-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IWew83ucRaUOHmGuDa2FEFKhbww5HWsM1uzpFgDYMYDoHv4gWh8+gZ9ZV+Cgwy23 fO+YxFhA72gi2vm0V9jFMg== 0000826733-97-000015.txt : 19970314 0000826733-97-000015.hdr.sgml : 19970314 ACCESSION NUMBER: 0000826733-97-000015 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970313 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EVERGREEN INVESTMENT TRUST CENTRAL INDEX KEY: 0000757440 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 046599663 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04154 FILM NUMBER: 97556176 BUSINESS ADDRESS: STREET 1: 2500 WESTCHESTER AVE CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9146412305 MAIL ADDRESS: STREET 1: 2500 WESTCHESTER AVE CITY: PURCHASE STATE: NY ZIP: 10577 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION FUNDS/ DATE OF NAME CHANGE: 19940628 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION HIGH GRADE TAX FREE PORT DATE OF NAME CHANGE: 19940519 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION FUNDS DATE OF NAME CHANGE: 19921230 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EVERGREEN AMERICAN RETIREMENT TRUST CENTRAL INDEX KEY: 0000826733 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133442767 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05434 FILM NUMBER: 97556177 BUSINESS ADDRESS: STREET 1: 2500 WESTCHESTER AVE CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9146942020 MAIL ADDRESS: STREET 1: 2500 WESTCHESTER AVE CITY: PURCHASE STATE: NY ZIP: 10577 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EVERGREEN FOUNDATION TRUST CENTRAL INDEX KEY: 0000866789 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 136936366 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05953 FILM NUMBER: 97556178 BUSINESS ADDRESS: STREET 1: 2500 WESTCHESTER AVENUE CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9146942020 MAIL ADDRESS: STREET 1: 2500 WESTCHESTER AVENUE CITY: PURCHASE STATE: NY ZIP: 10577 N-30D 1 ANNUAL REPORT EVERGREEN BALANCED FUND (Picture of Statue of Liberty) (Picture of certificates) (Picture of Statue) (Picture of dam) (All above against green panel positioned down the center of the page) (Picture of rock and evergreen tree appear here) 1996 ANNUAL REPORT Evergreen Keystone (logo of Evergreen FUNDS emblazened in box) EVERGREEN BALANCED FUNDS TABLE OF CONTENTS
Picture of Statue of A Review of the Past Year and Prospects for the Future.................... 1 Liberty AMERICAN RETIREMENT A Report From Your Portfolio Manager...................................... 3 FUND Results to Date........................................................... 6 Statement of Investments.................................................. 7 Statement of Assets and Liabilities....................................... 12 Statement of Operations................................................... 13 Statement of Changes in Net Assets........................................ 14 Financial Highlights...................................................... 15 Picture of BALANCED A Report From Your Portfolio Manager...................................... 17 certificates FUND Results to Date........................................................... 19 Statement of Investments.................................................. 20 Statement of Assets and Liabilities....................................... 23 Statement of Operations................................................... 24 Statement of Changes in Net Assets........................................ 25 Financial Highlights...................................................... 26 Picture of FOUNDATION A Report From Your Portfolio Manager...................................... 28 statue FUND Results to Date........................................................... 31 Statement of Investments.................................................. 32 Statement of Assets and Liabilities....................................... 37 Statement of Operations................................................... 38 Statement of Changes in Net Assets........................................ 39 Financial Highlights...................................................... 40 Picture of TAX STRATEGIC A Report From Your Portfolio Managers..................................... 42 dam FOUNDATION FUND Results to Date........................................................... 45 Statement of Investments.................................................. 46 Statement of Assets and Liabilities....................................... 51 Statement of Operations................................................... 52 Statement of Changes in Net Assets........................................ 53 Financial Highlights...................................................... 54 Combined Notes to Financial Statements.................................... 56 Independent Auditors' Report.............................................. 65 Trustees and Officers......................................... Inside Back Cover
EVERGREEN BALANCED FUNDS A REVIEW OF THE PAST YEAR AND PROSPECTS FOR THE FUTURE BY STEPHEN A. LIEBER, CHAIRMAN EVERGREEN ASSET MANAGEMENT CORP. President Clinton's Inaugural Address listed many of his hopes for the future of our nation. One of these Picture of Stephen A. hopes, "a nation that balances its budget but never Lieber appears here. loses the balance of its values" speaks to a central theme of the investment markets as we enter 1997. The hope of investors is for sustained healthy growth, with the long-range promise of building a nation economically strong enough to meet the challenges of supporting an increasingly elderly and retired population. Optimism, reflected in consumer surveys and business surveys, is high at the start of the year, as 1996 proved to provide a stronger and better balanced economy than had been widely anticipated at the beginning of the year. Even in the fourth quarter, expectations of a slowdown were not realized, as growth in that period was apparently at about a 3.5% annual rate, up from the 2.1% Gross Domestic Product gain in the third quarter. Industrial output rose at an estimated 0.8% per month in the fourth quarter, while the core inflation rate of the Producers Price Index, as well as the Consumers Price Index, rose at a rate of only 0.1% per month. Thus, the core inflation rate was contained at just 2.6% in 1996, down from 3.0% in 1995. From the consumers' point of view, apart from a spurt in food and energy prices at year-end, prices of general merchandise were indicated to be somewhat lowered by a combination of widespread discounting and increased imports, made cheaper by the rise of the dollar. A healthy employment situation encouraged the confidence of the American consumer and industry throughout the year. The greatest concern, in contrast to normal uncertainties over employment, was that the slack in the economy was diminishing, so that the cost of labor might be raised and, thus, stimulate inflation. During the summer, the unemployment total was but 5.1% of the work force and, at year-end, had increased very moderately to 5.3%. With manufacturers reluctant to add to staff, hours worked increased by 3.2%. These positive factors did not strain the nation's economic potential because manufacturing capacity was indicated to be increasing month by month, with the year-over-year gain in December, 4.5%. The lack of inflationary pressures was particularly impressive given the extraordinary short-term impacts on purchasing power from the price of oil which rose 40% during the year, and weather-related agricultural developments which increased the price of food. Doubtless adding to demand was the so-called wealth effect, induced by yet another significantly rising stock market, and an ever broader participation by American families in its investments. The wealth effect was manifested in higher year-end demand for luxury goods, whose retailers and vendors often showed outstanding sales results. Looking ahead in 1997, there is a widespread expectation that the economy will reflect the improved consumer and industrial sentiment, but that it will have less external stimulus than it had at the beginning of 1996. In contrast with the monetary stimulus provided by last January's reduction in the Federal funds rate, there is virtually no expectation at this time that the Federal Reserve will soon reduce interest rates, and considerable concern that if the economy sustains its strength, it may well increase rates, thus creating a dragging force on the economy. Improvement in the balance of payments as a stimulus is not expected, as exports are already slowing as a result of the 6% increase of the dollar in 1996, which, in turn, is bringing in more cheaper imports to compete with American manufacturers. Credit ease for the consumer is not expected after several months of larger-than-normal credit card losses reported by the banking and financial industries. In fact, credit in this consumer area is tightening, with an estimated decline of 15% in the number of credit card solicitations by banks in the fourth quarter, and a more than 40% increase in credit card write-offs. Finally, borrowing costs are almost one full percent higher than they were a year ago when the Federal Reserve reduced the federal funds rate. 1 EVERGREEN BALANCED FUNDS A REVIEW OF THE PAST YEAR AND PROSPECTS FOR THE FUTURE -- (CONTINUED) Investors are challenged by the fact that prices of stocks have increased over the past year as corporate profitability rose, and optimism over future profit rates was well sustained. Today's consensus expectations for corporate profits is for an increase of up to 10% in 1997. If price pressures continue from international competition, if domestic productivity and technology drives prices down in many sectors of growing production, as has been the case, and sales volumes grow at single digits or less, these profits expectations are unlikely to be met. In contrast, those companies which produced the products or services which will be the growth leaders of 1997, have high promise of achieving new levels of profitability and sustaining long-term growth trends. They will be the focus of investment. Companies driving for higher profitability and stronger returns on invested capital through restructuring and reallocation of assets, should become more prominent in the investment spectrum as they enhance their profits outlook through these efficiencies. Another class of promising investments is the specialty business, especially smaller entrepreneurial and innovative ones where growth rates can be enhanced through the synergies of merger and acquisition with larger entities. Given the very strong cash reserves built up through this recent period of high corporate profitability, we anticipate an acceleration of the merger and acquisition drive by large companies looking for broader or new lines of business growth. Many companies which find excess of liquid capital in terms of their near-term business opportunities, may well choose to continue the recent pattern of accelerating corporate stock buy-backs, with the aim of increasing the profits available to continuing shareholders. In summary, there should be powerful forces providing selective opportunities for sustained and important profit gains for many corporations. The savings rate of the American people had generally remained modest, but an increasing portion is moving into the equity markets. With the advantages of tax-deferred programs, ranging from IRAs to 401(k)s, and the shift of retirement plans into equity-related programs, the use of mutual funds has become the predominant mode of investment saving for individuals. In a benign environment, such trends could well be expected to continue. Interruptions are only likely to come through major and, often sudden, market adversities caused by unexpected problems in the short run, and in the longer run, only from the recurrence of inflation and significant rises in the income available from fixed income investment alternatives. The U.S. economic horizon looks clear and healthy at this time. It may well be further encouraged by a decline in interest rates which could occur if growth remains moderate, inflation well-controlled, and investors gain confidence that cooperation between the Administration and the Congress will address their long-term budget fears. Thus, we can conclude as we did a year ago that, "the real return driven demand in a low inflation environment should support new opportunities in both bonds and equities." 2 EVERGREEN AMERICAN RETIREMENT FUND (Picture of Liberty statue appears here) A REPORT FROM YOUR PORTFOLIO MANAGER IRENE D. O'NEILL Evergreen American Retirement Fund completed its eighth (Picture of fiscal year on December 31, 1996. While the performance of Irene D. O'Neill equity markets was strong during the past year, fixed income appears here) markets were up only slightly. For the twelve months ended December 31, 1996, the Fund's total return (Class Y, no-load shares) was 12.6%*. The 12-month total return ended December 31 for the Fund's Class A shares at net asset value was 12.5%*. (Please see page 6 for additional performance information.) Most of the Fund's industry groups contributed to the performance of the equity portfolio. Banks and thrifts representing 5.9% of the Fund's net assets at year-end, was the strongest providing a 39.3% return for the fiscal year. Bank and thrift stocks generally rose because the prospect of moderate economic growth in an environment of stable interest rates is positive for bank earnings. Continued loan growth, coupled with stable interest margins and cost control, should continue to support bank earnings growth. This industry also benefited from the acquisition of two banks which were held in the portfolio. At year-end, Crestar Financial Corp. completed its acquisition of Citizen's Bancorp of Maryland, which the Fund purchased in April 1995, at a cost of $26.38 per share. Based on the closing price of Crestar Financial on December 31, the gain to the portfolio was 135%. Additionally, on December 30, Banc One agreed to acquire Liberty Bancorp of Oklahoma in an exchange of stock. Liberty was purchased for the Fund at a cost of $38.26 per share in September 1996. Based on year-end prices, the Fund will receive 1.175 shares of Banc One or the equivalent of $50 per share in Banc One stock during the second quarter of 1997**. The healthcare sector representing 4.0% of net assets was the Fund's second best performing group for the year, increasing 38.2%. The large drug stocks, including Bristol-Myers Squibb Co., Warner-Lambert Co. and Zeneca Group Plc ADR***, all posted strong performances. The major drug companies benefited from the inability of managed care providers to control the prescription habits of physicians and the introduction of new premium priced drugs to replace generics. The energy sector, including oil field services, generated a 27.2% return to the Fund during the fiscal year, and accounted for 8.4% of assets. Strong global demand, especially from rapidly growing Asia Pacific nations and low levels of inventory are pushing up energy prices. Higher prices, coupled with the benefits from cost reduction programs, are spurring earnings growth for the major oil companies, such as Exxon and Texaco. FIGURES REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS. * PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. INVESTORS' SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CLASS A SHARES ARE SUBJECT TO A MAXIMUM 4.75% FRONT-END SALES CHARGE WHICH IS NOT REFLECTED IN THE PERFORMANCE FIGURE ABOVE. IF REFLECTED, PERFORMANCE WOULD BE LOWER. THE FUND ALSO OFFERS CLASS B SHARES WHICH ARE SUBJECT TO A MAXIMUM 5% CONTINGENT DEFERRED SALES CHARGE, AND CLASS C SHARES WHICH ARE SUBJECT TO A 1% CONTINGENT DEFERRED SALES CHARGE WITHIN THE FIRST YEAR OF PURCHASE. PERFORMANCE FOR THESE CLASSES OF SHARES MAY BE DIFFERENT. ** THE FUND MAY BE NEGATIVELY IMPACTED SHOULD THE ACQUISITION NOT BE COMPLETED. *** INTERNATIONAL INVESTING MAY INVOLVE CERTAIN ADDITIONAL RISKS SUCH AS CURRENCY FLUCTUATIONS, ECONOMIC AND POLITICAL INSTABILITY, AND DIFFERENCES IN ACCOUNTING STANDARDS. 3 EVERGREEN AMERICAN RETIREMENT FUND (Picture of Liberty statue appears here) A REPORT FROM YOUR PORTFOLIO MANAGER -- (CONTINUED) Additionally, higher oil and gas prices, combined with technological advances in exploration and production, are stimulating drilling activity and driving growth for oil field services. Besides benefiting from the increasing pace of drilling activity, the oil field services companies are raising prices after a decade-long drought. The turmoil caused by deregulation in the telecommunications industry made the telephone utilities and communications systems and services sectors especially difficult in 1996. Telephone utilities, which comprised 1.5% of net assets at December 31, declined 8.1% for the year. New rules governing competition in local and long distance telephone markets are still under negotiation, and this uncertainty is having a negative impact on the group. New competitors already are allowed to enter these markets, but the phone utilities are not yet free to compete on a level playing field. The communications systems sector, which represented .8% of assets, declined 16.8%. Concern that personal communication systems would take market share from cellular phone companies negatively impacted this group. The cellular phone companies, however, continue to experience strong subscriber growth in the U.S. and abroad. In addition to the two bank acquisitions discussed above, three other of the Fund's holdings received acquisition offers during the year. During the third quarter, Revco offered to acquire Big B for $15 per share in cash. The Fund had held Big B 6.5% convertible debentures for about three years and sold them after the acquisition announcement for a gain of 33.7%. FHP International Corp. 5.00% convertible preferred, which was purchased two years ago at $22.37, benefited from an acquisition offer by PacifiCare Health Systems. Based on the terms of the deal and the closing price of PacifiCare on December 31, the transaction is worth about $30 per convertible preferred share**. Duke Power has offered to acquire PanEnergy Corp. through an exchange of common stock valued at $50 per share for each share of PanEnergy. This stock was first purchased in 1989 at an average cost of $27.61. During the second half of 1996, the Fund began increasing its exposure to convertible securities. These securities allow the Fund to invest in companies with good growth potential, while still benefiting from the defensive characteristics that higher yielding convertibles offer. Among the convertibles added to the portfolio were those of Time & Capital Trust, Central Garden and Pet Co., Offshore Logistics, Inc., and Nuevo Energy Co. Two other areas of focus are natural gas utilities and companies expected to benefit from improving economic growth in foreign markets. Gas utilities, which offer attractive dividend yields, are becoming acquisition targets of newly deregulated electric utilities. Gas companies added to the portfolio include, Southwest Gas and Yankee Energy System. The energy company Northwest Natural Gas was also added to the portfolio. Companies with operations in Europe suffered last year from weak economies there. But, interest rates in those markets have declined and better growth is likely in 1997. As a result, companies that do a significant amount of business in these markets, such as AMP and International Flavors and Fragrances, have been added to the portfolio. The behavior of interest rates in 1996 mirrored the variation in the quarterly rate of Gross Domestic Product (GDP) growth that occurred in the U.S. economy. Rates on long-term treasuries bottomed in January 1996 when economic growth appeared weak. During the first half however, the pace of GDP growth picked up, reaching 4.7% in the second quarter. Job growth was strong and the unemployment rate declined, sparking fears that tight labor markets would lead to rising wages and ultimately inflation. As a result, long-term treasury yields climbed to over 7% in the spring. During the summer months, consumer spending ** THE FUND MAY BE NEGATIVELY IMPACTED SHOULD THE ACQUISITION NOT BE COMPLETED. 4 EVERGREEN AMERICAN RETIREMENT FUND (Picture of Liberty statue appears here) A REPORT FROM YOUR PORTFOLIO MANAGER -- (CONTINUED) slowed to a crawl, reducing the pace of third quarter GDP to 2.2%. Bonds rallied in response to the expectation that the Federal Open Market Committee would not need to raise rates in an effort to stem incipient inflation. The economic tide turned once again with an acceleration in fourth quarter growth, that has pushed interest rates higher. Despite these gyrations, the Lehman Brothers Government/Corporate Bond Index+ moved slightly year over year, generating a 2.9% total return for 1996. During 1996, the Fund's performance benefited from the defensive position of the fixed income portfolio. By maintaining a relatively short average maturity, the Fund's fixed income portfolio was not subject to the volatile swings that affected the broader market. At the outset of 1997, fears that strong economic growth and tight labor markets will lead to inflation are haunting the bond market once again. Without an external shock, the U.S. economy may ebb and flow in 1997 much as it did last year. The risks to economic growth, however, appear to be on the upside, especially if foreign economies pick up. Although inflation has been dormant for a number of years, concern remains that wage inflation will produce in price inflation. Consistent with a conservative investment style, the Fund's fixed income portfolio remains defensively positioned with a comparatively short average maturity. The Fund's equity strategy continues to stress income and capital growth potential with a well diversified portfolio of common stocks and convertibles. We welcome our new shareholders and would like to thank our existing shareholders for their continued support. + THE LEHMAN BROTHERS GOVERNMENT/CORPORATE INDEX IS AN UNMANAGED REINVESTED INDEX OF GOVERNMENT AND CORPORATE BONDS WITH REMAINING MATURITIES OF 1 TO 7 YEARS AND RATED SINGLE A OR HIGHER. 5 EVERGREEN AMERICAN RETIREMENT FUND (Picture of Liberty statue appears here) RESULTS TO DATE PERFORMANCE OF $10,000 INVESTED IN THE EVERGREEN AMERICAN RETIREMENT FUND The graphs below compare a $10,000 investment in the Evergreen American Retirement Fund (Class A, Class B, Class C and Class Y Shares) with a similar investment in the Wilshire 5000 and Lehman Brothers Government/Corporate Bond Indexes ("Indexes"). [CHARTS TO FOLLOW.] CLASS A 1-YEAR TOTAL RETURN=7.1% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION = 15.8% $17,000 $15,000 $13,000 $11,000 $9,000 1/3/95* 6/30/95 12/31/95 6/30/96 12/31/96 CLASS B 1-YEAR TOTAL RETURN=6.5% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION = 15.0% $17,000 $15,000 $13,000 $11,000 $9,000 1/3/95* 6/30/95 12/31/95 6/30/96 12/31/96 CLASS C 1-YEAR TOTAL RETURN=10.6% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION = 17.8% $17,000 $15,000 $13,000 $11,000 $9,000 1/3/95* 6/30/95 12/31/95 6/30/96 12/31/96 CLASS Y 1-YEAR TOTAL RETURN=12.6% AVERAGE ANNUAL COMPOUND RETURN: 5-YEAR= 11.6% SINCE INCEPTION=10.8% $10,000 $17,500 $25,000 $33,500 $40,000 3/14/88* 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 EVERGREEN AMERICAN RETIREMENT FUND WILSHIRE 5000 INDEX LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX *Commencement of class operations. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS ARE NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED. For the purposes of the graphs and the accompanying tables, it has been assumed that (a) the maximum sales charge of 4.75% was deducted from the initial $10,000 investment in Class A Shares; (b) the maximum applicable contingent deferred sales charge was deducted from the value of the investment in Class B and Class C Shares, assuming full redemption on December 31, 1996; (c) all recurring fees (including investment advisory fees) were deducted; and (d) all dividends and distributions were reinvested. The Indexes are unmanaged and include the reinvestment of income, but do not reflect the payment of transaction costs and advisory fees associated with an investment in the Fund. 6 EVERGREEN AMERICAN RETIREMENT FUND (Picture of Liberty STATEMENT OF INVESTMENTS statue appears here) DECEMBER 31, 1996
SHARES VALUE COMMON STOCKS -- 48.8% AEROSPACE & DEFENSE -- .0%(A) 2,800 Newport News Shipbuilding Inc...... $ 42,000 AUTOMOTIVE EQUIPMENT & MANUFACTURING -- .3% 14,700 Federal-Mogul Corp................. 323,400 BANKS -- 5.7% 20,000 BancorpSouth, Inc.................. 555,000 20,000 Bank of New York Co., Inc. (The)... 675,000 16,000 Cape Cod Bank & Trust Co........... 360,000 15,000 Citizens Bancorp of Maryland....... 930,000 13,000 Comerica, Inc...................... 680,875 800 First Palm Beach Bancorp, Inc...... 18,832 4,000 First Union Corp. **............... 296,000 5,000 Fleet Financial Group, Inc......... 249,375 53,000 Hibernia Corp. Cl. A............... 702,250 25,000 Liberty Bancorp of Oklahoma........ 1,243,750 2,200 Maryland Federal Bancorp, Inc...... 75,688 16,000 Susquehanna Bancshares, Inc........ 554,000 6,340,770 BUILDING, CONSTRUCTION & FURNISHINGS -- .4% 13,584 Medusa Corp........................ 466,950 BUSINESS EQUIPMENT & SERVICES -- 2.1% 5,000 AC Nielsen Corp.................... 75,625 15,000 Cognizant Corp..................... 495,000 15,000 Dun & Bradstreet Corp. (The)....... 356,250 817 Lucent Technologies, Inc........... 37,786 18,000 Pitney Bowes, Inc.................. 981,000 16,000 Reynolds & Reynolds Co. (The), Cl. A.................................. 416,000 2,361,661 CHEMICAL & AGRICULTURAL PRODUCTS -- 2.3% 2,000 Dow Chemical Co. (The)............. 156,750 8,000 Eastman Chemical Co................ 442,000 11,000 Grace (W.R.) & Co.................. 569,250 14,000 Imperial Chemical Industrial Plc, ADR................................ 728,000 4,535 Millennium Chemicals Inc........... 80,496 5,000 Praxair, Inc....................... 230,625 15,600 Stepan Co.......................... 317,850 2,524,971 COMMUNICATION SYSTEMS & SERVICES -- .1% 5,500*..................... AirTouch Communications 138,875 SHARES VALUE
CONSUMER PRODUCTS & SERVICES -- 1.9% 3,000 Colgate-Palmolive Co............... $ 276,750 15,875 Imperial Tobacco Group Plc......... 202,406 11,000 International Flavors & Fragrances, Inc.................... 495,000 30,000 Jostens, Inc....................... 633,750 11,000 Tambrands, Inc..................... 449,625 2,057,531 DIVERSIFIED COMPANIES -- 2.2% 63,500 Hanson Plc, ADR.................... 428,625 5,000 Harris Corp........................ 343,125 2,000 Minnesota Mining & Manufacturing Co................................. 165,750 14,000 Tenneco, Inc....................... 631,750 50,000 Tomkins Plc, ADR................... 925,000 2,494,250 ELECTRICAL EQUIPMENT & SERVICES -- 1.5% 10,000 AMP, Inc........................... 383,750 1,000 Emerson Electric Co................ 96,750 11,656 Hubbell, Inc....................... 504,122 16,000 Thomas & Betts Corp................ 710,000 1,694,622 ENERGY -- 5.3% 8,000 Amoco Corp......................... 644,000 4,000 Atlantic Richfield Co.............. 530,000 1,302 El Paso Natural Gas Co............. 65,751 7,700 Exxon Corp......................... 754,600 3,000 Kerr-McGee Corp.................... 216,000 5,000 Mobil Corp......................... 611,250 19,250 Northwest Natural Gas Co........... 462,000 4,000 PanEnergy Corp..................... 180,000 10,775 Seitel, Inc........................ 431,000 6,000 Texaco, Inc........................ 588,750 5,928 Union Pacific Resource Group, Inc................................ 173,394 30,000 Williams Cos., Inc. (The).......... 1,125,000 5,000 YPF Sociedad Anonima, ADR.......... 126,250 5,907,995 FINANCE & INSURANCE -- 3.4% 35,000 GCR Holdings, Ltd.................. 778,750 8,000 Hartford Steam Boiler Inspection & Insurance Co. (The)................ 371,000 10,000 ITT Hartford Group, Inc............ 675,000 20,000 LaSalle Re Holdings, Ltd........... 585,000 30,000 Ohio Casualty Corp................. 1,065,000
7 EVERGREEN AMERICAN RETIREMENT FUND (Picture of Liberty STATEMENT OF INVESTMENTS -- (CONTINUED) statue appears here) DECEMBER 31, 1996
SHARES VALUE COMMON STOCKS -- CONTINUED FINANCE & INSURANCE -- CONTINUED 1,500 Provident Cos., Inc................ $ 72,562 3,000 Transamerica Corp.................. 237,000 3,784,312 FOOD & BEVERAGE PRODUCTS -- 1.4% 18,000 H.J. Heinz Co...................... 643,500 50,000 Lance, Inc......................... 900,000 1,543,500 HEALTHCARE PRODUCTS & SERVICES -- 2.8% 7,000 Bristol-Myers Squibb Co............ 761,250 14,000 Shared Medical System Corp......... 689,500 5,000 Warner-Lambert Co.................. 375,000 30,000 West Co., Inc. (The)............... 847,500 5,333 Zeneca Group Plc, ADR.............. 447,972 3,121,222 INDUSTRIAL SPECIALTY PRODUCTS & SERVICES -- 1.8% 60,000 BW/IP Holding, Inc................. 990,000 30,000 Goulds Pumps, Inc.................. 688,125 15,000 Graco, Inc......................... 367,500 2,045,625 LEISURE & TOURISM -- .9% 45,000 Gaylord Entertainment Co. Cl. A.... 1,029,375 METAL PRODUCTS & SERVICES -- .9% 42,000 Lindberg Corp...................... 420,000 5,000 Phelps Dodge Corp.................. 337,500 10,000 Quanex Corp........................ 273,750 1,031,250 PAPER & PACKAGING -- .3% 12,000 Westvaco Corp...................... 345,000 PUBLISHING, BROADCASTING & ENTERTAINMENT -- 2.0% 2,460 Cox Communications, Inc............ 56,888 15,625* Evergreen Media Corp. Cl. A........ 390,625 8,000 McGraw-Hill Cos., Inc.............. 369,000 30,000 Reader's Digest Assn., Inc. (The).............................. 1,207,500 2,803 Times Mirror Co.................... 139,449 2,163,462 REAL ESTATE -- .7% 10,000 Post Property, Inc................. 402,500 15,000 Prentiss Property Trust............ 375,000 777,500 SHARES VALUE
RETAILING & WHOLESALE -- 1.2% 8,000 J. C. Penney Co., Inc.............. $ 390,000 8,000 Mercantile Stores Co., Inc......... 395,000 30,000 Russ Berrie & Co., Inc............. 540,000 1,325,000 TEXTILE & APPAREL -- 1.1% 3,800 Garan, Inc......................... 73,625 23,000 Kellwood Co........................ 460,000 10,000 Oxford Industry, Inc............... 240,000 6,600 V.F. Corp.......................... 445,500 1,219,125 TRANSPORTATION -- .6% 3,191 Burlington Northern Santa Fe....... 275,623 7,000 Union Pacific Corp................. 420,875 696,498 UTILITIES -- ELECTRIC -- 5.9% 18,200 Commonwealth Energy System......... 427,700 20,000 Eastern Utilities Assn............. 347,500 30,000 Enova Corp......................... 682,500 30,000 Houston Industries, Inc............ 678,750 10,000 Illinova Corp...................... 275,000 37,000 PP&L Resources, Inc................ 851,000 20,000 Public Service Enterprise Group, Inc......................... 545,000 22,000 Southern Co........................ 497,750 4,000 Southwestern Public Svc. Co........ 141,500 10,000 Texas Utilities Co................. 407,500 55,000 TNP Enterprises, Inc............... 1,505,625 8,000 Unicom Corp........................ 217,000 6,576,825 UTILITIES -- GAS -- 2.9% 15,000 AGL Resource, Inc.................. 316,875 40,500 Chesapeake Utilities Corp.......... 683,437 25,000 CMS Energy Corp. Cl. G............. 459,375 22,000 South Jersey Industry, Inc......... 536,250 40,000 Southwest Gas Corp................. 770,000 20,400 Yankee Energy System, Inc.......... 436,050 3,201,987 UTILITIES -- TELEPHONE -- 1.1% 2,521 AT&T Corp.......................... 109,664 35,000 Frontier Corp...................... 791,875 10,000 U.S. West, Inc..................... 322,500 1,224,039 TOTAL COMMON STOCKS (COST $43,291,432)............... 54,437,745
8 EVERGREEN AMERICAN RETIREMENT FUND (Picture of STATEMENT OF INVESTMENTS -- (CONTINUED) Liberty statue DECEMBER 31, 1996 here)
SHARES VALUE PREFERRED STOCKS -- .0%(A) HEALTHCARE PRODUCTS & SERVICES -- .0%(A) 11,000* Fresenius National Med Care, Inc. Cl. D (COST $1,608)................ $ 1,430 CONVERTIBLE PREFERRED STOCKS -- 10.4% BANKS -- .2% 7,000 ONBANCorp, Inc. 6.75%, Series B.................... 195,125 BUILDING, CONSTRUCTION & FURNISHINGS -- .3% 7,000 Southdown, Inc. $2.875, Series D................... 365,750 COMMUNICATION SYSTEMS & SERVICES -- .7% 30,000 AirTouch Communications 6.00%, 8/16/99..................... 817,500 CONSUMER PRODUCTS & SERVICES -- .4% 5,000 SCI Finance LLC $3.125, Series A TECONS............ 470,625 ELECTRICAL EQUIPMENT & SERVICES -- .4% 6,000 Microsoft Corp. $2.20, Series A.................... 480,750 ENERGY -- .5% 5,000 Nuevo Energy Co. 5.75%, Series A, TECONS............ 268,125 5,000 Valero Energy Corp. $3.125............................. 288,750 556,875 FINANCE & INSURANCE -- 1.9% 20,000 American General Corp. $3.00, Series A, MIPS.............. 1,102,500 15,000 Merrill Lynch & Co., Inc. 7.25%, STRYPES due 6/15/99 (exchangeable for SunAmerica common stock)...................... 997,500 2,100,000 FOOD & BEVERAGE PRODUCTS -- .9% 20,000 Wendy's Financing, I 5.00%, TECONS...................... 1,040,000 SHARES VALUE CONVERTIBLE PREFERRED STOCKS -- CONTINUED HEALTHCARE PRODUCTS & SERVICES -- .3% 10,000 FHP International Corp. 5.00%, Series A.................... $ 305,000 METAL PRODUCTS & SERVICES -- 1.0% 20,000 Timet Capital Trust I 6.625%, 144A, BUCS................. 1,085,000 PAPER & PACKAGING -- 1.2% 20,000 Crown Cork & Seal Co., Inc. 4.50%, MIPS........................ 1,040,000 10,000 James River Corp. Virginia 9.00%, Series P, DECS.............. 315,000 1,355,000 PUBLISHING, BROADCASTING & ENTERTAINMENT -- 1.7% 15,000 AMC Entertainment, Inc. $1.75.............................. 405,000 10,300 Granite Broadcasting Corp. $1.938............................. 581,950 20,000 Merrill Lynch & Co., Inc. 6.00%, STRYPES due 6/15/99 (exchangeable for Cox Communications Class A Common Stock)...................... 445,000 10,000 TCI Communications, Inc. $2.125, Series A................... 388,750 1,197 Times Mirror Co. $1.374, Series B................... 33,366 1,854,066 TEXTILE & APPAREL -- .2% 5,000 Designer Financial Trust 6.00%, 12/30/16 TOPRS.............. 231,250 UTILITIES -- .7% 10,000 MCN Corp., PRIDES 8.75%.............................. 276,250 5,000 Philippine Long Distance Telephone Co., GDS 7.00%, Series III.................. 255,000 5,000 Sprint Corp. 8.25%, DECS........................ 179,375 710,625 TOTAL CONVERTIBLE PREFERRED STOCKS (COST $10,500,382)............... 11,567,566
9 EVERGREEN AMERICAN RETIREMENT FUND (Picture of Liberty STATEMENT OF INVESTMENTS -- (CONTINUED) statue appears here) DECEMBER 31, 1996
PRINCIPAL AMOUNT VALUE CONVERTIBLE DEBENTURES -- 6.1% ENERGY -- .5% $ 500,000 Swift Energy Co. 6.25%, 11/15/06.................... $ 540,000 ELECTRICAL EQUIPMENT & SERVICES -- .2% 250,000 Platinum Technology, Inc. 6.75%, 11/15/10.................... 299,375 FINANCE & INSURANCE -- .3% 100,000 Equitable Cos., Inc. (The) 6.125%, 12/15/24................... 114,125 200,000 Trenwick Group, Inc. 6.00%, 12/15/99.................... 211,000 325,125 HEALTHCARE PRODUCTS & SERVICES -- .9% 1,000,000 Physicians Resource Group, Inc., 144A 6.00%, 12/1/01..................... 986,300 INDUSTRIAL SPECIALTY PRODUCTS & SERVICES -- 1.1% 500,000 Central Garden & Pet Co., 144A 6.30%, 11/15/03.................... 502,500 600,000 Robbins & Myers, Inc. 6.50%, 9/1/03...................... 675,000 1,177,500 OIL FIELD SERVICES -- 2.6% 500,000 Key Energy Group, Inc., 144A 7.00%, 7/1/03...................... 637,500 1,000,000 Nabors Industry, Inc. 5.00%, 5/15/06..................... 1,235,000 1,000,000 Offshore Logistics, Inc., 144A 6.00%, 12/15/03.................... 1,052,500 2,925,000 PUBLISHING, BROADCASTING & ENTERTAINMENT -- .4% 1,000,000 Jacor Communications, Inc. Zero coupon, 6/12/11............... 445,000 UTILITIES -- GAS -- .1% 100,000 Enserch Corp. 6.375%, 4/1/02..................... 99,000 TOTAL CONVERTIBLE DEBENTURES (COST $6,206,640)................ 6,797,300 CORPORATE BONDS -- 4.0% BANKS -- .9% 1,000,000 NationsBank Corp. 6.50%, 8/15/03..................... 982,058 PRINCIPAL AMOUNT VALUE CORPORATE BONDS -- CONTINUED CONSUMER PRODUCTS & SERVICES -- .4% $ 500,000 Pepsico, Inc. 6.875%, 5/15/97.................... $ 502,304 FINANCE & INSURANCE -- 1.8% 1,000,000 American General Finance Corp. 7.125%, 12/1/99.................... 1,020,112 1,000,000 Ford Motor Credit Co. 5.625%, 12/15/98................... 989,445 2,009,557 TELECOMMUNICATION SERVICES & EQUIPMENT -- .9% 1,000,000 GTE Southwest, Inc. 5.82%, 12/1/99..................... 986,681 TOTAL CORPORATE BONDS (COST $4,501,740)................ 4,480,600 U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 22.6% FEDERAL AGRICULTURAL MORTGAGE CORP. MEDIUM-TERM NOTE -- .7% 700,000 7.03%, 5/26/98..................... 711,047 FEDERAL HOME LOAN BANK -- 12.5% 2,000,000 5.65%, 12/29/00.................... 1,954,374 2,000,000 6.13%, 12/14/98.................... 1,996,875 1,000,000 6.195%, 2/5/03..................... 972,500 2,000,000 6.455%, 7/8/98..................... 2,007,812 1,000,000 7.29%, 10/18/01.................... 1,002,344 3,000,000 7.67%, 1/25/07..................... 2,988,750 3,000,000 8.00%, 1/10/12..................... 2,986,875 13,909,530 FEDERAL HOME LOAN MORTGAGE CORP. -- 3.6% 1,000,000 6.773%, 1/7/02..................... 999,063 1,000,000 6.91%, 6/20/05..................... 988,747 2,000,000 7.585%, 9/19/06.................... 2,042,602 4,030,412 FEDERAL NATIONAL MORTGAGE ASSN. -- 3.5% 1,000,000 6.25%, 8/12/03..................... 971,986 1,000,000 6.41%, 3/8/06...................... 981,471 2,000,000 6.68%, 12/28/01.................... 1,995,625 3,949,082 STUDENT LOAN MARKETING ASSN. -- .9% 1,000,000 5.90%, 2/20/01..................... 980,978
10 EVERGREEN AMERICAN RETIREMENT FUND (Picture of Liberty STATEMENT OF INVESTMENTS -- (CONTINUED) statue appears here) DECEMBER 31, 1996
PRINCIPAL AMOUNT VALUE U.S. GOVERNMENT & AGENCY OBLIGATIONS -- CONTINUED U.S. TREASURY BONDS -- 1.4% $1,500,000 7.125%, 2/15/23.................... $ 1,565,625 TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (COST $25,196,094)............... 25,146,674 SHORT-TERM INVESTMENTS -- 13.2% 600,000 A.H. Robins Co., Inc. 5.55%, 2/6/97...................... 596,670 1,400,000 American Home Food Products, Inc. 5.47%, 1/17/97..................... 1,396,597 1,300,000 Eiger Capital Corp. 5.50%, 1/16/97..................... 1,297,021 Federal Home Loan Mortgage Discount Notes 800,000 5.29%, 1/23/97..................... 797,414 1,400,000 5.39%, 1/30/97..................... 1,393,921 3,000,000 Federal National Mortgage Association Discount Notes 5.28%, 2/3/97...................... 2,985,480 300,000 Fleet Funding Corp. 5.60%, 2/4/97...................... 298,413 1,000,000 Gold Crown Managers Acceptance 5.65%, 1/22/97..................... 996,704 300,000 Golden Managers Acceptance Corp. 5.45%, 1/8/97...................... 299,682 400,000 Great Lakes Chemical Corp. 5.65%, 2/7/97...................... 397,677 300,000 Mitsubishi International Corp. 5.55%, 1/9/97...................... 299,630 1,300,000 Montana Blanc Capital Corp. 5.45%, 1/13/97..................... 1,297,639 1,800,000 Riverwoods Funding Corp. 5.60%, 1/6/97...................... 1,798,600 PRINCIPAL AMOUNT VALUE SHORT-TERM INVESTMENTS -- CONTINUED $ 400,000 Swiss Re Financial Products Corp. 5.40%, 1/16/97..................... $ 399,100 500,000 Three Rivers Funding Corp. 5.72%, 1/21/97..................... 498,411 TOTAL SHORT-TERM INVESTMENTS (COST $14,752,959)............... 14,752,959 TOTAL INVESTMENTS -- (COST $104,450,855)...... 105.1 % 117,184,274 OTHER ASSETS AND LIABILITIES -- NET....... (5.1 ) (5,716,655) NET ASSETS................. 100.0 % $111,467,619
* Non-income producing securities. ** At December 31, 1996 the Fund owned 4,000 shares of common stock of First Union Corp. at a cost of $106,108. During the year ended December 31, 1996, the Fund earned $8,800 in dividend income from this investment. These were purchased by the Fund prior to the acquisition of the investment adviser and Lieber & Company by First Union. (a) Less than one tenth of one percent. The following abbreviations are used in this portfolio: ADR -- American Depositary Receipts BUCS -- Beneficial Unsecured Convertible Securities DECS -- Dividend Enhanced Convertible Stock GDS -- Global Depositary Shares MIPS -- Monthly Income Preferred Shares PRIDES -- Provisionally Redeemable Income Debt Exchangeable for Stock STRYPES -- Structured Yield Product Exchangeable for Stock TECONS -- Term Convertible Shares TOPRS -- Trust Originated Preferred Shares Rule 144A securities are restricted as to resale to qualified institutional investors See accompanying notes to financial statements. 11 EVERGREEN AMERICAN RETIREMENT FUND (Picture of Liberty STATEMENT OF ASSETS AND LIABILITIES statue appears here) DECEMBER 31, 1996
ASSETS: Investments at value (identified cost $104,450,855)........................................................... $117,184,274 Cash.......................................................................................................... 108,548 Receivable for Fund shares sold............................................................................... 874,947 Dividends and interest receivable............................................................................. 548,921 Prepaid expenses.............................................................................................. 46,255 Total assets............................................................................................ 118,762,945 LIABILITIES: Payable for investments purchased............................................................................. 7,093,582 Distribution fee payable...................................................................................... 72,867 Accrued advisory fee.......................................................................................... 67,586 Payable for Fund shares repurchased........................................................................... 30,182 Accrued expenses.............................................................................................. 31,109 Total liabilities....................................................................................... 7,295,326 NET ASSETS....................................................................................................... $111,467,619 NET ASSETS CONSIST OF: Paid-in capital............................................................................................... $ 98,741,015 Undistributed net investment income........................................................................... 28,913 Distributions in excess of net realized gain on investment transactions....................................... (35,728) Net unrealized appreciation of investments.................................................................... 12,733,419 Net assets.............................................................................................. $111,467,619 CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE: Class A Shares ($11,115,760 (division sign) 801,904 shares of benefical interest outstanding)................. $13.86 Sales charge -- 4.75% of offering price....................................................................... .69 Maximum offering price.................................................................................. $14.55 Class B Shares ($57,622,320 (division sign) 4,176,659 shares of beneficial interest outstanding).............. $13.80 Class C Shares ($1,486,871 (division sign) 107,549 shares of beneficial interest outstanding)................. $13.83 Class Y Shares ($41,242,668 (division sign) 2,974,648 shares of beneficial interest outstanding).............. $13.86
See accompanying notes to financial statements. 12 EVERGREEN AMERICAN RETIREMENT FUND (Picture of Liberty STATEMENT OF OPERATIONS statue appears here) YEAR ENDED DECEMBER 31, 1996
INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $17,809)......................................... $1,791,668 Interest........................................................................................ 1,705,527 Total investment income................................................................... 3,497,195 EXPENSES: Advisory fee.................................................................................... $ 549,949 Distribution fee-Class A Shares................................................................. 14,426 Distribution fee-Class B Shares................................................................. 199,829 Shareholder services fee-Class B Shares......................................................... 66,610 Distribution fee-Class C Shares................................................................. 5,713 Shareholder services fee-Class C Shares......................................................... 1,904 Transfer agent fee.............................................................................. 73,721 Custodian fee................................................................................... 71,900 Registration and filing fees.................................................................... 50,750 Professional fees............................................................................... 18,371 Reports and notices to shareholders............................................................. 16,745 Trustees' fees and expenses..................................................................... 5,335 Insurance....................................................................................... 1,850 Miscellaneous................................................................................... 12,965 Total expenses............................................................................ 1,090,068 Less: Fee waivers and expense reimbursements.................................................... (28,241) Net expenses.............................................................................. 1,061,827 Net investment income.............................................................................. 2,435,368 NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investment transactions.................................................... 537,906 Net increase in unrealized appreciation of investments.......................................... 6,223,491 Net gain on investments............................................................................ 6,761,397 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................... $9,196,765
See accompanying notes to financial statements. 13 EVERGREEN AMERICAN RETIREMENT FUND (Picture of Liberty STATEMENT OF CHANGES IN NET ASSETS statue appears here)
YEAR ENDED DECEMBER 31, 1996 1995 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income....................................................................... $ 2,435,368 $ 1,556,941 Net realized gain on investment transactions................................................ 537,906 460,019 Net increase in unrealized appreciation of investments...................................... 6,223,491 6,860,189 Net increase in net assets resulting from operations..................................... 9,196,765 8,877,149 DISTRIBUTIONS TO SHAREHOLDERS: FROM NET INVESTMENT INCOME: Class A Shares.............................................................................. (214,502) (15,368) Class B Shares.............................................................................. (839,295) (56,118) Class C Shares.............................................................................. (22,543) (987) Class Y Shares.............................................................................. (1,330,115) (1,498,372) Total distributions from net investment income........................................... (2,406,455) (1,570,845) IN EXCESS OF NET INVESTMENT INCOME: Class A Shares.............................................................................. -- (12) Class B Shares.............................................................................. -- (44) Class C Shares.............................................................................. -- (1) Class Y Shares.............................................................................. -- (1,166) Total distributions in excess of net investment income................................... -- (1,223) FROM NET REALIZED GAIN ON INVESTMENTS: Class A Shares.............................................................................. (61,826) -- Class B Shares.............................................................................. (302,689) -- Class C Shares.............................................................................. (7,483) -- Class Y Shares.............................................................................. (321,583) -- Total distributions from net realized gain on investments................................ (693,581) -- IN EXCESS OF NET REALIZED GAIN ON INVESTMENTS: Class A Shares.............................................................................. (3,185) -- Class B Shares.............................................................................. (15,592) -- Class C Shares.............................................................................. (385) -- Class Y Shares.............................................................................. (16,566) -- Total distributions in excess of net realized gain on investments........................ (35,728) -- Total distributions to shareholders................................................... (3,135,764) (1,572,068) FUND SHARE TRANSACTIONS: Proceeds from shares sold................................................................... 66,932,304 9,254,552 Proceeds from reinvestment of distributions................................................. 2,790,578 1,339,655 Payment for shares redeemed................................................................. (9,928,020) (9,463,471) Net increase resulting from Fund share transactions...................................... 59,794,862 1,130,736 Net increase in net assets............................................................ 65,855,863 8,435,817 NET ASSETS: Beginning of year........................................................................... 45,611,756 37,175,939 End of year (including undistributed net investment income of $28,913 at December 31, 1996)..................................................................................... $111,467,619 $45,611,756
See accompanying notes to financial statements. 14 EVERGREEN AMERICAN RETIREMENT FUND -- CLASS A, B AND C SHARES (Picture of Liberty FINANCIAL HIGHLIGHTS appears here)
CLASS A CLASS B CLASS C JANUARY 3, JANUARY 3, YEAR 1995* YEAR 1995* YEAR ENDED THROUGH ENDED THROUGH ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1996 1995 1996 1995 1996 PER SHARE DATA: Net asset value, beginning of period................... $12.82 $10.65 $12.80 $10.65 $12.81 Income from investment operations: Net investment income................................. .45 .41 .36 .35 .36 Net realized and unrealized gain on investments....... 1.12 2.22 1.09 2.20 1.11 Total from investment operations.................... 1.57 2.63 1.45 2.55 1.47 Less distributions to shareholders from: Net investment income................................. (.42) (.46) (.34) (.40) (.34) Net realized gain on investments...................... (.11) -- (.11) -- (.11) Total distributions................................. (.53) (.46) (.45) (.40) (.45) Net asset value, end of period......................... $13.86 $12.82 $13.80 $12.80 $13.83 TOTAL RETURN**......................................... 12.5% 24.9% 11.5% 24.1% 11.6% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)............. $ 11,116 $1,335 $ 57,622 $4,839 $1,487 Ratios to average net assets: Expenses #............................................ 1.30% 1.37%+ 2.06% 2.12%+ 2.05% Net investment income #............................... 3.53% 3.73%+ 2.79% 2.97%+ 2.80% Portfolio turnover rate................................ 16% 49% 16% 49% 16% Average commission rate paid per share................. $.0619 N/A $.0619 N/A $.0619 JANUARY 3, 1995* THROUGH DECEMBER 31, 1995 PER SHARE DATA: Net asset value, beginning of period................... $10.65 Income from investment operations: Net investment income................................. .36 Net realized and unrealized gain on investments....... 2.19 Total from investment operations.................... 2.55 Less distributions to shareholders from: Net investment income................................. (.39) Net realized gain on investments...................... -- Total distributions................................. (.39) Net asset value, end of period......................... $12.81 TOTAL RETURN**......................................... 24.0% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)............. $110 Ratios to average net assets: Expenses #............................................ 2.10%+ Net investment income #............................... 2.96%+ Portfolio turnover rate................................ 49% Average commission rate paid per share................. N/A
* Commencement of class operations. ** Total return is calculated on net asset value per share for the periods indicated and is not annualized. Initial sales charge or contingent deferred sales charges are not reflected. + Annualized. # Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of operating expenses and net investment income (loss) to average net assets, exclusive of any applicable state expense limitations, would have been the following:
CLASS A CLASS B CLASS C JANUARY 3, JANUARY 3, YEAR 1995* YEAR 1995* YEAR ENDED THROUGH ENDED THROUGH ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1996 1995 1996 1995 1996 Expenses................................... 1.33% 10.96% 2.09% 4.20% 2.08% Net investment income (loss)............... 3.50% (5.86%) 2.76% .89% 2.77% JANUARY 3, 1995* THROUGH DECEMBER 31, 1995 Expenses................................... 103.52% Net investment income (loss)............... (98.46%)
See accompanying notes to financial statements. 15 EVERGREEN AMERICAN RETIREMENT FUND -- CLASS Y SHARES (Picture of Liberty FINANCIAL HIGHLIGHTS -- (CONTINUED) statue appears here)
YEAR ENDED DECEMBER 31, 1996 1995 1994 1993 PER SHARE DATA: Net asset value, beginning of year.......................................................... $12.83 $10.67 $11.60 $10.95 Income (loss) from investment operations: Net investment income...................................................................... .48 .47 .60 .56 Net realized and unrealized gain (loss) on investments..................................... 1.10 2.16 (.93) .96 Total from investment operations......................................................... 1.58 2.63 (.33) 1.52 Less distributions to shareholders from: Net investment income...................................................................... (.44) (.47) (.60) (.60) Net realized gain on investments........................................................... (.11) -- -- (.24) In excess of net realized gain on investments.............................................. -- -- -- (.03) Total distributions...................................................................... (.55) (.47) (.60) (.87) Net asset value, end of year................................................................ $13.86 $12.83 $10.67 $11.60 TOTAL RETURN*............................................................................... 12.6% 25.1% (2.9%) 14.1% RATIOS & SUPPLEMENTAL DATA: Net assets, end of year (000's omitted).................................................... $41,243 $39,327 $37,176 $37,336 Ratios to average net assets: Expenses................................................................................... 1.05%# 1.26% 1.28% 1.36% Net investment income...................................................................... 3.65%# 3.96% 5.40% 5.13% Portfolio turnover rate..................................................................... 16% 49% 136% 92% Average commission rate paid per share...................................................... $.0619 N/A N/A N/A 1992 PER SHARE DATA: Net asset value, beginning of year.......................................................... $10.52 Income (loss) from investment operations: Net investment income...................................................................... .66 Net realized and unrealized gain (loss) on investments..................................... .55 Total from investment operations......................................................... 1.21 Less distributions to shareholders from: Net investment income...................................................................... (.61) Net realized gain on investments........................................................... (.17) In excess of net realized gain on investments.............................................. -- Total distributions...................................................................... (.78) Net asset value, end of year................................................................ $10.95 TOTAL RETURN*............................................................................... 11.8% RATIOS & SUPPLEMENTAL DATA: Net assets, end of year (000's omitted).................................................... $23,781 Ratios to average net assets: Expenses................................................................................... 1.51%# Net investment income...................................................................... 6.23%# Portfolio turnover rate..................................................................... 151% Average commission rate paid per share...................................................... N/A
* Total return is calculated on net asset value per share for the periods indicated and is not annualized. # Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of operating expenses and net investment income to average net assets would have been the following:
YEAR YEAR ENDED ENDED DECEMBER 31, 1996 DECEMBER 31, 1992 Expenses........................................................................ 1.09% 1.59% Net investment income........................................................... 3.61% 6.15%
See accompanying notes to financial statements. 16 EVERGREEN BALANCED FUND (Picture of certificates appear here) A REPORT FROM YOUR PORTFOLIO MANAGER DEAN HAWES We are pleased to present the 1996 Annual Report for (Picture of Dean Hawes Evergreen Balanced Fund. The Fund completed its second appears here) consecutive year of double-digit performance, with a total return (Class Y, no-load shares) of 11.7%* for the 12 months ended December 31, 1996, as compared with the return for the S&P 500 Reinvested Index** of 23.0%, and for the Lehman Brothers Government/Corporate Index*** of 2.9%. The total return at net asset value for the Fund's Class A shares was 11.4%*. (Please see page 19 for additional performance information.) Toward the end of 1995, we began to shift the Fund from an allocation of approximately 60% stocks and 40% bonds to a more conservative position with a decreased stock exposure and an increased bond exposure. The Fund slightly underperformed the benchmark Balanced Composite Index+ in 1996 due primarily to the fact that it remained modestly underweighted in equities versus the benchmark. Our strategy was to be positioned to take advantage of any stock market gains while also somewhat reducing our risk exposure. In 1996, our largest sector weighting was in financials. We believe benign inflation and ongoing industry consolidation will continue to favor financial stocks. Due to the strong outlook in this area, we anticipate remaining overweighted. We remained underweighted in utilities, although we did modestly increase that position throughout the latter half of the year. We began the year slightly underweighted in technology, but modestly increased our exposure as the year progressed with names such as Intel Corp., Cisco Systems Inc., and Compaq Computer Corp. A very positive secular story remains intact for the technology sector as global competition and the quest for productivity gains are a favorable backdrop for the industry. Stock selection will be paramount, but we do look to be at least market weighted. Energy demand going into the year 2000 is shifting upward versus the past three to five years. This industry is restructuring, and the cost of finding oil is declining as seismic technology improves. Fundamental prospects remain favorable, and we don't feel current prices reflect the rise in crude prices during the past year. With names such as Texaco, Inc., Mobil Corp. and Unocal Corp., we feel that we are positioned to benefit from the positive fundamentals within the energy sector. Within the consumer non-durable sector where we remain underweighted; healthcare is our FIGURES REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS. * PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. INVESTORS' SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CLASS A SHARES ARE SUBJECT TO A MAXIMUM 4.75% FRONT-END SALES CHARGE, WHICH IS NOT REFLECTED IN THE PERFORMANCE FIGURES ABOVE, AND IF REFLECTED, PERFORMANCE WOULD BE LOWER. THE FUND ALSO OFFERS CLASS B SHARES WHICH ARE SUBJECT TO A MAXIMUM 5% CONTINGENT DEFERRED SALES CHARGE, AND CLASS C SHARES WHICH ARE SUBJECT TO A 1% CONTINGENT DEFERRED SALES CHARGE WITHIN THE FIRST YEAR OF PURCHASE. PERFORMANCE FOR THESE CLASSES OF SHARES MAY BE DIFFERENT. ** THE S&P 500 IS AN UNMANAGED INDEX OF COMMON STOCKS IN INDUSTRY, TRANSPORTATION, FINANCE, AND PUBLIC UTILITIES, DENOTING GENERAL MARKET PERFORMANCE AS MONITORED BY STANDARD & POOR'S CORP. *** THE LEHMAN BROTHERS GOVERNMENT/CORPORATE INDEX IS AN UNMANAGED REINVESTED INDEX OF GOVERNMENT AND CORPORATE BONDS WITH REMAINING MATURITIES OF 1 TO 7 YEARS AND RATED SINGLE A OR HIGHER. + THE BALANCED COMPOSITE INDEX IS A PROPRIETARY INDEX CONSISTING OF A 55% WEIGHTING IN THE S&P 500, 40% IN THE LEHMAN BROTHERS GOVERNMENT/CORPORATE INDEX, AND 5% IN 91-DAY U.S. TREASURY BILLS. AN INVESTMENT CAN NOT BE MADE IN AN INDEX. 17 EVERGREEN BALANCED FUND (Picture of certificates appear here) A REPORT FROM YOUR PORTFOLIO MANAGER -- (CONTINUED) area of preference. Longer-term demographic trends are favorable and shorter-term earnings visibility is good. Thus, we have added Lincare Holdings, Inc., the second largest provider of home respiratory services in the nation. Looking to 1997, we expect a year of moderation. Stocks completed two outstanding years of returns and we anticipate them to take a breather. We anticipate the bond market to continue its second-half recovery and provide modest returns as well. Our current asset allocation of approximately 54% stocks, 42% bonds and 4% cash and short-term investments should, we believe, position the Fund well for the coming year. We view bonds as a good value and our fixed income segment has a duration slightly longer than its benchmark. Any rise in interest rates would be viewed as an opportunity to extend maturity. On the equity side, we would view any correction during the year as an opportunity to increase our equity holdings. We feel that our current asset allocation will allow the Fund to take advantage of any upswing in the financial markets while simultaneously helping to minimize our risk should the markets retreat. Thank you for your investment in Evergreen Balanced Fund. 18 EVERGREEN BALANCED FUND (Picture of certificates appear here) RESULTS TO DATE PERFORMANCE OF $10,000 INVESTED IN THE EVERGREEN BALANCED FUND The graphs below compare a $10,000 investment in the Evergreen Balanced Fund (Class A, Class B, Class C and Class Y Shares) with a similar investment in the S&P 500 and Lehman Brothers Government/Corporate Bond Indexes ("Indexes"). [CHARTS TO FOLLOW.] CLASS A 1-YEAR TOTAL RETURN = 6.1% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION = 10.9% $8,000 $12,000 $16,000 $20,000 $24,000 6/10/91* 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 CLASS B 1-YEAR TOTAL RETURN = 5.7% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION = 9.6% $10,000 $12,000 $14,000 $16,000 $18,000 $20,000 1/26/93* 12/31/93 12/31/94 12/31/95 12/31/96 CLASS C 1-YEAR TOTAL RETURN = 9.3% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION = 13.1% $9,000 $11,000 $13,000 $15,000 $17,000 9/2/94* 12/31/94 12/31/95 12/31/96 CLASS Y 1-YEAR TOTAL RETURN = 11.7% AVERAGE ANNUAL COMPOUND RETURN: 5-YEAR = 10.7% SINCE INCEPTION = 11.6% $10,000 $14,000 $18,000 $22,000 $26,000 4/1/91* 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 EVERGREEN BALANCED FUND S&P 500 INDEX LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX *Commencement of class operations. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS ARE NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED. For the purposes of the graphs and the accompanying tables, it has been assumed that (a) the maximum sales charge of 4.75% was deducted from the initial $10,000 investment in Class A Shares; (b) the maximum applicable contingent deferred sales charge was deducted from the value of the investment in Class B and Class C Shares, assuming full redemption on December 31, 1996; (c) all recurring fees (including investment advisory fees) were deducted; and (d) all dividends and distributions were reinvested. The Indexes are unmanaged and include the reinvestment of income, but do not reflect the payment of transaction costs and advisory fees associated with an investment in the Fund. 19 EVERGREEN BALANCED FUND (Picture of certificates STATEMENT OF INVESTMENTS appears here) DECEMBER 31, 1996
SHARES VALUE COMMON STOCKS -- 53.8% AEROSPACE & DEFENSE -- .3% 40,000 AlliedSignal Inc.................. $ 2,680,000 BANKS -- 5.9% 140,000 Banc One Corp..................... 6,020,000 100,000 BankAmerica Corp.................. 9,975,000 36,800 Bank of Boston Corp............... 2,364,400 190,000 CoreStates Financial Corp......... 9,856,250 125,000 First Chicago NBD Corp............ 6,718,750 180,000 National City Corp................ 8,077,500 120,000 NationsBank Corp.................. 11,730,000 54,741,900 BUILDING, CONSTRUCTION & FURNISHINGS -- .4% 100,000 Masco Corp........................ 3,600,000 BUSINESS EQUIPMENT & SERVICES -- 1.8% 310,000 *Cabletron Sys., Inc.............. 10,307,500 100,000 *Cisco Systems, Inc............... 6,362,500 16,670,000 CHEMICAL & AGRICULTURAL PRODUCTS -- 1.8% 130,000 Dow Chemical Co. (The)............ 10,188,750 75,000 Du Pont (E.I.) de Nemours......... 7,078,125 17,266,875 CONSUMER PRODUCTS & SERVICES -- 4.0% 210,000 American Brands, Inc.............. 10,421,250 80,000 Eastman Kodak Co.................. 6,420,000 115,000 General Motors Corp............... 6,411,250 125,000 Philip Morris Cos., Inc........... 14,078,125 37,330,625 DIVERSIFIED COMPANIES -- 3.0% 150,000 General Electric Co............... 14,831,250 140,000 Textron Inc....................... 13,195,000 28,026,250 ELECTRICAL EQUIPMENT & SERVICES -- 1.5% 150,000 Emerson Electric Co............... 14,512,500 ENERGY -- 7.0% 50,000 Atlantic Richfield Co............. 6,625,000 150,000 Chevron Corp...................... 9,750,000 145,000 Exxon Corp........................ 14,210,000 55,000 Mobil Corp........................ 6,723,750 125,000 Sonat, Inc........................ 6,437,500 SHARES VALUE
ENERGY -- CONTINUED 140,000 Texaco, Inc....................... $ 13,737,500 200,000 Unocal Corp....................... 8,125,000 65,608,750 FINANCE & INSURANCE -- 2.2% 110,000 Allstate Corp. (The).............. 6,366,250 200,000 Providian Corp.................... 10,275,000 50,900 UNUM Corp......................... 3,677,525 20,318,775 FOOD & BEVERAGE PRODUCTS -- 1.9% 110,350 American Stores Co................ 4,510,556 250,400 McCormick & Co., Inc.............. 5,900,050 200,000 Sara Lee Corp..................... 7,450,000 17,860,606 HEALTHCARE PRODUCTS & SERVICES -- 4.6% 110,000 Bristol-Myers Squibb Co........... 11,962,500 225,000 *Lincare Holdings, Inc............ 9,225,000 150,000 Mallinckrodt, Inc................. 6,618,750 165,000 Schering-Plough Corp.............. 10,683,750 200,000 *Tenet Healthcare Corp............ 4,375,000 42,865,000 INDUSTRIAL SPECIALTY PRODUCTS & SERVICES -- 1.3% 250,000 Weyerhaeuser Co................... 11,843,750 INFORMATION SERVICES & TECHNOLOGY -- 3.1% 80,000 *Compaq Computer Corp............. 5,940,000 200,000 Hewlett-Packard Co................ 10,050,000 98,600 Intel Corp........................ 12,910,437 28,900,437 METAL PRODUCTS & SERVICES -- .5% 70,000 Phelps Dodge Corp................. 4,725,000 OFFICE EQUIPMENT & SUPPLIES -- 1.1% 180,000 Pitney Bowes, Inc................. 9,810,000 OIL -- 1.0% 150,000 Ashland Inc....................... 6,581,250 100,000 Ultramar Diamond Shamrock Corp.... 3,162,500 9,743,750 PAPER & PACKAGING -- 1.0% 230,000 International Paper Co............ 9,286,250
20 EVERGREEN BALANCED FUND (Picture of certificates STATEMENT OF INVESTMENTS -- (CONTINUED) appear here) DECEMBER 31, 1996
SHARES VALUE COMMON STOCKS -- CONTINUED REAL ESTATE -- 1.2% 280,000 Healthcare Realty Trust, Inc...... $ 7,420,000 100,500 Highwoods Properties, Inc......... 3,391,875 10,811,875 RETAILING & WHOLESALE -- 1.9% 100,000 Dayton Hudson Corp................ 3,925,000 100,000 Dillard Department Stores, Inc. Cl. A............................. 3,087,500 125,000 May Department Stores Co.......... 5,843,750 100,000 Sears, Roebuck & Co............... 4,612,500 17,468,750 TRANSPORTATION -- 2.2% 114,822 Conrail, Inc...................... 11,439,142 100,000 Norfolk Southern Corp............. 8,750,000 20,189,142 UTILITIES -- 6.1% 148,000 Bell Atlantic Corp................ 9,583,000 268,200 Carolina Power & Light Co......... 9,789,300 75,000 CMS Energy Corp................... 2,521,875 150,000 GPU, Inc.......................... 5,043,750 260,000 GTE Corp.......................... 11,830,000 160,000 SBC Communications, Inc........... 8,280,000 450,000 Southern Co....................... 10,181,250 57,229,175 TOTAL COMMON STOCKS (COST $343,650,709).......... 501,489,410 PRINCIPAL AMOUNT CORPORATE BONDS -- 11.6% BANKS -- 2.0% $ 3,000,000 Boatmen's Bancshares, Inc. 6.75%, 3/15/03.................... 2,987,319 5,000,000 First Chicago Corp. 9.875%, 8/15/00................... 5,531,845 10,000,000 NationsBank Corp. 7.625%, 4/15/05................... 10,362,800 18,881,964 CHEMICAL & AGRICULTURAL PRODUCTS -- .6% 5,000,000 Dow Chemical Co. 8.625%, 4/1/06.................... 5,573,985 CONSUMER PRODUCTS & SERVICES -- .5% 5,000,000 Philip Morris Cos., Inc. 8.65%, 5/15/98.................... 5,162,680 PRINCIPAL AMOUNT VALUE CORPORATE BONDS -- CONTINUED ENERGY -- 1.0% $ 4,000,000 Atlantic Richfield Co. 9.00%, 4/1/21..................... $ 4,747,448 4,400,000 Texaco, Inc. 7.90%, 2/13/97.................... 4,411,207 9,158,655 FINANCE & INSURANCE -- 2.3% 26,072 CIT Group Holdings, Inc. 4.70%, 6/15/18.................... 26,037 5,500,000 Dean Witter, Discover & Co. 6.75%, 10/15/13................... 5,137,522 5,500,000 General Electric Capital Corp. 8.75%, 3/14/03.................... 6,062,694 5,000,000 Merrill Lynch, Pierce, Fenner & Smith, Inc. 7.00%, 4/27/08.................... 4,946,560 5,000,000 Smith Barney Holdings, Inc. 5.50%, 1/15/99.................... 4,928,795 21,101,608 FOOD & BEVERAGE PRODUCTS -- 1.1% 5,000,000 General Mills, Inc. 9.00%, 12/20/02................... 5,562,820 4,250,000 PepsiCo, Inc. 7.625%, 11/1/98................... 4,358,494 9,921,314 HEALTHCARE PRODUCTS & SERVICES -- .5% 5,000,000 Baxter International 7.25%, 2/15/08.................... 5,095,175 INDUSTRIAL SPECIALTY PRODUCTS & SERVICES -- 2.0% 7,000,000 Jet Equiptment Trust, 144A 9.41%, 6/15/10.................... 7,764,631 10,000,000 Loews Corp. 6.75%, 12/15/06................... 9,725,410 1,400,000 Waste Management, Inc. 8.75%, 5/1/18..................... 1,566,004 19,056,045 MANUFACTURING -- DISTRIBUTING -- .5% 4,300,000 Stanley Works, 7.375%, 12/15/02.................. 4,454,146 MORTGAGE BACKED SECURITIES -- .1% 479,627 Fleet Financial Home Equity Trust 6.70%, 1/16/06.................... 480,955
21 EVERGREEN BALANCED FUND (Picture of certificates STATEMENT OF INVESTMENTS -- (CONTINUED) appear here) DECEMBER 31, 1996
PRINCIPAL AMOUNT VALUE CORPORATE BONDS -- CONTINUED SOVEREIGN GOVERNMENT -- .6% $ 5,000,000 Ontario Province Canada, 7.75%, 6/4/02..................... $ 5,281,345 UTILITIES -- .4% 3,600,000 Union Electric Co., 8.00%, 12/15/22................... 3,748,266 TOTAL CORPORATE BONDS (COST $103,934,276).......... 107,916,138 U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 30.2% GOVERNMENT NATIONAL MORTGAGE ASSN. -- 1.9% 3,095,440 8.50%, 5/15/21.................... 3,209,584 2,042,492 8.50%, 7/15/21.................... 2,117,809 3,822,379 8.50%, 6/15/22.................... 3,963,330 2,051,325 9.00%, 9/15/21.................... 2,164,148 3,514,822 9.00%, 10/15/21................... 3,708,137 1,954,138 9.50%, 2/15/21.................... 2,113,522 17,276,530 INTERNATIONAL BANK FOR RECONSTRUCTION & DEVELOPMENT CO. -- .3% 2,750,000 7.95%, 5/15/16.................... 3,015,337 U.S. TREASURY BONDS -- 15.5% 10,000,000 7.25%, 8/15/22.................... 10,581,250 20,000,000 7.625%, 2/15/07................... 20,993,740 24,100,000 8.75%, 11/15/08................... 27,074,832 20,000,000 8.75%, 5/15/17.................... 24,393,740 15,000,000 8.75%, 5/15/20.................... 18,454,680 17,000,000 8.875%, 8/15/17................... 20,989,679 17,500,000 9.125%, 5/15/18................... 22,148,437 144,636,358 U.S. TREASURY NOTES -- 12.5% 12,600,000 4.75%, 2/15/97.................... 12,584,250 10,000,000 5.50%, 11/15/98................... 9,928,120 PRINCIPAL AMOUNT VALUE U.S. GOVERNMENT & AGENCY OBLIGATIONS -- CONTINUED U.S. TREASURY NOTES -- CONTINUED $ 8,000,000 6.375%, 7/15/99................... $ 8,077,496 10,000,000 6.50%, 4/30/99.................... 10,118,750 10,000,000 7.125%, 2/29/00................... 10,296,870 10,000,000 7.75%, 11/30/99................... 10,446,870 10,000,000 7.75%, 2/15/01.................... 10,571,870 20,000,000 8.00%, 1/15/97.................... 20,012,500 10,000,000 8.00%, 8/15/99.................... 10,475,000 10,000,000 8.125%, 2/15/98................... 10,231,250 3,500,000 8.875%, 11/15/98.................. 3,680,467 116,423,443 TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (COST $279,053,149).......... 281,351,668
REPURCHASE AGREEMENT -- .4% 4,114,966 Donaldson, Lufkin & Jenrette Securities Corp., 6.50%, dated 12/31/96, due 1/2/97 -- collateralized by $1,284,000 U.S. Treasury Notes, 8.0%, 5/15/01 and $2,775,000 U.S. Treasury Note, 6.0%, 9/30/98; value including accrued interest -- $4,198,309 (COST $4,114,966)................. 4,114,966 TOTAL INVESTMENTS -- (COST $730,753,100).... 96.0% 894,872,182 OTHER ASSETS AND LIABILITIES -- NET..... 4.0 36,884,085 NET ASSETS............... 100.0% $931,756,267
* Non-income producing securities. Rule 144A securities are restricted as to resale to qualified institutional investors. See accompanying notes to financial statements. 22 EVERGREEN BALANCED FUND (Picture of certificates STATEMENT OF ASSETS AND LIABILITIES appears here) DECEMBER 31, 1996
ASSETS: Investments at value (identified cost $730,753,100)........................................................... $894,872,182 Receivable for Fund shares sold............................................................................... 34,539,226 Dividends and interest receivable............................................................................. 7,657,128 Prepaid expenses.............................................................................................. 52,616 Total assets............................................................................................ 937,121,152 LIABILITIES: Payable for Fund shares repurchased........................................................................... 4,703,463 Accrued advisory fee.......................................................................................... 408,905 Accrued expenses.............................................................................................. 229,989 Distribution fee payable...................................................................................... 22,528 Total liabilities....................................................................................... 5,364,885 NET ASSETS....................................................................................................... $931,756,267 NET ASSETS CONSIST OF: Paid-in capital............................................................................................... $767,514,354 Undistributed net investment income........................................................................... 115,118 Undistributed net realized gain on investment transactions.................................................... 7,713 Net unrealized appreciation of investments.................................................................... 164,119,082 Net assets.............................................................................................. $931,756,267 CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE: Class A Shares ($43,168,982 (division sign) 3,333,437 shares of beneficial interest outstanding)................. $ 12.95 Sales charge -- 4.75% of offering price.......................................................................... .65 Maximum offering price........................................................................................ $13.60 Class B Shares ($109,591,221 (division sign) 8,453,724 shares of beneficial interest outstanding)................ $12.96 Class C Shares ($354,688 (division sign) 27,541 shares of beneficial interest outstanding)....................... $12.88 Class Y Shares ($778,641,376 (division sign) 60,120,604 shares of beneficial interest outstanding)............... $12.95
See accompanying notes to financial statements. 23 EVERGREEN BALANCED FUND (Picture of STATEMENT OF OPERATIONS certificates appear here) YEAR ENDED DECEMBER 31, 1996
INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $45,707)...................................... $ 14,642,260 Interest..................................................................................... 31,431,682 Total investment income................................................................ 46,073,942 EXPENSES: Advisory fee................................................................................. $4,765,912 Administrative personnel and service fees.................................................... 459,486 Distribution fee -- Class A Shares........................................................... 107,023 Distribution fee -- Class B Shares........................................................... 810,803 Shareholder services fee -- Class B Shares................................................... 270,267 Distribution fee -- Class C Shares........................................................... 1,883 Shareholder services fee -- Class C Shares................................................... 628 Transfer agent fee........................................................................... 324,216 Custodian fee................................................................................ 229,946 Reports and notices to shareholders.......................................................... 128,217 Registration and filing fees................................................................. 114,972 Professional fees............................................................................ 39,953 Trustees' fees and expenses.................................................................. 25,829 Insurance.................................................................................... 10,253 Miscellaneous................................................................................ 15,779 Total expenses......................................................................... 7,305,167 Net investment income........................................................................... 38,768,775 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on investment transactions................................................. 74,563,015 Net decrease in unrealized appreciation of investments....................................... (8,122,510) Net gain on investments......................................................................... 66,440,505 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................ $105,209,280
See accompanying notes to financial statements. 24 EVERGREEN BALANCED FUND (Picture of certificates STATEMENT OF CHANGES IN NET ASSETS appear here)
YEAR ENDED DECEMBER 31, 1996 1995 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income.................................................................... $ 38,768,775 $ 40,717,357 Net realized gain on investment transactions............................................. 74,563,015 33,813,027 Net change in unrealized appreciation of investments..................................... (8,122,510) 154,935,970 Net increase in net assets resulting from operations............................... 105,209,280 229,466,354 DISTRIBUTIONS TO SHAREHOLDERS FROM: NET INVESTMENT INCOME: Class A Shares........................................................................... (1,699,709) (1,620,476) Class B Shares........................................................................... (3,505,791) (3,381,480) Class C Shares........................................................................... (9,398) (8,000) Class Y Shares........................................................................... (33,878,986) (35,087,211) Total distributions from net investment income........................................ (39,093,884) (40,097,167) NET REALIZED GAIN ON INVESTMENTS: Class A Shares........................................................................... (3,402,462) (1,423,252) Class B Shares........................................................................... (8,639,808) (3,696,589) Class C Shares........................................................................... (28,096) (10,158) Class Y Shares........................................................................... (62,657,565) (28,740,172) Total distributions from net realized gain on investments............................. (74,727,931) (33,870,171) Total distributions to shareholders................................................ (113,821,815) (73,967,338) FUND SHARE TRANSACTIONS: Proceeds from shares sold................................................................ 234,680,222 170,978,316 Proceeds from reinvestment of distributions.............................................. 64,783,444 66,166,480 Payment for shares redeemed.............................................................. (328,365,114) (343,286,923) Net decrease resulting from Fund share transactions................................... (28,901,448) (106,142,127) Net increase (decrease) in net assets.............................................. (37,513,983) 49,356,889 NET ASSETS: Beginning of year........................................................................ 969,270,250 919,913,361 End of year (including undistributed net investment income of $115,118 and $612,856, respectively).......................................................................... $ 931,756,267 $ 969,270,250
See accompanying notes to financial statements. 25 EVERGREEN BALANCED FUND -- CLASS A AND B SHARES FINANCIAL HIGHLIGHTS (Picture of certificates appear here)
CLASS B SHARES CLASS A SHARES YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, 1996 1995 1994 1993 1992 1996 1995 PER SHARE DATA: Net asset value, beginning of period...... $13.12 $11.17 $12.07 $11.41 $11.02 $13.13 $11.18 Income (loss) from investment operations: Net investment income.................... .54 .51 .43 .42 .42 .43 .42 Net realized and unrealized gain (loss) on investments.......................... .94 2.40 (.71) .75 .43 .95 2.40 Total from investment operations....... 1.48 2.91 (.28) 1.17 .85 1.38 2.82 Less distributions to shareholders from: Net investment income.................... (.54) (.50) (.43) (.42) (.42) (.44) (.41) Net realized gain on investments......... (1.11) (.46) (.19) (.09) (.04) (1.11) (.46) In excess of net investment income....... -- -- -- -- -- -- -- Total distributions.................... (1.65) (.96) (.62) (.51) (.46) (1.55) (.87) Net asset value, end of period............ $12.95 $13.12 $11.17 $12.07 $11.41 $12.96 $13.13 TOTAL RETURN+............................. 11.4% 26.5% (2.4%) 10.4% 7.9% 10.6% 25.6% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)................................ $43,169 $41,849 $41,010 $35,032 $17,408 $ 109,591 $108,983 Ratios to average net assets: Expenses................................. .89% .88% .89% .91% .91% 1.64% 1.62% Net investment income.................... 3.95% 4.05% 3.69% 3.61% 3.93% 3.19% 3.30% Portfolio turnover rate................... 34% 37% 35% 19% 12% 34% 37% Average commission rate paid per share.... $.0593 N/A N/A N/A N/A $.0593 N/A JANUARY 26, 1993* THROUGH DECEMBER 31, 1994 1993 PER SHARE DATA: Net asset value, beginning of period...... $12.08 $11.54 Income (loss) from investment operations: Net investment income.................... .36 .34 Net realized and unrealized gain (loss) on investments.......................... (.71) .65 Total from investment operations....... (.35) .99 Less distributions to shareholders from: Net investment income.................... (.36) (.34) Net realized gain on investments......... (.19) (.09) In excess of net investment income....... -- (.02) Total distributions.................... (.55) (.45) Net asset value, end of period............ $11.18 $12.08 TOTAL RETURN+............................. (3.0%) 8.7% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)................................ $100,052 $65,475 Ratios to average net assets: Expenses................................. 1.48% 1.41%++ Net investment income.................... 3.12% 3.09%++ Portfolio turnover rate................... 35% 19% Average commission rate paid per share.... N/A N/A
* Commencement of class operations. + Total return is calculated on net asset value per share for the periods indicated and is not annualized. Initial sales charge or contingent deferred sales charge is not reflected. ++ Annualized. See accompanying notes to financial statements. 26 EVERGREEN BALANCED FUND -- CLASS C AND Y SHARES FINANCIAL HIGHLIGHTS -- (CONTINUED) (Picture of certificates appear here)
CLASS C SHARES SEPTEMBER 2, 1994* CLASS Y SHARES YEAR ENDED THROUGH DECEMBER 31, DECEMBER 31, YEAR ENDED DECEMBER 31, 1996 1995 1994 1996 1995 1994 PER SHARE DATA: Net asset value, beginning of period............. $13.11 $11.17 $12.00 $13.12 $11.17 $12.07 Income (loss) from investment operations: Net investment income........................... .40 .41 .18 .57 .54 .46 Net realized and unrealized gain (loss) on investments.................................... .93 2.40 (.61) .95 2.40 (.71) Total from investment operations.............. 1.33 2.81 (.43) 1.52 2.94 (.25) Less distributions to shareholders from: Net investment income........................... (.45) (.41) (.21) (.58) (.53) (.46) Net realized gain on investments................ (1.11) (.46) (.19) (1.11) (.46) (.19) Total distributions........................... (1.56) (.87) (.40) (1.69) (.99) (.65) Net asset value, end of period................... $12.88 $13.11 $11.17 $12.95 $13.12 $11.17 TOTAL RETURN+.................................... 10.2% 25.5% (3.6%) 11.7% 26.8% (2.2%) RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)........ $355 $300 $195 $ 778,641 $818,137 $778,657 Ratios to average net assets: Expenses........................................ 1.65% 1.62% 1.64%++ .64% .62% .64% Net investment income........................... 3.19% 3.31% 3.23%++ 4.19% 4.30% 3.93% Portfolio turnover rate.......................... 34% 37% 35% 34% 37% 35% Average commission rate paid per share........... $ .0593 N/A N/A $.0593 N/A N/A 1993 1992 PER SHARE DATA: Net asset value, beginning of period............. $11.41 $11.02 Income (loss) from investment operations: Net investment income........................... .45 .46 Net realized and unrealized gain (loss) on investments.................................... .75 .42 Total from investment operations.............. 1.20 .88 Less distributions to shareholders from: Net investment income........................... (.45) (.45) Net realized gain on investments................ (.09) (.04) Total distributions........................... (.54) (.49) Net asset value, end of period................... $12.07 $11.41 TOTAL RETURN+.................................... 10.7% 8.2% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)........ $760,147 $520,232 Ratios to average net assets: Expenses........................................ .66% .66% Net investment income........................... 3.86% 4.20% Portfolio turnover rate.......................... 19% 12% Average commission rate paid per share........... N/A N/A
* Commencement of class operations. + Total return is calculated on net asset value per share for the periods indicated and is not annualized. Contingent deferred sales charge is not reflected. ++ Annualized. See accompanying notes to financial statements. 27 EVERGREEN FOUNDATION FUND (Picture of statue appears here) A REPORT FROM YOUR PORTFOLIO MANAGER STEPHEN A. LIEBER In 1996, Evergreen Foundation Fund provided an 11.5%* total (Picture of return (Class Y, no-load shares). Since inception on January Stephen A. Lieber 2, 1990, through December 31, 1996, the Fund (Class Y shares) appears here) has provided an average annual compound return of 16.3%. The Fund's five-year average annual compound return ended December 31, was 14.7%. The 12-month total return ended December 31, and the average annual compound return for the period since their inception on January 31, 1995, through December 31, 1996, for the Fund's Class A shares were 6.0% and 17.3%, respectively. (Please see page 31 for additional performance information.) Nineteen-ninety-six was an unusual year in the history of this Fund, with a substantial decline in the United States government bond market negatively affecting its performance in the first five months. During the first half of the year, the bond decline was only partially offset by a rise in the Fund's common stock portfolio. In the second half of the year, there was a major increase in the common stock portfolio and a sizable bond market recovery. For the year, common stocks drove the performance of the Fund with their total return, as a group, of 28.9%, nearly 600 basis points in excess of that of the S&P 500 Reinvested Index** which returned 23.0% for the year. The fixed income portfolio provided a 1.0% decline for the period, as compared with a 2.9% total return for the Lehman Government/Corporate Bond Index***. While aiming primarily to invest in common stocks, we did take the opportunity of an extraordinary drop in the bond market in August to purchase long-term U. S. Treasury bonds on yields as high as 7.3%, which contrasted favorably with the 6.6% available on long-term U.S. Treasuries at the year-end. Inflation fears led to a rising so-called "inflation premium" in the bond market, bringing the sharp decline through May. These fears were stimulated by the publication of statistics showing a rising trend of employment. While our forecasts and analysis of current trends did not suggest that inflation would increase -- which proved correct in full-year statistics -- nonetheless, we recognized that in the prevailing environment, we could best seek returns by shifting to a higher proportion of stocks in the portfolio. By year-end, the asset allocation had shifted to 56.2% in equities, 35.3% in intermediate and long-term bonds, and 8.5% in short-term cash equivalents, as compared with the beginning of the year's 42.3% in equities, 48.1% in long-term bonds, and 9.6% in short-term cash equivalents. This sizable reallocation of assets is consistent with the way the Fund has been managed since its inception. While striving to maintain a low-risk and comparatively high-yield portfolio of the highest quality bonds as a risk averse core for the Fund's investments, we also seek to provide capital appreciation primarily through investment in common stocks. FIGURES REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS. * PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. INVESTORS' SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CLASS A SHARES ARE SUBJECT TO A MAXIMUM 4.75% FRONT END SALES CHARGE. THE FUND ALSO OFFERS CLASS B SHARES WHICH ARE SUBJECT TO A MAXIMUM 5% CONTINGENT DEFERRED SALES CHARGE, AND CLASS C SHARES WHICH ARE SUBJECT TO A 1% CONTINGENT DEFERRED SALES CHARGE WITHIN THE FIRST YEAR OF PURCHASE. PERFORMANCE FOR THESE CLASSES OF SHARES MAY BE DIFFERENT. ** THE S&P 500 IS AN UNMANAGED INDEX OF COMMON STOCKS IN INDUSTRY, TRANSPORTATION, FINANCE, AND PUBLIC UTILITIES, DENOTING GENERAL MARKET PERFORMANCE AS MONITORED BY STANDARD & POOR'S CORP. *** THE LEHMAN BROTHERS GOVERNMENT/CORPORATE INDEX IS AN UNMANAGED REINVESTED INDEX OF GOVERNMENT AND CORPORATE BONDS WITH REMAINING MATURITIES OF 1 TO 7 YEARS AND RATED SINGLE A OR HIGHER. AN INVESTMENT CAN NOT BE MADE IN AN INDEX. 28 EVERGREEN FOUNDATION FUND (Picture of statue appears here) A REPORT FROM YOUR PORTFOLIO MANAGER -- (CONTINUED) Our strategy for the use of cash equivalents was to treat these funds as a reserve to buy common stocks in periods of market volatility, and sector or company weakness. They allowed for a quick and sizable response to the appearance of what your management considered to be bargain buying opportunities. There were three major opportunities for such purchases during the year. The first was during the sell-off in technology stocks during January. Major purchases made at that time included initiating a position in Microsoft Corp., which appreciated 64.5% by year-end, adding to a position in International Business Machines Corp. (IBM) which appreciated 36.1%, and adding to Avnet, Inc., up 34.2%. Each was viewed as a dynamic growth company which we were able to purchase on an undervalued basis. During the major decline in the summer, over fifty purchases were made for the portfolio. Here too, sizable subsequent gains were achieved. Medtronic, Inc. increased 37.0% to year-end, Cisco Systems, Inc., 28.3%, Patriot American Hospitality, Inc., 52.6%, Sunstone Hotel Investors, Inc., 32.4%, and Intel Corp., 24.2%. During the tax-loss selling period at year-end, we had further opportunities to purchase growth stocks on a value basis. Among these new positions were shares of Beneficial Corp., and KLA Instruments and the convertible preferreds of First Union Real Estate Equity & Mortgage Investments and The Home Depot, Inc. The strategy of buying growth stocks on a value basis provided substantial appreciation over the course of the year. The Fund's top ten holdings in terms of performance in the portfolio were: PHH Corp., +163.9%, Intel Corp., +130.0%, Intel Corp. Warrants, +102.8%, Microsoft Corp., +99.0%, Peoples Heritage Financial Group Inc., +97.1%, Starwood Lodging Trust, +90.4%, Patriot American Hospitality, Inc., +83.0%, Roadway Express, Inc. +76.0%, Cisco Systems, Inc., +72.2%, and IBM, +69.6%. The bottom ten performers for the year declined between 13.3% and 54.8%. Of these, Caliber Systems, Inc., (which is the resulting company after Roadway Services, Inc., spun off Roadway Express, Inc.) and eight of the ten have reversed their declines subsequent to the Fund's fiscal year-end. Sizable gains were taken during the year, most on partial sales of positions held. These ranged from 454.4% in the shares of Nautica Enterprises, Inc., held for a three-year and four-month period, 281.8% in shares of Guidant Corp., held over a two-year period, to 128.0% in MedPartners, Inc. (originally Caremark International Inc.), held over a three-year and nine-month period, and 108.8% in shares of PHH Corp., held over a fourteen-month period. An important factor in both realized and unrealized gains was corporate mergers and acquisitions. Typically, the Evergreen Funds, which are focused on the purchase of growth on an undervalued basis, find that a significant percentage of holdings are subsequently acquired by other corporations. The results in 1996 followed the pattern. Sixteen of the Fund's holdings received acquisition bids during the year. Gains on the acquisitions which were completed ranged up to 139.0% in the case of Baybanks, Inc., which was acquired by Bank of Boston Corp. On average for those completed, the return for the Fund was 53.2%. Financial institutions predominated, including five banks, as well as two insurance companies, two real estate companies, two health care service companies, one railroad, Conrail, Inc.; one utility, Long Island Lighting Co.; and one multiple financial service company, PHH Corp. While seeking companies whose undervaluation may be eventually realized through acquisition, we also concentrate research and stock selection on companies which are in the process of a corporate restructuring which will unlock values. Two major holdings purchased during the year in this category were the shares of E.I. Du Pont de Nemours & Co., Inc., purchased during market weakness in July, and Monsanto Co. We see their potential, not merely as unlocking values, but also as transitioning the companies into concentrating on their growth potentials. This is consistent with our whole "value-timing" strategy of seeking undervalued growth opportunities. 29 EVERGREEN FOUNDATION FUND (Picture of statue appears here) A REPORT FROM YOUR PORTFOLIO MANAGER -- (CONTINUED) Entering the new year, we see the Fund as positioned for an environment of moderate economic growth with inflation held in check. The best investment returns are likely to come from companies with outstanding new products or services, the ability to generate new markets, or to reveal underlying, but hitherto obscured growth trends. We expect such equities to outperform the market. Our fixed income commitment, much reduced as a percentage from that at the beginning of the year, will continue to be subject to adjustment as business trends and underlying economic pressures materialize. We anticipate that this will be a year of much more governmental effort to achieve a long-term budget solution, which should further deflate investor inflationary expectations. The economy should continue to have limited price rises due to heightened international competition, as a consequence of the increase of the dollar versus other currencies, and of the spread of industrial capacity worldwide. Corporations will, we believe, continue to show voracious appetites for buying other companies to supplement their own growth potential, while utilizing the excess cash generated in the strong economy of the last few years to buy back their shares and, thus, provide enhanced earnings power for continuing shareholders. This is an environment which, we believe, should be favorable for the present positioning of the Fund. Our research and portfolio management group, and our entire staff, appreciate the confidence shown in us by the many new shareholders who have joined the Fund in 1996. We shall endeavor to equal or surpass the Fund's long-term performance. 30 EVERGREEN FOUNDATION FUND (Picture of statue appears here) RESULTS TO DATE PERFORMANCE OF $10,000 INVESTED IN THE EVERGREEN FOUNDATION FUND The graphs below compare a $10,000 investment in the Evergreen Foundation Fund (Class A, Class B, Class C and Class Y Shares) with a similar investment in the S&P 500 Index and Lipper Balanced Funds Average. [CHARTS TO FOLLOW.] CLASS A 1-YEAR TOTAL RETURN = 6.0% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION = 17.3% $9,000 $11,000 $13,000 $15,000 $17,000 1/3/95* 6/30/95 12/31/95 6/30/96 12/31/96 CLASS B 1-YEAR TOTAL RETURN = 5.5% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION = 17.6% $9,000 $11,000 $13,000 $15,000 $17,000 1/3/95* 6/30/95 12/31/95 6/30/96 12/31/96 CLASS C 1-YEAR TOTAL RETURN = 9.4% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION = 19.1% $9,000 $11,000 $13,000 $15,000 $17,000 1/3/95* 6/30/95 12/31/95 6/30/96 12/31/96 CLASS Y 1-YEAR TOTAL RETURN = 11.5% AVERAGE ANNUAL COMPOUND RETURN: 5-YEAR = 14/7% SINCE INCEPTION = 16.3% $9,000 $13,000 $17,000 $21,000 $25,000 $29,000 1/2/90* 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 EVERGREEN FOUNDATION FUND S&P 500 INDEX LIPPER BALANCED FUND INDEX *Commencement of class operations. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS ARE NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED. For the purposes of the graphs and the accompanying tables, it has been assumed that (a) the maximum sales charge of 4.75% was deducted from the initial $10,000 investment in Class A Shares; (b) the maximum applicable contingent deferred sales charge was deducted from the value of the investment in Class B and Class C Shares, assuming full redemption on December 31, 1996; (c) all recurring fees (including investment advisory fees net of fee waiver) were deducted; and (d) all dividends and distributions were reinvested. The S&P 500 Index is unmanaged and includes the reinvestment of income, but does not reflect the payment of transaction costs and advisory fees associated with an investment in the Fund. 31 EVERGREEN FOUNDATION FUND STATEMENT OF INVESTMENTS DECEMBER 31, 1996 (Picture of statue appears here)
SHARES VALUE COMMON STOCKS -- 55.1% AEROSPACE & DEFENSE -- .4% 60,000 Boeing Co....................... $ 6,382,500 AUTOMOTIVE EQUIPMENT & MANUFACTURING -- 1.2% 581,500 Chrysler Corp................... 19,189,500 BANKS -- 5.0% 16,600 AmSouth Bancorp................. 803,025 50,000 Bancfirst Corp.................. 1,362,500 390,700 Bank of Boston Corp............. 25,102,475 140,000 Barnett Banks, Inc.............. 5,757,500 93,375 BSB Bancorp, Inc................ 2,497,781 57,000 Cape Cod Bank & Trust Co........ 1,282,500 20,000 CB Bancshares, Inc.............. 585,000 92,500 Central Fidelity Banks, Inc..... 2,381,875 48,500 Crestar Financial Corp.......... 3,607,188 90,138 First Chicago NBD Corp.......... 4,844,918 3,600 First Empire State Corp......... 1,036,800 196,800 First of America Bank Corp...... 11,832,600 7,500 First Security Corp............. 253,125 58,500 First Union Corp. **............ 4,329,000 70,801 Hibernia Corp. Cl. A............ 938,113 25,000 Mississippi Valley Bancshares, Inc............................. 1,062,500 66,150 Peoples Heritage Financial Group........................... 1,852,200 102,000 Seacoast Banking Corp. of Florida Cl. A................... 2,658,375 114,100 Standard Federal Bank........... 6,489,437 32,500 U.S. Trust Corp................. 2,567,500 81,244,412 BUILDING, CONSTRUCTION & FURNISHINGS -- 1.0% 122,800 Armstrong World Industries, Inc............................. 8,534,600 149,300 Continental Homes Holding Corp............................ 3,172,625 20,000* M/I Schottenstein Homes, Inc.... 220,000 20,000 Macerich Co. (The).............. 522,500 264,000* Pacific Greystone Corp.......... 2,904,000 15,353,725 BUSINESS EQUIPMENT & SERVICES -- 1.1% 60,000* Cisco Systems, Inc.............. 3,817,500 72,000 International Business Machines Corp............................ 10,872,000 50,000 Lucent Technologies, Inc........ 2,312,500 SHARES VALUE
BUSINESS EQUIPMENT & SERVICES -- CONTINUED 10,000* Policy Management Systems Corp............................ $ 461,250 25,200 Wackenhut Corp. (The) Cl. B..... 384,300 17,847,550 CHEMICAL & AGRICULTURAL PRODUCTS -- 3.0% 85,000 A. Schulman, Inc................ 2,082,500 30,000 Air Products & Chemicals, Inc............................. 2,073,750 248,000 Du Pont (E. I.) de Nemours...... 23,405,000 70,000 Grace (W.R.) & Co............... 3,622,500 40,000 H.B. Fuller Co.................. 1,880,000 201,500 Monsanto Co..................... 7,833,312 75,000 Nalco Chemical Co............... 2,709,375 65,000 Pioneer Hi-Bred International, Inc............................. 4,550,000 20,000 Praxair, Inc.................... 922,500 49,078,937 COMMUNICATION SYSTEMS & SERVICES -- .9% 98,333* 360 Communications Co........... 2,273,951 20,000* AirTouch Communications......... 505,000 286,000 Sprint Corp..................... 11,404,250 14,183,201 CONSUMER PRODUCTS & SERVICES -- 3.4% 55,000 American Greetings Corp. Cl. A............................... 1,560,625 75,000 Black & Decker Corp............. 2,259,375 20,000* Broderbund Software, Inc........ 595,000 23,311 Consolidated Products, Inc...... 454,565 120,000 CPC International, Inc.......... 9,300,000 148,800 Goodyear Tire & Rubber Co. (The)........................... 7,644,600 95,000 H. & R. Block, Inc.............. 2,755,000 178,800 International Flavors & Fragrances, Inc................. 8,046,000 53,800 Kimberly-Clark Corp............. 5,124,450 50,100* Nautica Enterprises, Inc........ 1,265,025 95,400 Procter & Gamble Co. (The)...... 10,255,500 78,500 Tupperware Corp................. 4,209,562 20,000 V.F. Corp....................... 1,350,000 54,819,702 DIVERSIFIED COMPANIES -- 2.0% 8,000 Cooper Industries, Inc.......... 337,000 222,400 General Electric Co............. 21,989,800
32 EVERGREEN FOUNDATION FUND STATEMENT OF INVESTMENTS -- (CONTINUED) DECEMBER 31, 1996 (Picture of statue appears here)
SHARES VALUE COMMON STOCKS -- CONTINUED DIVERSIFIED COMPANIES -- CONTINUED 33,000 Minnesota Mining & Mortgage Co.............................. $ 2,734,875 120,800 PPG Industries, Inc............. 6,779,900 31,841,575 ELECTRICAL EQUIPMENT & ELECTRONICS -- 7.2% 173,400 AMP, Inc........................ 6,654,225 216,511 Avnet, Inc...................... 12,611,766 20,000 Computer Associates International, Inc.............. 995,000 430,800 Hewlett-Packard Co.............. 21,647,700 340,800 Intel Corp...................... 44,623,500 65,000* Intel Corp. $41.75 Warrants Expiring 03/14/98...... 5,996,250 183,800* Microsoft Corp.................. 15,186,475 224,000* Sun Microsystems, Inc........... 5,754,000 70,000 Wyle Electronics................ 2,765,000 116,233,916 ENERGY -- 1.2% 260,000 Equitable Resources, Inc........ 7,735,000 30,500 Exxon Corp...................... 2,989,000 45,300 Mobil Corp...................... 5,537,926 43,103 Seitel, Inc..................... 1,724,120 33,877 Union Pacific Resource Group, Inc............................. 990,901 18,976,947 FINANCE & INSURANCE -- 8.1% 10,668 Aetna, Inc...................... 853,440 120,000 Allstate Corp. (The)............ 6,945,000 55,300 AMBAC, Inc...................... 3,670,537 85,450 American International Group, Inc............................. 9,249,962 159,000 Beneficial Corp................. 10,076,625 148,350 Countrywide Credit Industries, Inc............................. 4,246,519 95,000 Degeorge Financial Corp......... 130,625 20,000 FBL Financial Group, Inc........ 497,500 10,000 Federal Home Loan Mortgage Corp............................ 1,101,250 788,000 Federal National Mortgage Association..................... 29,353,000 50,000 Hartford Steam Boiler Inspection & Insurance Co. (The)........... 2,318,750 70,000 John Alden Financial Corp....... 1,295,000 130,000 John Nuveen Co. (The)........... 3,445,000 172,200 Marsh & McLennan Co., Inc....... 17,908,800 SHARES VALUE
FINANCE & INSURANCE -- CONTINUED 100,700 Merrill Lynch & Co., Inc........ $ 8,207,050 174,600 MGIC Investment Corp............ 13,269,600 155,000 NAC RE Corp..................... 5,250,625 235,000 North American Mortgage Co...... 4,641,250 35,000 Ohio Casualty Corp.............. 1,242,500 40,300 Raymond James Financial, Inc.... 1,214,038 150,800 Wilmington Trust Corp........... 5,956,600 130,873,671 FOOD & BEVERAGE PRODUCTS -- .1% 30,000 Pepsico, Inc.................... 877,500 FOREST PRODUCTS -- .5% 88,000 Union Camp Corp................. 4,202,000 45,000 Willamette Industustries, Inc... 3,133,125 7,335,125 HEALTHCARE PRODUCTS & SERVICES -- 6.2% 185,700 Abbott Laboratories............. 9,424,275 94,000 Alza Corp....................... 2,432,250 1,750* Alza Corp. $65.00 Warrants Expiring 12/31/1999.... 219 140,000 American Home Products Corp..... 8,207,500 50,000 Bristol-Myers Squibb Co......... 5,437,500 180,900 Columbia/HCA Healthcare Corp.... 7,371,675 34,275 Guidant Corp.................... 1,953,675 102,800 Johnson & Johnson............... 5,114,300 221,262 Lilly (Eli) & Co................ 16,152,126 65,000* Lincare Holdings, Inc........... 2,665,000 100,000* Living Centers of America, Inc............................. 2,775,000 80,000 McKesson Corp................... 4,480,000 151,750* MedPartners, Inc................ 3,186,750 60,800 Medtronic, Inc.................. 4,134,400 164,758 Merck & Co., Inc................ 13,057,071 60,000 Pfizer, Inc..................... 4,972,500 66,000 Schering-Plough Corp............ 4,273,500 9,200 Shared Medical System Corp...... 453,100 44,900 Superior Surgical Manufacturing Co., Inc........................ 606,150 1,750 Therapeutic Discovery Corp...... 19,469 50,000 Warner-Lambert Co............... 3,750,000 100,466,460 INDUSTRIAL SPECIALTY PRODUCTS & SERVICES -- 1.7% 65,000 Applied Power, Inc.............. 2,575,625
33 EVERGREEN FOUNDATION FUND STATEMENT OF INVESTMENTS -- (CONTINUED) DECEMBER 31, 1996 (Picture of statue appears here)
SHARES VALUE COMMON STOCKS -- CONTINUED INDUSTRIAL SPECIALTY PRODUCTS & SERVICES -- CONTINUED 10,000 BemisCo., Inc................... $ 368,750 92,000 Corning, Inc.................... 4,255,000 7,000 FlightSafety Int'l, Inc......... 350,000 110,700 PHH Corp........................ 4,760,100 30,000 Pittston Brink's Group.......... 810,000 162,000 Snap-On, Inc.................... 5,771,250 6,000* Strattec Security Corp.......... 109,500 111,900 Timken Co. (The)................ 5,133,413 50,000 Trinity Industries, Inc......... 1,875,000 30,000* UCAR International, Inc......... 1,128,750 27,137,388 MACHINERY -- DIVERSIFIED -- .5% 200,000 Deere & Co...................... 8,125,000 PUBLISHING, BROADCASTING & ENTERTAINMENT -- .5% 20,000 Belo A H Corp................... 697,500 20,000 Cox Communications, Inc......... 462,500 50,993 Disney Walt Co. (The)........... 3,550,388 20,000 Gaylord Entertainment Co. Cl. A............................... 457,500 2,500* Lin Television Corp............. 105,625 55,000 Time Warner, Inc................ 2,062,500 3,000 Washington Post Co. (The)....... 1,005,375 8,341,388 REAL ESTATE -- 5.9% 30,000* Alexander's, Inc................ 2,373,750 23,400 Arbor Property Trust............ 169,650 50,000 Bay Apartment Communities, Inc............................. 1,800,000 50,009 Bradley Real Estate, Inc........ 900,162 125,000 Cali Realty Corp................ 3,859,375 270,400 Capstead Mortgage Corp.......... 6,489,600 111,900 CarrAmerica Realty Corp......... 3,273,075 40,000 Chelsea GCA Realty, Inc......... 1,385,000 184,900 Columbus Realty Trust........... 4,206,475 140,000 Crescent Real Estate Equities, Inc............................. 7,385,000 305,300 Crown American Realty Trust..... 2,289,750 50,300 CWM Mortgage Holdings, Inc...... 1,081,450 105,200 Essex Property Trust, Inc....... 3,090,250 83,000 Evans Withycombe Residential, Inc............................. 1,743,000 165,000 FAC Realty, Inc................. 1,093,125 90,000 FelCor Suite Hotels, Inc........ 3,183,750 100,200 Gables Residential Trust........ 2,905,800 174,000 Glimcher Realty Trust........... 3,828,000 SHARES VALUE
REAL ESTATE -- CONTINUED 28,000 Highwoods Properties, Inc....... $ 945,000 14,076 Homestead Village Properties, Inc............................. 253,368 9,443 Homestead Village Properties, Inc............................. 76,724 363,216 Horizon Group, Inc.............. 7,218,918 7,000 JP Realty, Inc.................. 181,125 142,000 Kranzco Realty Trust............ 2,396,250 15,000 Liberty Property Trust.......... 386,250 57,000 Marriott International, Inc..... 3,149,250 26,700 Mills Corp. (The)............... 637,463 48,100 Oasis Residential, Inc.......... 1,094,275 20,000 Patriot American Hospitality, Inc............................. 862,500 130,000 Post Property, Inc.............. 5,232,500 100,000 Prentiss Property Trust......... 2,500,000 90,000 Public Storage, Inc............. 2,790,000 70,416 Security Capital Industrial Trust........................... 1,505,142 111,992 Security Capital Pacific Trust........................... 2,561,817 100,000 Sovran Self Storage, Inc........ 3,125,000 98,500 Starwood Lodging Trust.......... 5,429,812 22,900 Storage USA, Inc................ 861,613 45,000 Sunstone Hotel Investors, Inc... 590,625 57,900 Tanger Factory Outlet Centers, Inc............................. 1,570,537 20,000 Taubman Centers, Inc............ 257,500 25,000 Urban Shopping Centers, Inc..... 725,000 95,407,881 RETAILING & WHOLESALE -- 1.0% 30,000 Fingerhut Cos., Inc............. 367,500 10,000 Home Depot, Inc. (The).......... 501,250 133,000 Lowe's Cos., Inc................ 4,721,500 195,600 Mercantile Stores Co., Inc...... 9,657,750 25,000 Walgreen Co..................... 1,000,000 16,248,000 THRIFT INSTITUTIONS -- .2% 4,000 Golden West Financial Corp...... 252,500 80,000 Webster Financial Corp.......... 2,940,000 3,192,500 TRANSPORTATION -- 1.0% 35,000 Burlington Northern Santa Fe.... 3,023,125 34,000 Caliber System, Inc............. 654,500 70,000 Conrail, Inc.................... 6,973,750 20,000 KLM Royal Dutch Air Lines....... 557,500 17,000 Roadway Express, Inc............ 329,375
34 EVERGREEN FOUNDATION FUND STATEMENT OF INVESTMENTS -- (CONTINUED) DECEMBER 31, 1996 (Picture of statue appears here)
SHARES VALUE COMMON STOCKS -- CONTINUED TRANSPORTATION -- CONTINUED 80,000 Union Pacific Corp.............. $ 4,810,000 16,348,250 UTILITIES -- ELECTRIC -- .1% 100,000 Long Island Lighting Co......... 2,212,500 UTILITIES -- 1.9% 10,000 AT & T Corp..................... 435,000 150,000 Bell Atlantic Corp.............. 9,712,500 325,000 GTE Corp........................ 14,787,500 30,000 NYNEX Corp...................... 1,443,750 40,000 PP&L Resources, Inc............. 920,000 100,000 Public Service Enterprise Group, Inc............................. 2,725,000 32,000 TNP Enterprises, Inc............ 876,000 30,899,750 CHEMICALS -- .4% 170,000 Morton International, Inc....... 6,927,500 DIVERSIFIED -- .4% 283,800 Frontier Corp................... 6,420,975 NATURAL GAS -- .1% 22,000 Consolidated Natural Gas Co..... 1,215,500 OTHER -- .1% 5,000 Clorox Co....................... 501,875 10,000 General Motors Corp............. 557,500 10,000* KLA Instruments Corp............ 355,000 10,000 Premark International, Inc...... 222,500 1,636,875 TOTAL COMMON STOCKS (COST $677,549,174)........... 888,818,228 PREFERRED STOCKS -- .0% (A) HEALTHCARE PRODUCTS & SERVICES -- .0% (A) 70,000* Fresenius National Med Care, Inc. Cl. D (COST $14,317)....... 9,100 CONVERTIBLE PREFERRED STOCKS -- .8% ELECTRICAL EQUIPMENT & SERVICES -- .1% 100,000 Westinghouse Elec. Corp. $1.30, Series C, PEPS, 144A..... 1,769,000 FINANCE & INSURANCE -- .0% (A) 3,557 Aetna, Inc...................... 282,337 SHARES VALUE CONVERTIBLE PREFERRED STOCKS -- CONTINUED INDUSTRIAL SPECIALTY PRODUCTS & SERVICES -- .0% (A) 500,000 Home Depot, Inc. (The) 3.25%, 10/01/01................. $ 487,500 METAL PRODUCTS & SERVICES -- .4% 100,000 Timet Capital Trust I 6.625%, BUCS, 144A.............. 5,425,000 REAL ESTATE -- .3% 115,000 First Union Real Estate Equity & Mortgage Investments.......... 4,628,750 TOTAL CONVERTIBLE PREFERRED STOCKS (COST $9,980,605)............. 12,592,587 PRINCIPAL AMOUNT CONVERTIBLE DEBENTURES -- .3% BUILDING, CONSTRUCTION & FURNISHINGS -- .0% (A) $ 500,000 Engle Homes, Inc. 7.00%, 3/1/03................... 435,000 HEALTHCARE PRODUCTS & SERVICES -- .1% 750,000 Maxxim Medical, Inc. 6.75%, 3/1/03................... 727,500 INDUSTRIAL SPECIALTY PRODUCTS & SERVICES -- .1% 2,000,000 Robbins & Myers, Inc. 6.50%, 9/1/03................... 2,250,000 NATURAL GAS -- .1% 1,328,000 Consolidated Natural Gas Co. 7.25%, 12/15/15................. 1,402,700 TOTAL CONVERTIBLE DEBENTURES (COST $4,784,665)............. 4,815,200 U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 35.3% TENNESSEE VALLEY AUTHORITY -- 1.1% 8,000,000 7.25%, 7/15/43.................. 7,807,232 10,000,000 7.85%, 6/15/44.................. 10,112,200 17,919,432 FEDERAL NATIONAL MORTGAGE ASSN. -- .1% 1,000,000 8.10%, 8/12/19.................. 1,121,520
35 EVERGREEN FOUNDATION FUND STATEMENT OF INVESTMENTS -- (CONTINUED) DECEMBER 31, 1996 (Picture of statue appears here)
PRINCIPAL AMOUNT VALUE U.S. GOVERNMENT & AGENCY OBLIGATIONS -- CONTINUED U.S. TREASURY BONDS -- 30.0% $150,000,000 6.25%, 8/15/23................. $ 140,625,000 125,000,000 7.125%, 2/15/23................ 130,468,750 49,000,000 7.25%, 5/15/16................. 51,756,250 7,000,000 7.625%, 11/15/22............... 7,726,250 10,000,000 8.00%, 11/15/21................ 11,465,620 25,000,000 8.125%, 5/15/21................ 29,007,800 50,000,000 8.125%, 8/15/19................ 57,796,850 30,000,000 8.375%, 8/15/08................ 33,215,610 10,000,000 8.50%, 2/15/20................. 12,003,120 7,000,000 10.00%, 5/15/10................ 8,561,875 1,000,000 10.625%, 8/15/15............... 1,413,750 484,040,875 U.S. TREASURY NOTES -- 4.1% 30,000,000 5.75%, 8/15/03................. 29,109,360 15,000,000 6.50%, 8/15/05................. 15,107,805 13,000,000 7.25%, 5/15/04................. 13,686,556 8,000,000 7.25%, 8/15/04................. 8,425,000 66,328,721 TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (COST $578,814,301)............ 569,410,548 SHORT-TERM INVESTMENTS -- 8.0% 14,000,000 A.H. Robins Co., Inc. 5.55%, 2/6/97.................. 13,922,300 12,000,000 B.I. Funding, Inc. 5.50%, 2/19/97................. 11,910,167 Eiger Capital Corp. 800,000 5.45%, 1/13/97................. 798,547 5,600,000 5.50%, 1/16/97................. 5,587,166 47,000,000 Federal National Mortgage Association Discount Notes 5.28%, 2/3/97.................. 46,772,520 1,700,000 Gold Crown Managers Acceptance 5.65%, 1/22/97................. 1,694,397 PRINCIPAL AMOUNT VALUE SHORT-TERM INVESTMENTS -- CONTINUED Golden Managers Acceptance Corp. $ 4,800,000 5.45%, 1/8/97.................. $ 4,794,913 1,300,000 5.45%, 1/22/97................. 1,295,867 500,000 J.P. Morgan & Co., Inc. 5.47%, 1/16/97................. 498,860 400,000 Johnson Control, Inc. 6.20%, 1/15/97................. 399,036 450,000 Mitsubishi International Corp. 5.55%, 1/9/97.................. 449,445 4,400,000 Montana Blanc Capital Corp. 5.45%, 1/13/97................. 4,392,007 10,400,000 PHH Corp. 5.50%, 2/7/97.................. 10,341,211 21,400,000 Receivables Capital Corp. 5.70%, 1/27/97................. 21,311,903 Unifunding, Inc. 400,000 5.44%, 1/6/97.................. 399,698 2,000,000 5.55%, 2/7/97.................. 1,988,592 2,600,000 Virginia Electric & Power Co. 5.40%, 1/10/97................. 2,596,490 TOTAL SHORT-TERM INVESTMENTS (COST $129,153,119)............ 129,153,119
TOTAL INVESTMENTS -- (COST $1,400,296,181).. 99.5% 1,604,798,782 OTHER ASSETS AND LIABILITIES -- NET... 0.5 7,357,308 NET ASSETS............. 100.0% $1,612,156,090
* Non-income producing securities. ** At December 31, 1996 the Fund owned 58,500 shares of common stock of First Union at a cost of $2,358,441. During the period ended December 31, 1996 the Fund earned $128,700 in dividend income from this investment. These shares were purchased by the Fund prior to the acquisition of the investment adviser and Lieber & Company by First Union. + Consists of one share Starwood Lodging Trust and one share Starwood Lodging Corp. common stock. (a) Less than one tenth of one percent. ADR -- American Depositary Receipts BUCS -- Beneficial Unsecured Convertible Securities PEPS -- Participating Equity Preferred Shares See accompanying notes to financial statements. 36 EVERGREEN FOUNDATION FUND STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996 (Picture of statue appears here)
ASSETS: Investments at value (identified cost $1,400,296,181)....................................................... $1,604,798,782 Cash........................................................................................................ 843,137 Dividends and interest receivable........................................................................... 14,449,437 Receivable for Fund shares sold............................................................................. 5,517,342 Receivable for investments sold............................................................................. 2,177,770 Prepaid expenses............................................................................................ 22,777 Total assets.......................................................................................... 1,627,809,245 LIABILITIES: Payable for investments purchased........................................................................... 10,955,973 Payable for Fund shares repurchased......................................................................... 1,991,834 Accrued advisory fee........................................................................................ 1,077,476 Distribution fee payable.................................................................................... 855,281 Accrued expenses............................................................................................ 772,591 Total liabilities..................................................................................... 15,653,155 NET ASSETS..................................................................................................... $1,612,156,090 NET ASSETS CONSIST OF: Paid-in capital............................................................................................. $1,398,455,698 Undistributed net investment income......................................................................... 25,764 Undistributed net realized gain on investment transactions.................................................. 9,172,027 Net unrealized appreciation of investments.................................................................. 204,502,601 Net assets............................................................................................ $1,612,156,090 CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE: Class A Shares ($206,331,719 (division sign) 12,795,763 shares of beneficial interest outstanding).......... $ 16.13 Sales charge -- 4.75% of offering price..................................................................... .80 Maximum offering price................................................................................ $ 16.93 Class B Shares ($570,405,287 (division sign) 35,506,081 shares of beneficial interest outstanding).......... $ 16.07 Class C Shares ($26,576,977 (division sign) 1,654,832 shares of beneficial interest outstanding)............ $ 16.06 Class Y Shares ($808,842,107 (division sign) 50,106,550 shares of beneficial interest outstanding).......... $ 16.14
See accompanying notes to financial statements. 37 EVERGREEN FOUNDATION FUND STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 (Picture of statue appears here)
INVESTMENT INCOME: Dividends................................................................................... $ 15,724,373 Interest.................................................................................... 48,429,872 Total investment income............................................................... 64,154,245 EXPENSES: Advisory fee................................................................................ $11,140,780 Distribution fee -- Class A Shares.......................................................... 414,289 Distribution fee -- Class B Shares.......................................................... 3,487,899 Shareholder services fee -- Class B Shares.................................................. 1,162,633 Distribution fee -- Class C Shares.......................................................... 152,488 Shareholder services fee -- Class C Shares.................................................. 50,829 Transfer agent fee.......................................................................... 1,331,778 Registration and filing fees................................................................ 408,920 Custodian fee............................................................................... 365,915 Reports and notices to shareholders......................................................... 294,100 Professional fees........................................................................... 81,041 Insurance................................................................................... 41,820 Trustees' fees and expenses................................................................. 7,176 Miscellaneous............................................................................... 21,600 Total expenses........................................................................ 18,961,268 Net investment income.......................................................................... 45,192,977 NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investment transactions................................................ 21,629,530 Net increase in unrealized appreciation of investments...................................... 96,176,448 Net gain on investments........................................................................ 117,805,978 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................... $162,998,955
See accompanying notes to financial statements. 38 EVERGREEN FOUNDATION FUND STATEMENT OF CHANGES IN NET ASSETS (Picture of statue appears here)
YEAR ENDED DECEMBER 31, 1996 1995 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income............................................................... $ 45,192,977 $ 22,897,807 Net realized gain on investment transactions........................................ 21,629,530 9,385,074 Net change in unrealized appreciation of investments................................ 96,176,448 121,111,375 Net increase in net assets resulting from operations.......................... 162,998,955 153,394,256 DISTRIBUTIONS TO SHAREHOLDERS FROM: NET INVESTMENT INCOME: Class A Shares...................................................................... (5,718,718) (1,908,188) Class B Shares...................................................................... (12,786,120) (4,488,521) Class C Shares...................................................................... (568,120) (170,820) Class Y Shares...................................................................... (26,366,104) (16,164,235) Total distributions from net investment income................................... (45,439,062) (22,731,764) NET REALIZED GAIN ON INVESTMENTS: Class A Shares...................................................................... (1,819,496) (993,303) Class B Shares...................................................................... (5,077,907) (2,824,116) Class C Shares...................................................................... (231,947) (113,415) Class Y Shares...................................................................... (7,335,097) (7,827,124) Total distributions from net realized gain on investments........................ (14,464,447) (11,757,958) Total distributions to shareholders........................................... (59,903,509) (34,489,722) FUND SHARE TRANSACTIONS: Proceeds from shares sold........................................................... 717,070,601 652,779,207 Proceeds from reinvestment of distributions......................................... 55,523,207 32,843,419 Payment for shares redeemed......................................................... (301,222,020) (98,358,101) Net increase resulting from Fund share transactions.............................. 471,371,788 587,264,525 Net increase in net assets.................................................... 574,467,234 706,169,059 NET ASSETS: Beginning of year................................................................... 1,037,688,856 331,519,797 End of year (including undistributed net investment income of $25,764 and $271,849, respectively)..................................................................... $1,612,156,090 $ 1,037,688,856
See accompanying notes to financial statements. 39 EVERGREEN FOUNDATION FUND -- CLASS A, B AND C SHARES FINANCIAL HIGHLIGHTS (Picture of statue appears here)
CLASS A CLASS B CLASS C JANUARY 3, JANUARY 3, YEAR 1995* YEAR 1995* YEAR ENDED THROUGH ENDED THROUGH ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1996 1995 1996 1995 1996 PER SHARE DATA: Net asset value, beginning of period..................... $15.12 $12.24 $15.07 $12.24 $15.07 Income from investment operations: Net investment income................................... .50 .44 .40 .36 .40 Net realized and unrealized gain on investments......... 1.16 3.14 1.15 3.09 1.14 Total from investment operations...................... 1.66 3.58 1.55 3.45 1.54 Less distributions to shareholders from: Net investment income................................... (.50) (.47) (.40) (.39) (.40) Net realized gain on investments........................ (.15) (.23) (.15) (.23) (.15) Total distributions................................... (.65) (.70) (.55) (.62) (.55) Net asset value, end of period........................... $16.13 $15.12 $16.07 $15.07 $16.06 TOTAL RETURN+............................................ 11.3% 29.7% 10.5% 28.7% 10.4% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in millions)................. $206 $107 $570 $296 $27 Ratios to average net assets: Expenses................................................ 1.24% 1.33%++# 1.99% 2.07%++ 1.99% Net investment income................................... 3.39% 3.73%++# 2.64% 2.99%++ 2.64% Portfolio turnover rate.................................. 10% 28% 10% 28% 10% Average commission rate paid per share................... $.0649 N/A $.0649 N/A $.0649 JANUARY 3, 1995* THROUGH DECEMBER 31, 1995 PER SHARE DATA: Net asset value, beginning of period..................... $12.24 Income from investment operations: Net investment income................................... .34 Net realized and unrealized gain on investments......... 3.09 Total from investment operations...................... 3.43 Less distributions to shareholders from: Net investment income................................... (.37) Net realized gain on investments........................ (.23) Total distributions................................... (.60) Net asset value, end of period........................... $15.07 TOTAL RETURN+............................................ 28.5% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in millions)................. $11 Ratios to average net assets: Expenses................................................ 2.23%++# Net investment income................................... 2.83%++# Portfolio turnover rate.................................. 28% Average commission rate paid per share................... N/A
* Commencement of class operations. + Total return is calculated on net asset value per share for the periods indicated and is not annualized. Initial sales charge or contingent deferred sales charges are not reflected. ++ Annualized. # Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of operating expenses and net investment income to average net assets would have been the following:
JANUARY 3, 1995* THROUGH DECEMBER 31, 1995 CLASS A CLASS C SHARES SHARES Expenses................................................................... 1.34% 2.37% Net investment income...................................................... 3.72% 2.69%
See accompanying notes to financial statements. 40 EVERGREEN FOUNDATION FUND -- CLASS Y SHARES FINANCIAL HIGHLIGHTS -- (CONTINUED) (Picture of statue appears here)
YEAR ENDED DECEMBER 31, 1996 1995 1994 1993 PER SHARE DATA: Net asset value, beginning of year.................................................... $15.13 $12.27 $13.12 $11.98 Income (loss) from investment operations: Net investment income................................................................ .54 .51 .42 .31 Net realized and unrealized gain (loss) on investments............................... 1.16 3.07 (.57) 1.55 Total from investment operations................................................... 1.70 3.58 (.15) 1.86 Less distributions to shareholders from: Net investment income................................................................ (.54) (.49) (.42) (.31) Net realized gain on investments..................................................... (.15) (.23) (.28) (.41) Total distributions................................................................ (.69) (.72) (.70) (.72) Net asset value, end of year.......................................................... $16.14 $15.13 $12.27 $13.12 TOTAL RETURN+......................................................................... 11.5% 29.7% (1.1%) 15.7% RATIOS & SUPPLEMENTAL DATA: Net assets, end of year (in millions)................................................ $809 $623 $332 $240 Ratios to average net assets: Expenses............................................................................. .99% 1.07% 1.14% 1.20% Net investment income................................................................ 3.64% 3.89% 3.51% 2.81% Portfolio turnover rate............................................................... 10% 28% 33% 60% Average commission rate paid per share................................................ $.0649 N/A N/A N/A 1992 PER SHARE DATA: Net asset value, beginning of year.................................................... $10.75 Income (loss) from investment operations: Net investment income................................................................ .27 Net realized and unrealized gain (loss) on investments............................... 1.83 Total from investment operations................................................... 2.10 Less distributions to shareholders from: Net investment income................................................................ (.24) Net realized gain on investments..................................................... (.63) Total distributions................................................................ (.87) Net asset value, end of year.......................................................... $11.98 TOTAL RETURN+......................................................................... 20.0% RATIOS & SUPPLEMENTAL DATA: Net assets, end of year (in millions)................................................ $64 Ratios to average net assets: Expenses............................................................................. 1.40%# Net investment income................................................................ 2.93%# Portfolio turnover rate............................................................... 127% Average commission rate paid per share................................................ N/A
+ Total return is calculated on net asset value per share for the periods indicated and is not annualized. # Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, would have been the following:
YEAR ENDED DECEMBER 31, 1992 Expenses.................................................................. 1.43% Net investment income..................................................... 2.90%
See accompanying notes to financial statements. 41 EVERGREEN TAX STRATEGIC FOUNDATION FUND (Picture of dam appears here) A REPORT FROM YOUR PORTFOLIO MANAGERS STEPHEN A. LIEBER JAMES T. COLBY, III Evergreen Tax Strategic Foundation Fund (Class Y, no-load (Picture of Stephen shares) provided a 15.8%* total return for 1996. This result A. Lieber brings the Fund's average annual compound return for the appears here) period since inception on November 2, 1993, through December 31, 1996, to 15.5%. The Fund (Class Y shares) provided 1996 tax exempt interest (Picture of James distributions of $0.224 per share**, ordinary income T. Colby, III distributions of $0.155 per share, and long-term capital gain appears here) distributions of $0.204 per share. For the investor who held $10,000 in the Fund at December 31, 1995, the holding at 1996 year-end had a value of $11,557, and the taxes to be paid as a result of the holding were only $94***, assuming the investor is in the 36% ordinary income bracket, and 28% capital gains bracket (without reference to any possible state tax payments). The Fund's Class A shares provided 1996 tax-exempt interest distributions of $0.203 per share**, ordinary income distributions of $0.149 per share, and long-term capital gain distributions of $0.204 per share. A $10,000 investment in the Fund's Class A shares at December 31, 1995, had a 1996 year-end value of $10,991, and the taxes to be paid as a result of the holding were only $88***, assuming the investor is in the 36% ordinary income bracket, and 28% capital gains bracket (without reference to any possible state tax payments). These figures illustrate the Fund's endeavor to achieve its objectives of maximizing the after-tax total return on its portfolio investments. The driving force for the Fund's performance in 1996 was the common stock portfolio. It provided an as-weighted return of 35.2%, well above the market average of 23.0% for the Standard & Poor's 500 Reinvested Index+. The tax exempt bond portfolio, in contrast, provided a total return of 0.3%, as compared with 4.4% for the Lehman Municipal Bond Index++. The overall portfolio result of 15.8% compared with the total return for Lipper Balanced Funds Average of 13.8% for the 272 balanced funds tracked during that time by Lipper Analytical Services, Inc., an independent mutual funds performance monitor+++. The 12-month total FIGURES REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS. * PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. INVESTORS' SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CLASS A SHARES ARE SUBJECT TO A MAXIMUM 4.75% FRONT END SALES CHARGE. THE FUND ALSO OFFERS CLASS B SHARES WHICH ARE SUBJECT TO A MAXIMUM 5% CONTINGENT DEFERRED SALES CHARGE, AND CLASS C SHARES WHICH ARE SUBJECT TO A 1% CONTINGENT DEFERRED SALES CHARGE WITHIN THE FIRST YEAR OF PURCHASE. PERFORMANCE FOR THESE CLASSES OF SHARES MAY BE DIFFERENT. ** THIS INCOME MAY BE SUBJECT TO STATE AND LOCAL TAXES. SOME OF THIS INCOME MAY BE SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX FOR CERTAIN INVESTORS. *** TAXES PAID WOULD BE LOWER FOR INVESTORS IN LOWER TAX BRACKETS AND HIGHER FOR INVESTORS IN HIGHER TAX BRACKETS. + THE S&P 500 IS AN UNMANAGED INDEX OF COMMON STOCKS IN INDUSTRY, TRANSPORTATION, FINANCE, AND PUBLIC UTILITIES, DENOTING GENERAL MARKET PERFORMANCE AS MONITORED BY STANDARD & POOR'S CORP. AN INVESTMENT CAN NOT BE MADE IN AN INDEX. ++ THE LEHMAN MUNICIPAL BOND INDEX IS AN UNMANAGED REINVESTED INDEX OF SELECT MUNICIPAL BONDS. +++ SOURCE: LANA (LIPPER ANALYTICAL NEW APPLICATIONS) LIPPER ANALYTICAL SERVICES INC., IS AN INDEPENDENT MUTUAL FUNDS PERFORMANCE MONITOR. LIPPER AVERAGE DOES NOT INCLUDE SALES CHARGES, AND IF INCLUDED PERFORMANCE COULD BE LOWER. 42 EVERGREEN TAX STRATEGIC FOUNDATION FUND (Picture of dam appears here) A REPORT FROM YOUR PORTFOLIO MANAGERS -- (CONTINUED) return ended December 31, for the Fund's Class A shares was 9.9%*. The average annual compound return for the Fund's Class A shares for the period since their inception on January 17, 1995, through December 31, 1996, was 17.5%. (Please see page 45 for additional performance information.) The top ten equity performers in the Fund during the year ranged in appreciation from 226.9% for the shares of PHH Corp., to 57.8% for the shares of International Business Machines Corp (IBM). Others in this group were: Intel Corp., +130.5%, Lucent Technologies Inc., +71.3%, Patriot American Hospitality, Inc., +66.6%, Lincare Holdings, Inc., +63.8%, Capstead Mortgage Corp., +61.0%, Harman International Industries, Inc., +60.2%, BankUnited Financial Corp., +60.1%, and Adidas AG, +59.9%. By year-end, only five of the Fund's holdings had losses in excess of 10%, and each of these five, AMP, Inc.; Cadmus Communications Corp.; Continental Homes Holding Corp.; Furon Co.; and North American Mortgage Co., had been under tax-loss pressure. Electrical equipment and electronics was the best performing industry among the Fund's holdings, with an as-weighted return of 60.8% for the group. Their performance was led by shares in Intel Corp. Banks was the second leading performer, led by shares in Bank of Boston Corp., which provided a 41.1% return for the year. This is the second largest holding in the Fund. Similar levels of performance in industry groups were in health care products and services where Lincare Holdings, Inc. was the leader, information services and technology, led by IBM, and thrift institutions led by BankUnited Financial Corp. Mergers and acquisitions played a significant role in the achievement of capital appreciation by securities which originally were purchased as comparatively undervalued. Seven acquisitions were initiated or completed during the year, with an average gain of 53.1% on those completed. The leader among them was in the shares of Baybanks, Inc., which was acquired by Bank of Boston Corp. for an increase of 149.3% in the two years and eight months since the shares were purchased. The major uncompleted transaction at year-end was in the shares of PHH Corp. which is to be acquired by HFS Inc. at $49.50 per share. The entire position was sold after the acquisition announcement for a 93.2% gain after a one-year and one-month holding period. Additional shares were then purchased on weakness. These acquisitions demonstrate our strategy of purchasing growth opportunities on an undervalued basis. Each of the businesses acquired, or to be acquired, represent, we believe, an outstanding business franchise. For new purchases, the Fund took advantage of undervaluation during periods of market weakness. Our heaviest buying was during sharp market sell-offs in January, July, and then at the tax-loss selling period at year-end. The results were often highly profitable. Illustrative was the fact that the shares of Aspect Telecommunications Corp. purchased in July, produced an appreciation of 104.8% by year-end. Similarly, shares of IBM purchased in January, provided a 57.6% appreciation by year-end. The largest single purchase made during the year was in the shares of Standard Federal Bancorporation, Inc., which was purchased in October and, subsequently, received an acquisition bid from ABN AMRO Holdings N.V., providing a 19.5% return in three months. With the Fund's emphasis on tax-efficiency, we deemed it appropriate to take losses in tax exempt bonds during periods of bond market declines so that we could use these losses to offset profits realized on common stocks. Illustrative was the sale of bonds of the Regional Transportation Authority of Illinois, 6.70% due 2021. These were sold with a 6.1% loss in September, when we judged that the bond market had approached 43 EVERGREEN TAX STRATEGIC FOUNDATION FUND (Picture of dam appears here) A REPORT FROM YOUR PORTFOLIO MANAGERS -- (CONTINUED) its bottom for the year. The proceeds from this sale, as in similar transactions, were reinvested in similar bonds, insured| or of AAA quality, but repositioned on the yield curve to maximize our opportunities under a curve-steepening scenario. Common stocks with losses were also sold to offset gains, frequently with a doubling up purchase thirty one days prior to the sale, as allowed by the tax law. The municipal bond portfolio of the Fund had a performance which could be described as having modest volatility throughout the year and nominal final returns. In general, municipal bonds outperformed U.S. Treasury bonds in 1996, as demonstrated by the return of the Lehman Municipal Bond Index of 4.4% versus that of the Lehman Treasury Index of 2.7%. While the yield on long-term U.S. Treasuries gyrated from an opening year's low of 5.97% to its high of 7.19% in mid-summer, and closed at 6.64% at year-end, municipals experienced less volatility. Municipals, which generally mirror the Treasury market, followed in a similar path, but, overall, performed better due to strong seasonal demand features, with only a slight increase in new issue supply. And once the political landscape became clear -- with flat-tax anxieties set aside -- the oversold municipal yield curve quickly readjusted during the fourth quarter to a more normal condition, giving a boost to year-end prices. Notwithstanding the generally negative environment for fixed income investment during the year, there were examples of superior performance among the Fund's holdings. Returns of 10% or better were provided by issues such as Clark County, Nevada, 6% due 2022, Arapaho County, Colorado, 6.15% due 2026, Illinois Toll Road, 6.20% due 2016, and Connecticut State Health and Educational Authority, 5.40% due 2023. Each of these carried bond insurance so that their credit rating is of the highest quality, yet the combination of thoughtful research and market timing contributed to their outstanding returns. Looking ahead into 1997, we anticipate a less volatile bond market and a continued favorable stock market environment, especially for those issues reflecting companies with extraordinary growth of profitability through new products and services, and which represent undervalued businesses in terms of growth opportunity and franchise values. We believe that the portfolio is well structured in both of these segments. We particularly appreciate the many new shareholders who have joined Evergreen Tax Strategic Foundation Fund this year, understanding our aim at providing capital appreciation and tax exempt returns in a most efficient and fruitful manner. | THESE BONDS ARE INSURED AS TO PAYMENT OF PRINCIPAL AND INTEREST. THE FUND ITSELF IS NOT INSURED NOR IS THE VALUE OF ITS SHARES GUARANTEED. 44 EVERGREEN TAX STRATEGIC FOUNDATION FUND (Picture of dam appears here) RESULTS TO DATE PERFORMANCE OF $10,000 INVESTED IN THE EVERGREEN TAX STRATEGIC FOUNDATION FUND The graphs below compare a $10,000 investment in the Evergreen Tax Strategic Foundation Fund (Class A, Class B, Class C and Class Y Shares) with a similar investment in the S&P 500 and the Lehman Municipal Bond Indexes ("Indexes"). [CHARTS TO FOLLOW.] CLASS A 1-YEAR TOTAL RETURN = 9.9% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION = 17.5% $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 1/17/95* 6/30/95 12/31/95 6/30/96 12/31/96 CLASS B 1-YEAR TOTAL RETURN = 9.7% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION = 18.4% $8,000 $10,000 $12,000 $16,000 $18,000 1/8/95* 6/30/95 12/31/95 6/30/96 12/31/96 CLASS C 1-YEAR TOTAL RETURN = 13.5% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION = 19.6% $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 3/3/95* 6/30/95 12/31/95 6/30/96 12/31/96 CLASS Y 1-YEAR TOTAL RETURN = 15.8% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION = 15.5% $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 1/2/90* 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 EVERGREEN TAX FOUNDATION FUND S&P 500 INDEX LEIMAN MUNICIPAL BOND INDEX *Commencement of class operations. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS ARE NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED. For the purposes of the graphs and the accompanying tables, it has been assumed that (a) the maximum sales charge of 4.75% was deducted from the initial $10,000 investment in Class A Shares; (b) the maximum applicable contingent deferred sales charge was deducted from the value of the investment in Class B and Class C Shares, assuming full redemption on December 31, 1996; (c) all recurring fees (including investment advisory fees) net of fee waivers and reimbursements were deducted; and (d) all dividends and distributions were reinvested. The Indexes are unmanaged and include the reinvestment of income, but do not reflect the payment of transaction costs and advisory fees associated with an investment in the Fund. 45 EVERGREEN TAX STRATEGIC FOUNDATION FUND STATEMENT OF INVESTMENTS DECEMBER 31, 1996 (Picture of dam appears here)
SHARES VALUE COMMON STOCKS -- 46.5% BANKS -- 7.9% 19,500 Bank of Boston Corp................. $ 1,252,875 10,000 Barnett Banks, Inc.................. 411,250 25,000 Beverly Bancorporation, Inc......... 451,563 5,000 Comerica, Inc....................... 261,875 1,900 First Empire State Corp............. 547,200 11,000 First of America Bank Corp.......... 661,375 1,500 First Union Corp. **................ 111,000 1,100 Interchange Financial Services Corp................................ 27,088 6,000 Seacoast Banking Corp. of Florida Cl. A............................... 156,375 4,837 SouthTrust Corp..................... 168,690 10,100 Standard Federal Bank............... 574,437 4,623,728 BUILDING, CONSTRUCTION & FURNISHINGS -- .9% 25,000 Clayton Homes, Inc.................. 337,500 15,000* Southern Energy Homes, Inc.......... 172,500 510,000 BUSINESS EQUIPMENT & SERVICES -- .9% 2,000 International Business Machines Corp....................... 302,000 5,000 Lucent Technologies, Inc............ 231,250 533,250 CHEMICALS & AGRICULTURAL PRODUCTS -- 1.1% 11,000 Morton International, Inc........... 448,250 3,000 Pioneer Hi-Bred International, Inc................................. 210,000 658,250 CONSUMER PRODUCTS & SERVICES -- 2.7% 10,000 Adidas AG ADS, 144A................. 427,500 8,000 International Flavors & Fragrances, Inc..................... 360,000 2,000* National Processing, Inc............ 32,000 10,500 Toro Co. (The)...................... 383,250 6,000 V. F. Corp.......................... 405,000 1,607,750 DIVERSIFIED COMPANIES -- .6% 7,000 Dover Corp.......................... 351,750 ELECTRICAL EQUIPMENT & ELECTRONICS -- 8.0% 6,000 AMP, Inc............................ 230,250 8,000 Avnet, Inc.......................... 466,000 6,000 Baldor Electric Co.................. 147,750 SHARES VALUE
ELECTRICAL EQUIPMENT & ELECTRONICS -- CONTINUED 5,000* Gateway 2000, Inc................... $ 267,812 13,000 Harman International Industries, Inc..................... 723,125 18,000 Hewlett-Packard Co.................. 904,500 12,000 Intel Corp.......................... 1,571,250 11,800 Park Electrochemical Corp........... 268,450 7,500* Southern Electronics Corp........... 93,750 4,672,887 FINANCE & INSURANCE -- 4.6% 10,000 Countrywide Credit Industries, Inc................................. 286,250 3,000 Enhance Financial Services Group, Inc.......................... 109,500 10,000 FBL Financial Group, Inc............ 248,750 12,000 Federal National Mortgage Assn...... 447,000 20,000* FPIC Insurance Group, Inc........... 270,000 4,000 Marsh & McLennan Co., Inc........... 416,000 13,000 North American Mortgage Co.......... 256,750 13,000 PHH Corp............................ 559,000 2,500 Wilmington Trust Corp............... 98,750 2,692,000 HEALTHCARE PRODUCTS & SERVICES -- 3.8% 7,000 Abbott Laboratories................. 355,250 4,000 American Home Products Corp......... 234,500 2,000 Beckman Instruments, Inc............ 76,750 8,250* Bio-Rad Laboratories, Inc. Cl. A.... 247,500 9,000 Lilly (Eli) & Co.................... 657,000 5,000* Lincare Holdings, Inc............... 205,000 3,000 Medtronic, Inc...................... 204,000 5,000 Shared Medical System Corp.......... 246,250 2,226,250 INDUSTRIAL SPECIALTY PRODUCTS & SERVICES -- 3.7% 3,300 Applied Power, Inc.................. 130,763 5,000 Cadmus Communications Corp.......... 77,500 7,500* Chemfab Corp........................ 105,000 8,000 Fisher Scientific International, Inc................................. 377,000 10,000 Furon Co............................ 212,500 14,100 Kysor Industrial Corp............... 460,012 6,900 Snap-on, Inc........................ 245,812 4,000 Timken Co. (The).................... 183,500 10,000* UCAR International, Inc............. 376,250 2,168,337
46 EVERGREEN TAX STRATEGIC FOUNDATION FUND STATEMENT OF INVESTMENTS -- (CONTINUED) DECEMBER 31, 1996 (Picture of dam appears here)
SHARES VALUE COMMON STOCKS -- CONTINUED PUBLISHING, BROADCASTING & ENTERTAINMENT -- .6% 10,000 A. H. Belo Corp..................... $ 348,750 REAL ESTATE -- 6.6% 1,500* Alexander's, Inc.................... 118,688 20,000 Brandywine Realty Trust............. 390,000 12,000 Capstead Mortgage Corp.............. 288,000 6,400 Continental Homes Holding Corp...... 136,000 40,000 CWM Mortgage Holdings, Inc.......... 860,000 13,500 Gables Residential Trust............ 391,500 438* Homestead Village Properties, Inc................................. 7,884 293* Homestead Village Properties, Inc. Warrants expiring 10/29/97 @$10..... 2,381 15,000* Interstate Hotels Co................ 423,750 7,000 Patriot American Hospitality, Inc................................. 301,875 20,000 Prentiss Properties Trust........... 500,000 3,485 Security Capital Pacific Trust...... 79,719 25,000 Sunstone Hotel Investors, Inc....... 328,125 3,827,922 RETAILING -- 1.4% 11,000 Lowe's Cos., Inc.................... 390,500 8,200 Mercantile Stores Co., Inc.......... 404,875 795,375 THRIFT INSTITUTIONS -- 1.1% 18,000 Bank United Corp.................... 481,500 15,000 BankUnited Financial Corp........... 150,000 631,500 UTILITIES -- ELECTRIC -- .5% 9,900 TNP Enterprises, Inc................ 271,013 UTILITIES -- GAS -- .5% 7,500 Williams Cos., Inc. (The)........... 281,250 UTILITIES -- TELEPHONE -- 1.6% 10,000* 360 Communications Co............... 231,250 15,000 Frontier Corp....................... 339,375 8,000 GTE Corp............................ 364,000 934,625 TOTAL COMMON STOCKS (COST $20,756,100)................ 27,134,637
PRINCIPAL AMOUNT VALUE MUNICIPAL OBLIGATIONS -- 51.7% LONG-TERM -- 45.0% ALASKA -- 1.7% $1,000,000 Alaska Hsg. Fin. Corp. Mtge. RB, 1996 Ser. A 6.05%, 12/1/17 (MBIA)............... $ 1,007,320 ARIZONA -- .9% 500,000 City of Tucson GO Refunding Bonds, Ser. 1995 5.70%, 7/1/08 (FGIC)................ 525,510 CALIFORNIA -- 2.6% 500,000 California Edl. Facs. Auth. RB (Carnegie Institution of Washington), Ser. A 5.60%, 10/1/23...................... 491,110 1,000,000 State of California Various Purpose GO 5.90%, 4/1/23 (FGIC)................ 1,020,170 1,511,280 COLORADO -- 3.5% 500,000 Arapahoe Cnty. Pub. Hwy. Auth. Capital Imp. Trust Fund Hwy. RB (E-470 Proj.) 6.15%, 8/31/26 (MBIA)............... 530,765 1,000,000 City & Cnty. of Denver Arpt. Sys. RB, Ser. 1995C (AMT) 5.60%, 11/15/25 (MBIA).............. 966,630 500,000 School Dist. No. 1 in the City & Cnty. of Denver GO Refunding Bonds, Ser. 1994A 6.50%, 6/1/10 (MBIA)................ 563,230 2,060,625 CONNECTICUT -- .4% 250,000 State of Connecticut Hlth. & Edl. Facs. Auth. Kent School Issue RB, Ser. B 5.40%, 7/1/23 (MBIA)................ 244,150 DELAWARE -- 1.9% 1,000,000 Delaware Econ. Dev. Auth. Hosp. RB (The Osteopathic Hosp. Assoc. of Delaware/Riverside Hosp.), Escrowed to Maturity, Ser. A 6.50%, 1/1/08....................... 1,106,360 FLORIDA -- 2.3% 500,000 City of Palm Bay Util. Sys. RRB (Palm Bay Util. Corp. Proj.), Ser. 1994 5.00%, 10/1/15 (MBIA)............... 465,405
47 EVERGREEN TAX STRATEGIC FOUNDATION FUND STATEMENT OF INVESTMENTS -- (CONTINUED) DECEMBER 31, 1996 (Picture of dam appears here)
PRINCIPAL AMOUNT VALUE MUNICIPAL OBLIGATIONS -- CONTINUED FLORIDA -- CONTINUED $ 300,000 Dade Cnty. Aviation RRB, Ser. 1995A 6.10%, 10/1/11 (AMBAC).............. $ 318,285 500,000 Orange Cnty. Hlth. Facs. Auth. Hosp. RB (Orlando Regional Healthcare Sys.), Ser. 1996C 6.25%, 10/1/16 (MBIA)............... 551,820 1,335,510 HAWAII -- 1.9% 1,000,000 State of Hawaii GO, 1990 Ser. BS Prerefunded @$101 7.00%, 9/1/03....................... 1,098,810 ILLINOIS -- 1.4% 500,000 Forest Preserve Dist. of Cook Cnty. GO Ltd. Tax Bonds, Ser. 1996 5.80%, 11/1/16 (MBIA)............... 503,230 300,000 Illinois St. Toll Hwy. Auth. Toll Hwy. Priority RB, 1992 Ser. A 6.20%, 1/1/16 (FGIC)................ 314,631 817,861 MASSACHUSETTS -- .9% 250,000 Massachusetts Hsg. Fin. Agcy. Hsg. Proj. RRB, 1993 Ser. A 5.95%, 10/1/08 (AMBAC).............. 256,025 250,000 Massachusetts Bay Trans. Auth. General Trans. Sys. Bonds, Ser. 1994A 7.00%, 3/1/08....................... 289,112 545,137 MICHIGAN -- .6% 300,000 Michigan Muni. Bond Auth. Local Govt. Loan Prog. RB, Ser 1994G 6.55%, 11/1/08 (AMBAC).............. 335,127 MISSOURI -- 3.5% 500,000 Missouri Hsg. Dev. Commission Single Family Mtge. RB (Homeownership Loan Prog.), 1996 Ser. D 6.00%, 9/1/17 (collateralized by GNMA or FNMA Certificates)....................... 500,850 1,000,000 Missouri Hsg. Dev. Commission Single Family Mtge. RB (Homeownership Loan Prog.), 1996 Ser. B 6.25%, 9/1/15 (collateralized by GNMA or FNMA Certificates)....................... 1,022,340 PRINCIPAL AMOUNT VALUE
MISSOURI -- CONTINUED $ 500,000 St. Louis Muni. Fin. Corp. Leasehold Revenue Imp. Bonds, Ser. 1996A 5.95%, 2/15/16 (AMBAC).............. $ 519,340 2,042,530 NEVADA -- 1.8% 1,000,000 Clark Cnty. Las Vegas McCarran Int'l Arpt. Passenger Fac. Charge RB, 1992 Ser. A 6.00%, 7/1/22 (AMBAC)............... 1,028,540 NEW YORK -- 10.2% 1,500,000 Dormitory Auth. of the St. of New York, City Univ. Sys. Consolidated Second General Resolution RB, Ser. 1995A 5.38%, 7/1/14 (FGIC)................ 1,479,105 1,000,000 New York St. Local Govt. Assist. (A Pub. Benefit Corp. of the St. of New York), Prerefunded @$100, Ser. 1991B 7.00%, 4/1/21....................... 1,100,910 245,000 New York St. Med. Care Facs. Fin. Agcy. Mental Hlth. Svcs. Facs. Imp. RB, 1992 Ser. B 6.25%, 8/15/10 (AMBAC).............. 261,101 500,000 New York St. Med. Care Facs. Fin. Agcy. Mental Hlth. Svcs. Facs. Imp. RB, 1995 Ser. A 6.00%, 2/15/25 (MBIA)............... 517,210 1,000,000 New York St. Thruway Auth. General RB, Ser. C 6.00%, 1/1/25 (FGIC)................ 1,035,730 250,000 State of New York Mtge. Agcy. Homeowner Mtge. RB, Ser. 44 (AMT) 6.60%, 4/1/03....................... 261,823 1,000,000 State of New York Mtge. Agcy. Homeowner Mtge. RB, Ser. 56 (AMT) 5.88%, 10/1/19...................... 1,015,460 250,000 Port Auth. of New York and New Jersey Consolidated Bonds, Ninety- Seventh Ser. Second Installment (AMT) 7.00%, 7/15/05 (FGIC)............... 289,295 5,960,634
48 EVERGREEN TAX STRATEGIC FOUNDATION FUND STATEMENT OF INVESTMENTS -- (CONTINUED) DECEMBER 31, 1996 (Picture of dam appears here)
PRINCIPAL AMOUNT VALUE MUNICIPAL OBLIGATIONS -- CONTINUED NORTH DAKOTA -- 1.8% $1,000,000 Mercer Cnty. Poll. Ctrl. RRB (Basin Elec. Pwr. Cooperative-Antelope Valley Unit 1 & Common Facs.), Second 1995 Ser. 6.05%, 1/1/19 (AMBAC)............... $ 1,044,220 OHIO -- 1.4% 700,000 Board of Ed. Beavercreek Local Sch. Dist. Sch. Imp. Bonds (Unltd. Tax GO), Ser. 1996 6.60%, 12/1/15 (FGIC)............... 802,361 PENNSYLVANIA -- 2.0% 1,045,000 City of Philadelphia Wtr. & Swr. RB, Sixteenth Ser. Prerefunded @$102, 7.00%, 8/1/21....................... 1,171,884 TENNESSEE -- .6% 300,000 Hlth. & Edl. Facs. Board of the City of Bristol Hosp. RRB (Bristol Mem. Hosp.), Ser. 1993 6.75%, 9/1/07 (FGIC)................ 343,503 TEXAS -- 2.9% 1,000,000 City of Houston Wtr. Conveyance Sys. Contract COP, Ser. 1993J 6.13%, 12/15/09 (AMBAC)............. 1,087,360 500,000 City of Houston Wtr. Conveyance Sys. Contract COP, Ser. 1993H 7.50%, 12/15/10 (AMBAC)............. 602,810 1,690,170 UTAH -- .9% 500,000 Salt Lake City Hosp. RB (IHC Hospitals, Inc.) 6.30%, 2/15/15...................... 535,935 WASHINGTON -- .9% 500,000 City of Richland Wtr. & Swr. RB, Ser. 1996 5.60%, 11/1/16 (MBIA)............... 491,730 PUERTO RICO -- .9% 500,000 Puerto Rico Hsg. Bank & Fin. Agcy. Affordable Hsg. Mtge. Subsidy Prog. Single Family Mtge. RB, Portfolio I (AMT) 5.85%, 4/1/09 (collateralized by GNMA, FNMA & FHLMC Certificates).... 506,485 TOTAL LONG-TERM (COST $25,516,981)................ 26,205,682 PRINCIPAL AMOUNT VALUE SHORT-TERM -- 6.7% GEORGIA -- 1.7% $1,000,000 Hapeville Dev. Auth. Indl. Dev. RB (Hapeville Hotel Ltd. Partnership Proj.), Ser. 1985 5.00% -- VRDN (LOC: Swiss Bank Corp.).............................. $ 1,000,000 NEW YORK -- 5.0% 1,000,000 City of New York GO, 1994 Ser. A, Subseries A-5 5.00% -- VRDN (LOC: Kredietbank N.V., N.Y. Branch).................. 1,000,000 400,000 City of New York GO, Fiscal 1995 Ser. B Sub-Ser. B-3 5.00% -- VRDN (MBIA)................ 400,000 500,000 City of New York GO, Fiscal 1995 Ser. B Sub-Ser. B-4 5.00% -- VRDN (MBIA)................ 500,000 1,000,000 City of New York GO, Fiscal 1995 Ser. B Sub-Ser. B-7 5.00% -- VRDN (AMBAC)............... 1,000,000 2,900,000 TOTAL SHORT-TERM (COST $3,900,000)................. 3,900,000 TOTAL MUNICIPAL OBLIGATIONS (COST $29,416,981)................ 30,105,682 MUTUAL FUND SHARES -- .2% SHARES 90,000 Federated Tax Free Obligations Fund (at net asset value) (COST $90,000)...................... 90,000 TOTAL INVESTMENTS -- (COST $50,263,081)......... 98.4 % 57,330,319 OTHER ASSETS AND LIABILITIES -- NET......... 1.6 952,359 NET ASSETS --................ 100.0 % $58,282,678
49 EVERGREEN TAX STRATEGIC FOUNDATION FUND STATEMENT OF INVESTMENTS -- (CONTINUED) DECEMBER 31, 1996 (Picture of dam appears here) * Non-income producing securities. ** At December 31, 1996 the Fund owned 1,500 shares of common stock of First Union Corp. at a cost of $57,890. During the year ended December 31, 1996 the Fund earned $3,300 in dividend income from this investment. These shares were purchased by the Fund prior to the acquisition of the investment adviser and Lieber & Company by First Union. (a) Less than one tenth of one percent. The following abbreviations are used in this portfolio: ADS -- American Depositary Shares AMT -- Subject to Alternative Minimum Tax COP -- Certificates of Participation FHLMC -- Federal Home Loan Mortgage Corp. FNMA -- Federal National Mortgage Corp. GO -- General Obligations GNMA -- Government National Mortgage Corp. LOC -- Letter of Credit RB -- Revenue Bonds RRB -- Refunding Revenue Bonds VRDN -- Variable Rate Demand Notes are payable on demand at par on no more than seven calendar days' notice given by the Fund to the issuer or other parties not affiliated with the issuer. These notes normally incorporate an irrevocable letter of credit or line of credit from a major bank. Interest rates are determined and reset by the issuer daily. Interest rates presented for these securities are those in effect as of December 31, 1996. Municipal bond insurance companies: AMBAC -- American Municipal Bond Assurance Corp. FGIC -- Financial Guarantee Insurance Corp. MBIA -- Municipal Bond Insurance Association Rule 144 securities are restricted as to resale to qualified institutional investors. See accompanying notes to financial statements. 50 EVERGREEN TAX STRATEGIC FOUNDATION FUND STATEMENT OF ASSETS AND LIABILITIES (Picture of dam appears here) DECEMBER 31, 1996
ASSETS: Investments at value (identified cost $50,263,081)............................................................. $57,330,319 Cash........................................................................................................... 6,114 Receivable for Fund shares sold................................................................................ 584,487 Dividends and interest receivable.............................................................................. 522,195 Prepaid expenses............................................................................................... 31,789 Unamortized organization expenses.............................................................................. 14,818 Total assets............................................................................................. 58,489,722 LIABILITIES: Accrued expenses............................................................................................... 113,259 Accrued advisory fee........................................................................................... 42,119 Distribution fee payable....................................................................................... 42,111 Payable for Fund shares purchased.............................................................................. 9,555 Total liabilities........................................................................................ 207,044 NET ASSETS........................................................................................................ $58,282,678 NET ASSETS CONSIST OF: Paid-in capital................................................................................................ $51,216,071 Distribution in excess of net investment income................................................................ (631) Net unrealized appreciation of investments..................................................................... 7,067,238 Net assets............................................................................................... $58,282,678 CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE: Class A Shares ($11,165,998 (division sign) 827,010 shares of beneficial interest outstanding)................. $ 13.50 Sales charge -- 4.75% of offering price........................................................................ .67 Maximum offering price...................................................................................... $ 14.17 Class B Shares ($28,006,870 (division sign) 2,075,878 shares of beneficial interest outstanding)............... $ 13.49 Class C Shares ($4,107,803 (division sign) 304,906 shares of beneficial interest outstanding).................. $ 13.47 Class Y Shares ($15,002,007 (division sign) 1,108,180 shares of beneficial interest outstanding)............... $ 13.54
See accompanying notes to financial statements. 51 EVERGREEN TAX STRATEGIC FOUNDATION FUND STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 (Picture of dam appears here) INVESTMENT INCOME: Income: Interest.......................................................................................... $1,156,135 Dividends (net of foreign withholding taxes of $68)............................................... 434,437 Total investment income..................................................................... 1,590,572 EXPENSES: Advisory fee...................................................................................... $ 354,958 Distribution fee -- Class A Shares................................................................ 16,426 Distribution fee -- Class B Shares................................................................ 131,282 Shareholder services fee -- Class B Shares........................................................ 43,761 Distribution fee -- Class C Shares................................................................ 16,493 Shareholder services fee -- Class C Shares........................................................ 5,498 Custodian fee..................................................................................... 79,350 Registration and filing fees...................................................................... 59,282 Transfer agent fee................................................................................ 56,591 Reports and notices to shareholders............................................................... 36,507 Professional fees................................................................................. 9,263 Amortization of organization expenses............................................................. 7,986 Insurance......................................................................................... 7,789 Trustees' fees and expenses....................................................................... 5,179 Miscellaneous..................................................................................... 3,643 Total expenses.............................................................................. 834,008 Less: Fee waivers and expense reimbursements...................................................... (101,890) Net expenses................................................................................ 732,118 Net investment income................................................................................ 858,454 NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investments.................................................................. 1,133,442 Net increase in unrealized appreciation of investments............................................ 4,531,613 Net gain on investments.............................................................................. 5,665,055 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................. $6,523,509
See accompanying notes to financial statements. 52 EVERGREEN TAX STRATEGIC FOUNDATION FUND STATEMENT OF CHANGES IN NET ASSETS (Picture of dam appears here)
YEAR ENDED DECEMBER 31, 1996 1995 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income........................................................................ $ 858,454 $ 456,792 Net realized gain on investments............................................................. 1,133,442 671,486 Net change in unrealized appreciation of investments......................................... 4,531,613 2,607,309 Net increase in net assets resulting from operations................................... 6,523,509 3,735,587 DISTRIBUTIONS TO SHAREHOLDERS: FROM NET INVESTMENT INCOME: Class A Shares............................................................................... (163,381) (34,215) Class B Shares............................................................................... (306,929) (72,776) Class C Shares............................................................................... (42,461) (4,715) Class Y Shares............................................................................... (342,618) (346,086) Total distributions to shareholders from net investment income............................ (855,389) (457,792) IN EXCESS OF NET INVESTMENT INCOME: Class A Shares............................................................................... (121) (162) Class B Shares............................................................................... (226) (345) Class C Shares............................................................................... (31) (22) Class Y Shares............................................................................... (253) (1,644) Total distributions to shareholders in excess of net investment income.................... (631) (2,173) FROM NET REALIZED GAIN ON INVESTMENTS: Class A Shares............................................................................... (209,265) (77,951) Class B Shares............................................................................... (555,359) (199,612) Class C Shares............................................................................... (82,045) (14,445) Class Y Shares............................................................................... (303,414) (490,453) Total distributions to shareholders from net realized gain on investments............................................................................ (1,150,083) (782,461) Total distributions to shareholders.................................................... (2,006,103) (1,242,426) FUND SHARE TRANSACTIONS: Proceeds from shares sold.................................................................... 32,091,878 10,412,208 Proceeds from reinvestment of distributions.................................................. 1,574,099 1,158,751 Payment for shares redeemed.................................................................. (3,143,238) (1,396,543) Net increase resulting from Fund share transactions....................................... 30,522,739 10,174,416 Net increase in net assets............................................................. 35,040,145 12,667,577 NET ASSETS: Beginning of year............................................................................ 23,242,533 10,574,956 End of year (including distributions in excess of net investment income of $631 at December 31, 1996).................................................................................. $58,282,678 $23,242,533
See accompanying notes to financial statements. 53 EVERGREEN TAX STRATEGIC FOUNDATION FUND CLASS A, B AND C SHARES FINANCIAL HIGHLIGHTS (Picture of dam appears here)
CLASS A SHARES CLASS B SHARES CLASS C JANUARY 17, JANUARY 6, SHARES YEAR 1995* YEAR 1995* YEAR ENDED THROUGH ENDED THROUGH ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1996 1995 1996 1995 1996 PER SHARE DATA: Net asset value, beginning of period....... $12.20 $10.44 $12.19 $10.31 $12.19 Income from investment operations: Net investment income.................... .27 .29 .19 .22 .18 Net realized and unrealized gain on investments............................ 1.59 2.24 1.59 2.37 1.58 Total from investment operations..... 1.86 2.53 1.78 2.59 1.76 Less distributions to shareholders from: Net investment income.................... (.28) (.31) (.20) (.25) (.20) Net realized gain on investments......... (.28) (.46) (.28) (.46) (.28) Total distributions.................. (.56) (.77) (.48) (.71) (.48) Net asset value, end of period............. $13.50 $12.20 $13.49 $12.19 $13.47 TOTAL RETURN**............................. 15.4% 24.8% 14.7% 25.6% 14.5% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)................................. $ 11,166 $2,702 $ 28,007 $6,559 $4,108 Ratios to average net assets #: Expenses................................. 1.52% 1.75%+ 2.27% 2.50%+ 2.25% Net investment income.................... 2.39% 2.79%+ 1.64% 2.03%+ 1.64% Portfolio turnover rate.................... 88% 110% 88% 110% 88% Average commission rate paid per share..... $.0648 N/A $.0648 N/A $.0648 MARCH 3, 1995* THROUGH DECEMBER 31, 1995 PER SHARE DATA: Net asset value, beginning of period....... $10.69 Income from investment operations: Net investment income.................... .22 Net realized and unrealized gain on investments............................ 1.99 Total from investment operations..... 2.21 Less distributions to shareholders from: Net investment income.................... (.25) Net realized gain on investments......... (.46) Total distributions.................. (.71) Net asset value, end of period............. $12.19 TOTAL RETURN**............................. 21.2% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)................................. $496 Ratios to average net assets #: Expenses................................. 2.50%+ Net investment income.................... 2.07%+ Portfolio turnover rate.................... 110% Average commission rate paid per share..... N/A
* Commencement of class operations. ** Total return is calculated on net asset value per share for the periods indicated and is not annualized. Initial sales charge or contingent deferred sales charges are not reflected. + Annualized. # Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income (loss) to average net assets, exclusive of any applicable state expense limitations, would have been the following:
CLASS A SHARES CLASS B SHARES CLASS C JANUARY 17, JANUARY 6, SHARES YEAR 1995* YEAR 1995* YEAR ENDED THROUGH ENDED THROUGH ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1996 1995 1996 1995 1996 Expenses.................................. 1.76% 5.02% 2.51% 3.65% 2.48% Net investment income (loss).............. 2.15% (.48%) 1.40% .88% 1.41% MARCH 3, 1995* THROUGH DECEMBER 31, 1995 Expenses.................................. 18.91% Net investment income (loss).............. (14.34%)
See accompanying notes to financial statements. 54 EVERGREEN TAX STRATEGIC FOUNDATION FUND CLASS Y SHARES FINANCIAL HIGHLIGHTS -- (CONTINUED) (Picture of dam appears here)
YEAR ENDED DECEMBER 31, 1996 1995 1994 PER SHARE DATA: Net asset value, beginning of period........................................................... $12.22 $10.27 $10.31 Income from investment operations: Net investment income........................................................................ .34 .35 .27 Net realized and unrealized gain on investments.............................................. 1.56 2.39 .08 Total from investment operations......................................................... 1.90 2.74 .35 Less distributions to shareholders from: Net investment income........................................................................ (.30) (.33) (.27) Net realized gain on investments............................................................. (.28) (.46) (.12) Total distributions...................................................................... (.58) (.79) (.39) Net asset value, end of period................................................................. $13.54 $12.22 $10.27 TOTAL RETURN**................................................................................. 15.8% 27.3% 3.4% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)...................................................... $15,002 $13,485 $10,575 Ratios to average net assets #: Expenses..................................................................................... 1.30% 1.50% 1.49% Net investment income........................................................................ 2.63% 3.06% 2.87% Portfolio turnover rate........................................................................ 88% 110% 245% Average commission rate paid per share......................................................... $.0648 N/A N/A NOVEMBER 2, 1993* THROUGH DECEMBER 31, 1993 PER SHARE DATA: Net asset value, beginning of period........................................................... $10.00 Income from investment operations: Net investment income........................................................................ .05 Net realized and unrealized gain on investments.............................................. .31 Total from investment operations......................................................... .36 Less distributions to shareholders from: Net investment income........................................................................ (.05) Net realized gain on investments............................................................. -- Total distributions...................................................................... (.05) Net asset value, end of period................................................................. $10.31 TOTAL RETURN**................................................................................. 3.5% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)...................................................... $5,424 Ratios to average net assets #: Expenses..................................................................................... .00%+ Net investment income........................................................................ 3.65%+ Portfolio turnover rate........................................................................ 25% Average commission rate paid per share......................................................... N/A
* Commencement of operations. ** Total return is calculated for the periods indicated and is not annualized. + Annualized. # Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets, exclusive of any applicable state expense limitations, would have been the following:
YEAR ENDED DECEMBER 31, 1996 1995 1994 Expenses.......................................................................................... 1.56% 2.23% 2.41% Net investment income............................................................................. 2.37% 2.33% 1.95% NOVEMBER 2, 1993* THROUGH DECEMBER 31, 1993 Expenses.......................................................................................... 3.10% Net investment income............................................................................. .54%
See accompanying notes to financial statements. 55 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS The Evergreen Balanced Funds (the "Funds") are separate series of open-end management companies registered under the Investment Company Act of 1940, as amended (the "Act"). The Balanced Funds consist of Evergreen American Retirement Fund ("American Retirement"), Evergreen Balanced Fund ("Balanced"), Evergreen Foundation Fund ("Foundation") and Evergreen Tax Strategic Foundation Fund ("Tax Strategic") known collectively as the Funds. American Retirement's investment objectives, in order of priority, are conservation of capital, reasonable income and capital growth. Balanced's investment objective is to achieve long-term total return through capital appreciation, dividends and interest income. Foundation's investment objectives, in order of priority, are reasonable income, conservation of capital and capital appreciation. Tax Strategic's investment objective is to maximize the after-tax total return on its portfolio of investments by investing in equities as well as municipal securities, which are exempt from Federal income tax. NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements. These policies are in conformity with generally accepted accounting principles. SECURITY VALUATIONS -- Investments in securities traded on a national securities exchange or included on the NASDAQ National Market System ("NMS") are valued at the last reported sales price. Securities traded on an exchange or NMS for which there has been no sale and other securities traded in the over-the-counter market are valued at the mean between the last reported bid and asked price. Unlisted securities for which market quotations are not readily available are valued at a price quoted by one or more brokers. Debt securities (other than short-term obligations) are valued on the basis of valuations provided by a pricing service. Securities for which market quotations are not readily available are valued at their respective fair value as determined in good faith by the Board of Trustees. Short-term investments are valued at amortized cost, which approximates market value. SECURITY TRANSACTIONS -- Security transactions are accounted for on the date purchased or sold. Net realized gains or losses are determined on the identified cost basis. INVESTMENT INCOME AND EXPENSES -- Dividend income is recorded on the ex-dividend date. Interest income and expenses are accrued daily. REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase agreements are held by the Federal Reserve Bank and are designated as being held on each Fund's behalf by its custodian under a book-entry system. Each Fund monitors the adequacy of the collateral on a daily basis and can require the seller to provide additional collateral in the event the market value of the securities pledged falls below the carrying value of the repurchase agreement, including accrued interest. Each Fund will only enter into repurchase agreements with banks and other financial institutions which are deemed by the investment adviser to be creditworthy pursuant to guidelines established by the Trustees. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income are distributed quarterly for each of the Funds. Distributions from net realized capital gains on investments, if any, will be distributed at least annually. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from amounts available under generally accepted accounting principles. These differences are primarily due to differing treatments for wash sales. To the extent these differences are permanent in nature, such amounts are reclassified within the components of net assets. 56 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- continued As of December 31, 1996, the following reclassifications have been made to increase (decrease) such accounts with offsetting adjustments made to paid-in capital.
UNDISTRIBUTED ACCUMULATED NET INVESTMENT REALIZED GAIN INCOME ON INVESTMENTS Balanced......... ($ 172,629) $172,629 Tax Strategic.... ($ 16,641) $ 13,576
INCOME TAXES -- It is each Fund's policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable net income and net realized capital gains to its shareholders. Accordingly, no provisions for Federal income or excise taxes are necessary. To the extent that realized capital gains can be offset by capital loss carryforwards, it is each Fund's policy not to distribute such gains. ALLOCATION OF EXPENSES -- Expenses specifically identifiable to a class of shares are charged to that class. Expenses common to a Trust as a whole are allocated to the funds in that Trust. Investment income, net of expenses (other than class specific expenses) and realized and unrealized gains and losses are allocated daily to each class of shares based upon the relative proportion of net assets of each class. UNAMORTIZED ORGANIZATION EXPENSES -- The expenses of Tax Strategic incurred in connection with its organization are being deferred and amortized over a period of benefit not to exceed 60 months from the date it commenced operations. USE OF ESTIMATES -- The preparation of the financial statements is in accordance with generally accepted accounting principles which requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY AGREEMENTS -- First Union National Bank of North Carolina ("First Union"), Balanced's investment adviser, is entitled to an annual fee of .50 of 1% of Balanced's average daily net assets pursuant to the Fund's investment advisory agreement. Pursuant to an agreement with American Retirement's, Foundation's and Tax Strategic's investment adviser, Evergreen Asset Management Corp. ("Evergreen Asset"), a wholly owned subsidiary of First Union, Evergreen Asset is entitled to an annual fee based on each of American Retirement's, Foundation's and Tax Strategic's average daily net assets, respectively, in accordance with the following schedules:
FOUNDATION AND AMERICAN TAX STRATEGIC RETIREMENT First $750 million 0.875% First $750 million 0.75% Next $250 million 0.750% Over $750 million 0.70% Over $1 billion 0.700%
For American Retirement and Tax Strategic, Evergreen Asset voluntarily waived advisory fees of $24,841 and $90,551, respectively, and voluntarily reimbursed other expenses amounting to $3,400 and $11,339, respectively. Evergreen Asset can modify or terminate voluntary waivers and reimbursements at any time. Lieber & Company, an affiliate of First Union, is the investment sub-adviser to American Retirement, Foundation and Tax Strategic and also provides brokerage services with respect to substantially all security transactions of these Funds effected on the New York or American Stock Exchanges. For the year ended December 31, 1996, American Retirement, 57 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES -- continued Foundation and Tax Strategic incurred brokerage commissions of $51,579, $680,252 and $50,033 with Lieber & Company. Lieber & Company is reimbursed by Evergreen Asset, at no additional expense to these Funds, for its cost of providing investment advisory services. ADMINISTRATION AGREEMENT -- Evergreen Asset furnishes American Retirement, Foundation and Tax Strategic with administrative services as part of their advisory agreements and accordingly, these Funds do not pay a separate administration fee. Through December 31, 1996 Furman Selz LLC ("Furman Selz") was each of the Funds' sub-administrator. As sub-administrator, Furman Selz provided the officers of the Funds. For these Funds, Furman Selz' fee was paid by Evergreen Asset and was not a fund expense. Evergreen Asset is Balanced's administrator and Furman Selz was its sub-administrator through December 31, 1996. Evergreen Asset's and Furman Selz' fees for Balanced were based on the average daily net assets of all of the funds administered by Evergreen Asset for which either First Union or Evergreen Asset was also the investment adviser. These fees were calculated at the following annual rates:
ADMINISTRATION FEE AVERAGE DAILY NET ASSETS 0.050% on the first $7 billion 0.035% on the next $3 billion 0.030% on the next $5 billion 0.020% on the next $10 billion 0.015% on the next $5 billion 0.010% in excess of $30 billion SUB-ADMINISTRATION FEE AVERAGE DAILY NET ASSETS 0.0100% on the first $7 billion 0.0075% on the next $3 billion 0.0050% on the next $15 billion 0.0040% in excess of $25 billion
At December 31, 1996, assets for which Evergreen Asset was the administrator for which either Evergreen Asset or First Union was investment adviser totalled approximately $17.0 billion. Effective January 1, 1997, Bisys Group, Inc. ("Bisys") acquired Furman Selz' mutual fund unit and accordingly, Bisys Fund Services became sub-administrator. The administration fee structure has remained unchanged. PLANS OF DISTRIBUTION -- The Funds have adopted for their Class A, Class B, and Class C shares, Distribution Plans (the "Plans") pursuant to Rule 12b-1 under the Act. Under the terms of the Plans, the Funds may incur distribution-related and shareholder servicing expenses which may not exceed an annual fee of .75 of 1% for Class A and an annual fee of 1% for Class B and Class C Shares. For each of the Funds, the payments for Class A were voluntarily limited to .25 of 1% of average daily net assets. In connection with their Plans, American Retirement, Foundation and Tax Strategic have entered into distribution agreements with Evergreen Keystone Distributor, Inc. ("EKD") (formerly Evergreen Funds Distributor, Inc.), a subsidiary of Furman Selz, whereby American Retirement, Foundation and Tax Strategic will compensate EKD for its services at a rate which may not exceed an annual fee of .25 of 1% of Class A Shares' average daily net assets and an annual fee of 1% of Class B and Class C Shares' average daily net assets. A portion of the payments for Class B and C Shares, up to .25 of 1% may constitute a shareholder services fee. EKD has entered into a Shareholder Services Agreement with First Union Brokerage Services ("FUBS"), an affiliate of First Union, whereby they will compensate FUBS for certain services provided to shareholders and/or maintenance of shareholder accounts relating to each of the Fund's Class B and Class C Shares. 58 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES -- continued In connection with its plan, Balanced entered into a distribution agreement with EKD whereby it will compensate EKD for its services at a rate which may not exceed an annual fee of .25 of 1% of Class A average daily net assets and an annual fee of .75 of 1% of Class B and Class C average daily net assets for certain services provided to Class A, B and C shareholders. Balanced has entered into a shareholder services agreement with FUBS, and will pay FUBS, an annual fee of up to .25 of 1% of the average net assets of its Class B and Class C shares. This fee is designed to obtain certain services for shareholders and to maintain shareholder accounts. With the acquisition of Furman Selz' mutual fund unit by Bisys effective January 1, 1997, EKD became a subsidiary of Bisys. SALES CHARGES -- EKD has advised the Funds that it has retained the following amounts from front-end sales charges resulting from sales of Class A Shares during the year ended December 31, 1996:
FRONT-END SALES CHARGES American Retirement $20,024 Balanced 9,150 Foundation 57,736 Tax Strategic 25,078
OTHER SERVICES WITH AFFILIATES -- State Street Bank & Trust Company ("State Street") is the transfer agent, dividend disbursing agent and shareholder servicing agent for the Funds. For certain accounts in American Retirement, Balanced and Foundation, First Union has been sub-contracted by State Street to maintain shareholder sub-account records, take fund purchase and redemption orders and answer inquiries. For each account, First Union is entitled to a monthly fee which totaled $5,560, $187,538 and $151,484 for American Retirement, Balanced and Foundation, respectively, for the year ended December 31, 1996. NOTE 4 -- SHARES OF BENEFICIAL INTEREST The Funds have an unlimited number of $0.0001 par value shares of beneficial interest authorized. The shares are divided into classes which are designated Class A, Class B, Class C and Class Y shares. Class A shares are sold with a front-end sales charge of up to 4.75%. Class B shares are sold with a contingent deferred sales charge which declines from 5% to zero depending on the period of time the shares are held. Class B shares will automatically convert to Class A shares seven years after the date of purchase. Class C shares are sold with a contingent deferred sales charge of 1% for shares redeemed during the first year after the date of purchase. Class Y shares are sold without a sales charge and are available only to investment advisory clients of First Union and its affiliates, certain institutional investors or Class Y shareholders of record of certain other funds managed by First Union and its affiliates as of December 30, 1994. The classes have identical voting, dividend, liquidation and other rights, except that Class A, Class B and Class C shares bear distribution expenses (see Note 3) and have exclusive voting rights with respect to their distribution plans. 59 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 4 -- SHARES OF BENEFICIAL INTEREST -- continued Transactions in shares of beneficial interest were as follows:
YEAR ENDED YEAR ENDED* AMERICAN RETIREMENT DECEMBER 31, 1996 DECEMBER 31, 1995 CLASS A SHARES AMOUNT SHARES AMOUNT Shares sold.......................................................... 762,980 $10,140,786 103,126 $ 1,278,749 Shares issued on reinvestment of distributions....................... 19,559 264,707 1,195 14,909 Shares redeemed...................................................... (84,770) (1,127,903) (186) (2,372) Net increase......................................................... 697,769 9,277,590 104,135 1,291,286 CLASS B Shares sold.......................................................... 3,892,133 51,648,645 380,412 4,651,965 Shares issued on reinvestment of distributions....................... 81,733 1,103,810 4,314 53,311 Shares redeemed...................................................... (175,385) (2,331,018) (6,548) (80,579) Net increase......................................................... 3,798,481 50,421,437 378,178 4,624,697 CLASS C Shares sold.......................................................... 100,739 1,334,965 8,507 104,262 Shares issued on reinvestment of distributions....................... 2,161 29,233 70 878 Shares redeemed...................................................... (3,928) (53,590) -- -- Net increase......................................................... 98,972 1,310,608 8,577 105,140 CLASS Y Shares sold.......................................................... 287,843 3,807,908 280,323 3,219,576 Shares issued on reinvestment of distributions....................... 103,943 1,392,828 106,983 1,270,557 Shares redeemed...................................................... (481,537) (6,415,509) (808,529) (9,380,520) Net decrease......................................................... (89,751) (1,214,773) (421,223) (4,890,387) Total net increase resulting from Fund share transactions............ 4,505,471 $59,794,862 69,667 $ 1,130,736
* The Fund share activity for Class A, Class B and Class C shares reflects the period from January 3, 1995 (commencement of class operations) through December 31, 1995. 60 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 4 -- SHARES OF BENEFICIAL INTEREST -- continued
YEAR ENDED YEAR ENDED BALANCED DECEMBER 31, 1996 DECEMBER 31, 1995 CLASS A SHARES AMOUNT SHARES AMOUNT Shares sold................................................... 450,824 $ 5,988,616 174,514 $ 2,180,996 Shares issued on reinvestment of distributions................ 372,747 4,905,076 228,390 2,924,585 Shares redeemed............................................... (680,925) (9,159,435) (883,230) (10,834,925) Net increase (decrease)....................................... 142,646 1,734,257 (480,326) (5,729,344) CLASS B Shares sold................................................... 529,783 7,095,087 331,882 4,113,278 Shares issued on reinvestment of distributions................ 883,591 11,640,482 528,256 6,788,533 Shares redeemed............................................... (1,260,613) (16,901,766) (1,507,091) (18,590,977) Net increase (decrease)....................................... 152,761 1,833,803 (646,953) (7,689,166) CLASS C Shares sold................................................... 19,191 256,143 6,207 78,623 Shares issued on reinvestment of distributions................ 2,215 28,991 1,346 17,328 Shares redeemed............................................... (16,775) (220,556) (2,122) (27,063) Net increase.................................................. 4,631 64,578 5,431 68,888 CLASS Y Shares sold................................................... 16,615,288 221,340,376 13,282,634 164,605,419 Shares issued on reinvestment of distributions................ 3,659,774 48,208,895 4,419,582 56,436,034 Shares redeemed............................................... (22,526,104) (302,083,357) (25,032,555) (313,833,958) Net decrease.................................................. (2,251,042) (32,534,086) (7,330,339) (92,792,505) Total net decrease resulting from Fund share transactions................................................ (1,951,004) ($ 28,901,448) (8,452,187) ($106,142,127)
61 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 4 -- SHARES OF BENEFICIAL INTEREST -- continued
YEAR ENDED YEAR ENDED* DECEMBER 31, 1996 DECEMBER 31, 1995 FOUNDATION SHARES AMOUNT SHARES AMOUNT CLASS A Shares sold.................................................... 8,413,021 $126,479,881 7,433,192 $103,904,500 Shares issued on reinvestment of distributions................. 474,763 7,335,750 194,159 2,828,216 Shares redeemed................................................ (3,177,106) (47,846,922) (542,266) (7,709,611) Net increase................................................... 5,710,678 85,968,709 7,085,085 99,023,105 CLASS B Shares sold.................................................... 18,909,215 282,822,448 19,717,460 275,013,438 Shares issued on reinvestment of distributions................. 1,109,399 17,095,215 487,710 7,076,078 Shares redeemed................................................ (4,174,149) (62,881,641) (543,554) (7,846,692) Net increase................................................... 15,844,465 237,036,022 19,661,616 274,242,824 CLASS C Shares sold.................................................... 1,165,822 17,413,787 761,087 10,573,728 Shares issued on reinvestment of distributions................. 43,393 668,629 19,172 277,286 Shares redeemed................................................ (308,109) (4,629,756) (26,533) (379,480) Net increase................................................... 901,106 13,452,660 753,726 10,471,534 CLASS Y Shares sold.................................................... 19,300,331 290,354,485 18,505,940 263,287,541 Shares issued on reinvestment of distributions................. 1,977,198 30,423,613 1,558,776 22,661,839 Shares redeemed................................................ (12,328,011) (185,863,701) (5,965,644) (82,422,318) Net increase................................................... 8,949,518 134,914,397 14,099,072 203,527,062 Total net increase resulting from Fund share transactions................................................. 31,405,767 $471,371,788 41,599,499 $587,264,525
* The Fund share activity for Class A, Class B and Class C shares reflect the period from January 3, 1995 (commencement of class operations) through December 31, 1995. 62 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 4 -- SHARES OF BENEFICIAL INTEREST -- continued
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995* TAX STRATEGIC SHARES AMOUNT SHARES AMOUNT CLASS A Shares sold.............................................................. 652,149 $ 8,273,511 215,649 $ 2,527,734 Shares issued on reinvestment of distributions........................... 26,949 357,306 8,759 105,291 Shares redeemed.......................................................... (73,546) (929,252) (2,950) (36,239) Net increase............................................................. 605,552 7,701,565 221,458 2,596,786 CLASS B Shares sold.............................................................. 1,563,566 19,725,070 550,703 6,364,106 Shares issued on reinvestment of distributions........................... 59,693 793,572 21,721 260,033 Shares redeemed.......................................................... (85,378) (1,087,302) (34,427) (407,693) Net increase............................................................. 1,537,881 19,431,340 537,997 6,216,446 CLASS C Shares sold.............................................................. 263,684 3,324,801 39,093 457,822 Shares issued on reinvestment of distributions........................... 6,172 81,908 1,561 18,761 Shares redeemed.......................................................... (5,604) (70,810) -- -- Net increase............................................................. 264,252 3,335,899 40,654 476,583 CLASS Y Shares sold.............................................................. 63,086 768,496 92,229 1,062,541 Shares issued on reinvestment of distributions........................... 26,475 341,313 66,375 774,666 Shares redeemed.......................................................... (84,857) (1,055,874) (84,665) (952,606) Net increase............................................................. 4,704 53,935 73,939 884,601 Total net increase resulting from Fund share transactions................ 2,412,389 $30,522,739 874,048 $10,174,416
* For Class A, Class B, and Class C shares, the Fund share transaction activity reflects the period January 17, 1995, January 6, 1995, and March 3, 1995, respectively (commencement of class operations) through December 31, 1995. NOTE 5 -- INVESTMENT TRANSACTIONS The cost of purchases and proceeds from sales of investments, excluding short-term securities for the year ended December 31, 1996 were as follows:
PURCHASES SALES American Retirement.... $ 61,282,970 $ 10,474,200 Balanced............... 301,410,563 419,093,895 Foundation............. 435,891,619 116,921,520 Tax Strategic.......... 59,793,904 34,152,600
On December 31, 1996, the composition of unrealized appreciation and depreciation of investment securities based on the aggregate cost for federal tax purposes was as follows:
APPRECIATION DEPRECIATION NET TAX COST American Retirement.... $ 13,825,539 $ 1,154,915 $ 12,670,624 $ 104,513,650 Balanced............... 172,241,593 8,122,511 164,119,082 730,753,100 Foundation............. 232,321,512 27,939,388 204,382,124 1,400,416,658 Tax Strategic.......... 7,198,915 131,677 7,067,238 50,263,081
63 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 6 -- CONCENTRATION OF CREDIT RISK Tax Strategic invests the municipal bond portion of its portfolio in obligations issued by states, territories and possessions of the United States and by their political subdivisions and duly constituted authorities. The issuers' abilities to meet their obligations may be affected by economic and political developments in a specific state or region. Certain debt obligations held in the Fund's municipal portfolio may be entitled to the benefit of standby letters of credit or other guarantees of banks or other financial institutions. NOTE 7 -- FINANCING AGREEMENT Effective July 3, 1996, a financing agreement was put in place between all of the Evergreen Funds and State Street. Under this agreement, State Street provided an unsecured line of credit facility, in the aggregate amount of $100 million ($50 million committed and $50 million uncommitted), to be accessed by the Funds for temporary or emergency purposes only and is subject to each participating Fund's borrowing restrictions. Effective October 31, 1996, a new financing agreement was put in place between all of the Evergreen Funds and State Street, Societe Generale and ABN AMRO Bank N.V. (collectively, the "Banks"). Under this agreement, the Banks provide an unsecured line of credit facility in the aggregate amount of $225 million ($112.5 million committed and $112.5 million uncommitted) allocated evenly between the Banks. Borrowings under these facilities bear interest at .75% per annum above the Federal Funds rate. A commitment fee of .10% per annum will be incurred on the unused portion of the committed facility which would be allocated to all participating funds. The Funds had no borrowings under the financing agreements during the year ended December 31, 1996. NOTE 8 -- DEFERRED TRUSTEE'S FEES Each Trustee may defer any or all compensation related to performance of duties as a Trustee of the Funds. Each Trustee's deferred balances are allocated to deferral accounts which are included in the accrued expenses for each Fund. The investment performance of the deferral accounts are based on the investment performance of certain Evergreen Funds. Any gains earned or losses incurred in the deferral accounts are reported in each Fund's Trustee's fees and expenses. Trustees will be paid either in one lump sum or in quarterly installments for up to ten years at their election, not earlier than either the year in which the Trustee ceases to be a member of the Board of Trustees or January 1, 2000. As of December 31, 1996, the value of the Trustees deferral accounts was $8,419, $23,045, $7,206 and $2,978 for American Retirement, Balanced, Foundation and Tax Strategic, respectively. 64 INDEPENDENT AUDITORS' REPORT TO THE TRUSTEES AND SHAREHOLDERS OF EVERGREEN AMERICAN RETIREMENT FUND EVERGREEN BALANCED FUND EVERGREEN FOUNDATION FUND EVERGREEN TAX STRATEGIC FOUNDATION FUND We have audited the accompanying statements of assets and liabilities, including the statements of investments, for the Evergreen Balanced Funds listed below as of December 31, 1996, and the related statements of operations, changes in net assets, and the financial highlights for each of the periods listed below: EVERGREEN AMERICAN RETIREMENT FUND -- statement of operations, statement of changes in net assets and financial highlights for the year ended December 31, 1996. The statement of changes in net assets for the year ended December 31, 1995 and the financial highlights for each of the years in the four-year period ended December 31, 1995 were audited by other auditors, whose report thereon dated February 15, 1996 was unqualified. EVERGREEN BALANCED FUND -- statement of operations for the year ended December 31, 1996, statements of changes for each of the years in the two-year period then ended and the financial highlights for each of the years in the five-year period then ended. EVERGREEN FOUNDATION FUND -- statement of operations, statement of changes in net assets and financial highlights for the year ended December 31, 1996. The statement of changes in net assets for the year ended December 31, 1995 and the financial highlights for each of the years in the four-year period ended December 31, 1995 were audited by other auditors, whose report thereon dated February 15, 1996 was unqualified. EVERGREEN TAX STRATEGIC FOUNDATION FUND -- statement of operations, statement of changes in net assets and financial highlights for the year ended December 31, 1996. The statement of changes in net assets for the year ended December 31, 1995 and the financial highlights for each of the years in the two-year period ended December 31, 1995 and the period from November 2, 1993 (commencement of operations) through December 31, 1993 were audited by other auditors, whose report thereon dated February 15, 1996 was unqualified. 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 generally accepted auditing standards. 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 and financial highlights. Our procedures included confirmation of securities owned as of December 31, 1996, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights audited by us and referred to above present fairly, in all material respects, the financial position of Evergreen American Retirement Fund, Evergreen Balanced Fund, Evergreen Foundation Fund and Evergreen Tax Strategic Foundation Fund as of December 31, 1996, and the results of their operations, changes in their net assets and the financial highlights for each of the periods listed above in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Pittsburgh, Pennsylvania February 19, 1997 65 (This Page Left Blank Intentionally) 66 (This Page Left Blank Intentionally) 67 (This Page Left Blank Intentionally) 68 TRUSTEES AND OFFICERS TRUSTEES: Laurence B. Ashkin* Foster Bam* James S. Howell, Chairman Robert J. Jeffries*+ Gerald M. McDonnell Thomas L. McVerry William W. Pettit Russell A. Salton, III M.D. Michael S. Scofield OFFICERS: John J. Pileggi President and Treasurer George O. Martinez Secretary Sheryl Hirschfeld Assistant Secretary Stephen W. St. Clair Assistant Treasurer * These individuals are not trustees for Balanced. + Trustee Emeritus FEDERAL INCOME TAX STATUS OF DISTRIBUTIONS (UNAUDITED) During the fiscal year ended December 31, 1996, American Retirement, Balanced, Foundation and Tax Strategic paid $498,967, $74,293,460, $9,919,612 and $850,061, respectively, of net long term capital gain distributions. During the fiscal year ended December 31, 1996, Tax Strategic paid $616,906 of tax-exempt distributions. Of the total tax exempt distributions, 9.14%, 9.10%, 9.13%, and 9.13% is subject to alternative minimum tax for Class Y, Class A, Class B and Class C shares, respectively. For corporate taxpayers, 67.33%, 36.81%, 34.11% and 79.29% of the ordinary income distributions paid during the fiscal year ended December 31, 1996 by American Retirement, Balanced, Foundation and Tax Strategic, respectively, qualified for corporate dividends received deduction. -----END PRIVACY-ENHANCED MESSAGE-----