 12/18/2032
428,098
431,425
Ser. 2002-77, Class FV, 5.54%, 12/18/2032
1,394,312
1,411,307
Ser. 2002-95, Class FK, 5.37%, 01/25/2033 ##
4,635,278
4,670,181
Ser. 2002-97, Class FR, 5.42%, 01/25/2033
166,525
169,062
Ser. 2003-W8, Class 3F2, 5.22%, 05/25/2042
774,610
776,771
Ser. 2005-W4, Class 3A, 6.50%, 06/25/2035
6,605,913
6,755,141
Ser. G91-16, Class F, 5.33%, 06/25/2021
128,867
129,782
Ser. G92-17, Class F, 5.93%, 03/25/2022
209,004
213,823
Ser. G92-53, Class FA, 5.625%, 09/25/2022 ##
2,033,762
2,066,221
Ser. G93-11, Class FB, 5.73%, 12/25/2008
16,812
16,826
GNMA:
Ser. 1997-13, Class F, 5.56%, 09/16/2027
1,848,549
1,861,137
Ser. 2001-61, Class FA, 5.50%, 09/20/2030
162,665
163,429
74,159,453
Total Agency Mortgage-Backed Collateralized Mortgage Obligations
(cost $79,300,970)
80,203,574
Principal
Amount
Value
AGENCY MORTGAGE-BACKED PASS THROUGH SECURITIES
27.0%
FIXED-RATE 3.2%
FHLMC:
6.50%, 06/01/2017
$ 3,231,082
$
3,300,130
8.50%, 04/01/2015 - 07/01/2028
612,920
654,538
FHLMC 30 year:
6.00%, TBA #
2,230,000
2,244,285
6.50%, TBA #
10,305,000
10,538,470
FNMA:
6.00%, 04/01/2033
649,304
666,894
6.50%, 11/01/2032
264,704
275,248
7.00%, 09/01/2031 - 08/01/2032
1,840,549
1,932,068
7.50%, 07/01/2017 - 07/01/2032
1,207,133
1,267,112
8.00%, 12/01/2024 - 06/01/2030
313,223
331,623
12.00%, 01/01/2016
61,363
68,929
GNMA:
6.50%, 06/15/2028
125,946
130,012
7.25%, 07/15/2017 - 05/15/2018
1,053,282
1,099,859
9.50%, 12/15/2009 - 04/15/2011
2,328,737
2,415,740
24,924,908
FLOATING-RATE 23.8%
FHLB:
5.89%, 05/01/2037
13,409,800
13,572,461
7.01%, 07/01/2034
867,164
912,265
7.12%, 07/01/2033
652,926
659,425
7.39%, 11/01/2030
881,211
920,195
FHLMC:
5.06%, 07/01/2035
716,720
722,769
5.38%, 12/01/2026
148,164
149,176
5.53%, 06/01/2030
456,757
455,236
5.60%, 10/01/2030
30,947
31,123
5.83%, 06/01/2028
157,135
160,589
5.86%, 12/01/2036
5,713,287
5,818,469
5.89%, 02/01/2037
6,020,965
6,134,520
5.92%, 10/01/2017
7,010
7,063
6.12%, 07/01/2019
15,895
16,123
6.17%, 10/01/2033
137,481
142,906
6.20%, 05/01/2019
7,793
7,922
6.33%, 03/01/2018
280,708
285,325
6.34%, 10/01/2022 - 06/01/2031
792,284
818,525
6.44%, 06/01/2018
80,942
83,366
6.45%, 08/01/2017
31,053
31,644
6.50%, 02/01/2016
40,546
41,094
6.59%, 07/01/2030
169,213
176,180
6.60%, 05/01/2025
87,947
90,862
6.62%, 06/01/2035
187,748
196,156
6.625%, 02/01/2016
33,722
34,114
6.69%, 09/01/2032
5,857,704
6,066,590
Principal
Amount
Value
AGENCY MORTGAGE-BACKED PASS THROUGH SECURITIES
continued
FLOATING-RATE continued
FHLMC:
6.78 %, 06/01/2031
$ 825,678
$
850,192
6.86%, 12/01/2033
5,910,327
6,165,771
6.93%, 01/01/2030
281,385
293,265
6.94%, 06/01/2023
360,610
369,592
6.97%, 03/01/2031
5,129
5,358
7.05%, 01/01/2018
112,213
115,227
7.07%, 07/01/2032
1,006,814
1,036,173
7.10%, 01/01/2027
296,336
314,410
7.13%, 11/01/2023
173,135
178,677
7.15%, 12/01/2022 - 10/01/2030
2,244,007
2,274,412
7.18%, 08/01/2032
1,694,139
1,719,924
7.19%, 10/01/2024
417,457
422,040
7.23%, 03/01/2024
320,721
333,595
7.25%, 06/01/2035
2,787,209
2,889,738
7.28%, 03/01/2032
2,062,681
2,079,923
7.29%, 09/01/2032
946,857
988,092
7.31%, 06/01/2033
630,829
651,350
7.32%, 10/01/2033
365,383
381,391
7.35%, 10/01/2030
657,245
686,046
7.375%, 10/01/2024
52,333
54,372
7.51%, 08/01/2030
721,274
754,446
8.50%, 03/01/2030
144,981
155,671
FNMA:
4.47%, 08/01/2020
1,606,445
1,598,011
4.58%, 06/01/2033
1,414,253
1,443,158
4.98%, 03/01/2033
171,800
172,145
5.12%, 03/01/2034
1,447,511
1,455,106
5.16%, 10/01/2029
171,292
174,551
5.19%, 02/01/2037
934,222
943,829
5.53%, 03/01/2018
775,336
781,221
5.57%, 01/01/2038
6,614,007
6,770,825
5.60%, 02/01/2035
1,962,599
1,995,944
5.61%, 04/01/2017 - 03/01/2018
7,141,903
7,174,422
5.65%, 04/01/2034 - 03/01/2035
7,350,035
7,465,692
5.66%, 02/01/2035
1,564,146
1,585,700
5.75%, 12/01/2016
13,318
13,525
5.86%, 01/01/2037
11,810,208
12,067,080
5.92%, 08/01/2027
452,458
468,651
5.96%, 09/01/2037
4,891,532
5,006,776
5.99%, 12/01/2009
3,470,714
3,470,714
6.00%, 01/01/2017
99,910
101,528
6.05%, 04/01/2031
1,017,576
1,051,940
6.08%, 04/01/2025
225,684
233,048
6.10%, 03/01/2034
1,371,406
1,404,265
6.11%, 12/01/2013
612,374
619,864
6.12%, 01/01/2034
701,236
729,265
Principal
Amount
Value
AGENCY MORTGAGE-BACKED PASS THROUGH SECURITIES
continued
FLOATING-RATE continued
FNMA:
6.13%, 06/01/2031
$ 289,451
$
301,400
6.23%, 09/01/2041
1,416,284
1,418,543
6.26%, 12/01/2036
77,670
78,697
6.27%, 12/01/2034
1,965,893
2,023,612
6.33%, 01/01/2033
1,348,224
1,367,895
6.37%, 08/01/2028
83,851
86,435
6.375%, 06/01/2040 - 12/01/2040
4,141,502
4,259,646
6.55%, 04/01/2034
2,874,420
2,978,704
6.58%, 01/01/2015
73,628
74,457
6.65%, 12/01/2031
365,532
381,199
6.66%, 01/01/2030
86,090
88,137
6.67%, 12/01/2020
163,069
168,654
6.73%, 12/01/2022
16,253
16,717
6.74%, 02/01/2035
2,249,341
2,283,238
6.75%, 05/01/2021 - 08/01/2021
20,115
20,741
6.77%, 11/01/2035
1,593,004
1,659,353
6.86%, 11/01/2024
646,465
675,000
6.875%, 04/01/2019
79,410
81,225
6.90%, 10/01/2035
4,712,190
4,881,781
6.91%, 12/01/2035
6,078,202
6,298,172
6.93%, 12/01/2031
162,003
164,153
6.94%, 09/01/2024 - 10/01/2032
581,134
603,899
7.07%, 04/01/2028
431,090
433,418
7.10%, 04/01/2033
2,502,297
2,522,459
7.125%, 12/01/2026
163,463
170,075
7.15%, 06/01/2024 - 02/01/2035
3,781,960
3,943,861
7.18%, 09/01/2024
12,660
13,142
7.19%, 01/01/2028 - 10/01/2032
4,130,112
4,324,220
7.20%, 06/01/2029
416,416
433,293
7.23%, 03/01/2032
447,409
466,997
7.24%, 08/01/2036 - 06/01/2037
8,270,655
8,527,541
7.25%, 12/01/2023
80,332
83,483
7.26%, 04/01/2024
157,955
164,362
7.27%, 12/01/2028
66,884
69,570
7.28%, 07/01/2026 - 05/01/2027
1,619,581
1,636,541
7.32%, 10/01/2034
397,533
412,858
7.33%, 08/01/2030 - 02/01/2038
978,611
1,024,690
7.35%, 05/01/2030
264,557
276,272
7.39%, 01/01/2028
962,349
1,010,466
7.40%, 04/01/2036
5,592,577
6,022,646
7.50%, 09/01/2027
356,366
373,732
7.60%, 07/01/2033
266,703
279,561
7.64%, 12/01/2032
1,554,141
1,581,068
7.70%, 09/01/2032
218,244
230,256
7.83%, 07/01/2030
357,508
378,983
7.89%, 04/01/2033
282,266
301,558
Principal
Amount
Value
AGENCY MORTGAGE-BACKED PASS THROUGH SECURITIES continued
FLOATING-RATE continued
GNMA:
5.625%, 09/20/2030
$ 416,528
$
423,309
6.00%, 11/20/2030 - 10/20/2031
1,288,755
1,321,558
6.125%, 10/20/2029 - 11/20/2030
2,413,479
2,464,262
6.25%, 02/20/2029
789,510
804,456
6.375%, 01/20/2027 - 03/20/2028
451,785
465,434
6.50%, 02/20/2031
525,781
536,396
187,589,148
Total Agency Mortgage-Backed Pass Through Securities
(cost $211,291,655)
212,514,056
AGENCY REPERFORMING MORTGAGE-BACKED PASS THROUGH SECURITIES
0.5%
FNMA:
Ser. 2001-T10, Class A2, 7.50%, 12/25/2041
416,524
439,149
Ser. 2002-T6, Class A4, FRN, 6.45%, 03/25/2041
1,566,441
1,580,480
Ser. 2003-W02, Class 2A8, 5.67%, 07/25/2042
496,925
504,324
Ser. 2004-T03, Class 2A, FRN, 6.40%, 08/25/2043
1,511,987
1,562,971
Total Agency Reperforming Mortgage-Backed Pass Through Securities
(cost $4,110,693)
4,086,924
CORPORATE BONDS 65.2%
CONSUMER DISCRETIONARY 17.5%
Auto Components 1.7%
Cooper Tire & Rubber Co., 7.625%, 03/15/2027
2,630,000
2,432,750
Goodyear Tire & Rubber Co.:
9.00%, 07/01/2015 (p)
3,135,000
3,444,581
FRN, 11.25%, 03/01/2011
1,840,000
1,978,000
Metaldyne Corp.:
10.00%, 11/01/2013
1,795,000
1,678,325
11.00%, 06/15/2012
4,496,000
3,866,560
13,400,216
Automobiles 1.1%
Ford Motor Co.:
7.45%, 07/16/2031 (p)
2,410,000
1,915,950
7.70%, 05/15/2097
1,890,000
1,408,050
General Motors Corp.:
7.20%, 01/15/2011 (p)
3,905,000
3,748,800
8.25%, 07/15/2023 (p)
1,260,000
1,143,450
8.375%, 07/15/2033 (p)
635,000
581,025
8,797,275
Diversified Consumer Services 0.3%
Carriage Services, Inc., 7.875%, 01/15/2015
850,000
852,125
Education Management, LLC, 8.75%, 06/01/2014
895,000
928,563
Service Corporation International, 6.75%, 04/01/2015 (p)
340,000
340,850
2,121,538
Principal
Amount
Value
CORPORATE BONDS continued
CONSUMER DISCRETIONARY
continued
Hotels, Restaurants & Leisure
4.5%
Caesars Entertainment, Inc.:
7.875%, 03/15/2010
$ 1,570,000
$
1,632,800
8.125%, 05/15/2011
565,000
576,300
Fontainebleau Las Vegas Holdings, LLC, 10.25%, 06/15/2015 144A
4,446,000
4,179,240
Indianapolis Downs, LLC, 11.00%, 11/01/2012 144A
355,000
358,550
Inn of the Mountain Gods Resort & Casino, 12.00%, 11/15/2010
4,190,000
4,441,400
Isle of Capri Casinos, Inc., 7.00%, 03/01/2014
7,105,000
6,341,212
Outback Steakhouse, Inc., 10.00%, 06/15/2015 (p) 144A
540,000
467,100
Pokagon Gaming Authority, 10.375%, 06/15/2014 144A
2,015,000
2,236,650
Seneca Gaming Corp., 7.25%, 05/01/2012
855,000
865,688
Shingle Springs Tribal Gaming Authority, 9.375%, 06/15/2015 144A
2,485,000
2,509,850
Six Flags, Inc.:
8.875%, 02/01/2010 (p)
625,000
535,938
9.625%, 06/01/2014 (p)
2,435,000
1,920,606
Trump Entertainment Resorts, Inc., 8.50%, 06/01/2015 (p)
4,221,000
3,598,402
Universal City Development Partners, Ltd., 11.75%, 04/01/2010
4,580,000
4,820,450
Wheeling Island Gaming, Inc., 10.125%, 12/15/2009
1,040,000
1,042,600
35,526,786
Household Durables 0.8%
Hovnanian Enterprises, Inc.:
6.00%, 01/15/2010 (p)
435,000
334,950
6.50%, 01/15/2014
1,033,000
816,070
Libbey, Inc., FRN, 12.38%, 06/01/2011
1,880,000
2,053,900
Meritage Homes Corp.:
6.25%, 03/15/2015
540,000
429,300
7.00%, 05/01/2014
1,475,000
1,209,500
Pulte Homes, Inc., 4.875%, 07/15/2009
695,000
651,563
Standard Pacific Corp.:
5.125%, 04/01/2009 (p)
880,000
734,800
6.50%, 08/15/2010 (p)
305,000
233,325
6,463,408
Media 6.2%
Cablevision Systems Corp., Ser. B, 8.00%, 04/15/2012
2,705,000
2,657,662
CCH I, LLC, 11.00%, 10/01/2015
4,010,000
3,907,000
CSC Holdings, Inc., 7.625%, 04/01/2011
990,000
992,475
Dex Media East, LLC:
9.875%, 11/15/2009
5,500,000
5,651,250
12.125%, 11/15/2012
3,000,000
3,198,750
Lamar Media Corp.:
6.625%, 08/15/2015
1,825,000
1,761,125
Ser. B, 6.625%, 08/15/2015
3,460,000
3,338,900
Ser. C, 6.625%, 08/15/2015 144A
755,000
726,688
Mediacom Broadband, LLC, 8.50%, 10/15/2015
340,000
336,600
Mediacom Communications Corp., 9.50%, 01/15/2013
5,135,000
5,160,675
Principal
Amount
Value
CORPORATE BONDS continued
CONSUMER DISCRETIONARY continued
Media continued
Paxson Communications Corp., FRN, 11.49%, 01/15/2013 144A
$ 3,655,000
$
3,728,100
R.H. Donnelley Corp., Ser. A-4, 8.875%, 10/15/2017 144A
4,965,000
4,965,000
Sinclair Broadcast Group, Inc., Class A, 8.00%, 03/15/2012 (p)
1,327,000
1,370,128
Sirius Satellite Radio, Inc., 9.625%, 08/01/2013
2,725,000
2,721,594
Visant Corp., 7.625%, 10/01/2012
3,035,000
3,133,637
XM Satellite Radio Holdings, Inc., 9.75%, 05/01/2014 (p)
2,115,000
2,146,725
Young Broadcasting, Inc., 8.75%, 01/15/2014
3,871,000
3,358,092
49,154,401
Multi-line Retail 0.3%
Neiman Marcus Group, Inc., 9.00%, 10/15/2015
2,090,000
2,215,400
Specialty Retail 0.8%
American Achievement Corp., 8.25%, 04/01/2012
1,845,000
1,854,225
Home Depot, Inc., 5.875%, 12/16/2036
363,000
317,956
Michaels Stores, Inc., 10.00%, 11/01/2014 (p)
1,320,000
1,336,500
Payless ShoeSource, Inc., 8.25%, 08/01/2013
3,180,000
3,160,125
6,668,806
Textiles, Apparel & Luxury Goods 1.8%
Norcross Safety Products, LLC, Ser. B, 9.875%, 08/15/2011
6,000,000
6,240,000
Oxford Industries, Inc., 8.875%, 06/01/2011
3,715,000
3,733,575
Unifi, Inc., 11.50%, 05/15/2014 (p)
823,000
779,792
Warnaco Group, Inc., 8.875%, 06/15/2013
3,010,000
3,183,075
13,936,442
CONSUMER STAPLES 1.5%
Food & Staples Retailing 0.1%
Ingles Markets, Inc., 8.875%, 12/01/2011
430,000
441,825
SUPERVALU, Inc., 7.50%, 11/15/2014
180,000
185,850
627,675
Food Products 0.8%
Del Monte Foods Co.:
6.75%, 02/15/2015
45,000
43,988
8.625%, 12/15/2012
4,648,000
4,764,200
Pilgrims Pride Corp., 8.375%, 05/01/2017 (p)
1,295,000
1,311,187
Smithfield Foods, Inc., 7.75%, 07/01/2017 (p)
340,000
351,900
6,471,275
Household Products 0.2%
Church & Dwight Co., 6.00%, 12/15/2012
1,685,000
1,649,194
Personal Products 0.4%
Central Garden & Pet Co., 9.125%, 02/01/2013 (p)
2,980,000
2,860,800
Principal
Amount
Value
CORPORATE BONDS continued
ENERGY 8.3%
Electric Utilities 1.3%
Energy Future Holdings Corp.:
10.875%, 11/01/2017 144A
$ 3,340,000
$
3,394,275
11.25%, 11/01/2017 144A
2,225,000
2,263,937
Texas Competitive Electric Holdings Co., LLC, 10.25%, 11/01/2015 144A
4,450,000
4,494,500
10,152,712
Energy Equipment & Services 1.1%
Bristow Group, Inc.:
6.125%, 06/15/2013
160,000
157,200
7.50%, 09/15/2017 144A
1,030,000
1,066,050
Dresser-Rand Group, Inc., 7.375%, 11/01/2014
380,000
384,275
GulfMark Offshore, Inc., 7.75%, 07/15/2014
1,675,000
1,691,750
Hornbeck Offshore Services, Inc., Ser. B, 6.125%, 12/01/2014
2,405,000
2,302,787
Parker Drilling Co., 9.625%, 10/01/2013
2,111,000
2,264,048
PHI, Inc., 7.125%, 04/15/2013
990,000
965,250
8,831,360
Oil, Gas & Consumable Fuels 5.9%
Chesapeake Energy Corp.:
6.875%, 01/15/2016
1,270,000
1,270,000
7.75%, 01/15/2015 (p)
3,425,000
3,527,750
Cimarex Energy Co., 7.125%, 05/01/2017
345,000
346,294
Clayton Williams Energy, Inc., 7.75%, 08/01/2013
390,000
367,575
Delta Petroleum Corp., 7.00%, 04/01/2015
1,990,000
1,731,300
El Paso Corp., 7.00%, 06/15/2017 (p)
915,000
921,443
Encore Acquisition Co.:
6.00%, 07/15/2015 (p)
1,255,000
1,142,050
6.25%, 04/15/2014
660,000
617,100
Energy Partners, Ltd., 9.75%, 04/15/2014 144A
653,000
649,735
Exco Resources, Inc., 7.25%, 01/15/2011
2,550,000
2,530,875
Forest Oil Corp.:
7.25%, 06/15/2019 (p) 144A
1,145,000
1,150,725
7.75%, 05/01/2014
80,000
81,200
Frontier Oil Corp., 6.625%, 10/01/2011 (p)
500,000
500,000
Griffin Coal Mining Co., Ltd., 9.50%, 12/01/2016 144A
4,670,000
4,646,650
Mariner Energy, Inc., 8.00%, 05/15/2017
552,000
547,860
Overseas Shipholding Group, Inc., 8.25%, 03/15/2013
5,820,000
6,038,250
Peabody Energy Corp.:
5.875%, 04/15/2016
665,000
636,738
6.875%, 03/15/2013
635,000
641,350
Plains Exploration & Production Co., 7.75%, 06/15/2015
880,000
880,000
Regency Energy Partners, LP, 8.375%, 12/15/2013
2,820,000
2,982,150
Sabine Pass LNG, LP:
7.25%, 11/30/2013
340,000
334,900
7.50%, 11/30/2016
3,595,000
3,541,075
Principal
Amount
Value
CORPORATE BONDS continued
ENERGY continued
Oil, Gas & Consumable Fuels continued
Targa Resources, Inc., 8.50%, 11/01/2013 144A
$ 2,590,000
$
2,628,850
Tesoro Corp., Ser. B:
6.50%, 06/01/2017 144A
2,150,000
2,133,875
6.625%, 11/01/2015
765,000
763,088
W&T Offshore, Inc., 8.25%, 06/15/2014 144A
530,000
516,750
Williams Cos.:
7.50%, 01/15/2031
2,080,000
2,204,800
8.125%, 03/15/2012
3,195,000
3,458,587
46,790,970
FINANCIALS 8.8%
Capital Markets 0.2%
Nuveen Investments, Inc., 10.50%, 11/15/2015
1,120,000
1,120,000
Consumer Finance 5.9%
CCH II Capital Corp.:
10.25%, 09/15/2010 (p)
1,695,000
1,733,138
10.25%, 09/15/2010
7,455,000
7,641,375
Daimler Financial Services AG, 4.875%, 06/15/2010
1,500,000
1,492,842
Ford Motor Credit Co., LLC:
7.375%, 10/28/2009
5,585,000
5,388,894
9.75%, 09/15/2010
9,183,000
9,150,106
General Motors Acceptance Corp., LLC:
5.625%, 05/15/2009 (p)
730,000
695,707
6.81%, 05/15/2009
2,305,000
2,169,512
6.875%, 09/15/2011
11,555,000
10,657,974
7.75%, 01/19/2010
1,505,000
1,457,505
8.00%, 11/01/2031
2,395,000
2,219,348
HSBC Finance Corp., 5.00%, 06/30/2015
2,400,000
2,276,558
Qwest Capital Funding, Inc., 6.50%, 11/15/2018
1,650,000
1,472,625
46,355,584
Diversified Financial Services 0.5%
Leucadia National Corp., 8.125%, 09/15/2015
4,010,000
4,065,138
Insurance 0.2%
Crum & Forster Holdings Corp., 7.75%, 05/01/2017
1,590,000
1,586,025
Real Estate Investment Trusts 1.1%
Host Marriott Corp.:
7.125%, 11/01/2013 (p)
2,310,000
2,356,200
Ser. O, 6.375%, 03/15/2015 (p)
735,000
729,487
Ser. Q, 6.75%, 06/01/2016
3,000,000
3,015,000
Omega Healthcare Investors, Inc.:
7.00%, 04/01/2014
205,000
207,563
7.00%, 01/15/2016
1,165,000
1,173,737
Principal
Amount
Value
CORPORATE BONDS continued
FINANCIALS continued
Real Estate Investment Trusts continued
Thornburg Mortgage, Inc., 8.00%, 05/15/2013 (p)
$ 629,000
$
550,375
Ventas, Inc., 7.125%, 06/01/2015
525,000
538,125
8,570,487
Real Estate Management & Development 0.0%
Realogy Corp.:
10.50%, 04/15/2014 (p) 144A
105,000
87,544
12.375%, 04/15/2015 (p) 144A
210,000
153,825
241,369
Thrifts & Mortgage Finance 0.9%
Residential Capital, LLC:
6.375%, 06/30/2010
8,735,000
6,445,600
7.125%, 11/21/2008
1,040,000
876,400
7,322,000
HEALTH CARE 2.9%
Health Care Equipment & Supplies 0.3%
Bausch & Lomb, Inc., 9.875%, 11/01/2015 (p)
635,000
655,638
Universal Hospital Services, Inc., 8.50%, 06/01/2015 144A
1,430,000
1,462,175
2,117,813
Health Care Providers & Services 2.6%
HCA, Inc.:
6.375%, 01/15/2015
1,770,000
1,519,988
6.50%, 02/15/2016 (p)
2,220,000
1,906,425
8.75%, 09/01/2010
2,865,000
2,929,462
9.25%, 11/15/2016
7,745,000
8,170,975
HealthSouth Corp., 10.75%, 06/15/2016 (p)
1,300,000
1,378,000
Omnicare, Inc.:
6.125%, 06/01/2013
3,235,000
3,057,075
6.875%, 12/15/2015 (p)
1,945,000
1,876,925
20,838,850
INDUSTRIALS 4.5%
Aerospace & Defense 2.7%
Alliant Techsystems, Inc., 6.75%, 04/01/2016 (p)
555,000
555,000
DRS Technologies, Inc.:
6.625%, 02/01/2016
1,550,000
1,542,250
7.625%, 02/01/2018
1,430,000
1,469,325
Hexcel Corp., 6.75%, 02/01/2015 (p)
600,000
592,500
L-3 Communications Holdings, Inc.:
5.875%, 01/15/2015
10,010,000
9,809,800
6.125%, 01/15/2014
1,450,000
1,442,750
6.375%, 10/15/2015
4,964,000
4,988,820
Vought Aircraft Industries, Inc., 8.00%, 07/15/2011 (p)
670,000
669,162
21,069,607
Principal
Amount
Value
CORPORATE BONDS continued
INDUSTRIALS continued
Commercial Services & Supplies 0.7%
Browning-Ferris Industries, Inc.:
7.40%, 09/15/2035
$ 2,990,000
$
2,825,550
9.25%, 05/01/2021
1,530,000
1,644,750
Corrections Corporation of America, 6.25%, 03/15/2013
255,000
254,694
Geo Group, Inc., 8.25%, 07/15/2013
185,000
188,238
Mobile Mini, Inc., 6.875%, 05/01/2015
655,000
625,525
5,538,757
Machinery 0.6%
Commercial Vehicle Group, Inc., 8.00%, 07/01/2013
2,920,000
2,817,800
Manitowoc Co., 7.125%, 11/01/2013
1,610,000
1,610,000
4,427,800
Road & Rail 0.4%
Avis Budget Group, Inc., 7.75%, 05/15/2016
2,185,000
2,163,150
Avis Car Rental, LLC, 7.625%, 05/15/2014
210,000
208,950
Hertz Global Holdings, Inc.:
8.875%, 01/01/2014
725,000
750,375
10.50%, 01/01/2016 (p)
95,000
102,600
3,225,075
Trading Companies & Distributors 0.1%
Neff Corp., 10.00%, 06/01/2015 (p)
220,000
159,500
United Rentals, Inc., 6.50%, 02/15/2012
860,000
894,400
1,053,900
INFORMATION TECHNOLOGY 1.7%
Electronic Equipment & Instruments 0.6%
Da-Lite Screen Co., Inc., 9.50%, 05/15/2011
2,970,000
3,122,212
Sanmina-SCI Corp., FRN:
8.44%, 06/15/2010 144A
950,000
954,750
8.44%, 06/15/2014 144A
550,000
536,250
4,613,212
IT Services 0.7%
First Data Corp., 9.875%, 09/24/2015 (p) 144A
1,270,000
1,217,612
ipayment, Inc., 9.75%, 05/15/2014
1,950,000
1,881,750
SunGard Data Systems, Inc.:
4.875%, 01/15/2014
1,130,000
1,002,875
10.25%, 08/15/2015 (p)
240,000
251,400
Unisys Corp., 7.875%, 04/01/2008
950,000
946,438
5,300,075
Semiconductors & Semiconductor Equipment 0.2%
Freescale Semiconductor, Inc., 8.875%, 12/15/2014
1,815,000
1,726,519
Principal
Amount
Value
CORPORATE BONDS continued
INFORMATION TECHNOLOGY continued
Software 0.2%
Activant Solutions, Inc., 9.50%, 05/01/2016
$ 1,445,000
$
1,325,788
Harland Clarke Holdings Corp., 9.50%, 05/15/2015
319,000
291,885
1,617,673
MATERIALS 9.2%
Chemicals 3.8%
ARCO Chemical Co.:
9.80%, 02/01/2020
1,050,000
1,034,250
10.25%, 11/01/2010
180,000
190,800
Equistar Chemicals, LP, 10.625%, 05/01/2011
3,257,000
3,419,850
Huntsman Advanced Materials, LLC, 11.625%, 10/15/2010
3,000,000
3,187,500
Koppers Holdings, Inc.:
9.875%, 10/15/2013
215,000
228,437
Sr. Disc. Note, Step Bond, 0.00%, 11/15/2014
1,870,000
1,612,875
Lyondell Chemical Co.:
6.875%, 06/15/2017 (p)
2,805,000
3,099,525
10.50%, 06/01/2013
1,960,000
2,121,700
MacDermid, Inc., 9.50%, 04/15/2017 (p) 144A
3,413,000
3,276,480
Millenium America, Inc., 7.625%, 11/15/2026
1,630,000
1,409,950
Momentive Performance Materials, Inc.:
9.75%, 12/01/2014
2,630,000
2,577,400
10.125%, 12/01/2014
345,000
334,650
Mosaic Co.:
7.30%, 01/15/2028
1,285,000
1,278,575
7.625%, 12/01/2016 (p) 144A
1,800,000
1,948,500
Tronox Worldwide, LLC, 9.50%, 12/01/2012
4,605,000
4,466,850
30,187,342
Construction Materials 0.5%
CPG International, Inc., 10.50%, 07/01/2013
2,970,000
2,984,850
Dayton Superior Corp., 13.00%, 06/15/2009
750,000
746,250
3,731,100
Containers & Packaging 1.9%
Berry Plastics Holding Corp., 8.875%, 09/15/2014 (p)
1,031,000
1,061,930
Exopack Holding Corp., 11.25%, 02/01/2014
2,735,000
2,782,862
Graham Packaging Co., 9.875%, 10/15/2014 (p)
2,300,000
2,288,500
Graphic Packaging International, Inc.:
8.50%, 08/15/2011
1,680,000
1,713,600
9.50%, 08/15/2013
3,280,000
3,460,400
Smurfit-Stone Container Corp., 8.375%, 07/01/2012 (p)
3,695,000
3,713,475
15,020,767
Principal
Amount
Value
CORPORATE BONDS continued
MATERIALS continued
Metals & Mining 0.7%
Dayton Superior Corp., 10.75%, 09/15/2008
$
525,000
$
534,188
Freeport-McMoRan Copper & Gold, Inc.:
6.875%, 02/01/2014
1,930,000
1,997,550
8.375%, 04/01/2017
1,480,000
1,624,300
Indalex Holdings Corp., 11.50%, 02/01/2014
1,780,000
1,664,300
5,820,338
Paper & Forest Products 2.3%
Bowater, Inc., 9.375%, 12/15/2021
1,550,000
1,302,000
Buckeye Technologies, Inc., 8.50%, 10/01/2013
3,120,000
3,229,200
Georgia Pacific Corp.:
8.00%, 01/15/2024 (p)
1,670,000
1,653,300
8.125%, 05/15/2011
5,400,000
5,535,000
Glatfelter, 7.125%, 05/01/2016
3,110,000
3,094,450
Verso Paper Holdings, LLC, 11.375%, 08/01/2016
2,723,000
2,899,995
17,713,945
TELECOMMUNICATION SERVICES 4.9%
Diversified Telecommunication Services 2.1%
Citizens Communications Co.:
7.875%, 01/15/2027
430,000
424,625
9.25%, 05/15/2011
2,570,000
2,820,575
Consolidated Communications, Inc., 9.75%, 04/01/2012
3,500,000
3,596,250
Insight Midwest, LP, 9.75%, 10/01/2009
1,948,000
1,955,305
Qwest Communications International, Inc.:
7.875%, 09/01/2011
25,000
26,500
8.875%, 03/15/2012
4,395,000
4,834,500
West Corp., 11.00%, 10/15/2016 (p)
2,655,000
2,794,388
16,452,143
Wireless Telecommunication Services 2.8%
American Cellular Corp., 10.00%, 08/01/2011
412,000
434,660
Centennial Communications Corp.:
8.125%, 02/01/2014
2,155,000
2,208,875
10.125%, 06/15/2013
2,970,000
3,170,475
Cricket Communications, Inc.:
9.375%, 11/01/2014 (p)
1,245,000
1,241,888
9.375%, 11/01/2014
1,420,000
1,416,450
Dobson Cellular Systems, Inc.:
8.375%, 11/01/2011 (p)
1,840,000
1,959,600
9.875%, 11/01/2012
1,700,000
1,848,750
MetroPCS Wireless, Inc. 144A
3,665,000
3,655,837
Rural Cellular Corp., 8.25%, 03/15/2012
5,750,000
6,023,125
21,959,660
Principal
Amount
Value
CORPORATE BONDS continued
UTILITIES 5.9%
Electric Utilities 4.5%
Allegheny Energy Supply Co., 8.25%, 04/15/2012 144A
$ 3,910,000
$
4,261,900
Aquila, Inc., 11.875%, 07/01/2012
5,274,000
6,671,610
CMS Energy Corp.:
6.55%, 07/17/2017
270,000
263,433
8.50%, 04/15/2011
515,000
554,782
Edison Mission Energy:
7.00%, 05/15/2017 144A
1,095,000
1,075,837
7.20%, 05/15/2019 144A
1,295,000
1,272,337
Mirant Americas Generation, LLC:
8.30%, 05/01/2011
635,000
645,319
8.50%, 10/01/2021
3,000,000
2,962,500
Mirant North America, LLC, 7.375%, 12/31/2013 (p)
5,295,000
5,394,281
NRG Energy, Inc., 7.375%, 02/01/2016
4,335,000
4,335,000
Orion Power Holdings, Inc., 12.00%, 05/01/2010
1,855,000
2,059,050
PSEG Energy Holdings, LLC, 10.00%, 10/01/2009
510,000
545,683
Reliant Energy, Inc.:
6.75%, 12/15/2014
5,135,000
5,250,538
7.875%, 06/15/2017
85,000
86,169
35,378,439
Gas Utilities 0.7%
SEMCO Energy, Inc., 7.75%, 05/15/2013
5,450,000
5,767,757
Independent Power Producers & Energy Traders
0.7%
AES Corp., 8.00%, 10/15/2017 144A
2,845,000
2,884,119
Dynegy, Inc., 7.50%, 06/01/2015 144A
2,645,000
2,539,200
5,423,319
Total Corporate Bonds (cost $514,746,052)
513,912,952
FOREIGN BONDS - CORPORATE (PRINCIPAL AMOUNT DENOMINATED
IN CURRENCY INDICATED)
17.0%
CONSUMER DISCRETIONARY
0.4%
Media 0.1%
Central European Media Enterprise, Ltd.:
8.25%, 05/15/2012 EUR
500,000
757,223
FRN, 5.80%, 05/15/2014 EUR
250,000
346,587
1,103,810
Multi-line Retail 0.3%
Marks & Spencer Group plc, 6.375%, 11/07/2011 GBP
1,000,000
2,090,281
CONSUMER STAPLES 1.3%
Beverages 0.2%
Canandaigua Brands, Inc., 8.50%, 11/15/2009 GBP
750,000
1,594,295
Principal
Amount
Value
FOREIGN BONDS - CORPORATE (PRINCIPAL AMOUNT DENOMINATED
IN CURRENCY INDICATED) continued
CONSUMER STAPLES continued
Food & Staples Retailing 0.3%
Koninklijke Ahold NV, 5.875%, 03/14/2012 EUR
1,000,000
$
1,486,237
Tesco plc, 3.875%, 03/24/2011 EUR
620,000
873,932
2,360,169
Tobacco 0.8%
British American Tobacco plc, 5.75%, 12/09/2013 GBP
3,140,000
6,358,341
ENERGY 0.3%
Oil, Gas & Consumable Fuels 0.3%
GAZPROM OAO, 5.36%, 10/31/2014 EUR
1,100,000
1,525,064
Transco plc, 7.00%, 12/15/2008 AUD
1,000,000
921,487
2,446,551
FINANCIALS 12.7%
Capital Markets 0.4%
Morgan Stanley, 5.375%, 11/14/2013 GBP
1,510,000
3,000,932
Commercial Banks 6.1%
Bank Nederlandse Gemeenten NV, 4.875%, 04/21/2010 GBP
7,595,000
15,526,730
Eurofima:
5.50%, 09/15/2009 AUD
2,400,000
2,159,925
6.50%, 08/22/2011 AUD
5,000,000
4,534,085
European Investment Bank, 5.75%, 09/15/2009 AUD
5,470,000
4,957,923
Kommunalbanken AS, 4.125%, 06/03/2013 CAD
1,980,000
2,021,728
Kreditanstalt fur Wiederaufbau, 4.95%, 10/14/2014 CAD
6,310,000
6,749,930
Landwirtschaftliche Rentenbank:
4.25%, 11/16/2012 CAD
7,110,000
7,358,227
6.00%, 09/15/2009 AUD
5,100,000
4,621,143
Rabobank Australia, Ltd., 6.25%, 11/22/2011 NZD
725,000
519,695
48,449,386
Consumer Finance 2.7%
ABB International Finance, Ltd., 6.50%, 11/30/2011 EUR
5,360,000
8,217,453
General Electric Capital Corp., 5.25%, 12/10/2013 GBP
780,000
1,566,610
HSBC Finance Corp., 7.00%, 03/27/2012 GBP
370,000
794,672
KfW International Finance, Inc., 6.25%, 12/17/2007 NZD
9,160,000
7,017,456
Total Capital, 5.50%, 01/29/2013 GBP
1,000,000
2,059,075
Virgin Media Finance plc, 8.75%, 04/15/2014 EUR
940,000
1,376,802
21,032,068
Diversified Financial Services 1.0%
GE Capital Corp., 4.125%, 10/27/2016 EUR
4,750,000
6,512,667
Lighthouse Group plc, 8.00%, 04/30/2014 EUR
1,000,000
1,507,719
8,020,386
Principal
Amount
Value
FOREIGN BONDS - CORPORATE (PRINCIPAL AMOUNT DENOMINATED
IN CURRENCY INDICATED) continued
FINANCIALS continued
Insurance 0.6%
AIG SunAmerica, Inc., 5.625%, 02/01/2012 GBP
2,000,000
$
4,063,724
Travelers Insurance Co., 6.00%, 04/07/2009 AUD
1,000,000
908,643
4,972,367
Thrifts & Mortgage Finance 1.9%
Nykredit, 5.00%, 10/01/2035 DKK
26,930,978
5,061,890
Realkredit Danmark, 4.00%, 10/01/2035 DKK
17,910,350
3,116,997
Totalkredit, FRN, 4.90%, 01/01/2015 DKK
34,111,134
6,719,286
14,898,173
INDUSTRIALS 0.5%
Aerospace & Defense 0.2%
Bombardier, Inc., 7.25%, 11/15/2016 EUR
930,000
1,376,348
Machinery 0.3%
Harsco Corp., 7.25%, 10/27/2010 GBP
1,000,000
2,153,376
Savcio Holdings, Ltd., 8.00%, 02/15/2013 EUR
250,000
366,623
2,519,999
INFORMATION TECHNOLOGY 0.4%
Office Electronics 0.4%
Xerox Corp., 9.75%, 01/15/2009 EUR
1,800,000
2,760,113
MATERIALS 0.1%
Containers & Packaging 0.1%
Owens-Illinois European Group BV, 6.875%, 03/31/2017 EUR
500,000
703,771
TELECOMMUNICATION SERVICES 1.3%
Diversified Telecommunication Services 1.3%
Deutsche Telekom AG, 6.25%, 12/09/2010 GBP
2,700,000
5,651,335
France Telecom, 7.25%, 01/28/2013 EUR
1,850,000
2,959,086
Nordic Telephone Co., 8.25%, 05/01/2016 EUR
900,000
1,393,076
10,003,497
Total Foreign Bonds - Corporate (Principal Amount Denominated
in Currency Indicated) (cost $121,246,927)
133,690,487
FOREIGN BONDS - GOVERNMENT (PRINCIPAL AMOUNT DENOMINATED
IN CURRENCY INDICATED) 20.4%
FOREIGN BONDS - (NON-US DOLLAR DENOMINATED) 20.4%
Australia, 7.00%, 12/01/2010 AUD
13,600,000
12,586,164
Caisse dAmortissement de la Dette Sociale, 4.125%, 04/25/2017 EUR
7,100,000
10,025,388
Canada:
4.40%, 03/08/2016 CAD
5,290,000
5,478,223
5.00%, 06/01/2014 CAD
2,900,000
3,182,353
Denmark, 4.00%, 11/15/2017 DKK
83,795,000
15,840,999
France, 4.25%, 04/25/2019 EUR
7,700,000
11,010,725
Principal
Amount
Value
FOREIGN BONDS - GOVERNMENT (PRINCIPAL AMOUNT DENOMINATED
IN CURRENCY INDICATED) continued
FOREIGN BONDS - (NON-US DOLLAR DENOMINATED) continued
Germany:
3.50%, 10/14/2011 EUR
4,400,000
$
6,230,102
3.75%, 01/04/2017 EUR
2,000,000
2,798,882
Hong Kong, 4.23%, 03/21/2011 HKD
72,250,000
9,616,405
Korea:
4.75%, 06/10/2009 KRW
5,570,000,000
6,123,648
5.25%, 09/10/2015 KRW
2,850,000,000
3,110,490
Mexico, 10.00%, 12/05/2024 MXN
77,300,000
8,649,689
Netherlands:
4.00%, 07/15/2016 EUR
3,795,000
5,373,463
4.00%, 01/15/2037 EUR
6,350,000
8,391,330
New Zealand, 6.00%, 07/15/2008 NZD
5,130,000
3,910,738
Norway, 4.25%, 05/19/2017 NOK
85,100,000
15,091,485
Ontario, 5.75%, 03/03/2008 NZD
5,000,000
3,806,646
Sweden:
5.25%, 03/15/2011 SEK
94,540,000
15,318,198
5.50%, 10/08/2012 SEK
87,700,000
14,517,011
Total Foreign Bonds - Government (Principal Amount Denominated
in Currency Indicated) (cost $150,805,269)
161,061,939
YANKEE OBLIGATIONS - CORPORATE 5.7%
ENERGY 0.6%
Oil, Gas & Consumable Fuels 0.6%
OPTI Canada, Inc.:
7.875%, 12/15/2014 (p) 144A
$
3,685,000
3,675,787
8.25%, 12/15/2014 144A
1,315,000
1,324,863
5,000,650
FINANCIALS 1.3%
Commercial Banks 0.3%
Bank of Moscow, 7.34%, 05/13/2013
1,500,000
1,484,100
JSC Halyk Bank, 8.125%, 10/07/2009
500,000
512,475
1,996,575
Consumer Finance 0.5%
Avago Technologies Finance Private, Ltd., 10.125%, 12/01/2013
840,000
911,400
NXP Funding, LLC, 7.875%, 10/15/2014
160,000
157,000
Petroplus Finance, Ltd., 6.75%, 05/01/2014 (p) 144A
680,000
649,400
Virgin Media Finance plc, 9.125%, 08/15/2016 (p)
2,490,000
2,639,400
4,357,200
Diversified Financial Services 0.5%
Preferred Term Securities XII, Ltd., FRN, 10.00%, 12/24/2033
635,000
481,165
Ship Finance International, Ltd., 8.50%, 12/15/2013 (p)
3,510,000
3,606,525
4,087,690
Principal
Amount
Value
YANKEE OBLIGATIONS - CORPORATE continued
INDUSTRIALS 0.7%
Road & Rail 0.7%
Kansas City Southern de Mexico:
7.375%, 06/01/2014 144A
$ 2,460,000
$
2,466,150
9.375%, 05/01/2012
2,760,000
2,939,400
5,405,550
INFORMATION TECHNOLOGY
0.6%
Communications Equipment
0.6%
Nortel Networks Corp., 10.125%, 07/15/2013 (p) 144A
4,315,000
4,422,875
Semiconductors & Semiconductor Equipment 0.0%
Sensata Technologies, Inc., 8.00%, 05/01/2014 (p)
170,000
167,663
MATERIALS 1.7%
Metals & Mining 1.5%
Novelis, Inc., 7.25%, 02/15/2015
12,030,000
11,608,950
Paper & Forest Products 0.2%
Abitibi-Consolidated, Inc., 8.375%, 04/01/2015 (p)
470,000
366,600
Corporacion Durango SAB de CV, 10.50%, 10/05/2017 (p) 144A
1,555,000
1,353,150
1,719,750
TELECOMMUNICATION SERVICES 0.7%
Wireless Telecommunication Services 0.7%
Inmarsat plc, Sr. Disc. Note, Step Bond, 10.375%, 11/15/2012
1,120,000
1,086,401
Intelsat, Ltd.:
9.25%, 06/15/2016 (p)
995,000
1,037,287
11.25%, 06/15/2016 (p)
1,555,000
1,679,400
Vimpel Communications, 8.25%, 05/23/2016
1,400,000
1,455,020
5,258,108
UTILITIES 0.1%
Electric Utilities 0.1%
InterGen NV, 9.00%, 06/30/2017 144A
890,000
945,625
Total Yankee Obligations - Corporate (cost $45,683,710)
44,970,636
Shares
Value
COMMON STOCKS 0.1%
INDUSTRIALS 0.0%
Delta Air Lines, Inc. *
12,945
269,256
MATERIALS 0.1%
Chemicals 0.1%
Tronox, Inc. Class A (p)
31,800
270,618
UTILITIES 0.0%
Gas Utilities 0.0%
SEMCO Energy, Inc. (p)
4,586
37,238
Total Common Stocks (cost $667,364)
577,112
Principal
Amount
Value
LOANS 1.5%
CONSUMER DISCRETIONARY 0.0%
Catalina Marketing Corp., FRN, 8.07%, 10/11/2014
$ 410,000
$
201,615
ENERGY 0.8%
Blue Grass Energy Corp., FRN, 10.13%, 12/30/2013
5,350,000
5,347,753
Saint Acquisition Corp., FRN, 8.61%, 06/05/2014
675,000
604,456
5,952,209
INDUSTRIALS 0.1%
Neff Corp., FRN, 8.71%, 11/30/2014
590,000
529,850
INFORMATION TECHNOLOGY 0.4%
First Data Corp.:
7.98%, 09/24/2014
1,770,000
1,701,359
8.00%, 09/24/2014
400,000
384,892
Flextonics International, Ltd., 7.47%, 10/01/2014
1,500,000
1,485,030
3,571,281
TELECOMMUNICATION SERVICES 0.2%
Telesat, FRN, 8.21%, 09/01/2014
1,530,000
1,510,370
Total Loans (cost $11,749,640)
11,765,325
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LOANED
8.6%
REPURCHASE AGREEMENTS ^ 8.6%
Bank of America Corp., 4.93%, dated 10/31/2007, maturing 11/01/2007,
maturity value $25,003,424
25,000,000
25,000,000
Credit Suisse, LLC, 4.94%, dated 10/31/2007, maturing 11/01/2007,
maturity value $25,003,431
25,000,000
25,000,000
Lehman Brothers, Inc., 4.93%, dated 10/31/2007, maturing 11/01/2007,
maturity value $17,552,600
17,550,197
17,550,197
Total Investments of Cash Collateral from Securities Loaned
(cost $67,550,197)
67,550,197
Shares
Value
SHORT-TERM INVESTMENTS 3.6%
MUTUAL FUND SHARES 3.6%
Evergreen Institutional Money Market Fund, Class I, 5.03% q ø
(cost $28,553,301)
28,553,301
28,553,301
Total Investments (cost $1,235,705,778) 159.8%
1,258,886,503
Other Assets and Liabilities and Preferred Shares
(59.8%)
(470,967,580)
Net Assets Applicable to Common Shareholders
100.0%
$
787,918,923
##
All or a portion of this security has been segregated for when-issued or delayed delivery securities.
µ
All or a portion of this security has been segregated as collateral for reverse repurchase agreements.
#
When-issued or delayed delivery security
(p)
All or a portion of this security is on loan.
144A
Security that may be sold to qualified institutional buyers under Rule 144A of the Securities Act of 1933, as amended.
This security has been determined to be liquid under guidelines established by the Board of Trustees, unless otherwise
noted.
Security initially issued in zero coupon form which converts to coupon form at a specified rate and date. An effective
interest rate is applied to recognize interest income daily for the bond. This rate is based on total expected interest to
be earned over the life of the bond which consists of the aggregate coupon-interest payments and discount at
acquisition. The rate shown is the stated rate at the current period end.
*
Non-income producing security
^
Collateralized by U.S. government agency obligations at period end.
q
Rate shown is the 7-day annualized yield at period end.
ø
Evergreen Investment Management Company, LLC is the investment advisor to both the Fund and the money market
fund.
Summary of Abbreviations
AUD
Australian Dollar
CAD
Canadian Dollar
DKK
Danish Krone
EUR
Euro
FHLB
Federal Home Loan Bank
FHLMC
Federal Home Loan Mortgage Corp.
FNMA
Federal National Mortgage Association
FRN
Floating Rate Note
GBP
Great British Pound
GNMA
Government National Mortgage Association
HKD
Hong Kong Dollar
KRW
Republic of Korea Won
MXN
Mexican Peso
NOK
Norwegian Krone
NZD
New Zealand Dollar
SEK
Swedish Krona
TBA
To Be Announced
United States
72.6%
Germany
3.7%
Netherlands
3.2%
Canada
3.0%
Denmark
2.8%
Sweden
2.6%
France
2.2%
Norway
1.5%
Australia
1.4%
United Kingdom
1.3%
Luxembourg
1.1%
Mexico
1.0%
Hong Kong
0.8%
South Korea
0.8%
Ireland
0.6%
Cayman Islands
0.5%
Switzerland
0.4%
New Zealand
0.3%
Bermuda
0.2%
100.0%
AAA
43.9%
AA
2.7%
A
3.4%
BBB
2.5%
BB
13.1%
B
26.5%
CCC
7.5%
NR
0.4%
100.0%
Less than 1 year
5.0%
1 to 3 year(s)
17.0%
3 to 5 years
31.9%
5 to 10 years
25.0%
10 to 20 years
16.5%
20 to 30 years
3.5%
Greater than 30 years
1.1%
100.0%
Assets
Investments in securities, at value (cost $1,207,152,477) including $64,269,246 of
securities loaned
$
1,230,333,202
Investments in affiliated money market fund, at value (cost $28,553,301)
28,553,301
Total investments
1,258,886,503
Cash
2,970,341
Foreign currency, at value (cost $880,758)
899,851
Receivable for securities sold
16,281,567
Principal paydown receivable
860,960
Interest receivable
22,100,528
Unrealized gains on open forward foreign currency exchange contracts
32,101
Unrealized gains on interest rate swap transactions
1,111,832
Receivable for closed forward foreign currency exchange contracts
117,728
Receivable for securities lending income
11,687
Receivable for credit default swap payments
17,938
Total assets
1,303,291,036
Liabilities
Dividends payable applicable to common shareholders
4,554,707
Payable for securities purchased
36,510,426
Unrealized losses on open forward foreign currency exchange contracts
927,083
Unrealized losses on credit default swap transactions
41,881
Payable for closed forward foreign currency exchange contracts
1,918,605
Payable for reverse repurchase agreements
2,933,034
Deferred swap discount
144,284
Payable for securities on loan
67,550,197
Advisory fee payable
17,910
Due to other related parties
1,628
Accrued expenses and other liabilities
297,722
Total liabilities
114,897,477
Preferred shares at redemption value
$25,000 liquidation value per share applicable to 16,000 shares, including
dividends payable of $474,636
400,474,636
Net assets applicable to common shareholders
$
787,918,923
Net assets applicable to common shareholders represented by
Paid-in capital
$
789,713,810
Overdistributed net investment income
(2,554,651)
Accumulated net realized losses on investments
(22,843,669)
Net unrealized gains on investments
23,603,433
Net assets applicable to common shareholders
$
787,918,923
Net asset value per share applicable to common shareholders
Based on $787,918,923 divided by 42,055,000 common shares issued and outstanding
(100,000,000 common shares authorized)
$
18.74
Investment income
Interest (net of foreign withholding taxes of $8,398)
$
80,448,177
Income from affiliate
1,067,119
Securities lending
54,255
Dividends
1,913
Total investment income
81,571,464
Expenses
Advisory fee
6,501,602
Administrative services fee
591,055
Transfer agent fees
35,494
Trustees fees and expenses
25,756
Printing and postage expenses
151,501
Custodian and accounting fees
370,788
Professional fees
99,679
Auction agent fees
1,045,001
Interest expense
143,606
Other
54,143
Total expenses
9,018,625
Less: Expense reductions
(22,406)
Net expenses
8,996,219
Net investment income
72,575,245
Net realized and unrealized gains or losses on investments
Net realized gains or losses on:
Securities
(7,827,561)
Foreign currency related transactions
1,911,528
Interest rate swap transactions
2,421,790
Credit default swap transactions
14,367
Net realized losses on investments
(3,479,876)
Net change in unrealized gains or losses on investments
15,301,201
Net realized and unrealized gains or losses on investments
11,821,325
Dividends to preferred shareholders from net investment income
(21,437,150)
Net increase in net assets applicable to common shareholders resulting from operations
$
62,959,420
Year Ended October 31,
2007
2006
Operations
Net investment income
$ 72,575,245
$ 67,221,324
Net realized losses on investments
(3,479,876)
(13,155,074)
Net change in unrealized gains or losses on investments
15,301,201
10,910,462
Dividends to preferred shareholders from net investment income
(21,437,150)
(18,878,423)
Net increase in net assets applicable to common shareholders resulting
from operations
62,959,420
46,098,289
Distributions to common shareholders from
Net investment income
(54,303,118)
(56,026,319)
Net realized gains
0
(625,253)
Tax basis return of capital
(1,058,084)
(4,370,234)
Total distributions to common shareholders
(55,361,202)
(61,021,806)
Total increase (decrease) in net assets applicable to common shareholders
7,598,218
(14,923,517)
Net assets applicable to common shareholders
Beginning of period
780,320,705
795,244,222
End of period
$ 787,918,923
$ 780,320,705
Overdistributed net investment income
$ (2,554,651)
$ (3,561,073)
Evergreen Multi-Sector Income Fund (the Fund) (formerly, Evergreen Managed Income Fund) was organized as a statutory trust under the laws of the state of Delaware on April 10, 2003 and is registered as a
diversified closed-end management investment company under the Investment Company Act of 1940, as amended (the 1940 Act). The primary investment objective of the Fund is to seek a high level of current income consistent with limiting its
overall exposure to domestic interest rate risk.
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 in
the United States of America, which require management to make estimates and assumptions that affect amounts reported herein. Actual results could differ from these estimates.
Portfolio debt securities acquired with more than 60 days to maturity are fair valued using matrix pricing methods determined by an independent pricing service which takes into consideration such factors as similar security
prices, yields, maturities, liquidity and ratings. Securities for which valuations are not readily 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.
Securities pledged as collateral for repurchase agreements are held by the custodian bank or in a segregated account in the Funds name until the agreements mature. Collateral for certain tri-party repurchase
agreements is held at the counterpartys custodian in a segregated account for the benefit of the Fund and the counterparty. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and
principal. However, in the event of default or bankruptcy by the other party to the agreement, retention of the collateral may be subject to legal proceedings. The Fund will 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 Trustees. In certain instances, the Funds securities lending agent may provide collateral in the form of repurchase
agreements.
To obtain short-term financing, the Fund may enter into reverse repurchase agreements with banks and other financial institutions, which are deemed by the investment advisor to be credit-
All assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at the date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies
are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for that portion of the results of operations resulting from changes in foreign exchange rates on investments and the
fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gains or losses on investments.
A forward foreign currency contract is an agreement between two parties to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund enters into forward foreign currency contracts to
facilitate transactions in foreign-denominated securities and to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. Forward foreign currency contracts are recorded at the forward rate and
marked-to-market daily. When the contracts are closed, realized gains and losses arising from such transactions are recorded as realized gains or losses on foreign currency related transactions. The Fund could be exposed to risks if the
counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably.
The Fund records when-issued or delayed delivery securities as of trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities
purchased on a when-issued or delayed delivery basis are marked-to-market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform
under the contract.
The Fund may lend its securities to certain qualified brokers in order to earn additional income. The Fund receives compensation in the form of fees or interest earned on the investment of any cash collateral received. The
Fund also continues to receive interest and dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a market value at least equal to the market value of the securities on loan, including accrued
interest. In the event of default or bankruptcy by the borrower, the Fund could experience delays and costs in recovering the loaned securities or in gaining access to the collateral. The Fund has the right under the lending agreement to recover the
securities from the borrower on demand.
The Fund may enter into dollar roll transactions with respect to mortgage-backed securities. In a dollar roll transaction, the Fund sells mortgage-backed securities to financial institutions and simultaneously agrees to
accept substantially similar (same type, coupon and maturity) securities at a later date at an agreed upon price. The Fund will use the proceeds generated from the trans-
The Fund may enter into interest rate swap agreements to manage the Funds exposure to interest rates. A swap agreement is an exchange of cash payments between the Fund and another party based on a notional principal
amount. Cash payments or receipts are recorded as realized gains or losses. The value of the swap agreements is marked-to-market daily based upon quotations from market makers and any change in value is recorded as an unrealized gain or loss. The
Fund could be exposed to risks if the counterparty defaults on its obligation to perform or if there are unfavorable changes in the fluctuation of interest rates.
The Fund may enter into credit default swaps. Credit default swaps involve an exchange of a fixed rate premium for protection against the loss in value of an underlying debt instrument in the event of default or bankruptcy.
Under the terms of the swap, one party acts as a guarantor and receives a periodic stream of payments that is a fixed percentage applied to a notional principal amount over the term of the swap. In return, the party agrees to purchase
the notional amount of the underlying instrument, at par, if a credit event occurs during the term of the swap. Periodic payments are recorded as realized gains or losses. Any premiums or discounts received on the transactions are recorded as an
asset or liability on the Statement of Assets and Liabilities and amortized. The Fund may enter into credit default swaps as either the guarantor or the counter-party.
Security transactions are recorded on trade date. Realized gains and losses are computed using the specific cost of the security sold. 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. Foreign income and capital gains realized on some securities may be subject to foreign taxes, which are accrued as applicable.
The Fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income, including any net capital gains (which have already been offset by available capital loss carryovers).
Accordingly, no provision for federal taxes is required.
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in conformity with income tax regulations, which may differ
from generally accepted accounting principles.
Paid-in capital
$ (2,136,201)
Overdistributed net investment income
4,171,445
Accumulated net realized losses on investments
(2,035,244)
Evergreen Investment Management Company, LLC (EIMC), an indirect, wholly-owned subsidiary of Wachovia Corporation (Wachovia), is the investment advisor to the Fund and is paid an annual fee of 0.55%
of the Funds average daily total assets. Total assets consist of the net assets of the Fund plus borrowings or other leverage for investment purposes to the extent excluded in calculating net assets. For the year ended October 31, 2007, the
advisory fee was equivalent to 0.83% of the Funds average daily net assets applicable to common shareholders.
The Fund has authorized capital of $100,000,000 common shares with no par value. For the years ended October 31, 2007 and October 31, 2006, the Fund did not issue any common shares.
Cost of purchases and proceeds from sales of investment securities (excluding short-term securities) were as follows for the year ended October 31, 2007:
Cost of Purchases
Proceeds from Sales
Non-U.S.
Non-U.S.
U.S. Government
Government
U.S. Government
Government
$297,803,201
$960,540,737
$242,459,414
$860,827,590
Exchange
Contracts
U.S. Value at
In Exchange
Unrealized
Date
to Receive
October 31, 2007
for U.S. $
Gain
1/7/2008
257,700,000 JPY
$ 2,254,853
$ 2,243,796
$ 11,057
1/31/2008
3,727,000 EUR
5,397,055
5,376,011
21,044
Exchange
Contracts
U.S. Value at
U.S. Value at
Unrealized
Date
to Receive
October 31, 2007
In Exchange for
October 31, 2007
Loss
12/14/2007
1,015,846,390 JPY
$ 8,864,294
4,439,500 GBP
$ 9,216,477
$ 352,183
12/14/2007
1,020,289,265 JPY
8,903,063
70,205,000 HKD
9,062,782
159,719
1/15/2008
2,989,462,000 JPY
26,179,977
18,204,561 EUR
26,358,281
178,304
1/15/2008
10,550,859 EUR
15,276,529
7,376,000 GBP
15,295,894
19,365
1/15/2008
1,790,000,000 JPY
15,675,783
7,572,553 GBP
15,703,492
27,709
1/22/2008
1,761,596,980 JPY
15,438,632
14,842,000 CAD
15,628,435
189,803
Repurchase
Interest
Maturity
Amount
Counterparty
Rate
Date
$ 2,933,034
Lehman Brothers Inc.
5.03%
11/01/2007
Cash Flows
Notional
Cash Flows Paid
Received by
Unrealized
Expiration
Amount
Counterparty
by the Fund
the Fund
Gain
11/26/2008
$112,000,000
JPMorgan Chase & Co.
Fixed-3.582%
Floating-4.79%1
$1,111,832
Fixed
Frequency
Reference
Notional
Payments
of Payments
Unrealized
Expiration
Counterparty
Index
Amount
Made
Made
Loss
12/20/2012
Lehman
Dow Jones CDX
$5,050,000
3.75%
Quarterly
$ 38,435
Brothers
North America
High Yield Index
12/13/2049
Goldman Sachs
CMBX
1,000,000
0.27%
Quarterly
3,446
North America
Index
As of October 31, 2007, the components of distributable earnings on a tax basis were as follows:
Capital
Temporary
Unrealized
Loss
Book/Tax
Appreciation
Carryovers
Differences
$21,686,277
$18,342,604
$(5,138,560)
Year Ended October 31,
2007
2006
Ordinary Income
$ 75,740,268
$ 74,904,742
Long-term Capital Gain
0
625,253
Return of Capital
1,058,084
4,370,234
Through expense offset arrangements with the Funds custodian, a portion of fund expenses has been reduced.
Each Trustee of the Fund may defer any or all compensation related to performance of his or her duties as a Trustee. The Trustees deferred balances are allocated to deferral accounts, which are included in the accrued
expenses for the Fund. The investment performance of the deferral accounts is based on the investment performance of certain Evergreen funds. Any gains earned or losses incurred in the deferral accounts are reported in the Funds Trustees fees and expenses. At the election of the Trustees, the deferral account will be paid either in one lump sum or in quarterly installments for up to ten years.
Pursuant to an administrative order issued by the SEC on September 19, 2007, EIMC, EIS, Evergreen Service Company, LLC (collectively, the Evergreen Entities), Wachovia Securities, LLC and the SEC have entered
into an agreement settling allegations of (i) improper short-term trading arrangements in effect prior to May 2003 involving former officers and employees of EIMC and certain broker-dealers, (ii) insufficient systems for monitoring exchanges and
enforcing exchange limitations as stated in certain funds prospectuses, and (iii) inadequate e-mail retention practices. Under the settlement, the Evergreen Entities were censured and will pay approximately $32 million in disgorgement and
penalties. This amount, along with a fine assessed by the SEC against Wachovia Securities, LLC will be distributed pursuant to a plan to be developed by an independent distribution consultant and approved by the SEC. The Evergreen Entities neither
admitted nor denied the allegations and findings set forth in its settlement with the SEC.
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of FASB
statement 109 (FIN 48). FIN 48 supplements FASB 109 by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 is effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48 is not expected to have a material impact on the Funds financial statements. However, the conclusions regarding FIN 48 may be subject to
review and adjustment at a later date based on factors including, but not limited to, further implementation guidance expected from FASB, and on-going analysis of tax laws, regulations, and interpretations thereof.
The Fund declared the following distributions to common shareholders:
Declaration
Net Investment
Date
Record Date
Payable Date
Income
October 19, 2007
November 15, 2007
December 3, 2007
$0.1083
November 16, 2007
December 17, 2007
January 2, 2008
$0.1083
December 6, 2007
January 16, 2008
February 1, 2008
$0.1083
Evergreen Multi-Sector Income Fund
December 27, 2007
Charles A. Austin III
Investment Counselor, Anchor Capital Advisors, LLC. (investment advice); Director, The Andover
Trustee
Companies (insurance); Trustee, Arthritis Foundation of New England; Former Director, The
DOB: 10/23/1934
Francis Ouimet Society (scholarship program); Former Director, Executive Vice President and
Term of office since: 1991
Treasurer, State Street Research & Management Company (investment advice)
Other directorships: None
K. Dun Gifford
Chairman and President, Oldways Preservation and Exchange Trust (education); Trustee,
Trustee
Treasurer and Chairman of the Finance Committee, Cambridge College
DOB: 10/23/1938
Term of office since: 1974
Other directorships: None
Dr. Leroy Keith, Jr.
Managing Director, Almanac Capital Management (commodities firm); Trustee, Phoenix
Trustee
Fund Complex; Director, Diversapack Co. (packaging company); Former Partner, Stonington
DOB: 2/14/1939
Partners, Inc. (private equity fund); Former Director, Obagi Medical Products Co.; Former
Term of office since: 1983
Director, Lincoln Educational Services
Other directorships: Trustee,
Phoenix Fund Complex (consisting
of 60 portfolios as of 12/31/2006)
Gerald M. McDonnell
Manager of Commercial Operations, CMC Steel (steel producer)
Trustee
DOB: 7/14/1939
Term of office since: 1988
Other directorships: None
Patricia B. Norris
President and Director of Buckleys of Kezar Lake, Inc. (real estate company); Former President
Trustee
and Director of Phillips Pond Homes Association (home community); Former Partner,
DOB: 4/9/1948
PricewaterhouseCoopers, LLP (independent registered public accounting firm)
Term of office since: 2006
Other directorships: None
William Walt Pettit
Partner and Vice President, Kellam & Pettit, P.A. (law firm); Director, Superior Packaging Corp.
Trustee
(packaging company); Member, Superior Land, LLC (real estate holding company), Member,
DOB: 8/26/1955
K&P Development, LLC (real estate development); Former Director, National Kidney Foundation
Term of office since: 1988
of North Carolina, Inc. (non-profit organization)
Other directorships: None
David M. Richardson
President, Richardson, Runden LLC (executive recruitment business development/consulting
Trustee
company); Consultant, Kennedy Information, Inc. (executive recruitment information and
DOB: 9/19/1941
research company); Consultant, AESC (The Association of Executive Search Consultants);
Term of office since: 1982
Director, J&M Cumming Paper Co. (paper merchandising); Former Trustee, NDI Technologies, LLP
Other directorships: None
(communications)
Dr. Russell A. Salton III
President/CEO, AccessOne MedCard, Inc.; Former Medical Director, Healthcare Resource
Trustee
Associates, Inc.
DOB: 6/2/1947
Term of office since: 1984
Other directorships: None
Michael S. Scofield
Retired Attorney, Law Offices of Michael S. Scofield; Former Director and Chairman, Branded
Trustee
Media Corporation (multi-media branding company)
DOB: 2/20/1943
Term of office since: 1984
Other directorships: None
Richard J. Shima
Independent Consultant; Director, Hartford Hospital; Trustee, Greater Hartford YMCA; Former
Trustee
Director, Trust Company of CT; Former Director, Old State House Association; Former Trustee,
DOB: 8/11/1939
Saint Joseph College (CT)
Term of office since: 1993
Other directorships: None
Richard K. Wagoner, CFA2
Member and Former President, North Carolina Securities Traders Association; Member, Financial
Trustee
Analysts Society
DOB: 12/12/1937
Term of office since: 1999
Other directorships: None
OFFICERS
Dennis H. Ferro3
Principal occupations: President and Chief Executive Officer, Evergreen Investment Company,
President
Inc. and Executive Vice President, Wachovia Bank, N.A.; former Chief Investment Officer,
DOB: 6/20/1945
Evergreen Investment Company, Inc.
Term of office since: 2003
Kasey Phillips4
Principal occupations: Senior Vice President, Evergreen Investment Services, Inc.; Former Vice
Treasurer
President, Evergreen Investment Services, Inc.; Former Assistant Vice President, Evergreen
DOB: 12/12/1970
Investment Services, Inc.
Term of office since: 2005
Michael H. Koonce4
Principal occupations: Senior Vice President and General Counsel, Evergreen Investment
Secretary
Services, Inc.; Secretary, Senior Vice President and General Counsel, Evergreen Investment
DOB: 4/20/1960
Management Company, LLC and Evergreen Service Company, LLC; Senior Vice President and
Term of office since: 2000
Assistant General Counsel, Wachovia Corporation
Robert Guerin4, 5
Principal occupations: Chief Compliance Officer, Evergreen Funds and Senior Vice President of
Chief Compliance Officer
Evergreen Investments Co, Inc; Former Managing Director and Senior Compliance Officer,
DOB: 9/20/1965
Babson Capital Management LLC; Former Principal and Director, Compliance and Risk
Term of office since: 2007
Management, State Street Global Advisors; Former Vice President and Manager, Sales Practice
Compliance, Deutsche Asset Management.
2007
2006
Audit fees
$49,375
$69,925
Audit-related fees
0
0
Tax fees (1)
0
0
Non-audit fees (2)
1,208,367
665,575
All other fees
0
0
Total fees
$1,257,742
$735,500
Evergreen Income Advantage Fund
Evergreen Multi-Sector Income Fund
Evergreen Utilities and High Income Fund
Evergreen International Balanced Income Fund
Evergreen Global Dividend Opportunity Fund
o Presiding at all meetings of the board at which the chairman is not present, including
executive sessions of the independent directors,
o Serving as liaison between the chairman and the independent directors,
o Approving information sent to the board,
o Approving meeting agendas for the board,
o Approves meetings schedules to assure that there is sufficient time for discussion of all
agenda items,
o Having the authority to call meetings of the independent directors,
o If requested by major shareholders, ensuring that he is available for consultation and
direct communication;
Majority Vote Shareholder Proposals
Generally vote FOR precatory and binding resolutions requesting that the board change the companys bylaws to stipulate that directors need to be elected with an affirmative majority of votes cast, provided it does not conflict with the state law where the company is incorporated. Binding resolutions need to allow for a carve-out for a plurality vote standard when there are more nominees than board seats. Companies are strongly encouraged to also adopt a post-election policy (also know as a director resignation policy) that will provide guidelines so that the company will promptly address the situation of a holdover director.
3. Proxy Contests
Voting for Director Nominees in Contested Elections
Vote CASE-BY-CASE on the election of directors in contested elections, considering the following factors:
Reimbursing Proxy Solicitation Expenses
Vote CASE-BY-CASE on proposals to reimburse proxy solicitation expenses. When voting in conjunction with support of a dissident slate, vote FOR the reimbursement of all appropriate proxy solicitation expenses associated with the election.
4. Takeover Defenses
Poison Pills
Vote FOR shareholder proposals requesting that the company submit its poison pill to a shareholder vote or redeem it UNLESS the company has: (1) A shareholder approved poison pill in place; or (2) The company has adopted a policy concerning the adoption of a pill in the future specifying that the board will only adopt a shareholder rights plan if either:
Vote FOR shareholder proposals calling for poison pills to be put to a vote within a time period of less than one year after adoption. If the company has no non-shareholder approved poison pill in place and has adopted a policy with the provisions outlined above, vote AGAINST the proposal. If these conditions are not met, vote FOR the proposal, but with the caveat that a vote within twelve months would be considered sufficient.
Vote CASE-by-CASE on management proposals on poison pill ratification, focusing on the features of the shareholder rights plan. Rights plans should contain the following attributes:
Supermajority Vote Requirements
Vote AGAINST proposals to require a supermajority shareholder vote.
Vote FOR proposals to lower supermajority vote requirements.
5. Mergers and Corporate Restructurings
For mergers and acquisitions, review and evaluate the merits and drawbacks of the proposed transaction, balancing various and sometimes countervailing factors including:
6. State of Incorporation Reincorporation Proposals
Vote CASE-BY-CASE on proposals to change a company's state of incorporation, taking into consideration both financial and corporate governance concerns, including the reasons for reincorporating, a comparison of the governance provisions, comparative economic benefits, and a comparison of the jurisdictional laws. Vote FOR reincorporation when the economic factors outweigh any neutral or negative governance changes.
7. Capital Structure
Common Stock Authorization
Vote CASE-BY-CASE on proposals to increase the number of shares of common stock authorized for issuance. Vote FOR proposals to approve increases beyond the allowable increase when a company's shares are in danger of being de-listed or if a company's ability to continue to operate as a going concern is uncertain. In addition, for capital requests less than or equal to 300 percent of the current authorized shares that marginally fail the calculated allowable cap (i.e., exceed the allowable cap by no more than 5 percent), on a CASE-BY-CASE basis, vote FOR the increase based on the company's performance and whether the companys ongoing use of shares has shown prudence.
Issue Stock for Use with Rights Plan
Vote AGAINST proposals that increase authorized common stock for the explicit purpose of implementing a non-shareholder approved shareholder rights plan (poison pill).
Preferred Stock
Vote AGAINST proposals authorizing the creation of new classes of preferred stock with unspecified voting, conversion, dividend distribution, and other rights ("blank check" preferred stock). Vote AGAINST proposals to increase the number of blank check preferred stock authorized for issuance when no shares have been issued or reserved for a specific purpose.
Vote FOR proposals to create "de-clawed" blank check preferred stock (stock that cannot be used as a takeover defense). Vote FOR proposals to authorize preferred stock in cases where the company specifies the voting, dividend, conversion, and other rights of such stock and the terms of the preferred stock appear reasonable. Vote CASE-BY-CASE on proposals to increase the number of blank check preferred shares after analyzing the number of preferred shares available for issue given a company's industry and performance in terms of shareholder returns.
8. Executive and Director Compensation
Poor Pay Practices
WITHHOLD from compensation committee members, CEO, and potentially the entire board, if the company has poor compensation practices, such as:
Equity Compensation Plans
Vote CASE-BY-CASE on equity-based compensation plans. Vote AGAINST the plan if:
Director Compensation
Vote CASE-BY-CASE on compensation plans for non-employee directors, based on the cost of the plans against the companys allowable cap. Vote for the plan if ALL of the following qualitative factors in the boards compensation plan are met and disclosed in the proxy statement:
o A minimum vesting of three years for stock options or restricted stock; or o Deferred stock payable at the end of a three-year deferral period. |
Employee Stock Purchase Plans--Qualified Plans
Vote CASE-BY-CASE on qualified employee stock purchase plans. Vote FOR plans if:
Employee Stock Purchase Plans--Non-Qualified Plans
Vote CASE-by-CASE on nonqualified employee stock purchase plans. Vote FOR plans with:
Options Backdating
In cases where a company has practiced options backdating, WITHHOLD on a CASE-BY-CASE basis from the members of the compensation committee, depending on the severity of the practices and the subsequent corrective actions on the part of the board. WITHHOLD from the compensation committee members who oversaw the questionable options grant practices or from current compensation committee members who fail to respond to the issue proactively, depending on several factors, including, but not limited to:
Severance Agreements for Executives/Golden Parachutes
Vote FOR shareholder proposals to require golden parachutes or executive severance agreements to be submitted for shareholder ratification, unless the proposal requires shareholder approval prior to entering into employment contracts. Vote on a CASE-BY-CASE basis on proposals to ratify or cancel golden parachutes. An acceptable parachute should include:
9. Corporate Responsibility
Animal Rights
Generally vote AGAINST proposals to phase out the use of animals in product testing unless:
Generally vote FOR proposals seeking a report on the companys animal welfare standards.
Drug Pricing and Re-importation
Generally vote AGAINST proposals requesting that companies implement specific price restraints on pharmaceutical products unless the company fails to adhere to legislative guidelines or industry norms in its product pricing. Vote CASE-BY-CASE on proposals requesting that the company evaluate their product pricing considering:
Generally vote FOR proposals requesting that companies report on the financial and legal impact of their policies regarding prescription drug re-importation unless such information is already publicly disclosed.
Generally vote AGAINST proposals requesting that companies adopt specific policies to encourage or constrain prescription drug re-importation.
Genetically Modified Foods
Vote AGAINST proposals asking companies to voluntarily label genetically engineered (GE) ingredients in their products or alternatively to provide interim labeling and eventually eliminate GE ingredients due to the costs and feasibility of labeling and/or phasing out the use of GE ingredients.
Tobacco
Most tobacco-related proposals (such as on second-hand smoke, advertising to youth and spin-offs of tobacco-related business) should be evaluated on a CASE-BY-CASE basis.
Toxic Chemicals
Generally vote FOR resolutions requesting that a company discloses its policies related to toxic chemicals. Vote CASE-BY-CASE on resolutions requesting that companies evaluate and disclose the potential financial and legal risks associated with utilizing certain chemicals. Generally vote AGAINST resolutions requiring that a company reformulate its products within a certain timeframe unless such actions are required by law in specific markets.
Arctic National Wildlife Refuge
Generally vote AGAINST request for reports outlining potential environmental damage from drilling in the Arctic National Wildlife Refuge (ANWR) unless:
Concentrated Area Feeding Operations (CAFOs)
Vote FOR resolutions requesting that companies report to shareholders on the risks and liabilities associated with CAFOs unless:
Global Warming and Kyoto Protocol Compliance
Generally vote FOR proposals requesting a report on greenhouse gas emissions from company operations and/or products unless this information is already publicly disclosed or such factors are not integral to the companys line of business. Generally vote AGAINST proposals that call for reduction in greenhouse gas emissions by specified amounts or within a restrictive time frame unless the company lags industry standards and has been the subject of recent, significant fines or litigation resulting from greenhouse gas emissions.
Generally vote FOR resolutions requesting that companies outline their preparations to comply with standards established by Kyoto Protocol signatory markets unless:
Political Contributions
Vote CASE-BY-CASE on proposals to improve the disclosure of a company's political contributions considering: any recent significant controversy or litigation related to the companys political contributions or governmental affairs; and the public availability of a policy on political contributions. Vote AGAINST proposals barring the company from making political contributions.
Link Executive Compensation to Social Performance
Vote CASE-BY-CASE on proposals to review ways of linking executive compensation to social factors, such as corporate downsizings, customer or employee satisfaction, community involvement, human rights, environmental performance, predatory lending, and executive/employee pay disparities.
Outsourcing/Offshoring
Vote CASE-BY-CASE on proposals calling for companies to report on the risks associated with outsourcing, considering: the risks associated with certain international markets; the utility of such a report; and the existence of a publicly available code of corporate conduct that applies to international operations.
Human Rights Reports
Vote CASE-BY-CASE on requests for reports detailing the companys operations in a particular country and on proposals to implement certain human rights standards at company facilities or those of its suppliers and to commit to outside, independent monitoring.
10. Mutual Fund Proxies
Election of Directors
Vote CASE-BY-CASE on the election of directors and trustees, following the same guidelines for uncontested directors for public company shareholder meetings. However, mutual fund boards do not usually have compensation committees, so do not withhold for the lack of this committee.
Converting Closed-end Fund to Open-end Fund
Vote CASE-BY-CASE on conversion proposals, considering the following factors:
Establish Director Ownership Requirement
Generally vote AGAINST shareholder proposals that mandate a specific minimum amount of stock that directors must own in order to qualify as a director or to remain on the board.
Reimburse Shareholder for Expenses Incurred
Vote CASE-BY-CASE on shareholder proposals to reimburse proxy solicitation expenses. When supporting the dissidents, vote FOR the reimbursement of the solicitation expenses.
Concise Global Proxy Voting Guidelines
Following is a concise summary of general policies for voting global proxies. In addition, country- and market-specific policies, which are not captured below.
Financial Results/Director and Auditor Reports
Vote FOR approval of financial statements and director and auditor reports, unless:
Appointment of Auditors and Auditor Compensation
Vote FOR the reelection of auditors and proposals authorizing the board to fix auditor fees, unless:
Vote AGAINST the appointment of external auditors if they have previously served the company in an executive capacity or can otherwise be considered affiliated with the company.
Appointment of Internal Statutory Auditors
Vote FOR the appointment or reelection of statutory auditors, unless:
Allocation of Income
Vote FOR approval of the allocation of income, unless:
Stock (Scrip) Dividend Alternative
Vote FOR most stock (scrip) dividend proposals.
Vote AGAINST proposals that do not allow for a cash option unless management demonstrates that the cash option is harmful to shareholder value.
Amendments to Articles of Association
Vote amendments to the articles of association on a CASE-BY-CASE basis.
Change in Company Fiscal Term
Vote FOR resolutions to change a company's fiscal term unless a company's motivation for the change is to postpone its AGM.
Lower Disclosure Threshold for Stock Ownership
Vote AGAINST resolutions to lower the stock ownership disclosure threshold below five percent unless specific reasons exist to implement a lower threshold.
Amend Quorum Requirements
Vote proposals to amend quorum requirements for shareholder meetings on a CASE-BY-CASE basis.
Transact Other Business
Vote AGAINST other business when it appears as a voting item.
Director Elections
Vote FOR management nominees in the election of directors, unless:
Vote FOR individual nominees unless there are specific concerns about the individual, such as criminal wrongdoing or breach of fiduciary responsibilities.
Vote AGAINST shareholder nominees unless they demonstrate a clear ability to contribute positively to board deliberations.
Vote AGAINST individual directors if repeated absences at board meetings have not been explained (in countries where this information is disclosed).
Vote AGAINST labor representatives if they sit on either the audit or compensation committee, as they are not required to be on those committees.
Director Compensation
Vote FOR proposals to award cash fees to nonexecutive directors unless the amounts are excessive relative to other companies in the country or industry.
Vote nonexecutive director compensation proposals that include both cash and share-based components on a CASE-BY-CASE basis.
Vote proposals that bundle compensation for both nonexecutive and executive directors into a single resolution on a CASE-BY-CASE basis.
Vote AGAINST proposals to introduce retirement benefits for nonexecutive directors.
Discharge of Board and Management
Vote FOR discharge of the board and management, unless:
Vote AGAINST proposals to remove approval of discharge of board and management from the agenda.
Director, Officer, and Auditor Indemnification and Liability Provisions
Vote proposals seeking indemnification and liability protection for directors and officers on a CASE-BY-CASE basis.
Vote AGAINST proposals to indemnify auditors.
Board Structure
Vote FOR proposals to fix board size.
Vote AGAINST the introduction of classified boards and mandatory retirement ages for directors. Vote AGAINST proposals to alter board structure or size in the context of a fight for control of the company or the board.
Share Issuance Requests General Issuances
Vote FOR issuance requests with preemptive rights to a maximum of 100 percent over currently issued capital.
Vote FOR issuance requests without preemptive rights to a maximum of 20 percent of currently issued capital.
Specific Issuances
Vote on a CASE-BY-CASE basis on all requests, with or without preemptive rights.
Increases in Authorized Capital
Vote FOR nonspecific proposals to increase authorized capital up to 100 percent over the current authorization unless the increase would leave the company with less than 30 percent of its new authorization outstanding.
Vote FOR specific proposals to increase authorized capital to any amount, unless:
Vote AGAINST proposals to adopt unlimited capital authorizations.
Reduction of Capital
Vote FOR proposals to reduce capital for routine accounting purposes unless the terms are unfavorable to shareholders.
Vote proposals to reduce capital in connection with corporate restructuring on a CASE-BY-CASE basis.
Capital Structures
Vote FOR resolutions that seek to maintain or convert to a one share, one vote capital structure.
Vote AGAINST requests for the creation or continuation of dual class capital structures or the creation of new or additional supervoting shares.
Preferred Stock
Vote FOR the creation of a new class of preferred stock or for issuances of preferred stock up to 50 percent of issued capital unless the terms of the preferred stock would adversely affect the rights of existing shareholders.
Vote FOR the creation/issuance of convertible preferred stock as long as the maximum number of common shares that could be issued upon conversion meets established guidelines on equity issuance requests.
Vote AGAINST the creation of a new class of preference shares that would carry superior voting rights to the common shares.
Vote AGAINST the creation of blank check preferred stock unless the board clearly states that the authorization will not be used to thwart a takeover bid.
Vote proposals to increase blank check preferred authorizations on a CASE-BY-CASE basis.
Debt Issuance Requests
Vote nonconvertible debt issuance requests on a CASE-BY-CASE basis, with or without preemptive rights. Vote FOR the creation/issuance of convertible debt instruments as long as the maximum number of common shares that could be issued upon conversion meets established guidelines on equity issuance requests.
Vote FOR proposals to restructure existing debt arrangements unless the terms of the restructuring would adversely affect the rights of shareholders.
Pledging of Assets for Debt
Vote proposals to approve the pledging of assets for debt on a CASE-BY-CASE basis.
Increase in Borrowing Powers
Vote proposals to approve increases in a company's borrowing powers on a CASE-BY-CASE basis.
Share Repurchase Plans
Vote FOR share repurchase plans, unless:
Reissuance of Shares Repurchased
Vote FOR requests to reissue any repurchased shares unless there is clear evidence of abuse of this authority in the past.
Capitalization of Reserves for Bonus Issues/Increase In Par Value
Vote FOR requests to capitalize reserves for bonus issues of shares or to increase par value.
Reorganizations/Restructurings
Vote reorganizations and restructurings on a CASE-BY-CASE basis.
Mergers and Acquisitions
Vote CASE-BY-CASE on mergers and acquisitions taking into account the following:
For every M&A analysis, we review publicly available information as of the date of the report and evaluates the merits and drawbacks of the proposed transaction, balancing various and sometimes countervailing factors including:
Vote AGAINST if the companies do not provide sufficient information upon request to make an informed voting decision.
Mandatory Takeover Bid Waivers
Vote proposals to waive mandatory takeover bid requirements on a CASE-BY-CASE basis.
Reincorporation Proposals
Vote reincorporation proposals on a CASE-BY-CASE basis.
Expansion of Business Activities
Vote FOR resolutions to expand business activities unless the new business takes the company into risky areas.
Related-Party Transactions
Vote related-party transactions on a CASE-BY-CASE basis.
Compensation Plans
Vote compensation plans on a CASE-BY-CASE basis.
Antitakeover Mechanisms
Vote AGAINST all antitakeover proposals unless they are structured in such a way that they give shareholders the ultimate decision on any proposal or offer.
Shareholder Proposals
Vote all shareholder proposals on a CASE-BY-CASE basis.
Vote FOR proposals that would improve the company's corporate governance or business profile at a reasonable cost.
Vote AGAINST proposals that limit the company's business activities or capabilities or result in significant costs being incurred with little or no benefit.
Item 8 Portfolio Managers of Closed-End Management Investment Companies.
Andrew Cestone is the Director and Senior Portfolio Manager of Tattersall Advisory Groups Global High Yield Team. He has been with Tattersall Advisory Group since 2007. Previously, he served as the Managing Director and Chief Investment Officer of the Global High Yield Team with Deutsche Asset Management Group from 1998 to 2006.
Robert A. Calhoun, CFA is the Chief Investment Officer and Executive Managing Director of Tattersall Advisory Group. He also serves as Chair of the Investment Review Committee. He has been with Tattersall Advisory Group since 1988. This experience includes serving first as a Research Analyst and later as Managing Director of Research. He was appointed Chief Investment Officer in 2000 and named Executive Managing Director in 2003.
Lisa Brown Premo is a Managing Director and Senior Portfolio Manager at Tattersall Advisory Group. She is Chief Investment Officer of Tattersall Global Liquidity and Structured Solutions. Lisa has been with Tattersall Advisory Group or an affiliate firm since 1986.
Michael William Lee is the Director of Trading and Senior Portfolio Manager for Evergreen International Advisors. He is one of four senior member of the investment team that forms the Investment Strategy Committee. Michael has been with Evergreen or one of its predecessor firms since 1992.
Tony Norris is Managing Director, Chief Investment Officer and Senior Portfolio Manager with Evergreen International Advisors. Tony has been with Evergreen or one of its predecessor firms since 1990.
Alex Perrin is the Director of Research and Senior Portfolio Manager with Evergreen International Advisors. He is one of four senior member of the investment team that forms the Investment Strategy Committee. Alex has been with Evergreen or one of its predecessor firms since 1992.
Peter Wilson is Managing Director, Chief Operating Officer and Senior Portfolio Manager with Evergreen International Advisors. Peter is one of four senior member of the investment team that forms the Investment Strategy Committee. Peter has been with Evergreen or one of its predecessor firms since 1989.
Other Funds and Accounts Managed. The following table provides information about the registered investment companies and other pooled investment vehicles and accounts managed by the portfolio managers of the Fund as of the Funds most recent fiscal year ended October 31, 2007.
Andrew Cestone | Assets of registered investment companies managed | |||
Evergreen High Income Bond Fund | $606,431 | |||
Evergreen VA High Income Bond Fund | 38,542 | |||
Evergreen Income Advantage Fund | 1,419,780 | |||
Evergreen Multi Sector Income Fund* | 1,188,396 | |||
Evergreen Select High Yield Bond Fund | 144,331 | |||
Evergreen Core Plus Bond Fund* | 287,932 | |||
Evergreen Utilities & High Income Fund* | 302,912 | |||
TOTAL | $3,988,324 | |||
Those subject to performance fee | 0 | |||
Number of other pooled investment vehicles managed | 4 | |||
Assets of other pooled investment vehicles managed | $136,539 | |||
Number of those subject to performance fee | 0 | |||
Assets of those subject to performance fee | $0 | |||
Number of separate accounts managed | 4 | |||
Assets of separate accounts managed | $205,009 | |||
Number of those subject to performance fee | 0 | |||
Assets of those subject to performance fee | $0 | |||
* Mr. Cestone is not fully responsible for the management of the | ||||
entire portfolios of Evergreen Utilities & High Income Fund, | ||||
Evergreen Core Plus Bond Fund and Evergreen Multi Sector | ||||
Income Fund. As of October 31, 2007, he was responsible only for | ||||
approximately $712.3 million of the $1,779.2 million in assets in | ||||
these funds. | ||||
Robert Calhoun | Assets of registered investment companies managed | |||
Evergreen Adjustable Rate Fund | $2,334,826 | |||
Evergreen Core Bond Fund* | 3,900,445 | |||
Evergreen Core Plus Bond Fund* | 287,932 | |||
Evergreen High Income Bond Fund | 606,431 | |||
Evergreen Income Advantage Fund | 1,419,780 | |||
Evergreen Institutional Mortgage Fund | 55,025 | |||
Evergreen Multi Sector Income Fund* | 1,188,396 | |||
Evergreen Select High Yield Bond Fund | 144,331 | |||
Evergreen Short Intermediate Bond Fund | 713,565 | |||
Evergreen Ultra Short Bond Fund | 951,744 | |||
Evergreen Utilities & High Income Fund* | 302,912 | |||
Evergreen US Government Fund | 854,572 | |||
Evergreen VA Core Bond Fund* | 49,786 | |||
Evergreen VA High Income Bond Fund | 38,542 | |||
TOTAL | $ 12,848,287 | |||
Those subject to performance fee | 0 | |||
Number of other pooled investment vehicles managed | 6 | |||
Assets of other pooled investment vehicles managed | $2,421,667 | |||
Number of those subject to performance fee | 0 | |||
Assets of those subject to performance fee | 0 | |||
Number of separate accounts managed | 312 | |||
Assets of separate accounts managed | $29,796,873 | |||
Number of those subject to performance fee | 1 | |||
Assets of those subject to performance fee | $525,864 | |||
* Mr. Calhoun is not fully responsible for the management of the | ||||
entire portfolios of Evergreen Utilities & High Income Fund, | ||||
Evergreen Core Plus Bond Fund and Evergreen Multi Sector | ||||
Income Fund. As of October 31, 2007, he was responsible only for | ||||
approximately $1,229.9 million of the $1,779.2 million in assets in | ||||
these funds. |
Lisa Brown Premo | Assets of registered investment companies managed | |||
Evergreen Adjustable Rate Fund | $2,334,826 | |||
Evergreen Multi Sector Income Fund* | 1,188,396 | |||
Evergreen Core Plus Bond Fund* | 287,932 | |||
Evergreen US Government Fund | 854,572 | |||
Evergreen Ultra Short Bond Fund | 951,744 | |||
TOTAL | $5,617,470 | |||
Those subject to performance fee | 0 | |||
Number of other pooled investment vehicles managed | 2 | |||
Assets of other pooled investment vehicles managed | $7,430,866 | |||
Number of those subject to performance fee | 0 | |||
Assets of those subject to performance fee | $0 | |||
Number of separate accounts managed | 1 | |||
Assets of separate accounts managed | $55,851 | |||
Number of those subject to performance fee | 0 | |||
Assets of those subject to performance fee | $0 | |||
* Ms. Brown Premo is not fully responsible for the management of | ||||
the entire portfolios of Evergreen Core Plus Bond Fund and | ||||
Evergreen Multi Sector Income Fund. As of October 31, 2007, she | ||||
was responsible only for approximately $292.1 million of the | ||||
$1,476.3 million in assets in these funds. | ||||
Tony Norris | Assets of registered investment companies managed | |||
Evergreen Core Plus Bond Fund* | 287,932 | |||
Evergreen International Bond Fund | 1,116,300 | |||
Evergreen Multi Sector Income Fund Total* | 1,188,396 | |||
Evergreen International Balanced Income Fund* | 262,092 | |||
TOTAL | $ 2,854,720 | |||
Those subject to performance fee | 0 | |||
Number of other pooled investment vehicles managed | 5 | |||
Assets of other pooled investment vehicles managed | $ 943,061 | |||
Number of those subject to performance fee | 0 | |||
Assets of those subject to performance fee | $0 | |||
Number of separate accounts managed | 27 | |||
Assets of separate accounts managed | $ 17,534,442 | |||
Number of those subject to performance fee | 0 | |||
Assets of those subject to performance fee | 0 | |||
* Mr. Norris is not fully responsible for the management of the entire | ||||
portfolios of Evergreen Core Plus Bond Fund, Evergreen Multi | ||||
Sector Income Fund and Evergreen International Balanced Income | ||||
Fund. As of October 31, 2007, he was responsible only for | ||||
approximately $418.0 million of the $1,738.4 million in assets in | ||||
these funds. | ||||
Michael Lee | Assets of registered investment companies managed | |||
Evergreen Core Plus Bond Fund* | 287,932 | |||
Evergreen International Bond Fund | 1,116,300 | |||
Evergreen Multi Sector Income Fund Total* | 1,188,396 | |||
Evergreen International Balanced Income Fund* | 262,092 | |||
TOTAL | $ 2,854,720 | |||
Those subject to performance fee | 0 | |||
Number of other pooled investment vehicles managed | 5 | |||
Assets of other pooled investment vehicles managed | $ 943,061 | |||
Number of those subject to performance fee | 0 | |||
Assets of those subject to performance fee | $0 | |||
Number of separate accounts managed | 27 | |||
Assets of separate accounts managed | $ 17,534,442 | |||
Number of those subject to performance fee | 0 | |||
Assets of those subject to performance fee | 0 | |||
* Mr. Lee is not fully responsible for the management of the entire | ||||
portfolios of Evergreen Core Plus Bond Fund, Evergreen Multi | ||||
Sector Income Fund and Evergreen International Balanced Income | ||||
Fund. As of October 31, 2007, he was responsible only for | ||||
approximately $418.0 million of the $1,738.4 million in assets in | ||||
these funds. | ||||
Alex Perrin | Assets of registered investment companies managed | |||
Evergreen Core Plus Bond Fund* | 287,932 | |||
Evergreen International Bond Fund | 1,116,300 | |||
Evergreen Multi Sector Income Fund Total* | 1,188,396 | |||
Evergreen International Balanced Income Fund* | 262,092 | |||
TOTAL | $ 2,854,720 | |||
Those subject to performance fee | 0 | |||
Number of other pooled investment vehicles managed | 5 | |||
Assets of other pooled investment vehicles managed | $ 943,061 | |||
Number of those subject to performance fee | 0 | |||
Assets of those subject to performance fee | $0 | |||
Number of separate accounts managed | 27 | |||
Assets of separate accounts managed | $ 17,534,442 | |||
Number of those subject to performance fee | 0 | |||
Assets of those subject to performance fee | 0 | |||
* Mr. Perrin is not fully responsible for the management of the entire | ||||
portfolios of Evergreen Core Plus Bond Fund, Evergreen Multi | ||||
Sector Income Fund and Evergreen International Balanced Income | ||||
Fund. As of October 31, 2007, he was responsible only for | ||||
approximately $418.0 million of the $1,738.4 million in assets in | ||||
these funds. | ||||
Peter Wilson | Assets of registered investment companies managed | |||
Evergreen Core Plus Bond Fund* | 287,932 | |||
Evergreen International Bond Fund | 1,116,300 | |||
Evergreen Multi Sector Income Fund Total* | 1,188,396 | |||
Evergreen International Balanced Income Fund* | 262,092 | |||
TOTAL | $ 2,854,720 | |||
Those subject to performance fee | 0 | |||
Number of other pooled investment vehicles managed | 5 | |||
Assets of other pooled investment vehicles managed | $ 943,061 | |||
Number of those subject to performance fee | 0 | |||
Assets of those subject to performance fee | $0 | |||
Number of separate accounts managed | 27 | |||
Assets of separate accounts managed | $ 17,534,442 | |||
Number of those subject to performance fee | 0 | |||
Assets of those subject to performance fee | 0 | |||
* Mr. Wilson is not fully responsible for the management of the | ||||
entire portfolios of Evergreen Core Plus Bond Fund, Evergreen | ||||
Multi Sector Income Fund and Evergreen International Balanced | ||||
Income Fund. As of October 31, 2007, he was responsible only for | ||||
approximately $418.0 million of the $1,738.4 million in assets in | ||||
these funds. |
Conflicts of Interest. EIMC. Portfolio managers may experience certain conflicts of interest in managing the Funds investments, on the one hand, and the investments of other accounts, including other Evergreen funds, on the other. For example, if a portfolio manager identifies a limited investment opportunity, such as an initial public offering, that may be suitable for more than one Fund or other account, a Fund may not be able to take full advantage of that opportunity due to an allocation of that investment across all eligible funds and accounts. EIMCs policies and procedures relating to the allocation of investment opportunities address these potential conflicts by limiting portfolio manager discretion and are intended to result in fair and equitable allocations among all products managed by that portfolio manager or team that might be eligible for a particular investment. However, there is no guarantee that such procedures will detect each and every situation where a conflict arises.
The management of multiple Funds and other accounts may give rise to potential conflicts of interest, particularly if the Funds and accounts have different objectives, benchmarks and time horizons, as the portfolio manager must allocate his or her time and investment ideas across multiple funds and accounts. For example, in certain instances, a portfolio manager may take conflicting positions in a particular security for different accounts, by selling a security for one account and continuing to hold it for another account. In addition, the management of other accounts may require the portfolio manager to devote less than all of his or her time to a Fund, which may constitute a conflict with the interest of the Fund. EIMC seeks to manage such competing interests for the time and attention of portfolio managers by having portfolio managers focus on a particular investment discipline, such as investing in large capitalization equity securities. Accordingly, portfolio holdings, position sizes, and industry and sector exposures tend to be similar across similar portfolios, which may minimize the potential for conflicts of interest.
EIMC does not receive a performance fee for its management of the Funds, other than Evergreen Large Cap Equity Fund. EIMC and/or a portfolio manager may have an incentive to allocate favorable or limited opportunity investments or structure the timing of investments to favor accounts other than the Funds for instance, those that pay a higher advisory fee and/or have a performance fee. The policies of EIMC, however, require that portfolio managers treat all accounts they manage equitably and fairly.
EIMC has a policy allowing it to aggregate sale and purchase orders of securities for all accounts with similar orders if, in EIMCs reasonable judgment, such aggregation is reasonably likely to result generally in lower per-share brokerage commission costs. In such an event, each client may be charged or credited, as the case may be, the average transaction price of all securities purchased or sold in such transaction. As a result, however, the price may be less favorable to a client than it would be if similar transactions were not being executed concurrently for other accounts. In addition, in many instances, the purchase or sale of securities for accounts will be effected simultaneously with the purchase or sale of like securities for other accounts. Such transactions may be made at slightly different prices, due to the volume of securities purchased or sold. EIMC has also adopted policies and procedures in accordance with Rule 17a-7 under the 1940 Act relating to transfers effected without a broker-dealer between registered investment companies or a registered investment company client and another advisory client, to ensure compliance with the rule and fair and equitable treatment of both clients involved in such transactions.
Portfolio managers may also experience certain conflicts between their own personal interests and the interests of the accounts they manage, including the Funds. One potential conflict arises from the weighting methodology used in determining bonuses, as described below, which may give a portfolio manager an incentive to allocate a particular investment opportunity to a product that has a greater weighting in determining his or her bonus. Another potential conflict may arise if a portfolio manager were to have a larger personal investment in one fund than he or she does in another, giving the portfolio manager an incentive to allocate a particular investment opportunity to the fund in which he or she holds a larger stake. EIMCs Code of Ethics addresses potential conflicts of interest that may arise in connection with a portfolio managers activities outside EIMC by prohibiting, without prior written approval from the Code of Ethics Compliance Officer, portfolio managers from participating in investment clubs and from providing investment advice to, or managing, any account or portfolio in which the portfolio manager does not have a beneficial interest and that is not a client of EIMC.
Conflicts of Interest. Crow Point. Crow Point manages other investment vehicles, including some that may have investment objectives and strategies similar to the Funds. The management of multiple funds and other accounts may require the portfolio manager to devote less than all of his or her time to the Fund, particularly if the other funds and accounts have different objectives, benchmarks and time horizons. The portfolio manager may also be required to allocate his or her investment ideas across multiple funds and accounts. In addition, if a portfolio manger identifies a limited investment opportunity, such as an initial public offering, that may be suitable for more than one fund or other account, the Fund may not be able to take full advantage of that opportunity due to an allocation of that investment across all eligible funds and accounts. Further, security purchase and sale orders for multiple accounts often are aggregated for purpose of execution. Although such aggregation generally benefits clients, it may cause the price or brokerage costs to be less favorable to a particular client than if similar transactions were not being executed concurrently for other accounts. It may also happen that the Funds advisor or subadvisor will determine that it would be in the best interest, and consistent with the investment policies, of another account to sell a security (including by means of a short sale) that the Fund holds long, potentially resulting in a decrease in the market value of the security held by the Fund.
The structure of a portfolio managers or an investment advisors compensation may create an incentive for the portfolio manager or investment advisor to favor accounts whose performance has a greater impact on such compensation. The portfolio manager may, for example, have an incentive to allocate favorable or limited opportunity investments or structure the timing of investments to favor such accounts. Similarly, if a portfolio manager holds a larger personal investment in one fund than he or she does in another, the portfolio manager may have an incentive to favor the fund in which he or she holds a larger stake.
In general, Crow Point has policies and procedures that attempt to address the various potential conflicts of interest described above. However, there is no guarantee that such procedures will detect or address each and every situation where a conflict arises.
All employees of Crow Point are bound by the companys Code of Ethics and compliance policies and procedures. Crow Points chief compliance officer monitors and reviews compliance regularly. Crow Points Code of Ethics and compliance procedures have been reviewed and accepted by EIMC. In addition, side-by-side trading rules have been agreed between EIMC and Crow Point as part of existing sub-advisory arrangements which are intended to ensure that shareholders of the sub-advised Evergreen funds are not disadvantaged in favor of other clients or investors of Crow Point in any investment, trading or allocations.
Compensation. EIMC. For EIMC, portfolio managers compensation consists primarily of a base salary and an annual bonus. Each portfolio managers base salary is reviewed annually and adjusted based on consideration of various factors specific to the individual portfolio manager, including, among others, experience, quality of performance record and breadth of management responsibility, and based on a comparison to competitive market data provided by external compensation consultants.
The annual bonus pool for portfolio managers and other employees that are eligible to receive bonuses is determined based on the overall profitability of the firm during the relevant year. The annual bonus has an investment performance component, which accounts for a majority of the annual bonus, and a subjective evaluation component. The amount of the investment performance component is based on the pre-tax investment performance of the funds and accounts managed by the individual (or one or more appropriate composites of such funds and accounts) over the prior five years compared to the performance over the same time period of an appropriate benchmark (typically a broadbased index or universe of external funds or managers with similar characteristics). See the information below relating to other funds and accounts managed by the portfolio managers for the specific benchmarks used in evaluating performance. In calculating the amount of the investment performance component, performance for the most recent year is weighted 25%, performance for the most recent three-year period is weighted 50% and performance for the most recent five-year period is weighted 25%. In general, the investment performance component is determined using a weighted average of investment performance of each product managed by the portfolio manager, with the weighting done based on the amount of assets the portfolio manager is responsible for in each such product. For example, if a portfolio manager was to manage a mutual fund with $400 million in assets and separate accounts totaling $100 million in assets, performance with respect to the mutual fund would be weighted 80% and performance with respect to the separate accounts would be weighted 20%. In certain cases, portfolio weights within the composite may differ from the actual weights as determined by assets. For example, a very small funds weight within a composite may be increased to create a meaningful contribution.
To be eligible for an investment performance related bonus, the time-weighted average percentile rank must be above the 50th percentile. A portfolio manager has the opportunity to maximize the investment component of the incentive payout by generating performance at or above the 25th percentile level.
In determining the subjective evaluation component of the bonus, each manager is measured against predetermined objectives and evaluated in light of other discretionary considerations. Objectives are set in several categories, including teamwork, participation in various assignments, leadership, and development of staff.
For calendar year 2007, the investment performance component of each portfolio managers bonus will be determined based on comparisons to the benchmarks (either to the individual benchmark or one or more composites of all or some of such benchmarks) indicated below. The benchmarks may change for purposes of calculating bonus compensation for calendar year 2007.
Portfolio Manager | Benchmark | |
Andrew Cestone | Lipper High Current Yield Funds | |
Lisa Brown Premo | Lipper Adjustable Rate Mortgage Funds | |
Michael William Lee | Lipper International Income Funds | |
Tony Norris | Lipper International Income Funds | |
Alex Perrin | Lipper International Income Funds | |
Peter Wilson | Lipper International Income Funds |
EIMC portfolio managers that manage certain privately offered pooled investment vehicles may also receive a portion of the advisory fees and/or performance fees charged by EIMC (or an affiliate of EIMC) to such clients. Unless described in further detail below, none of the portfolio managers of the Funds receives such compensation.
In addition, portfolio managers may participate, at their election, in various benefits programs, including the following:
medical, dental, vision and prescription benefits,
life, disability and long-term care insurance,
before-tax spending accounts relating to dependent care, health care, transportation and parking, and
various other services, such as family counseling and employee assistance programs, prepaid ordiscounted legal services, health care advisory programs and access to discount retail services.
These benefits are broadly available to EIMC employees. Senior level employees, including many portfolio managers but also including many other senior level executives, may pay more or less than employees that are not senior level for certain benefits, or be eligible for, or required to participate in, certain benefits programs not available to employees who are not senior level. For example, only senior level employees above a certain compensation level are eligible to participate in the Wachovia Corporation deferred compensation plan, and certain senior level employees are required to participate in the deferred compensation plan.
Compensation. Crow Point. Portfolio managers at Crow Point are paid a fixed salary and participate in the profits of the firm in proportion to their equity ownership in the firm.
Fund Holdings. The tables below presents the dollar range of investment each portfolio manager beneficially holds in each fund he manages as well as the dollar range of total exposure to the Evergreen family of funds (including both open-end and closed-end funds) as of the Funds fiscal year ended October 31, 2007. Total exposure equals the sum of (i) the portfolio managers beneficial ownership in direct Evergreen fund holdings, plus (ii) the portfolio managers Evergreen fund holdings through the Wachovia Corporation 401(k) plan, plus (iii) the portfolio managers Wachovia Corporation deferred compensation plan exposure to Evergreen funds.
Evergreen Multi Sector Fund | ||
Andrew Cestone | $100,001-$500,000 | |
Robert A. Calhoun | None | |
Lisa Brown Premo | $10,001-$50,000 | |
Michael William Lee | None | |
Tony Norris | None | |
Alex Perrin | None | |
Peter Wilson | None | |
Evergreen Family of Funds | ||
Andrew Cestone | $100,001-$500,000 | |
Robert A. Calhoun | over $1,000,000 | |
Lisa Brown Premo | over $1,000,000 | |
Michael William Lee | None | |
Tony Norris | None | |
Alex Perrin | None | |
Peter Wilson | None |
The table below presents the dollar range of total exposure to the Evergreen family of funds (including both open-end and closed-end funds) by certain members of senior management of EIMC and its affiliates that are involved in Evergreens mutual fund business as of October 31, 2006. Total exposure equals the sum of (i) the individuals beneficial ownership in direct Evergreen fund holdings, plus (ii) the individuals Evergreen fund holdings through the Wachovia Corporation 401(k) plan, plus (iii) the individuals Wachovia Corporation deferred compensation plan exposure to Evergreen funds.
Peter Cziesko | $100,001 $500,000 | |
Executive Managing Director and | ||
President of Global Distribution, EIMC | ||
Dennis Ferro | Over $1,000,000 | |
Chief Executive Officer and Chief | ||
Investment Officer, EIMC | ||
Richard Gershen | $500,001 $1,000,000 | |
Head of Business Strategy, Risk and | ||
Product Management, EIMC | ||
W. Douglas Munn | $500,001 $1,000,000 | |
Chief Operating Officer, EIMC | ||
Patrick OBrien | Over $1,000,000 | |
President, Institutional Division, EIMC |
Item 9 Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
If applicable/not applicable at this time.
Item 10 Submission of Matters to a Vote of Security Holders
There have been no material changes to the procedures by which shareholders may recommend nominees to the Registrants board of trustees that have been implemented since the Registrant last provided disclosure in response to the requirements of this Item.
Item 11 - Controls and Procedures
(a) The Registrant's principal executive officer and principal financial officer have evaluated the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) within 90 days of this filing and have concluded that the Registrant's disclosure controls and procedures were effective, as of that date, in ensuring that information required to be disclosed by the Registrant in this Form N-CSR was recorded, processed, summarized, and reported timely.
(b) There has been no changes in the Registrant's internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonable likely to affect, the Registrants internal control over financial reporting .
Item 12 - Exhibits
File the exhibits listed below as part of this Form. Letter or number the exhibits in the sequence indicated.
(a) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit.
(b)(1) Separate certifications for the Registrant's principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached as EX99.CERT.
(b)(2) Separate certifications for the Registrant's principal executive officer and principal financial officer, as required by Section 1350 of Title 18 of United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and Rule 30a-2(b) under the Investment Company Act of 1940, are attached as EX99.906CERT. The certifications furnished pursuant to this paragraph are not deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certifications are not deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Registrant specifically incorporates them by reference.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Evergreen Multi-Sector Income Fund
By: _______________________
Dennis H. Ferro
Principal Executive Officer
Date: December 28, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: _______________________
Dennis H. Ferro
Principal Executive Officer
Date: December 28, 2007
By: ________________________
Kasey Phillips
Principal Financial Officer
Date: December 28, 2007
CERTIFICATIONS
I, Kasey Phillips, certify that:
1. I have reviewed this report on Form N-CSR of Evergreen Multi-Sector Income Fund;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: December 28, 2007
____________________________________
Kasey Phillips
Principal Financial Officer
Evergreen Multi-Sector Income Fund
CERTIFICATIONS
I, Dennis H. Ferro, certify that:
1. I have reviewed this report on Form N-CSR of Evergreen Multi-Sector Income Fund;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: December 28, 2007
____________________________________
Dennis H. Ferro
Principal Executive Officer
Evergreen Multi-Sector Income Fund
CERTIFICATION UNDER SECTION 906 OF SARBANES-OXLEY ACT OF 2002
In connection with the annual reports of Evergreen Multi-Sector Income Fund (the Registrant) on Form N-CSR for the period ended October 31, 2007, as filed with the Securities and Exchange Commission (the Reports), I, Kasey Phillips, Principal Financial Officer of Evergreen Multi-Sector Income Fund, hereby certify, pursuant to Section 1350 of Title 18 of United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Reports fully comply with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
2. The information contained in the Reports fairly present, in all material respects, the financial condition and results of operations of the Registrant.
Date: December 28, 2007
_____________________
Kasey Phillips
Principal Financial Officer
Evergreen Multi-Sector Income Fund
A signed original of this written statement required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.
In connection with the annual reports of Evergreen Multi-Sector Income Fund (the Registrant) on Form N-CSR for the period ended October 31, 2007, as filed with the Securities and Exchange Commission (the Reports), I, Dennis H. Ferro, Principal Executive Officer of Evergreen Multi-Sector Income Fund, hereby certify, pursuant to Section 1350 of Title 18 of United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Reports fully comply with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
2. The information contained in the Reports fairly present, in all material respects, the financial condition and results of operations of the Registrant.
Date: December 28, 2007
_____________________
Dennis H. Ferro
Principal Executive Officer
Evergreen Multi-Sector Income Fund
A signed original of this written statement required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.
EVERGREEN FUNDS
CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND PRINCIPAL FINANCIAL OFFICERS
I. Covered Officers/Purpose of the Code
This Code of Ethics (this Code) for the investment companies within the Evergreen Fund complex (the Funds) applies to the Funds Principal Executive Officer (President) and Principal Financial Officer (Treasurer) (the Covered Officers) for the purpose of promoting:
Each Covered Officer owes a duty to the Funds to adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest.
II. Covered Officers Should Handle Ethically Actual and Apparent Conflicts of Interest
Overview. A conflict of interest occurs when a Covered Officers private interest interferes with the interests of, or his service to, the Funds. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of his position with the Funds.
Certain conflicts of interest covered by this Code arise out of the relationships between Covered Officers and the Funds and already are subject to conflict of interest provisions in the Investment Company Act and the Investment Advisers Act. For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Funds because of their status as affiliated persons of the Funds. The Funds and the investment adviser's compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures.
Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the Funds and the investment adviser of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the Funds or for the adviser, or for both), be involved in establishing policies and implementing decisions which will have different effects on the adviser and the Funds. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Funds and the adviser and is consistent with the performance by the Covered Officers of their duties as officers of the Funds and, if addressed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, will be deemed to have been handled ethically.
Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. In reading the following examples of conflicts of interest under the Code, Covered Officers should keep in mind that such a list cannot ever be exhaustive by covering every possible scenario. It follows that the overarching principle that the personal interest of a Covered Officer should not be placed improperly before the interest of the Funds should be the guiding principle in all circumstances.
Each Covered Officer must:
There are some conflict of interest situations that should always be approved by the Chief Compliance Officer if material. Examples of these include.
III. Disclosure
IV. Compliance
It is the responsibility of each Covered Officer to promote adherence with the standards and restrictions imposed by applicable laws, rules and regulations.
V. Reporting and Accountability
Each Covered Officer must:
The Chief Compliance Officer, with the advice of the Chief Legal Officer, is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. Interpretations made and waivers given under this Code will be reported to the Governance Committee of the Funds Board of Trustees.
The Funds will follow these procedures in investigating and enforcing this Code:
VI. Other Policies and Procedures
The Funds and their investment advisers codes of ethics under Rule 17j-1 under the Investment Company Act and any code of conduct adopted by Wachovia Corporation as a whole are separate requirements applying to the Covered Officers and others, and are not part of this Code.
VII. Amendments
This Code may not be amended except in written form, which is specifically approved or ratified by a majority vote of the Funds Board.
VII. Confidentiality
All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Evergreen Board, its counsel and the Funds advisers.
X. Internal Use
The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Fund, as to any fact, circumstance, or legal conclusion.
Date: December 28, 2007
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