-----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, WuWqKLdwuw9fDBoEDkJOl6NUVXlMOpz6gJohNPYVEF2MGrKDNX4//OIqSgb3k0h5 28rnbnhfYBagoKIWUf/qLQ== 0000826733-97-000016.txt : 19970314 0000826733-97-000016.hdr.sgml : 19970314 ACCESSION NUMBER: 0000826733-97-000016 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: 97556206 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 GROWTH & INCOME FUND /NY/ CENTRAL INDEX KEY: 0000795891 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 136873263 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04715 FILM NUMBER: 97556207 BUSINESS ADDRESS: STREET 1: 2500 WESTCHESTER AVE CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9146412020 MAIL ADDRESS: STREET 1: 2500 WESTCHESTER AVENUE CITY: PURCHASE STATE: NY ZIP: 10577 FORMER COMPANY: FORMER CONFORMED NAME: EVERGREEN VALUE TIMING FUND DATE OF NAME CHANGE: 19920703 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: 97556208 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 N-30D 1 ANNUAL REPORT Evergreen Growth and Income Funds (four photos of buildings appear here) (large photo of mountain appears here) 1996 Annual Report Evergreen Keystone (logo) FUNDS (logo) EVERGREEN GROWTH AND INCOME FUNDS Table of Contents A Review of the Past Year and Prospects for the Future.................... 1
(photo of building) Growth and Income A Report From Your Portfolio Manager...................................... 3 Fund Results to Date........................................................... 6 Statement of Investments.................................................. 7
Statement of Assets and Liabilities....................................... 11 Statement of Operations................................................... 12 Statement of Changes in Net Assets........................................ 13 Financial Highlights...................................................... 14
(photo of building) Small Cap Equity A Report From Your Portfolio Manager...................................... 16 Income Fund Results to Date........................................................... 19 Statement of Investments.................................................. 20
Statement of Assets and Liabilities....................................... 22 Statement of Operations................................................... 23 Statement of Changes in Net Assets........................................ 24 Financial Highlights...................................................... 25
(photo of power lines) Utility A Report From Your Portfolio Manager...................................... 27 Fund Results to Date........................................................... 28 Statement of Investments.................................................. 29
Statement of Assets and Liabilities....................................... 31 Statement of Operations................................................... 32 Statement of Changes in Net Assets........................................ 33 Financial Highlights...................................................... 34
(photo of building) Value A Report From Your Portfolio Managers..................................... 36 Fund Results to Date........................................................... 37 Statement of Investments.................................................. 38
Statement of Assets and Liabilities....................................... 40 Statement of Operations................................................... 41 Statement of Changes in Net Assets........................................ 42 Financial Highlights...................................................... 43
Combined Notes to Financial Statements.................................... 46 Independent Auditors' Report.............................................. 56 Trustees and Officers.........................................Inside Back Cover
EVERGREEN GROWTH AND INCOME 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 (photo of Stephen his hopes for the future of our nation. One of these A. Lieber) hopes, "a nation that balances its budget but never 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 GROWTH AND INCOME 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 GROWTH AND INCOME FUND (photo of building) A REPORT FROM YOUR PORTFOLIO MANAGER EDMUND H. NICKLIN Nineteen-ninety-six marked the tenth anniversary for (photo of Edmund Evergreen Growth and Income Fund. American industry has H. Nicklin) undergone many changes in the decade that the Fund has been in operation -- most of them positive. In 1986, the poor competitive position of Midwestern manufacturers gave rise to the epithet "Rust Belt", suggesting these firms belonged to an earlier era. Also in the mid-1980s, the manufacture of semiconductors, a key building block for intelligent electronics, was dominated by Japanese companies. There was concern that the U.S. semiconductor industry might not survive the competition. Today, Midwestern manufacturing companies are competitive with any in the world. American semiconductor manufacturers are competitive in the production of memory chips and dominant in the development and production of microprocessors. As the competitive position of American companies has improved during the last decade, operating earnings, as measured by the S&P 500 Reinvested Index*, have increased at an average compound rate of 9.5% per annum. Real Gross Domestic Product (GDP) contracted only in 1991, and this might have been avoided if not for Iraq's invasion of Kuwait. The stock market, as measured by the S&P 500, more than kept pace rising at an average compound rate of 15.3%* per annum for the ten years ended December 31, 1996, -- truly a decade of resurgence and growth for the U.S. economy. While the Fund's average annual compound return for the ten years ended December 31, 1996, was 14.6%** (Class Y, no load shares), it was the last half of the decade when the Fund performed best. The five-year average annual compound return ended December 31, for the Fund (Class Y shares) was 16.9% as compared with 15.2% for the S&P 500 and 14.2% for the S&P MidCap 400. The ten-year average annual compound returns ended December 31 for the S&P 500 and the S&P MidCap 400 were 15.3% and 16.1%, respectively. The Fund's 12-month total return ended December 31 was 23.8%, as compared with the returns of 23.0% and 19.2% for the S&P 500 and S&P MidCap 400, respectively. For the period since inception of Class A shares on January 3, 1995, through December 31, 1996, the average annual compound rate of return was 25.1%**. The 12-month total return ended December 31, for the Fund's Class A shares was 17.6%. (Please see page 6 for additional performance information.) For the five-year period ended December 31, 1996, Lipper Analytical Services, Inc., an independent mutual Funds performance monitor ranked Evergreen Growth and Income Fund (Class Y, no-load shares) #20 among the 212 Growth and Income Funds they tracked during that time***. For the 12-month and ten-year periods ended December 31, Lipper ranked the Fund #115 out of 522 funds and #22 out of 122 funds, respectively. The overall risk-adjusted performance for the Fund's Class Y shares at December 31, 1996, was sufficient to earn a Morningstar's five-star rating, FIGURES REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS. * THE S&P 500 REINVESTED INDEX 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 S&P MIDCAP 400 IS AN UNMANAGED REINVESTED INDEX OF SELECTED MID-CAP SECURITIES. AN INVESTMENT CAN NOT BE MADE IN AN INDEX. ** 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. *** SOURCE: LANA -- LIPPER ANALYTICAL SERVICES NEW APPLICATIONS. LIPPER AVERAGE DOES NOT INCLUDE SALES CHARGES AND INCLUDED, PERFORMANCE COULD BE LOWER. 3 EVERGREEN GROWTH AND INCOME FUND (photo of building) A REPORT FROM YOUR PORTFOLIO MANAGER -- (CONTINUED) the highest rating awarded by Morningstar+. The Fund was rated among 1,825 other domestic equity funds. During the year, the Fund experienced substantial asset growth as a result of its performance, the addition of many new shareholders and its merger with another fund in January 1996. I would like to take this opportunity to welcome all new shareholders and express my appreciation for their confidence. PORTFOLIO HIGHLIGHTS The economic environment in 1996 was surprisingly good after the slowdown that occurred late in 1995. In February, the Federal Reserve Open Market Committee (FOMC) voted to reduce the Fed Funds rate 25 basis points in an effort to ensure the continuation of the economic recovery. This was the last interest rate adjustment in 1996. During the year, economic growth accelerated throughout the first half, slowed in the third quarter and re-accelerated in the final quarter. The strong first half, combined with rapid job growth and low unemployment, produced an inflation scare in July, which provided a one month minor correction in the stock market. Evidence of economic slowing during the third quarter allowed the equity markets to recover from July lows and advance through the final quarter. After the July decline, smaller and mid-capitalization issues never regained momentum and lagged behind larger capitalization issues, as measured by the S&P 500. Indeed 5 companies -- Coca Cola, Intel, International Business Machines, General Electric and Microsoft -- accounted for nearly one quarter of the price gain for the S&P 500 in 1996. Despite the narrowness of the equity market's advance and the focus of the Fund on medium-capitalization companies, returns for the year were satisfactory. Most of the Fund's 22 industry group classifications contributed positively to 1996 performance, but energy provided the largest industry gain. Within the category, Forcenergy, Inc., provided the greatest appreciation, exceeding 200% for the year. This small exploration and production company, operating in the Gulf of Mexico, increased its reserves through exploratory drilling successes on acquired properties. Oryx Energy Co., a medium-sized independent, provided a gain of approximately 80% from higher oil and natural gas prices along with exploration success. The increased exploration activity, resulting from higher hydrocarbon prices, allowed Atwood Oceanics, Inc., an operator of semi- submersible drilling rigs, to raise "day rates" for the use of its equipment which led to a 64% increase in its share price. Oil prices appear to have moved to a higher level that should prove sustainable unless Iraq's full production capability is allowed to reach the world market. Other industry groups that performed well included banks, thrifts, finance and insurance companies, consumer products and services companies, and electrical equipment and services companies. The latter group saw a dramatic turnaround in second half 1996 because the slowdown that negatively impacted the suppliers of electronic components for the computer industry was judged to be an inventory correction and not a permanent reduction in demand growth. The clear exception is memory chips for which excess worldwide productive capacity was installed. The industry classifications that provided the poorest performance in 1996 included transportation, retailing and wholesale, utilities, and healthcare products and services. The poorest individual company performance was registered by Laboratory Corp. of America, a clinical laboratory testing firm that saw its earnings decline significantly due to reduced pricing levels and further membership gains by managed care. + THE FUND RECEIVED 5 STARS FROM MORNINGSTAR FOR ITS RISK-ADJUSTED PERFORMANCE FOR EACH THE 1-, 3-, AND 5-YEAR PERIODS ENDED 12/31/96. THE FUND RECEIVED 4 STARS FOR ITS RISK-ADJUSTED PERFORMANCE FOR THE 10-YEAR PERIOD ENDED 12/31/96. THE FUND WAS RATED WITH 2,959, 1,826, 1,058, AND 598 DOMESTIC EQUITY FUNDS, RESPECTIVELY, FOR THE 1-. 3-, 5-, AND 10-YEAR PERIODS ENDED 12/31/96. MORNINGSTAR PROPRIETARY RATINGS REFLECT HISTORICAL RISK-ADJUSTED PERFORMANCE AS OF DECEMBER 31, 1996. RATINGS ARE SUBJECT TO CHANGE EVERY MONTH. MORNINGSTAR RATINGS ARE CALCULATED FROM THE FUND'S THREE-, FIVE-, AND TEN-YEAR AVERAGE ANNUAL RETURNS IN EXCESS OF 90-DAY TREASURY BILL RETURNS WITH APPROPRIATE FEE ADJUSTMENTS AND A RISK FACTOR THAT REFLECTS FUND PERFORMANCE BELOW 90-DAY T-BILL RETURNS. TEN PERCENT OF THE FUNDS IN AN INVESTMENT CATEGORY RECEIVE 5 STARS, 22.5% RECEIVE FOUR STARS, 35% RECEIVE THREE STARS, 22.5% RECEIVE TWO STARS, AND 10% RECEIVE ONE STAR. 4 EVERGREEN GROWTH AND INCOME FUND (photo of building) A REPORT FROM YOUR PORTFOLIO MANAGER -- (CONTINUED) Merger and acquisitions, along with restructurings, continued at a high level in 1996 and significantly benefited Fund performance. Nine portfolio companies were acquired or merged in 1995, while eleven mergers were completed or announced in 1996. Consolidation continued in 1996 in banking and broadcasting with two portfolio companies in each being acquired. Narrowing the business focus of companies has been a key strategy for domestic companies in the 1990s. It is based on the thesis that investors can allocate capital across industries more effectively than company managements and boards of directors. Examples of this trend in 1996 were W. R. Grace merging its healthcare division with Fresenius AG of Germany, Morton International merging its airbag manufacturing business with Autoliv AB of Sweden and Union Pacific Corporation spinning off its oil and gas company to shareholders. All of these restructurings were beneficial to the Fund as they eliminated an imbedded "conglomerate discount". ECONOMIC OUTLOOK As noted earlier, the economy in 1996 exhibited a pronounced quarterly ebb and flow. The economy accelerated from its lackluster growth in late 1995 before real GDP growth slowed in the third quarter and re-accelerated in the fourth to a rate economists now estimate may approach 4%. Short-term interest rates remained stable for the remainder of 1996 after the FOMC easing in February. The 30-year Treasury bond yield started 1996 at 6%, rose 125 basis points by June and then reacted to evidence of economic slowing in the third quarter to finish 1996 at 6.6%. The primary concern for the domestic financial markets as 1997 begins is economic growth above the Fed's target of 2.5%. Growth above this level for an extended period would reduce current low unemployment to critical levels thereby creating the potential for wage increases that exceed productivity growth. Given the importance of wage increases to inflation statistics, if this were to occur it would undoubtedly cause long-term interest rates to rise and eventually cause the Federal Reserve to raise short-term interest rates to retain the gains won against inflation in the preceding decade. The increase in long-term and short-term interest rates would negatively impact the equity markets. Currently, the usual early indicators of inflation are not signaling its imminent arrival. The price of gold has declined through 1996, even though energy costs have risen substantially. The various non-energy commodity indexes also exhibit no sign of impending inflation. The preferred scenario for 1997 for investors would be a continuation of the economic performance achieved in 1996 which would provide interest rate stability. Fiscal policy restraint is likely in 1997, which would provide additional support for the bond market. Voters in the November 1996, elections expressed a preference for divided Federal government to force ideological balance and a desire for cooperation between the legislative and executive branches. A compromise that reduces the growth of Medicare spending would rein in one of the fastest growing entitlement programs in the Federal budget, setting the stage for a broader compromise on balancing the Federal budget within the next few years, increasing fiscal restraint. Such action would help to stabilize or even decrease interest rates. Interest rate stability plus earnings growth provide the basics for the equity markets to move forward in 1997. However, the upside for the S&P 500 seems limited. Operating earnings for the Index increased approximately 6% during 1996. It seems unlikely that earnings growth for the S&P 500 in 1997 will exceed 1996 growth given recent U.S. dollar appreciation and the age of the economic recovery suggesting modest upside for the Index in 1997. The stock market advance in second half 1996 was dominated by large capitalization companies, smaller market capitalization companies did not participate proportionately. This could reverse during 1997 if appreciation of the U.S. dollar versus major foreign currencies causes earnings growth for large capitalization companies to moderate, but does not slow export growth to a degree that negatively impacts U.S. economic growth. Smaller companies would receive a relative benefit as few have meaningful overseas exposure. Even with stable interest rates supporting equity values and individual security selection focused on relatively undervalued medium and smaller-capitalization issues, the time tested portfolio strategy used by Evergreen Growth and Income Fund will be important for performance in 1997. 5 EVERGREEN GROWTH AND INCOME FUND (photo of building) RESULTS TO DATE PERFORMANCE OF $10,000 INVESTED IN THE EVERGREEN GROWTH AND INCOME FUND The graphs below compare a $10,000 investment in the Evergreen Growth and Income Fund (Class A, Class B, Class C and Class Y Shares) with a similar investment in the S&P 500 Index ("Index") and Lipper Growth and Income Funds Average. (four graphs appear here, copy and plot points below) CLASS A 1-YEAR TOTAL RETURN=17.6% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION=25.1% (Customer to supply plot points) CLASS B 1-YEAR TOTAL RETURN AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION=25.8% (Customer to supply plot points) CLASS C 1-YEAR TOTAL RETURN=21.6% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION=27.4% (Customer to supply plot points) CLASS Y 1-YEAR TOTAL RETURN=23.8% AVERAGE ANNUAL COMPOUND RETURN: 5-YEAR=16.9% 10-YEAR=14.6% (Customer to supply plot points) *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 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. 6 EVERGREEN GROWTH AND INCOME FUND (photo of building) STATEMENT OF INVESTMENTS DECEMBER 31, 1996
SHARES VALUE COMMON STOCKS -- 82.0% BANKS -- 5.3% 80,000 Bank of New York Co., Inc. (The)... $ 2,700,000 180,600 BSB Bancorp, Inc................... 4,831,050 101,250 Central Fidelity Banks, Inc........ 2,607,187 25,000 Citizens Banking Corp.............. 1,550,000 45,000 Cullen/Frost Bankers, Inc.......... 1,496,250 105,000 First Security Corp................ 3,543,750 210,000 Hibernia Corp. Cl. A............... 2,782,500 100,800 Liberty Bancorp, Inc............... 5,014,800 83,700 Norwest Corp....................... 3,640,950 65,000 Peoples Heritage Financial Group... 1,820,000 55,000 State Street Boston Corp........... 3,547,500 45,000 Summit Bancorp..................... 1,968,750 55,100 Susquehanna Bancshares, Inc........ 1,907,838 13,800 Wells Fargo & Co................... 3,722,550 41,133,125 BUILDING, CONSTRUCTION & FURNISHINGS -- 1.5% 320,000* Furniture Brands International, Inc................. 4,480,000 113,000* Lone Star Industries, Inc.......... 4,166,875 80,000 Medusa Corp........................ 2,750,000 11,396,875 BUSINESS EQUIPMENT & SERVICES -- 10.8% 245,000 Air Express International Corp..... 7,901,250 48,000* Cisco Systems, Inc................. 3,054,000 100,000 Computer Associates International, Inc................. 4,975,000 120,000* Compuware Corp..................... 6,015,000 133,000 Equifax, Inc....................... 4,073,125 426,900 Harper Group, Inc. (The)........... 10,138,875 440,000* Metromail Corp..................... 8,030,000 10,000* MSC Industrial Direct Co., Inc..... 370,000 78,000* Oracle Systems Corp................ 3,256,500 380,000 Pittston Brink's Group............. 10,260,000 305,000 Pittston Burlington Group.......... 6,100,000 275,000* Platinum Technology................ 3,746,875 180,000* Policy Management Systems Corp..... 8,302,500 280,000 Reynolds & Reynolds Co. (The), Cl. A.................................. 7,280,000 50,000 Wackenhut Corp. (The) Cl. B........ 762,500 84,265,625 CHEMICAL & AGRICULTURAL PRODUCTS -- 4.9% 65,000 Air Products & Chemicals, Inc...... 4,493,125 39,500 Du Pont (E. I.) De Nemours......... 3,727,813 SHARES VALUE
CHEMICAL & AGRICULTURAL PRODUCTS -- CONTINUED 265,000 Engelhard Corp..................... $ 5,068,125 165,000 Grace (W.R.) & Co.................. 8,538,750 42,300 H.B. Fuller Co..................... 1,988,100 79,000 Pioneer Hi-Bred International, Inc................................ 5,530,000 198,000 Praxair, Inc....................... 9,132,750 38,478,663 COMMUNICATION SYSTEMS & SERVICES -- 1.3% 160,000* AirTouch Communications............ 4,040,000 84,000* Aspect Telecommunications Corp..... 5,334,000 11,950* Associated Group, Inc. (The) Cl. A.................................. 367,462 11,950* Associated Group, Inc. (The) Cl. B.................................. 355,513 10,096,975 CONSUMER PRODUCTS & SERVICES -- 4.3% 48,000 Campbell Soup Co................... 3,852,000 90,000 Carnival Corp...................... 2,970,000 45,000 Colgate-Palmolive Co............... 4,151,250 45,000 CPC International, Inc............. 3,487,500 52,000 Gillette Co. (The)................. 4,043,000 72,000 Harley-Davidson, Inc............... 3,384,000 85,000 Mattel, Inc........................ 2,358,750 50,000 Philip Morris Cos., Inc............ 5,631,250 105,000 UST, Inc........................... 3,399,375 33,277,125 DIVERSIFIED COMPANIES -- 1.9% 35,100 General Electric Co................ 3,470,513 35,000* ITT Corp........................... 1,518,125 195,000 ITT Industries, Inc................ 4,777,500 125,000 Morton International, Inc.......... 5,093,750 14,859,888 ELECTRICAL EQUIPMENT & SERVICES -- 5.8% 57,000* 3Com Corp.......................... 4,182,375 80,000* Adaptec, Inc....................... 3,200,000 42,000* Applied Materials, Inc............. 1,509,375 191,000 AVX Corp........................... 4,106,500 165,000 Baldor Electric Co................. 4,063,125 108,100 Belden Inc......................... 3,999,700 15,000* Berg Electronics Corp.............. 440,625 70,000 Dallas Semiconductor Corp.......... 1,610,000 36,000 Intel Corp......................... 4,713,750 210,000* KLA Instruments Corp............... 7,455,000 29,300* Lam Research Corp.................. 824,062
7 EVERGREEN GROWTH AND INCOME FUND (photo of building) STATEMENT OF INVESTMENTS -- (CONTINUED) DECEMBER 31, 1996
SHARES VALUE COMMON STOCKS -- CONTINUED ELECTRICAL EQUIPMENT & SERVICES -- CONTINUED 42,000* LSI Logic.......................... $ 1,123,500 225,000 Sensormatic Electronics Corp....... 3,768,750 154,800* Unitrode Corp...................... 4,547,250 45,544,012 ENERGY -- 6.5% 25,000 Anadarko Petroleum Corp............ 1,618,750 52,000* Atwood Oceanics, Inc............... 3,302,000 45,000 Coastal Corp. (The)................ 2,199,375 165,000* Denbury Resources, Inc............. 2,392,500 160,200* Forcenergy, Inc.................... 5,807,250 31,570 Halliburton Co..................... 1,902,093 25,000 Kerr-McGee Corp.................... 1,800,000 95,000 Murphy Oil Corp.................... 5,284,375 400,000* Oryx Energy Co..................... 9,900,000 150,000* Santa Fe Energy Resources, Inc..... 2,081,250 311,900 Southwestern Energy Co............. 4,717,487 56,500 Tosco Corp......................... 4,470,562 63,520 Union Pacific Resource Group, Inc......................... 1,857,960 87,000 Williams Cos., Inc. (The).......... 3,262,500 50,596,102 FINANCE & INSURANCE -- 4.7% 15,000 Associates First Capital Corp...... 661,875 85,000 Federal Home Loan Mortgage Corp...................... 9,360,625 290,000 Federal National Mortgage Assn..... 10,802,500 100,000 ITT Hartford Group, Inc............ 6,750,000 115,000 LaSalle Re Holdings, Ltd........... 3,363,750 61,000 Meadowbrook Insurance Group, Inc......................... 1,281,000 106,000 Price (T.) Rowe & Associates, Inc................................ 4,611,000 36,830,750 FOOD RETAILING & DISTRIBUTION -- .1% 50,000* Dominick's Supermarkets, Inc....... 1,087,500 FOREST PRODUCTS -- .1% 40,000 Deltic Timber Corp................. 865,000 HEALTHCARE PRODUCTS & SERVICES -- 12.2% 110,000 Abbott Laboratories................ 5,582,500 65,000* Amgen, Inc......................... 3,534,375 110,000* Elan Corp, plc..................... 3,657,500 SHARES VALUE
HEALTHCARE PRODUCTS & SERVICES -- CONTINUED 30,000 HBO & Co........................... $ 1,781,250 178,500* Health Management Associates, Inc.................... 4,016,250 190,000* Health Systems International, lnc................................ 4,702,500 55,000* HealthCare COMPARE Corp............ 2,330,625 103,000* HEALTHSOUTH Corp................... 3,978,375 24,000 Johnson & Johnson.................. 1,194,000 130,000* Laboratory Corp. of America Holdings........................... 373,750 240,000* Lincare Holdings, Inc.............. 9,840,000 235,000* Living Centers of America, Inc..... 6,521,250 25,000 Mallinckrodt, Inc.................. 1,103,125 60,000 Manor Care, Inc.................... 1,620,000 152,700 McKesson Corp...................... 8,551,200 42,350* MedPartners, Inc................... 889,350 49,600 Pfizer, Inc........................ 4,110,600 113,000 Schering-Plough Corp............... 7,316,750 12,500 Shared Medical System Corp......... 615,625 25,000* Spacelabs Medical, Inc............. 512,500 138,000* Sybron International Corp.......... 4,554,000 120,000* Tenet Healthcare Corp.............. 2,625,000 95,000* Vencor, Inc........................ 3,004,375 34,000 Warner-Lambert Co.................. 2,550,000 40,020* Wellpoint Health Networks, Inc..... 1,375,687 305,000 West Co., Inc. (The)............... 8,616,250 94,956,837 INDUSTRIAL SPECIALTY PRODUCTS & SERVICES -- 4.7% 104,000 AGCO Corp.......................... 2,977,000 150,000 Borg-Warner Automotive, Inc........ 5,775,000 65,500 Danaher Corp....................... 3,053,937 51,000 Dover Corp......................... 2,562,750 55,000 Ingersoll Rand Co.................. 2,447,500 53,200 J & L Specialty Steel, Inc......... 605,150 33,500 Magna Group, Inc................... 1,867,625 55,000 Santa Fe Pacific Gold Corp......... 845,625 300,000* Strattec Security Corp.**.......... 5,475,000 185,000 Sundstrand Corp.................... 7,862,500 15,000 Tecumseh Products Co. Cl. A........ 860,625 25,000 Vulcan Materials Co................ 1,521,875 22,500 York International Corp............ 1,257,188 37,111,775
8 EVERGREEN GROWTH AND INCOME FUND (photo of building) STATEMENT OF INVESTMENTS -- (CONTINUED) DECEMBER 31, 1996
SHARES VALUE COMMON STOCKS -- CONTINUED INFORMATION SERVICES & TECHNOLOGY -- .7% 63,436 First Data Corp.................... $ 2,315,414 88,000* Medic Computer Systems, Inc........ 3,547,500 5,862,914 LEISURE & TOURISM -- .9% 60,000* Choice Hotels Holdings, Inc........ 1,057,500 275,000 Gaylord Entertainment Co. Cl. A.... 6,290,625 7,348,125 PAPER & PACKAGING -- .3% 75,000 Westvaco Corp...................... 2,156,250 PUBLISHING, BROADCASTING & ENTERTAINMENT -- 7.5% 49,805 Comcast Corp....................... 887,152 39,000 Disney Walt Co. (The).............. 2,715,375 42,000* Evergreen Media Corp. Cl. A........ 1,050,000 229,800* EZ Communications, Inc. Cl. A...... 8,416,425 410,000* Jacor Communications, Inc.......... 11,223,750 175,000* Jacor Communications, Inc. Warrants exp. 2001.......................... 350,000 100,000* Katz Media Group, Inc.............. 1,125,000 40,000 Knight-Ridder, Inc................. 1,530,000 215,000* Lin Television Corp................ 9,083,750 15,000 McGraw-Hill Cos., Inc.............. 691,875 43,000 Scripps, (E.W.), Inc............... 1,505,000 185,000 TCA Cable TV, Inc.................. 5,573,125 160,000 Time Warner, Inc................... 6,000,000 50,000* U S WEST Media Group............... 925,000 35,000* Univision Communications, Inc. Cl. A......................... 1,295,000 8,276* Viacom Inc. Cl. A.................. 285,522 2,800 Washington Post Co. (The).......... 938,350 184,500* Young Broadcasting Inc. Cl. A...... 5,396,625 58,991,949 RETAILING & WHOLESALE -- .6% 109,800* Carson Pirie Scott & Co............ 2,772,450 12,500 Mercantile Stores Co., Inc......... 617,188 20,000 Sears, Roebuck & Co................ 922,500 4,312,138 THRIFT INSTITUTIONS -- 2.1% 126,500 Washington Mutual, Inc............. 5,479,031 300,000 Webster Financial Corp............. 11,025,000 16,504,031 TRANSPORTATION -- 2.6% 45,000 Burlington Northern Santa Fe....... 3,886,875 SHARES VALUE
TRANSPORTATION -- CONTINUED 190,000 Kansas City Southern Industries, Inc.................... $ 8,550,000 130,000 Union Pacific Corp................. 7,816,250 20,253,125 UTILITIES -- 3.2% 62,000 AT&T Corp.......................... 2,697,000 65,000 Century Telephone Enterprises, Inc................................ 2,006,875 64,000 Commonwealth Energy System......... 1,504,000 70,000 Houston Inds., Inc................. 1,583,750 50,000 Illinova Corp...................... 1,375,000 108,000 MCI Communications Corp............ 3,530,250 40,000 Texas Utilities Co................. 1,630,000 300,000 TNP Enterprises, Inc............... 8,212,500 45,000 Unicom Corp........................ 1,220,625 60,000* WorldCom, Inc...................... 1,563,750 25,323,750 TOTAL COMMON STOCKS (COST $463,898,577)........... 641,252,534 PREFERRED STOCK -- 0.0% (A) HEALTHCARE PRODUCTS & SERVICES -- 0.0% (A) 130,000* Fresenius National Med Care, Inc. Cl. D (COST $22,740)..................... 16,900 CONVERTIBLE PREFERRED STOCK -- .1% PUBLISHING, BROADCASTING & ENTERTAINMENT -- .1% 6,407* TCI Pacific Communications, Inc. 5.00%, 7/31/06 (COST $622,947).................... 585,440
PRINCIPAL AMOUNT CORPORATE BONDS -- .2% ENERGY -- .1% Columbia Gas Systems, Inc. (The) $ 106,000 6.39%, 11/28/00.................... 105,042 101,000 6.61%, 11/28/02.................... 100,110 101,000 6.80%, 11/28/05.................... 99,429 101,000 7.05%, 11/28/07.................... 100,316 101,000 7.32%, 11/28/10.................... 99,452
9 EVERGREEN GROWTH AND INCOME FUND (photo of building) STATEMENT OF INVESTMENTS -- (CONTINUED) DECEMBER 31, 1996
PRINCIPAL AMOUNT VALUE CORPORATE BONDS -- CONTINUED ENERGY -- CONTINUED Columbia Gas Systems, Inc. (The) $ 101,000 7.42%, 11/28/15.................... $ 98,059 101,000 7.62%, 11/28/25.................... 98,527 700,935 PUBLISHING, BROADCASTING & ENTERTAINMENT -- .1% Time Warner, Inc. 206,000 6.46%, 2/15/97..................... 206,037 123,000 7.975%, 8/15/04.................... 125,654 247,000 8.11%, 8/15/06..................... 253,530 247,000 8.18%, 8/15/07..................... 253,774 92,000 Viacom Inc. 8.00%, 7/7/06...................... 88,170 927,165 TOTAL CORPORATE BONDS (COST $1,595,465)............. 1,628,100 SHORT-TERM INVESTMENTS -- 17.9% COMMERCIAL PAPER -- 15.3% 14,000,000 A.H. Robins Co., Inc. 5.55%, 2/6/97...................... 13,922,300 9,100,000 Bell Atlantic Financial Services 5.50%, 1/30/97..................... 9,059,682 7,300,000 BellSouth Telecommunications Inc. 5.40%, 2/4/97...................... 7,262,770 12,000,000 Cargill Financial Services Corp. 5.37%, 1/8/97...................... 11,987,470 4,000,000 Cortez Capital Corp. 5.58%, 2/24/97..................... 3,966,520 Eiger Capital Corp. 1,300,000 5.43%, 1/10/97..................... 1,298,235 12,000,000 5.45%, 1/13/97..................... 11,978,200 2,100,000 5.50%, 1/16/97..................... 2,095,188 4,200,000 Equitable of Iowa Cos. 5.47%, 1/7/97...................... 4,196,171 Golden Managers Acceptance Corp.
PRINCIPAL $ AMOUNT $ VALUE SHORT-TERM INVESTMENTS -- CONTINUED COMMERCIAL PAPER -- CONTINUED 1,100,000 5.45%, 1/8/97..................... 1,098,834 800,000 5.45%, 1/22/97.................... 797,457 14,600,000 Great Lakes Chemical Corp. 5.65%, 2/7/97..................... 14,515,219 600,000 Receivables Capital Corp. 5.70%, 1/27/97.................... 597,530 6,100,000 Swiss Re Financial Products Corp. 5.40%, 1/16/97.................... 6,086,275 7,300,000 Three Rivers Funding Corp. 5.72%, 1/21/97.................... 7,276,802 15,000,000 Unifunding, Inc. 5.55%, 2/7/97..................... 14,914,437 8,600,000 Virginia Electric & Power Co. 5.40%, 1/10/97.................... 8,588,390 119,641,480 U.S. GOVERNMENT AGENCY NOTE -- 2.6% 20,000,000 Federal National Mtge. Assn. 5.28%, 1/14/97.................... 19,961,867 TOTAL SHORT-TERM INVESTMENTS (COST $139,603,347).......... 139,603,347
TOTAL INVESTMENTS -- (COST $605,743,076)... 100.2% 783,086,321 OTHER ASSETS AND LIABILITIES -- NET.... (.2) (1,634,959) NET ASSETS............... 100.0% $781,451,362
* Non-income producing securities. ** Investment in a non-controlled affiliate. The Fund owns over 5% of outstanding voting securities. The Fund has a cost basis of $4,482,537 in this issue at December 31, 1996. (a) Less than one-tenth of a percent. See accompanying notes to financial statements. 10 EVERGREEN GROWTH AND INCOME FUND (photo of building) STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996
ASSETS: Investments at value (identified cost $605,743,076)........................................................... $783,086,321 Cash.......................................................................................................... 155,991 Receivable for Fund shares sold............................................................................... 5,655,181 Dividends and interest receivable............................................................................. 679,076 Prepaid expenses.............................................................................................. 12,606 Total assets............................................................................................ 789,589,175 LIABILITIES: Payable for investments purchased............................................................................. 6,164,255 Payable for Fund shares repurchased........................................................................... 730,200 Accrued advisory fee.......................................................................................... 646,373 Distribution fee payable...................................................................................... 352,781 Accrued expenses.............................................................................................. 244,204 Total liabilities....................................................................................... 8,137,813 NET ASSETS....................................................................................................... $781,451,362 NET ASSETS CONSIST OF: Paid-in capital............................................................................................... $604,158,549 Distribution in excess of net investment income............................................................... (6,087) Distributions in excess of net realized gain on investment transactions....................................... (44,345) Net unrealized appreciation of investments.................................................................... 177,343,245 Net assets.............................................................................................. $781,451,362 CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE: Class A Shares ($84,818,171 / 3,764,617 shares of beneficial interest outstanding)............................ $ 22.53 Sales charge -- 4.75% of offering price....................................................................... 1.12 Maximum offering price.................................................................................. $ 23.65 Class B Shares ($244,835,641 / 10,915,374 shares of beneficial interest outstanding).......................... $ 22.43 Class C Shares ($9,611,274 / 428,489 shares of beneficial interest outstanding)............................... $ 22.43 Class Y Shares ($442,186,276 / 19,608,041 shares of beneficial interest outstanding).......................... $ 22.55
See accompanying notes to financial statements. 11 EVERGREEN GROWTH AND INCOME FUND (photo of building) STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $3,984)....................................... $ 6,484,943 Interest..................................................................................... 4,585,041 Total investment income................................................................ 11,069,984 EXPENSES: Advisory fee................................................................................. $5,287,338 Distribution fee -- Class A Shares........................................................... 122,222 Distribution fee -- Class B Shares........................................................... 934,314 Shareholder services fee -- Class B Shares................................................... 311,235 Distribution fee -- Class C Shares........................................................... 36,055 Shareholder services fee -- Class C Shares................................................... 12,018 Transfer agent fee........................................................................... 329,132 Registration and filing fees................................................................. 219,285 Custodian fee................................................................................ 184,341 Professional fees............................................................................ 48,605 Reports and notices to shareholders.......................................................... 34,721 Insurance.................................................................................... 13,443 Trustees' fees and expenses.................................................................. 11,987 Miscellaneous................................................................................ 4,589 Total expenses......................................................................... 7,549,285 Less: Fee waivers............................................................................ (5,000) Net expenses........................................................................... 7,544,285 Net investment income........................................................................... 3,525,699 NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investment transactions................................................. 11,660,346 Net increase in unrealized appreciation of investments....................................... 102,653,116 Net gain on investments......................................................................... 114,313,462 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................ $117,839,161
See accompanying notes to financial statements. 12 EVERGREEN GROWTH AND INCOME FUND (photo of building) STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1996 1995 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income..................................................................... $ 3,525,699 $ 1,291,809 Net realized gain on investment transactions.............................................. 11,660,346 5,206,584 Net change in unrealized appreciation of investments...................................... 102,653,116 28,342,991 Net increase in net assets resulting from operations................................ 117,839,161 34,841,384 DISTRIBUTIONS TO SHAREHOLDERS: FROM NET INVESTMENT INCOME: Class A Shares............................................................................ (346,965) (93,250) Class B Shares............................................................................ (65,442) (104,385) Class C Shares............................................................................ (2,714) (5,584) Class Y Shares............................................................................ (3,093,315) (1,088,590) Total distributions from net investment income...................................... (3,508,436) (1,291,809) IN EXCESS OF NET INVESTMENT INCOME: Class A Shares............................................................................ (602) (518) Class B Shares............................................................................ (114) (580) Class C Shares............................................................................ (5) (31) Class Y Shares............................................................................ (5,366) (6,050) Total distributions in excess of net investment income.............................. (6,087) (7,179) FROM NET REALIZED GAIN ON INVESTMENTS: Class A Shares............................................................................ (1,255,570) (468,664) Class B Shares............................................................................ (3,652,416) (1,156,785) Class C Shares............................................................................ (141,822) (48,338) Class Y Shares............................................................................ (6,629,223) (3,524,196) Total distributions from net realized gain on investments........................... (11,679,031) (5,197,983) IN EXCESS OF NET REALIZED GAIN ON INVESTMENTS: Class A Shares............................................................................ (4,767) -- Class B Shares............................................................................ (13,868) -- Class C Shares............................................................................ (538) -- Class Y Shares............................................................................ (25,172) -- Total distributions in excess of net realized gain on investments................... (44,345) -- Total distributions to shareholders................................................. (15,237,899) (6,496,971) FUND SHARE TRANSACTIONS: Proceeds from shares sold................................................................. 470,077,641 131,253,002 Proceeds from acquisition of FFB Lexicon Capital Appreciation Fund........................ 159,432,723 -- Proceeds from reinvestment of distributions............................................... 13,005,089 5,712,264 Payment for shares redeemed............................................................... (171,525,826) (30,906,224) Net increase resulting from Fund share transactions................................. 470,989,627 106,059,042 Net increase in net assets.......................................................... 573,590,889 134,403,455 NET ASSETS: Beginning of year......................................................................... 207,860,473 73,457,018 End of year (including distribution in excess of net investment income of $6,087 at December 31, 1996)...................................................................... $781,451,362 $207,860,473
See accompanying notes to financial statements. 13 EVERGREEN GROWTH AND INCOME FUND -- CLASS A, B AND C SHARES (photo of building) FINANCIAL HIGHLIGHTS
CLASS A SHARES CLASS B SHARES CLASS C JANUARY 3, JANUARY 3, 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....... $18.63 $14.48 $18.59 $14.48 $18.58 Income from investment operations: Net investment income..................... .12 .13 .00** .05 .00** Net realized and unrealized gain on investments.............................. 4.26 4.64 4.20 4.61 4.21 Total from investment operations........ 4.38 4.77 4.20 4.66 4.21 Less distributions to shareholders from: Net investment income..................... (.13) (.14) (.01) (.07) (.01) Net realized gain on investments.......... (.35) (.48) (.35) (.48) (.35) Total distributions..................... (.48) (.62) (.36) (.55) (.36) Net asset value, end of period............. $22.53 $18.63 $22.43 $18.59 $22.43 TOTAL RETURN+.............................. 23.5% 33.0% 22.6% 32.2% 22.6% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in millions)... $85 $19 $245 $46 $10 Ratios to average net assets: Expenses.................................. 1.41% 1.55%++# 2.17% 2.24%++# 2.17% Net investment income (loss).............. .70% .99%++# (.06%) .30%++# (.06%) Portfolio turnover rate.................... 14% 17% 14% 17% 14% Average commission rate paid per share..... $.0566 N/A $.0566 N/A $.0566 JANUARY 3, 1995* THROUGH DECEMBER 31, 1995 PER SHARE DATA: Net asset value, beginning of period....... $14.48 Income from investment operations: Net investment income..................... .06 Net realized and unrealized gain on investments.............................. 4.60 Total from investment operations........ 4.66 Less distributions to shareholders from: Net investment income..................... (.08) Net realized gain on investments.......... (.48) Total distributions..................... (.56) Net asset value, end of period............. $18.58 TOTAL RETURN+.............................. 32.2% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in millions)... $2 Ratios to average net assets: Expenses.................................. 2.15%++# Net investment income (loss).............. .35%++# Portfolio turnover rate.................... 17% Average commission rate paid per share..... N/A
* Commencement of class operations. ** Less than one cent per share. + 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 SHARES SHARES JANUARY 3, JANUARY 3, 1995* 1995* THROUGH THROUGH DECEMBER 31, DECEMBER 31, 1995 1995 Expenses................................................................................ 1.64% 2.26% Net investment income (loss)............................................................ .90% .28% CLASS C SHARES JANUARY 3, 1995* THROUGH DECEMBER 31, 1995 Expenses................................................................................ 4.94% Net investment income (loss)............................................................ (2.44%)
See accompanying notes to financial statements. 14 EVERGREEN GROWTH AND INCOME FUND -- CLASS Y SHARES (photo of building) FINANCIAL HIGHLIGHTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1996 1995 1994 1993 PER SHARE DATA: Net asset value, beginning of year............................................... $18.64 $14.52 $15.41 $14.18 Income from investment operations: Net investment income........................................................... .18 .18 .14 .14 Net realized and unrealized gain on investments................................. 4.25 4.59 .12 1.91 Total from investment operations.............................................. 4.43 4.77 .26 2.05 Less distributions to shareholders from: Net investment income........................................................... (.17) (.17) (.14) (.14) Net realized gain on investments................................................ (.35) (.48) (1.01) (.68) Total distributions........................................................... (.52) (.65) (1.15) (.82) Net asset value, end of year..................................................... $22.55 $18.64 $14.52 $15.41 TOTAL RETURN..................................................................... 23.8% 32.9% 1.7% 14.4% RATIOS & SUPPLEMENTAL DATA: Net assets, end of year (in millions)........................................... $442 $141 $73 $77 Ratios to average net assets: Expenses........................................................................ 1.16% 1.27% 1.33% 1.26% Net investment income........................................................... .93% 1.11% .96% .99% Portfolio turnover rate.......................................................... 14% 17% 29% 28% Average commission rate paid per share........................................... $.0566 N/A N/A N/A 1992 PER SHARE DATA: Net asset value, beginning of year............................................... $12.99 Income from investment operations: Net investment income........................................................... .15 Net realized and unrealized gain on investments................................. 1.65 Total from investment operations.............................................. 1.80 Less distributions to shareholders from: Net investment income........................................................... (.15) Net realized gain on investments................................................ (.46) Total distributions........................................................... (.61) Net asset value, end of year..................................................... $14.18 TOTAL RETURN..................................................................... 13.8% RATIOS & SUPPLEMENTAL DATA: Net assets, end of year (in millions)........................................... $64 Ratios to average net assets: Expenses........................................................................ 1.33% Net investment income........................................................... 1.18% Portfolio turnover rate.......................................................... 30% Average commission rate paid per share........................................... N/A
See accompanying notes to financial statements. 15 EVERGREEN SMALL CAP EQUITY INCOME FUND (photo of building) A Report From Your Portfolio Manager Nola M. Falcone We are happy to announce that Evergreen Small Cap Equity (photo of Income Fund completed its third full calendar year on December Nola M. Falcone) 31, 1996, with a total return of 22.3%* (Class Y, no-load shares) -- notable when you compare it with the Russell 2000 Index** which was up 16.5% and the Wilshire Small Cap Value Index** which was up 15.4% during that time. For the three years ended December 31, the Fund's average annual compound rate of return of 16.2% (Class Y shares) compares well with the average annual compound return of the Russell 2000, 13.7% and the Wilshire Small Cap Value Index, 13.6%. For the period since its inception on October 1, 1993, through December 31, 1996, the Fund's average annual compound return was 15.7% (Class Y shares). As of December 31, the Fund (Class Y shares) received its first rating by Morningstar, Inc., -- four stars+. The Fund was rated against 1,825 other domestic equity funds. For the Fund's Class A shares, the 12-month total return ended December 31, was 16.2%. The average annual compound rate of return for the period since the inception of Class A shares on January 3, 1995, through December 31, 1996, was 22.7%. (Please see page 19 for additional performance information.) This Fund was designed to benefit from investment in small entrepreneurial growth companies which we believe are undervalued, and attempts to reduce risk by seeking to provide a yield greater than that of the S&P 500 Reinvested Index++. The majority of our investments are in companies under $500 million market capitalization. The median market cap of the portfolio as of December 31, 1996, was $296.6 million. So far, the volatility of the Fund's performance is lower than that of the market, as indicated by its beta which was .87 at fiscal year-end. Beta is a measure of the risk of a Fund's portfolio. It illustrates the volatility of the net asset value per share of a mutual fund as compared with the market as a whole as measured by the S&P 500 which is assigned a beta of 1. Generally, a beta of less than 1 indicates a fund would fluctuate less than market and greater than 1 indicates a fund would fluctuate more than the market. A beta is subject to change. 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. ** Unmanaged reinvested indexes of selected securities + Morningstar proprietary ratings reflect historical risk-adjusted performance as of December 31, 1996. Ratings are subject to change every month. Morningstar ratings are calculated from the Fund's three-, five-, and ten-year average annual returns in excess of 90-day Treasury bill returns with appropriate fee adjustments and a risk factor that reflects fund performance below 90-day T-Bill returns. Ten percent of the funds in an investment category receive 5 stars, 22.5% receive four stars, 35% receive three stars, 22.5% receive two stars, and 10% receive one star. ++ 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. 16 EVERGREEN SMALL CAP EQUITY INCOME FUND (photo of building) A Report From Your Portfolio Manager -- (continued) Investment Strategy Our basic themes have focused in five major areas -- 1) the strong merger and acquisition prospects within many industries; 2) the restructuring of companies in order to compete more effectively; 3) value timing opportunities in stocks which have become temporarily depressed; 4) energy-related issues; and 5) real estate issues. Nationally, mergers and acquisitions continued at a record pace in 1996 -- $659 billion, up 27% from $519 billion in 1995. This is staggering when compared with those of the early 1980's which averaged around $82.5 billion. We have tried to capitalize on this trend by buying undervalued issues that not only have good growth potential but were undervalued relative to the takeover multiples we were seeing offered in consolidating industries. Our observation has been that the entrepreneurial companies in which we invest, particularly those still under the aegis of their founders, are often candidates for acquisitions by larger firms seeking to diversify and improve earnings. It is often easier to buy growth or create margin investment from synergistic combinations than build internally. During the year, four takeover offers were made for companies held in our portfolio. An acquisition offer for United Cities Gas Co. was made by Atmos Energy Corp.; Crestar offered to buy Citizens Bancorp, which takeover was finalized in January 1997, for a gain of 106.7% since our purchase in April 1995; West Coast Bancorp, Inc., received an offer from F.N.B. Corp.; and Liberty Bancorp, Inc., received an offer from Banc One Corp. As we continued to see consolidation and takeovers, we invested the largest segment of the portfolio in banks which, in turn, proved to be one of the best performing sectors of the portfolio. We also added a number of gas distributors when we began to see industry consolidation heat up as deregulation prompted electric utilities to look for ways to improve their earnings. Managements of electric utilities began to realize the synergies they could achieve by acquiring gas utilities in their geographic areas. One of our strongest performers, Petrolite Corp., agreed with its largest owner, William Barnickle, to sell the company to recognize the inherent value. Barnickle started a proxy fight after Petrolite rejected offers from two companies that valued the company around $40 per share. As a result of this announcement, the stock has moved up to $48.00. Our original purchase price in September 1995, was $27.50. As stated earlier, we also focus on issues that should begin to benefit from recent restructuring efforts. A good illustration is that of Woodward Governor Co., a strong performer this year. Woodward Governor Co., which designs and manufactures controls and accessory products for aerospace and industrial companies, had been restructuring for the past few years prior to our purchase. We believed these restructuring efforts would help earnings and margins, particularly since Woodward Governor Co., would be a beneficiary of an increased order pattern from the aerospace industry. At the time of our purchase, the stock was very undervalued on a cash flow and earnings basis given its positive outlook. Subsequent to our purchase on March 20, 1996, at $86 per share, the stock has moved up 65% to $133.00 per share. Another restructuring issue which we have purchased in the year included Lance, Inc., a snack food company, which has now the advantages of a new very strong Board of Directors plus new computerized systems and more consumer-driven response systems. We also added Goulds Pumps, Inc., whose restructuring efforts should lead to stronger revenues and better margins and earnings. During the year we realized gains in issues whose improved earnings benefited from restructuring. These included Shared Medical Systems Corp., +131.3% for a little over two years and Lindberg Corp., +110.5% held two years, eight months. Value timing opportunities included our purchase of Oneida Limited which we purchased upon the sale of their underperforming wire division. We believe their basic tableware lines have potential for growth and the company now may be a possible takeover candidate. In addition, we purchased Luby's Cafeterias, Inc., after it was removed from the S&P 500 and American List Corp., after disappointing earnings reports. Further 17 EVERGREEN SMALL CAP EQUITY INCOME FUND (photo of building) A Report From Your Portfolio Manager -- (continued) analysis of the two companies' fundamentals and discussions with management led us to believe that the market had overreacted to short-term concerns and that growth in earnings seemed achievable. Our interest in the energy field was sparked by our observation of the development of improved technologies and the growth from independent companies, which developed as the major oil companies went through massive restructuring efforts during the last few years and created an availability of talent and exploration and production properties. We have watched this phenomenon with interest and purchased convertibles from independent energy companies which were issued this year. Our largest investment was in Key Energy Group, Inc. 7% Convertible Debentures due 07/01/03. At fiscal year-end, these bonds, purchased in June 1996, have an unrealized gain of 27.5%. Key Energy Group, Inc., is primarily in the well servicing business where demand has been growing in response to better oil and gas prices recently. They also have been successful in exploration and production in West Texas. We also purchased the common stock of Offshore Logistics, Inc., and Penn Virginia Corp. The portfolio's real estate holdings also proved to be very successful this year, led by the gain of Bradley Real Estate, Inc., which took over Tucker Properties Corp.; followed by CBL & Associates Properties, Inc. All of the holdings that we had in the real estate area provided positive returns. Complementing our theme investing is our search for special situations or very undervalued individual issues. Some of the purchases this year included Robbins & Meyers, Inc. 6 1/2% Convertible Debentures due 09/01/03, BGS Systems, Inc., a software company which is designed to enable customers to make more efficient use of their computer system, and Russ Berrie & Co., Inc., a gift and toy company. The Fund's performance was hampered during the year by the gas distribution group, although long-term we believe that many of the gas distributors will be acquired. In addition, several of our industrial restructuring candidates and a number of our convertible debentures have still yet to provide strong performance. Outlook As we enter 1997, the U.S. economy is still experiencing low inflation and satisfactory growth. We are ever mindful, though, of the possibility of inflation re-igniting as many sectors of the economy are experiencing tighter labor conditions. We also see the possibility of the rebound of economies around the world this year with the exception of the economy of Japan. This worldwide growth may push up the usage of capacity in many businesses, which may have inflationary implications. We believe that the economy will still benefit from a strong merger and acquisition trend in the first half of this year and perhaps into the second half as big companies are using their higher-priced stocks to buy undervalued, small capitalization companies which have lagged the market. Technology innovation in personal computers, internet and intranet services, and telecommunications are still creating dramatic demands for products and services in our country and abroad. Technology-based businesses will probably provide positive long-term growth for a few years. Evergreen Asset Management Corp. currently has 16 people involved in portfolio management and original, fundamental research who have an average experience of 20 years. The Fund has the benefit of having ideas generated from a wide range of research from this group. Of note is the addition of Eric Cinnamond, CFA, assistant portfolio manager, who has been instrumental in managing this Fund. Even though we have had a dramatic growth in the size of the Fund since the beginning of the fiscal year, increasing from $5.3 million in net assets at December 31, 1995, to $9.7 at December 31, 1996, to $15 million currently, we have continued to find opportunity to easily invest these monies. We welcome our new shareholders and seek to produce favorable returns as we focus on investing in well-run, well-financed smaller companies. 18 EVERGREEN SMALL CAP EQUITY INCOME FUND (photo of building) Results to Date Performance of $10,000 invested in the Evergreen Small Cap Equity Income Fund The graphs below compare a $10,000 investment in the Evergreen Small Cap Equity Income Fund (Class A, Class B, Class C and Class Y Shares) with a similar investment in the Russell 2000 and the NASDAQ OTC Composite Indexes ("Indexes"). [Charts to follow.] CLASS A 1-YEAR TOTAL RETURN=16.2% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION=22.7% Evergreen Small Cap Equity Fund NASDAQ OTC Composite Index Russell 2000 Index 1/3/95* 6/30/95 12/31/95 6/30/96 12/31/96 (Customer to supply Plot points) CLASS B 1-YEAR TOTAL RETURN=16.1% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION=23.3% Evergreen Small Cap Equity Fund NASDAQ OTC Composite Index Russell 2000 Index 1/3/95* 6/30/95 12/31/95 6/30/96 12/31/96 (Customer to supply Plot points) CLASS C 1-YEAR TOTAL RETURN=20.1% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION=25.0% Evergreen Small Cap Equity Fund NASDAQ OTC Composite Index Russell 2000 Index 1/3/95* 6/30/95 12/31/95 6/30/96 12/31/96 (Customer to supply Plot points) CLASS Y 1-YEAR TOTAL RETURN=22.4% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION=15.7% Evergreen Small Cap Equity Fund NASDAQ OTC Composite Index Russell 2000 Index 10/1/93* 12/31/93 12/31/94 12/31/95 12/31/96 (Customer to supply Plot points) *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. 19 EVERGREEN SMALL CAP EQUITY INCOME FUND (photo of building) Statement of Investments December 31, 1996
Shares Value Common Stocks -- 75.4% Automotive Equipment & Manufacturing -- .7% 6,000 Simpson Industries, Inc............... $ 65,344 Banks -- 19.4% 3,000 ABC Bancorp........................... 50,625 2,000 Amcore Financial, Inc................. 53,500 3,000 BancorpSouth, Inc..................... 83,250 8,000 CB Bancshares, Inc.................... 234,000 5,000 Citizens Bancorp...................... 310,000 6,000 First Essex Bancorp, Inc.............. 78,750 2,500 First Midwest Bancorp, Inc............ 81,563 9,747 Hudson Chartered Bancorp, Inc......... 255,861 6,575 Interchange Financial Services Corp... 161,909 2,000 Liberty Bancorp, Inc.................. 99,500 2,500 One Valley Bancorp of West Virginia, Inc......................... 92,813 6,800 State Financial Services Corp......... 136,000 5,000 Susquehanna Bancshares, Inc........... 173,125 4,000 West Coast Bancorp, Inc............... 69,750 1,880,646 Business Equipment & Services -- 3.4% 3,400 American Business Products, Inc....... 85,425 6,000 BGS Systems, Inc...................... 164,250 7,500 Computer Language Research, Inc....... 80,625 330,300 Consumer Products & Services -- 5.9% 15,000 Oneida, Ltd........................... 270,000 17,100 Piccadilly Cafeterias, Inc............ 158,175 6,000 Polaris Industries, Inc............... 142,500 570,675 Electrical Equipment & Services -- 3.3% 4,000 Badger Meter, Inc..................... 153,500 8,100 Research, Inc......................... 40,500 10,000 Tech/OPS Sevcon, Inc.................. 128,750 322,750 Energy -- 3.5% 1,500 Berry Petroleum Co. Cl. A............. 21,562 5,000 Enron Global Power & Pipelines L.L.C................................. 135,000 4,000 Penn Virginia Corp.................... 187,000 343,562 Shares Value
Finance & Insurance -- 4.6% 6,000 Arthur J. Gallagher & Co.............. $ 186,000 5,000 GCR Holdings, Ltd..................... 111,250 5,000 LaSalle Re Holdings, Ltd.............. 146,250 443,500 Food & Beverage Products -- 1.9% 10,000 Lance, Inc............................ 180,000 Food Retailing & Distribution -- 2.7% 24,000 Bridgford Foods Corp.................. 204,000 3,000 Luby's Cafeterias, Inc................ 60,204 264,204 Healthcare Products & Services -- 2.1% 2,500 ADAC Laboratories..................... 59,688 12,000 Kinetic Concepts, Inc................. 147,000 206,688 Industrial Specialty Products & Services -- 7.2% 5,000 BW/IP, Inc............................ 82,500 10,000 Goulds Pumps, Inc..................... 229,375 1,000 Petrolite Corp........................ 48,000 2,900 Raven Industries, Inc................. 65,975 500 Spartech Corp......................... 5,562 2,000 Woodward Governor Co.................. 266,000 697,412 Real Estate -- 3.1% 891 Bradley Real Estate, Inc.............. 16,038 2,000 CBL & Associates Properties, Inc...... 51,750 2,000 Columbus Realty Trust................. 45,500 1,000 Kranzco Realty Trust.................. 16,875 2,500 Sovran Self Storage, Inc.............. 78,125 4,000 Summit Properties, Inc................ 88,500 296,788 Retailing & Wholesale -- .5% 2,800 Russ Berrie & Co., Inc................ 50,400 Thrift Institutions -- 7.4% 4,000 First Financial Holdings, Inc......... 90,000 7,000 First Palm Beach Bancorp, Inc......... 165,375 18,000 Jacksonville Bancorp, Inc............. 263,250 7,000 People's Savings Financial Corp....... 194,250 712,875 Utilities -- Electric -- 1.4% 5,000 TNP Enterprises, Inc.................. 136,875
20 EVERGREEN SMALL CAP EQUITY INCOME FUND (photo of building) Statement of Investments -- (continued) December 31, 1996
Shares Value Common Stocks -- continued Utilities -- Gas -- 8.3% 4,500 Atrion Corp........................... $ 74,250 7,100 Chesapeake Utilities Corp............. 119,812 2,500 Delta Natural Gas Co., Inc............ 46,250 4,000 Energen Corp.......................... 121,000 7,400 NUI Corp.............................. 167,425 6,000 Public Service Company of North Carolina, Inc......................... 109,500 6,000 Southwest Gas Corp.................... 115,500 2,000 United Cities Gas Co.................. 45,000 798,737 Total Common Stocks (cost $6,063,435)................... 7,300,756 Convertible Preferred Stocks -- 3.1% Energy -- 2.0% 4,000 Callon Petroleum Co. 8.50%, Series A....................... 179,500 400 Chieftain International Funding Corp. $1.8125............................... 13,100 192,600 Publishing, Broadcasting & Entertainment -- 1.1% 4,000 AMC Entertainment, Inc. $1.75................................. 108,000 Total Convertible Preferred Stocks (cost $219,644)..................... 300,600 Principal Amount Convertible Debentures -- 18.4% Banks -- .7% $ 50,000 First State Bank Corp. 7.00%, 11/1/03........................ 70,750 Building, Construction & Furnishings -- 1.1% 100,000 Toll Corp. 4.75%, 1/15/04........................ 103,500 Consumer Products & Services -- 1.3% 130,000 Max & Erma's Restaurants, Inc. 8.00%, 9/1/04......................... 124,800 Principal Amount Value Convertible Debentures -- continued Energy -- 9.0% $500,000 Key Energy Group, Inc. 7.00%, 7/1/03, 144A................... $ 637,500 225,000 Offshore Logistics, Inc. 6.00%, 12/15/03, 144A................. 236,813 874,313 Finance & Insurance -- 1.1% 100,000 Trenwick Group, Inc. 6.00%, 12/15/99....................... 105,500 Healthcare Products & Services -- 3.5% 140,000 Maxxim Medical, Inc. 6.75%, 3/1/03......................... 135,800 100,000 Meridian Diagnostics, Inc. 7.00%, 9/1/06......................... 101,000 100,000 Physicians Resource Group, Inc. 6.00%, 12/1/01........................ 98,630 335,430 Industrial Specialty Products & Services -- 1.2% 100,000 Robbins & Myers, Inc. 6.50%, 9/1/03......................... 112,500 Retailing & Wholesale -- .5% 50,000 Proffitt's, Inc. 4.75%, 11/1/03........................ 50,125 Total Convertible Debentures (cost $1,590,203)................... 1,776,918 Short-Term U.S. Government Agency Obligations -- 7.2% Federal Home Loan Mortgage Corp. 100,000 5.40%, 1/9/97......................... 99,880 600,000 5.43%, 1/21/97........................ 598,190 Total Short-Term U.S. Government Agency Obligations (cost $698,070)..................... 698,070
Total Investments -- (cost $8,571,352)......... 104.1% 10,076,344 Other Assets and Liabilities -- net........ (4.1) (400,148) Net Assets.................. 100.0% $ 9,676,196
Rule 144A securities are restricted as to resale to qualified institutional investors. See accompanying notes to financial statements. 21 EVERGREEN SMALL CAP EQUITY INCOME FUND (photo of building) Statement of Assets and Liabilities December 31, 1996
Assets: Investments at value (identified cost $8,571,352).............................................................. $10,076,344 Cash........................................................................................................... 246,224 Dividends and interest receivable.............................................................................. 55,113 Receivable for Fund shares sold................................................................................ 24,378 Unamortized organization expenses.............................................................................. 11,536 Prepaid expenses............................................................................................... 2,518 Total assets............................................................................................. 10,416,113 Liabilities: Payable for investments purchased.............................................................................. 668,969 Accrued expenses............................................................................................... 68,742 Payable for Fund shares repurchased............................................................................ 1,600 Distribution fee payable....................................................................................... 606 Total liabilities........................................................................................ 739,917 Net assets........................................................................................................ $ 9,676,196 Net assets consist of: Paid-in capital................................................................................................ $ 8,128,208 Undistributed net investment income............................................................................ 3,333 Undistributed net realized gains on investment transactions.................................................... 39,663 Net unrealized appreciation of investments..................................................................... 1,504,992 Net assets............................................................................................... $ 9,676,196 Calculation of net asset value and maximum offering price per share: Class A Shares ($336,185/25,657 shares of beneficial interest outstanding)..................................... $ 13.10 Sales charge -- 4.75% of offering price........................................................................ .65 Maximum offering price...................................................................................... $ 13.75 Class B Shares ($691,954/52,857 shares of beneficial interest outstanding)..................................... $ 13.09 Class C Shares ($56,251/4,298 shares of beneficial interest outstanding)....................................... $ 13.09 Class Y Shares ($8,591,806/654,876 shares of beneficial interest outstanding).................................. $ 13.12
See accompanying notes to financial statements. 22 EVERGREEN SMALL CAP EQUITY INCOME FUND (photo of building) Statement of Operations Year Ended December 31, 1996
Investment income: Dividends......................................................................................... $ 221,319 Interest.......................................................................................... 86,418 Total investment income........................................................................ 307,737 Expenses: Advisory fee...................................................................................... $ 63,333 Distribution fee -- Class A Shares................................................................ 618 Distribution fee -- Class B Shares................................................................ 3,199 Shareholder services fee -- Class B Shares........................................................ 1,066 Distribution fee -- Class C Shares................................................................ 267 Shareholder services fee -- Class C Shares........................................................ 89 Registration and filing fees...................................................................... 71,195 Custodian fee..................................................................................... 59,940 Transfer agent fee................................................................................ 50,036 Professional fees................................................................................. 15,594 Reports and notices to shareholders............................................................... 11,634 Insurance expense................................................................................. 7,193 Amortization of organization expense.............................................................. 5,744 Trustees' fees and expenses....................................................................... 5,346 Miscellaneous..................................................................................... 1,724 Total expenses................................................................................. 296,978 Less: Fee waivers and expense reimbursements...................................................... (196,739) Net expenses................................................................................... 100,239 Net investment income................................................................................ 207,498 Net realized and unrealized gain on investments: Net realized gain on investment transactions...................................................... 329,191 Net change in unrealized appreciation of investments.............................................. 833,605 Net gain on investments.............................................................................. 1,162,796 Net increase in net assets resulting from operations................................................. $1,370,294
See accompanying notes to financial statements. 23 EVERGREEN SMALL CAP EQUITY INCOME FUND (photo of building) Statement of Changes in Net Assets
Year Ended December 31, 1996 1995 Increase (decrease) in net assets: Operations: Net investment income......................................................................... $ 207,498 $ 159,722 Net realized gain on investment transactions.................................................. 329,191 232,995 Net change in unrealized appreciation of investments.......................................... 833,605 786,111 Net increase in net assets resulting from operations....................................... 1,370,294 1,178,828 Distributions to shareholders from: Net investment income: Class A Shares................................................................................ (7,618) (5,089) Class B Shares................................................................................ (9,798) (4,875) Class C Shares................................................................................ (710) (421) Class Y Shares................................................................................ (186,039) (155,906) Total distributions to shareholders from net investment income............................. (204,165) (166,291) Net realized gain on investments: Class A Shares................................................................................ (12,475) (8,583) Class B Shares................................................................................ (27,933) (10,427) Class C Shares................................................................................ (1,936) (900) Class Y Shares................................................................................ (279,606) (196,151) Total distributions to shareholders from net realized gain on investments.................. (321,950) (216,061) Total distributions to shareholders........................................................ (526,115) (382,352) Fund share transactions: Proceeds from shares sold..................................................................... 4,304,325 1,451,437 Proceeds from reinvestment of distributions................................................... 374,529 315,637 Payment for shares redeemed................................................................... (1,159,053) (864,156) Net increase resulting from Fund share transactions........................................ 3,519,801 902,918 Net increase in net assets.............................................................. 4,363,980 1,699,394 Net assets: Beginning of year............................................................................. 5,312,216 3,612,822 End of year (including undistributed net investment income of $3,333 at December 31, 1996).... $ 9,676,196 $5,312,216
See accompanying notes to financial statements. 24 EVERGREEN SMALL CAP EQUITY INCOME FUND CLASS A, B AND C SHARES (photo of building) Financial Highlights
Class A Shares Class B Shares Class C January 3, January 3, 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.............................. $11.57 $9.64 $11.57 $9.64 $11.56 Income from investment operations: Net investment income............... .34 .34 .27 .28 .28 Net realized and unrealized gain on investments....................... 2.13 2.45 2.11 2.43 2.10 Total from investment operations...................... 2.47 2.79 2.38 2.71 2.38 Less distributions to shareholders from: Net investment income............... (.34) (.37) (.26) (.29) (.25) Net realized gains on investments... (.60) (.49) (.60) (.49) (.60) Total distributions............... (.94) (.86) (.86) (.78) (.85) Net asset value, end of period........ $13.10 $11.57 $13.09 $11.57 $13.09 Total Return+......................... 22.0% 29.5% 21.1% 28.7% 21.1% Ratios & Supplemental Data: Net assets, end of period (000's omitted)............................ $336 $216 $692 $266 $56 Ratios to average net assets#: Expenses............................ 1.75% 1.75%++ 2.50% 2.50%++ 2.50% Net investment income............... 3.08% 3.39%++ 2.39% 2.67%++ 2.33% Portfolio turnover rate............... 50% 48% 50% 48% 50% Average commission rate paid per share............................... $.0635 N/A $.0635 N/A $.0635 January 24, 1995* through December 31, 1995 Per Share Data: Net asset value, beginning of period.............................. $9.74 Income from investment operations: Net investment income............... .28 Net realized and unrealized gain on investments....................... 2.33 Total from investment operations...................... 2.61 Less distributions to shareholders from: Net investment income............... (.30) Net realized gains on investments... (.49) Total distributions............... (.79) Net asset value, end of period........ $11.56 Total Return+......................... 27.3% Ratios & Supplemental Data: Net assets, end of period (000's omitted)............................ $24 Ratios to average net assets#: Expenses............................ 2.50%++ Net investment income............... 2.63%++ Portfolio turnover rate............... 48% 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 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 3, January 3, 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......................... 5.03% 24.45% 5.72% 20.90% 5.77% Net investment income loss....... (.19%) (19.30%) (.83%) (15.72%) (.94%) January 24, 1995* through December 31, 1995 Expenses......................... 187.29% Net investment income loss....... (182.16%)
See accompanying notes to financial statements. 25 EVERGREEN SMALL CAP EQUITY INCOME FUND CLASS Y SHARES (photo of building) Financial Highlights -- (continued)
Year Ended December 31, 1996 1995 1994 Per Share Data: Net asset value, beginning of period.................................... $11.58 $9.70 $10.15 Income (loss) from investment operations: Net investment income................................................. .38 .38 .34 Net realized and unrealized gain (loss) on investments................ 2.13 2.38 (.41) Total from investment operations.................................... 2.51 2.76 (.07) Less distributions to shareholders from: Net investment income................................................. (.37) (.38) (.33) Net realized gains on investments..................................... (.60) (.50) (.05) Total distributions................................................. (.97) (.88) (.38) Net asset value, end of period.......................................... $13.12 $11.58 $9.70 Total Return+........................................................... 22.4% 29.1% (.7%) Ratios & Supplemental Data: Net assets, end of period (000's omitted)............................... $ 8,592 $4,806 $3,613 Ratios to average net assets#: Expenses.............................................................. 1.50% 1.50% 1.48% Net investment income................................................. 3.36% 3.56% 3.72% Portfolio turnover rate................................................. 50% 48% 9% Average commission rate paid per share.................................. $ .0635 N/A N/A October 1, 1993* through December 31, 1993 Per Share Data: Net asset value, beginning of period.................................... $10.00 Income (loss) from investment operations: Net investment income................................................. .10 Net realized and unrealized gain (loss) on investments................ .15 Total from investment operations.................................... .25 Less distributions to shareholders from: Net investment income................................................. (.10) Net realized gains on investments..................................... -- Total distributions................................................. (.10) Net asset value, end of period.......................................... $10.15 Total Return+........................................................... 2.5% Ratios & Supplemental Data: Net assets, end of period (000's omitted)............................... $2,236 Ratios to average net assets#: Expenses.............................................................. 0%++ Net investment income................................................. 4.07%++ Portfolio turnover rate................................................. 15% 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 (loss) to average net assets, exclusive of any applicable state expense limitations, would have been the following:
Year Ended December 31, 1996 1995 1994 Expenses............................................................ 4.75% 4.34% 4.68% Net investment income (loss)........................................ .11% .72% .53% October 1, 1993* through December 31, 1993 Expenses............................................................ 4.39% Net investment income (loss)........................................ (.33%)
See accompanying notes to financial statements. 26 EVERGREEN UTILITY FUND (photo of power lines) A Report From Your Portfolio Manager Paul DiLella We are pleased to present the 1996 Annual Report for (photo of Evergreen Utility Fund. The Fund's 4.5%* total return (Class Paul DiLella) Y, no-load shares) for the 12 months ended December 31, 1996, compared with the total returns of 3.1% for the S&P Utility Composite Index** and 23.0% for the S&P 500 Reinvested Index*** for that time. The total return at net asset value for the 12 months ended December 31, for the Fund's Class A shares was 4.4%*. (Please see page 28 for additional performance information.) The utility sector in general, as well as Evergreen Utility Fund, experienced a particularly difficult year in 1996, that was the result of a combination of higher interest rates and uncertainties regarding competition and deregulation within the industry. The telephone and electric stocks were among the worst sub-sectors of the stock market in 1996 and were a dramatically underperforming group. In addition, the overall strength in the general market caused traditional utility investors to seek other more profitable and predictable sectors. Electric and telecommunication companies are in the early throes of a transition toward increased competition, decreased regulation, and increased volatility for their sales and share prices. One result of this should be continued consolidation across energy industries. Several of the companies among the Fund's current holdings have announced or been involved in mergers during the past twelve months. We expect more mergers in the future and are analyzing the industry for opportunities for the Fund. Mergers will be an important defense as utilities seek to achieve economies of scale, gain market share and/or diversify their source for earnings growth. While 1996 performance of the Fund compared favorably with that of the S&P Utility Index, we were somewhat disappointed by overall results. Relatively high concentrations of electric and telephone securities in the portfolio and lagging performance of our Real Estate Investment Trusts and technology positions impacted overall results. In an effort to reduce the risk associated with holding high concentrations of utility securities, the non-utility sector of the Fund was increased with the additions of Unocal Corp., Ford Motor Co., Dow Chemical Co. and Philip Morris Cos., Inc. In our opinion, underperformance seen in the electric and telephone areas represent a buying opportunity. We are seeing very attractive historical valuations in both areas. In fact, the dividend yield differential between the electric utilities and the S&P 500 is at its highest level in over twenty years+. If economic growth subsides and the financial markets slow, we would view utilities with strong competitive characteristics as excellent investment choices. Likewise, the Fund plans to continue to increase its non-utility investment, thus reducing sector risk, while being careful not to affect the Fund's yield. With increased diversification coupled with a utility sector rebound, the Fund should be on course to provide investors with solid returns for 1997. Thank you for your continued investment support and confidence in Evergreen Utility Fund. 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 Fund's 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. ** Unmanaged index of selected securities within the utility sector. *** The S&P 500 Reinvested Index 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. + Source: Merrill Lynch Electric Utility Industry Overview, 1/8/97 27 EVERGREEN UTILITY FUND (photo of power lines) Results to Date Performance of $10,000 invested in the Evergreen Utility Fund The graphs below compare a $10,000 investment in the Evergreen Utility Fund (Class A, Class B, Class C and Class Y Shares) with a similar investment in the S&P 500 and the S&P 500 Utility Indexes ("Indexes"). [four charts appear, plot point listed below] CLASS A 1-YEAR TOTAL RETURN=0.6% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION=7.1% 1/4/94* 6/30/94 12/31/94 6/30/95 12/31/95 6/30/96 12/31/96 CLASS B 1-YEAR TOTAL RETURN=-1.3% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION=7.2% 1/4/94* 6/30/94/ 12/31/94 6/30/95 12/31/95 6/30/96 12/31/96 CLASS C 1-YEAR TOTAL RETURN=2.5% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION=12.4% 9/2/94* 12/31/94 6/30/95 12/31/95 6/30/96 12/31/96 CLASS Y 1-YEAR TOTAL RETURN=4.5% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION=11.2% 2/28/94* 6/30/94 12/31/94 6/30/95 12/31/95 6/30/96 12/31/96 - --Evergreen Utility Fund S&P Utility Index S&P 500 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. 28 EVERGREEN UTILITY FUND (photo of power lines) Statement of Investments December 31, 1996
Shares Value Common Stocks -- 89.5% Automotive Equipment & Manufacturing -- 2.3% 100,000 Ford Motor Co....................... $ 3,187,500 Chemicals & Agricultural Products -- 2.0% 35,000 Dow Chemical Co. (The).............. 2,743,125 Consumer Products & Services -- 2.9% 35,000 Philip Morris Cos., Inc............. 3,941,875 Healthcare Products & Services -- 2.2% 75,000 Pharmacia & Upjohn Inc.............. 2,971,875 Real Estate -- 1.1% 6,666* Echelon International Corp.......... 104,156 35,000 Equity Residential Properties Trust............................... 1,443,750 1,547,906 Utilities -- Electric -- 41.6% 82,000 American Electric Power Co., Inc.... 3,372,250 125,000 Central & South West Corp........... 3,203,125 120,500 CINergy Corp........................ 4,021,687 150,000 Enova Corp.......................... 3,412,500 100,000 Florida Progress Corp............... 3,225,000 100,000 FPL Group, Inc...................... 4,600,000 111,300 GPU, Inc............................ 3,742,463 150,000 Houston Industries, Inc............. 3,393,750 120,000 Illinova Corp....................... 3,300,000 48,000 NIPSCO Industries, Inc.............. 1,902,000 150,000 PacifiCorp.......................... 3,075,000 75,000 Portland General Corp............... 3,150,000 150,000 PP&L Resources, Inc................. 3,450,000 100,000 Public Service Co. of Colorado...... 3,887,500 80,000 Public Service Enterprise Group, Inc................................. 2,180,000 35,000 Texas Utilities Co.................. 1,426,250 120,000 UtiliCorp United, Inc............... 3,240,000 80,000 Western Resources, Inc.............. 2,470,000 57,051,525 Utilities -- Gas -- 7.3% 120,000 MCN Corp............................ 3,465,000 105,000 NICOR Inc........................... 3,753,750 75,000 Williams Cos., Inc. (The)........... 2,812,500 10,031,250 Utilities -- Telephone -- 30.1% 110,000 ALLTEL Corp......................... 3,451,250 40,000 Ameritech Corp...................... 2,425,000 47,000 Bell Atlantic Corp.................. 3,043,250 Shares Value
Utilities -- Telephone -- continued 90,000 BellSouth Corp...................... $ 3,633,750 175,000 Frontier Corp....................... 3,959,375 130,000 GTE Corp............................ 5,915,000 40,800 Lucent Technologies, Inc............ 1,887,000 150,000 MCI Communications Corp............. 4,903,125 60,000 SBC Communications, Inc............. 3,105,000 60,000 Sprint Corp......................... 2,392,500 37,000 Telefonica de Espana SA de CV, ADR................................. 2,562,250 125,000 U.S. West Communications Group...... 4,031,250 41,308,750 Total Common Stocks (cost $104,554,221)............ 122,783,806 Convertible Preferred Stocks -- 7.0% Energy -- 2.1% 50,000 Unocal Corp......................... 2,850,000 Utilities -- Telephone -- 4.9% 100,000 AirTouch Communications............. 2,725,000 24,000 Compania de Iversiones en Telecomunicaciones SA, PRIDES (exchangeable for ADS's of Telefonica de Argentina SA), 144A... 1,266,000 80,100 Nacional Financiera, SNC, PRIDES (exchangeable for ADS's of Telefonos de Mexico, SA de CV), 144A.......... 2,703,375 6,694,375 Total Convertible Preferred Stocks (cost $10,052,824)............. 9,544,375
Principal Amount Corporate Bonds -- 3.0% Utilities -- Electric -- 2.3% $1,000,000 Duke Power Co. 7.00%, 9/1/05....................... 991,598 1,000,000 Norsk Hydro AS 7.75%, 6/15/23...................... 1,036,738 1,000,000 Virginia Electric & Power Co. 7.57%, 12/9/02...................... 1,041,369 3,069,705 Utilities -- Telephone -- .7% 1,000,000 Pacific Telephone & Telegraph Co. 7.25%, 2/1/08....................... 989,258 Total Corporate Bonds (cost $3,802,643).............. 4,058,963
29 EVERGREEN UTILITY FUND (photo of power lines) Statement of Investments -- (continued) December 31, 1996
Principal Amount Value Repurchase Agreement -- .1% $ 164,736 Donaldson, Lufkin & Jenrette Securities Corp., 6.50% dated 12/31/96, due 1/2/97 -- collateralized by $156,000 U.S. Treasury Notes, 8.00%, 5/15/01; value, including accrued interest $169,111 (cost $164,736)..................... $ 164,736 Total Investments -- (cost $118,574,424)........ 99.6% 136,551,880 Other Assets and Liabilities -- net......... .4 597,673 Net Assets --................ 100.0% $137,149,553
* Non-income producing securities. The following abbreviations are used in this portfolio: ADR -- American Depository Receipts ADS -- American Depository Shares PRIDES -- Provisionally Redeemable Income Debt Exchangeable for Stock Rule 144A securities are restricted as to resale to qualified institutional investors. See accompanying notes to financial statements. 30 EVERGREEN UTILITY FUND (photo of power lines) Statement of Assets and Liabilities December 31, 1996 Assets: Investments at value (identified cost $118,574,424)........................................................... $136,551,880 Dividends and interest receivable............................................................................. 791,166 Receivable for Fund shares sold............................................................................... 146,676 Prepaid expenses.............................................................................................. 41,759 Total assets............................................................................................... 137,531,481 Liabilities: Payable for Fund shares repurchased........................................................................... 160,263 Distribution fee payable...................................................................................... 95,969 Accrued expenses.............................................................................................. 95,148 Accrued advisory fee.......................................................................................... 30,548 Total liabilities.......................................................................................... 381,928 Net assets....................................................................................................... $137,149,553 Net assets consist of: Paid-in capital............................................................................................... $119,094,687 Undistributed net investment income........................................................................... 100,717 Distributions in excess of net realized gains on investment transactions...................................... (23,307) Net unrealized appreciation of investments.................................................................... 17,977,456 Net assets................................................................................................. $137,149,553 Calculation of net asset value and maximum offering price per share: Class A Shares ($96,242,902/9,103,549 shares of beneficial interest outstanding)................................. $ 10.57 Sales charge -- 4.75% of offering price.......................................................................... .53 Maximum offering price........................................................................................ $ 11.10 Class B Shares ($38,510,738/3,640,035 shares of beneficial interest outstanding)................................. $ 10.58 Class C Shares ($395,720/37,407 shares of beneficial interest outstanding)....................................... $ 10.58 Class Y Shares ($2,000,193/189,013 shares of beneficial interest outstanding).................................... $ 10.58
See accompanying notes to financial statements. 31 EVERGREEN UTILITY FUND (photo of power lines) Statement of Operations Year Ended December 31, 1996 Investment income: Dividends (net of foreign withholding taxes of $18,580)......................................... $ 6,423,879 Interest........................................................................................ 452,100 Total investment income...................................................................... 6,875,979 Expenses: Advisory fee.................................................................................... $ 725,733 Administrative personnel and service fees....................................................... 70,215 Distribution fee -- Class A Shares.............................................................. 252,753 Distribution fee -- Class B Shares.............................................................. 283,875 Shareholder services fee -- Class B Shares...................................................... 94,625 Distribution fee -- Class C Shares.............................................................. 2,843 Shareholder services fee -- Class C Shares...................................................... 948 Transfer agent fee.............................................................................. 224,192 Custodian fee................................................................................... 91,954 Reports and notices to shareholders............................................................. 85,237 Registration and filing fees.................................................................... 45,962 Professional fees............................................................................... 30,625 Insurance expense............................................................................... 2,903 Trustees' fees and expenses..................................................................... 1,386 Miscellaneous................................................................................... 21,098 Total expenses............................................................................... 1,934,349 Less: Fee waivers............................................................................... (396,483) Net expenses................................................................................. 1,537,866 Net investment income.............................................................................. 5,338,113 Net realized and unrealized gain (loss) on investments: Net realized gain on investments................................................................ 3,459,558 Net decrease in unrealized appreciation of investments.......................................... (3,509,310) Net loss on investments............................................................................ (49,752) Net increase in net assets resulting from operations............................................... $ 5,288,361
See accompanying notes to financial statements. 32 EVERGREEN UTILITY FUND (photo of power lines) Statement of Changes in Net Assets
Year Ended December 31, 1996 1995 Increase (decrease) in net assets: Operations: Net investment income..................................................................... $ 5,338,113 $ 3,889,362 Net realized gain on investments.......................................................... 3,459,558 6,197,705 Net change in unrealized appreciation of investments...................................... (3,509,310) 17,561,515 Net increase in net assets resulting from operations................................... 5,288,361 27,648,582 Distributions to shareholders from: Net investment income: Class A Shares............................................................................ (3,887,411) (2,358,231) Class B Shares............................................................................ (1,173,301) (1,177,734) Class C Shares............................................................................ (11,835) (6,275) Class Y Shares............................................................................ (229,804) (298,965) Total distributions to shareholders from net investment income.............................................................................. (5,302,351) (3,841,205) Net realized gain on investments: Class A Shares............................................................................ (2,465,668) (4,315,104) Class B Shares............................................................................ (979,858) (1,416,839) Class C Shares............................................................................ (10,055) (9,717) Class Y Shares............................................................................ (53,192) (316,309) Total distributions to shareholders from net realized gain on investments.............. (3,508,773) (6,057,969) In excess of net realized gains on investments: Class A Shares............................................................................ (16,378) -- Class B Shares............................................................................ (6,509) -- Class C Shares............................................................................ (67) -- Class Y Shares............................................................................ (353) -- Total distributions in excess of net realized gain on investments...................... (23,307) -- Total distributions to shareholders................................................. (8,834,431) (9,899,174) Fund share transactions: Proceeds from shares sold................................................................. 12,422,675 8,809,765 Proceeds from shares issued from the acquisition of ABT Utility Income Fund, Inc............................................................... -- 99,162,259 Proceeds from reinvestment of distributions............................................... 7,082,140 7,723,699 Payment for shares redeemed............................................................... (30,379,907) (20,186,142) Net increase (decrease) from Fund share transactions................................... (10,875,092) 95,509,581 Net increase (decrease) in net assets............................................... (14,421,162) 113,258,989 Net assets: Beginning of year......................................................................... 151,570,715 38,311,726 End of year (including undistributed net investment income of $100,717 and $68,090, respectively)........................................................................... $137,149,553 $151,570,715
See accompanying notes to financial statements. 33 EVERGREEN UTILITY FUND -- CLASS A AND B SHARES (photo of power lines) Financial Highlights
Class A Shares Class B Shares January 4, 1994* Year Ended through Year Ended December 31, December 31, December 31, 1996 1995 1994 1996 1995 Per Share Data: Net asset value, beginning of period...................... $10.80 $9.00 $10.00 $10.81 $9.00 Income (loss) from investment operations: Net investment income................................... .41 .44 .45 .33 .37 Net realized and unrealized gain (loss) on investments........................................... .05 2.25 (1.01) .05 2.26 Total from investment operations...................... .46 2.69 (.56) .38 2.63 Less distributions to shareholders from: Net investment income................................... (.41) (.44) (.44) (.33) (.37) Net realized gain on investments........................ (.28) (.45) -- (.28) (.45) Total distributions................................... (.69) (.89) (.44) (.61) (.82) Net asset value, end of period............................ $10.57 $10.80 $9.00 $10.58 $10.81 Total Return+............................................. 4.4% 30.7% (5.6%) 3.6% 29.9% Ratios & Supplemental Data: Net assets, end of period (000's omitted)................. $96,243 $107,872 $4,190 $38,511 $35,662 Ratios to average net assets: Expenses**.............................................. .87% .79% .53%++ 1.62% 1.53% Net investment income**................................. 3.87% 4.51% 5.07%++ 3.12% 3.78% Portfolio turnover rate................................... 59% 88% 23% 59% 88% Average commission rate paid per share.................... $.0605 N/A N/A $.0605 N/A January 4, 1994* through December 31, 1994 Per Share Data: Net asset value, beginning of period...................... $10.00 Income (loss) from investment operations: Net investment income................................... .39 Net realized and unrealized gain (loss) on investments........................................... (1.01) Total from investment operations...................... (.62) Less distributions to shareholders from: Net investment income................................... (.38) Net realized gain on investments........................ -- Total distributions................................... (.38) Net asset value, end of period............................ $9.00 Total Return+............................................. (6.2%) Ratios & Supplemental Data: Net assets, end of period (000's omitted)................. $28,792 Ratios to average net assets: Expenses**.............................................. 1.27%++ Net investment income**................................. 4.19%++ Portfolio turnover rate................................... 23% 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 charge is 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 to average net assets would have been the following:
Class A Shares Class B Shares January 4, 1994* Year Ended through Year Ended December 31, December 31, December 31, 1996 1995 1994 1996 1995 Expenses................................................. 1.15% 1.18% 1.43% 1.89% 1.93% Net investment income.................................... 3.59% 4.12% 4.17% 2.85% 3.37% January 4, 1994* through December 31, 1994 Expenses................................................. 2.11% Net investment income.................................... 3.35%
See accompanying notes to financial statements. 34 EVERGREEN UTILITY FUND -- CLASS C AND Y SHARES (photo of power lines) Financial Highlights -- (continued)
Class C Shares Class Y Shares September 2, 1994* Year Ended through Year Ended December 31, December 31, December 31, 1996 1995 1994 1996 1995 Per Share Data: Net asset value, beginning of period............................ $10.82 $9.01 $9.33 $10.82 $9.00 Income (loss) from investment operations: Net investment income......................................... .33 .37 .12 .44 .47 Net realized and unrealized gain (loss) on investments........ .04 2.26 (.33) .03 2.27 Total from investment operations............................ .37 2.63 (.21) .47 2.74 Less distributions to shareholders: From net investment income.................................... (.33) (.37) (.11) (.43) (.47) In excess of net investment income............................ -- -- -- -- -- From net realized gain on investments......................... (.28) (.45) -- (.28) (.45) Total distributions......................................... (.61) (.82) (.11) (.71) (.92) Net asset value, end of period.................................. $10.58 $10.82 $9.01 $10.58 $10.82 Total Return+................................................... 3.5% 29.8% (2.2%) 4.5% 31.3% Ratios & Supplemental Data: Net assets, end of period (000's omitted)....................... $396 $246 $128 $2,000 $7,791 Ratios to average net assets: Expenses**.................................................... 1.63% 1.54% 1.94%++ .61% .54% Net investment income**....................................... 3.13% 3.76% 3.96%++ 4.01% 4.76% Portfolio turnover rate......................................... 59% 88% 23% 59% 88% Average commission rate paid per share.......................... $.0605 N/A N/A $.0605 N/A February 28, 1994* through December 31, 1994 Per Share Data: Net asset value, beginning of period............................ $9.51 Income (loss) from investment operations: Net investment income......................................... .37 Net realized and unrealized gain (loss) on investments........ (.50) Total from investment operations............................ (.13) Less distributions to shareholders: From net investment income.................................... (.37) In excess of net investment income............................ (.01) From net realized gain on investments......................... -- Total distributions......................................... (.38) Net asset value, end of period.................................. $9.00 Total Return+................................................... (1.6%) Ratios & Supplemental Data: Net assets, end of period (000's omitted)....................... $5,201 Ratios to average net assets: Expenses**.................................................... .40%++ Net investment income**....................................... 4.93%++ Portfolio turnover rate......................................... 23% 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. Contingent deferred sales charge is 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 to average net assets, exclusive of any applicable state expense limitations, would have been the following:
Class C Shares Class Y Shares September 2, 1994* Year Ended through Year Ended December 31, December 31, December 31, 1996 1995 1994 1996 1995 Expenses....................................................... 1.90% 1.93% 2.78% .89% .93% Net investment income.......................................... 2.86% 3.37% 3.12% 3.73% 4.37% February 28, 1994* through December 31, 1994 Expenses....................................................... 1.24% Net investment income.......................................... 4.09%
See accompanying notes to financial statements. 35 EVERGREEN VALUE FUND (photo of building) A Report From Your Portfolio Managers David Francis J. Donald Raines We are pleased to present the 1996 Annual Report for (photo of David Evergreen Value Fund. The Fund's total return of 19.2%* (Class Francis) Y, no-load shares) for the 12 months ended December 31, 1996, compares with the total return of 23.0% for the S&P 500 (photo of J. Reinvested Index** for that time. The total return at net Donald Raines) asset value for the Fund's Class A shares was 18.9%*. (Please see page 37 for additional performance information.) The stock market again rewarded investors during 1996, as the S&P 500 posted its eighth consecutive quarterly gain. The two most often cited reasons for the advance were the continued strong money flows into equity funds, and a growing confidence among investors that inflation will remain subdued and allow the Federal Reserve to avoid raising interest rates in the foreseeable future. While the Fund outperformed the S&P 500 during three of the four quarters in 1996, underperformance came during the second quarter when both sector weightings and individual security selection was somewhat out of step with the market. Strong performance resumed in the fourth quarter, and the Fund outpaced the S&P 500 by over 100 basis points during the period, capping off a strong year. The portfolio's returns can be attributed to individual stock selection as well as a few key sector weightings. An overweight in financials proved beneficial as the sector again posted impressive results. Illustrative of our financials holdings' success was Boatmen's Bancshares, Inc., which was acquired by NationsBank during the third quarter and returned 61.7% for the year. We continue to believe that the banking group represents an attractive investment opportunity. Consolidation and cost-cutting have been, and continue to be, the driving force in this industry. Thus, we will remain overweighted in this sector. Our emphasis within the energy sector, specifically natural gas and oil refinery stocks, also lifted portfolio returns. Representing the energy sector is Tosco Corp., a refiner and processor of petroleum products. Tosco jumped roughly 20% in one day on news of its impending acquisition of the refining and marketing interests of Unocal Corp. Tosco posted 109.2% return for the year. The supply and demand situation continues to favor the energy sector, as low inventory levels and a cold winter have made natural gas area particularly attractive. We believe this will result in a strong pricing environment which will benefit stock prices. Supporting our belief, we acquired shares of Ashland, Inc., as we feel oil refiners will also benefit from improving stock margins. Positions in the technology area, led by semiconductor companies, fueled portfolio performance as holdings such as IBM and Intel Corp. rose 67.2% and 131.2%, respectively. In addition, Nokia Corp., reported strong earnings, confirming our belief that the company's restructuring efforts are beginning to improve its earnings profile. Coming off of two outstanding years, we feel the market is likely headed toward more modest returns. Although possible economic softness in the first half exposes the market to a possible correction, long term we believe solid positive fundamentals remain in place. Individual stock selection becomes even more essential to portfolio success in this environment and we will look for opportunities to selectively add positions within the communication and consumer staples sectors. We will continue to focus on companies with strong positions within their respective industries, diverse distribution channels and consistent earnings growth as we feel they will help provide above-average, long-term rewards. 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 Fund's 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 S&P 500 Reinvested Index 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. 36 EVERGREEN VALUE FUND (photo of building) Results to Date Performance of $10,000 invested in the Evergreen Value Fund The graphs below compare a $10,000 investment in the Evergreen Value Fund (Class A, Class B, Class C and Class Y Shares) with a similar investment in the S&P 500 Index ("Index"). (four charts appear, plot points listed below) CLASS A 1-YEAR TOTAL RETURN=13.3% AVERAGE ANNUAL COMPOUND RETURN: 5-YEAR=12.4% 10-YEAR=12.9% 12/31/86 12/31/87 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 CLASS B 1-YEAR TOTAL RETURN=13.1% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION=13.8% 2/2/93* 12/31/93 12/31/94 12/31/95 12/31/96 CLASS C 1-YEAR TOTAL RETURN=17.1% AVERAGE ANNUAL COMPOUND RETURN SINCE INCEPTION=18.8% 9/2/94* 12/31/94 12/31/95 12/31/96 CLASS Y 1-YEAR TOTAL RETURN=19.2% AVERAGE ANNUAL COMPOUND RETURN: 5-YEAR=13.8% SINCE INCEPTION=16.1% 1/3/91* 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 *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 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. 37 EVERGREEN VALUE FUND (photo of building) Statement of Investments December 31, 1996
Shares Value Common Stocks -- 94.3% Aerospace & Defense -- .1% 112,000* Newport News Shipbuilding, Inc............................. $ 1,680,000 Automotive Equipment & Manufacturing -- 1.3% 626,500 Ford Motor Co................... 19,969,688 Banks -- 17.9% 400,000 Bank of Boston Corp............. 25,700,000 380,000 Bankers Trust New York Corp..... 32,775,000 410,000 Boatmen's Bancshares, Inc....... 26,445,000 811,800 Central Fidelity Banks, Inc..... 20,903,850 232,900 Chase Manhattan Corp............ 20,786,325 218,400 Citicorp CCI.................... 22,495,200 686,600 CoreStates Financial Corp....... 35,617,375 670,700 First Chicago NBD Corp.......... 36,050,125 248,500 First Security Corp............. 8,386,875 430,600 First Tennessee National Corp... 16,147,500 234,500 SouthTrust Corp................. 8,178,188 247,730 Summit Bancorp.................. 10,838,187 200,100 Union Planters Corp............. 7,803,900 272,127,525 Business Equipment & Services -- 4.5% 841,610* Cabletron Systems, Inc.......... 27,983,532 225,500* Cisco Systems, Inc.............. 14,347,438 172,300 International Business Machines Corp............................ 26,017,300 68,348,270 Chemical & Agricultural Products -- 3.6% 1,027,500 Cabot Corp...................... 25,815,938 366,200 Dow Chemical Co. (The).......... 28,700,925 54,516,863 Consumer Products & Services -- 4.8% 808,200 American Brands, Inc............ 40,106,925 296,100 Philip Morris Cos., Inc......... 33,348,262 73,455,187 Diversified Companies -- 6.4% 989,300 Frontier Corp................... 22,382,913 336,600 General Electric Co............. 33,281,325 171,200 Loews Corp...................... 16,135,600 560,000 Tenneco, Inc.................... 25,270,000 97,069,838 Shares Value
Electrical Equipment & Services -- 5.6% 1,365,000* ADT Ltd......................... $ 31,224,375 840,700* Applied Materials, Inc.......... 30,212,656 463,900 Varian Associates, Inc.......... 23,600,913 85,037,944 Energy -- 9.7% 123,800 Mobil Corp...................... 15,134,550 637,500 Sonat, Inc...................... 32,831,250 154,800 Texaco, Inc..................... 15,189,750 615,300 Tosco Corp...................... 48,685,612 700,000 Union Pacific Resource Group, Inc............................. 20,475,000 360,000 Unocal Corp..................... 14,625,000 146,941,162 Finance & Insurance -- 3.2% 396,400 ITT Hartford Group, Inc......... 26,757,000 529,800 Travelers/Aetna Property Casualty Cl. A.................. 18,741,675 40,000 UNUM Corp....................... 2,890,000 48,388,675 Food & Beverage Products -- 2.0% 740,750 American Stores Co.............. 30,278,156 Food Retailing & Distribution -- 3.4% 644,400 General Mills, Inc.............. 40,838,850 1,602,475* Shoney's, Inc................... 11,217,325 52,056,175 Healthcare Products & Services -- 8.1% 277,900 Bristol-Myers Squibb Co......... 30,221,625 348,525* OrNda Healthcorp................ 10,194,356 790,300 Pharmacia & Upjohn Inc.......... 31,315,637 1,354,300* Tenet Healthcare Corp........... 29,625,313 1,100,800* Value Health, Inc............... 21,465,600 122,822,531 Industrial Specialty Products & Services -- 1.0% 229,600 Aluminum Co. of America......... 14,637,000
Information Services & Technology -- 1.6% 190,400 Intel Corp...................... 24,930,500 38 EVERGREEN VALUE FUND (photo of building) Statement of Investments -- (continued) December 31, 1996
Shares Value
Common Stocks -- continued Manufacturing -- Distributing -- 1.4% 902,000* Teradyne, Inc................... $ 21,986,250 Oil -- 6.8% 342,900 Ashland Inc..................... 15,044,737 370,000 Kerr-McGee Corp................. 26,640,000 965,000 Ultramar Diamond Shamrock Corp............................ 30,518,125 841,350 Williams Cos., Inc. (The)....... 31,550,625 103,753,487 Telecommunication Services & Equipment -- 2.4% 646,600 Nokia Corp...................... 37,260,325 Transportation -- 3.3% 262,100 Burlington Northern Santa Fe........................ 22,638,888 322,900 Norfolk Southern Corp........... 28,253,750 50,892,638 Utilities -- 7.2% 465,000 CINergy Corp.................... 15,519,375 52,080 El Paso Natural Gas Co.......... 2,630,040 683,200 GTE Corp........................ 31,085,600 637,800 Houston Inds., Inc.............. 14,430,225 809,700 Illinova Corp................... 22,266,750 671,800 NICOR Inc....................... 24,016,850 109,948,840 Total Common Stocks (cost $1,199,747,522)........... 1,436,101,054
Convertible Preferred Stocks -- 1.7% Energy -- .8% 227,664 Unocal Corp., 144A.............. 12,976,848 Manufacturing -- Distributing -- .9% 98,200 Case Corp....................... 13,134,250 Total Convertible Preferred Stocks (cost $24,199,251).............. 26,111,098 Principal Amount Value Repurchase Agreement -- 2.2% $33,030,516 Donaldson, Lufkin & Jenrette Securities Corp., 6.50%, dated 12/31/96, due 1/2/97 -- collateralized by $104,066,000, U.S. Treasury notes, zero coupon due 5/15/97 to 11/14/24; value including accrued interest -- $27,935,696 and $4,913,000, U.S. Treasury Bonds, 8.00%, 11/15/21; value including accrued interest -- $5,755,549 (cost $33,030,516).................... $ 33,030,516
Total Investments -- (cost $1,256,977,289)... 98.2% 1,495,242,668 Other Assets and Liabilities -- net.... 1.8 27,993,963 Net Assets.............. 100.0% $1,523,236,631
* Non-income producing securities. Rule 144A securities are restricted as to resale to qualified institutional investors. See accompanying notes to financial statements. 39 EVERGREEN VALUE FUND (photo of building) Statement of Assets and Liabilities December 31, 1996
Assets: Investments at value (identified cost $1,256,977,289)....................................................... $1,495,242,668 Receivable for Fund shares sold............................................................................. 27,957,094 Dividends and interest receivable........................................................................... 3,708,019 Prepaid expenses............................................................................................ 50,613 Total assets.......................................................................................... 1,526,958,394 Liabilities: Payable for Fund shares repurchased......................................................................... 2,067,603 Accrued expenses............................................................................................ 674,263 Accrued advisory fee........................................................................................ 662,651 Distribution fee payable.................................................................................... 317,246 Total liabilities..................................................................................... 3,721,763 Net assets..................................................................................................... $1,523,236,631 Net assets consist of: Paid-in capital............................................................................................. $1,285,758,755 Undistributed net investment income......................................................................... 292,413 Distribution in excess of net realized gain on investment transactions...................................... (1,079,916) Net unrealized appreciation of investments.................................................................. 238,265,379 Net assets............................................................................................... $1,523,236,631 Calculation of net asset value and maximum offering price per share: Class A Shares ($328,028,184/15,943,945 shares of beneficial interest outstanding).......................... $ 20.57 Sales charge -- 4.75% of offering price..................................................................... 1.03 Maximum offering price................................................................................ $ 21.60 Class B Shares ($197,410,901/9,594,642 shares of beneficial interest outstanding)........................... $ 20.58 Class C Shares ($1,458,241/70,941 shares of beneficial interest outstanding)................................ $ 20.56 Class Y Shares ($996,339,305/48,435,529 shares of beneficial interest outstanding).......................... $ 20.57
See accompanying notes to financial statements. 40 EVERGREEN VALUE FUND (photo of building) Statement of Operations Year Ended December 31, 1996
Investment income: Dividends (net of foreign withholding taxes of $23,070)...................................... $ 34,250,957 Interest..................................................................................... 2,988,223 Total investment income................................................................ 37,239,180 Expenses: Advisory fee................................................................................. $6,950,730 Administrative personnel and service fee..................................................... 670,060 Distribution fee -- Class A Shares........................................................... 767,254 Distribution fee -- Class B Shares........................................................... 1,255,600 Shareholder services fee -- Class B Shares................................................... 418,533 Distribution fee -- Class C Shares........................................................... 8,706 Shareholder services fee -- Class C Shares................................................... 2,902 Transfer agent fee........................................................................... 631,695 Custodian fee................................................................................ 328,227 Reports and notices to shareholders.......................................................... 294,326 Registration and filing fees................................................................. 166,097 Professional fees............................................................................ 87,113 Trustees' fees and expenses.................................................................. 17,961 Insurance.................................................................................... 17,785 Miscellaneous................................................................................ 23,242 Total expenses......................................................................... 11,640,231 Net investment income........................................................................... 25,598,949 Net realized and unrealized gain on investments: Net realized gain on investment transactions................................................. 216,135,176 Net increase in unrealized appreciation of investments....................................... 11,014,356 Net gain on investments......................................................................... 227,149,532 Net increase in net assets resulting from operations............................................ $252,748,481
See accompanying notes to financial statements. 41 EVERGREEN VALUE FUND (photo of building) Statement of Changes in Net Assets
Year Ended December 31, 1996 1995 Increase (decrease) in net assets: Operations: Net investment income................................................................. $ 25,598,949 $ 29,177,545 Net realized gain on investment transactions.......................................... 216,135,176 50,649,714 Net change in unrealized appreciation of investments........................................................................ 11,014,356 196,633,111 Net increase in net assets resulting from operations............................... 252,748,481 276,460,370 Distributions to shareholders: From investment income: Class A Shares........................................................................ (5,758,586) (6,221,428) Class B Shares........................................................................ (1,939,188) (2,281,745) Class C Shares........................................................................ (14,165) (12,030) Class Y Shares........................................................................ (19,538,457) (19,218,021) Total distributions from net investment income..................................... (27,250,396) (27,733,224) From realized gain on investments: Class A Shares........................................................................ (45,832,278) (12,319,599) Class B Shares........................................................................ (27,532,324) (5,935,694) Class C Shares........................................................................ (204,292) (33,758) Class Y Shares........................................................................ (141,841,285) (32,229,160) Total distributions from net realized gain on investments.......................... (215,410,179) (50,518,211) In excess of net realized gain on investments: Class A Shares........................................................................ (229,771) -- Class B Shares........................................................................ (138,028) -- Class C Shares........................................................................ (1,024) -- Class Y Shares........................................................................ (711,093) -- Total distributions in excess of net realized gain on investments.................. (1,079,916) -- Total distributions to shareholders................................................ (243,740,491) (78,251,435) Fund share transactions: Proceeds from shares sold............................................................. 396,972,164 309,533,208 Proceeds from acquisition of ABT Growth and Income Trust.............................. -- 63,356,435 Proceeds from acquisition of FFB Lexicon Select Value Fund............................ 95,883,824 -- Proceeds from acquisition of FFB Equity Fund.......................................... 14,077,973 -- Proceeds from reinvestment of distributions........................................... 187,361,591 66,652,380 Payments for shares redeemed.......................................................... (375,117,185) (243,317,457) Net increase resulting from Fund share transactions................................ 319,178,367 196,224,566 Net increase in net assets...................................................... 328,186,357 394,433,501 Net assets: Beginning of year..................................................................... 1,195,050,274 800,616,773 End of year (including undistributed net investment income of $292,413 and $1,943,860, respectively)....................................................................... $1,523,236,631 $1,195,050,274
See accompanying notes to financial statements. 42
EVERGREEN VALUE FUND -- CLASS A SHARES (photo of building) Financial Highlights Year Ended December 31, 1996 1995 1994 1993 1992 Per Share Data: Net asset value, beginning of year......................................... $20.45 $16.62 $17.63 $17.11 $17.08 Income from investment operations: Net investment income.................................................... .38 .55 .52 .47 .44 Net realized and unrealized gain (loss) on investments................... 3.49 4.69 (.20) 1.10 .89 Total from investment operations....................................... 3.87 5.24 .32 1.57 1.33 Less distributions to shareholders from: Net investment income.................................................... (.41) (.51) (.51) (.47) (.43) Net realized gain on investments......................................... (3.32) (.90) (.82) (.58) (.87) Distributions in excess of net realized gain on investments.............. (.02) -- -- -- -- Total distributions.................................................... (3.75) (1.41) (1.33) (1.05) (1.30) Net asset value, end of year............................................... $20.57 $20.45 $16.62 $17.63 $17.11 Total Return+.............................................................. 18.9% 31.8% 1.9% 9.3% 8.0% Ratios & Supplemental Data: Net assets, end of year (in millions)...................................... $328 $292 $189 $190 $169 Ratios to average net assets: Expenses................................................................. .91% .90% .93% .99% 1.01%* Net investment income.................................................... 1.77% 2.78% 2.96% 2.63% 2.37%* Portfolio turnover rate.................................................... 91% 53% 70% 46% 56% Average commission rate paid per share..................................... $.0588 N/A N/A N/A N/A
+ Initial sales charge is not reflected. * 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.............................................................................. 1.02% Net investment income................................................................. 2.36%
See accompanying notes to financial statements. 43
EVERGREEN VALUE FUND -- CLASS B AND C SHARES (photo of building) Financial Highlights -- (continued) Class B Shares Class C Shares February 2, 1993* Year Ended through Year Ended December 31, December 31, December 31, 1996 1995 1994 1993 1996 1995 Per Share Data: Net asset value, beginning of period.......................... $20.45 $16.62 $17.63 $17.24 $20.44 $16.61 Income (loss) from investment operations: Net investment income........... .22 .39 .42 .35 .22 .39 Net realized and unrealized gain (loss) on investments......... 3.50 4.70 (.20) 1.01 3.50 4.70 Total from investment operations.................. 3.72 5.09 .22 1.36 3.72 5.09 Less distributions to shareholders from: Net investment income........... (.25) (.36) (.41) (.35 ) (.26 ) (.36 ) Net realized gain on investments................... (3.32) (.90) (.82) (.58 ) (3.32 ) (.90 ) Distributions in excess of net investment income............. -- -- -- (.04 ) -- -- Distributions in excess of net realized gain on investments................... (.02) -- -- -- (.02 ) -- Total distributions........... (3.59) (1.26) (1.23) (.97 ) (3.60 ) (1.26 ) Net asset value, end of period........................ $20.58 $20.45 $16.62 $17.63 $20.56 $20.44 Total Return+..................... 18.1% 30.9% 1.3% 8.0% 18.1% 30.9% Ratios & Supplemental Data: Net assets, end of period (000's omitted)........................ $197,411 $141,072 $104,297 $59,953 $1,458 $811 Ratios to average net assets: Expenses........................ 1.66% 1.65% 1.53% 1.48% ++ 1.67% 1.65% Net investment income........... 1.01% 2.04% 2.36% 2.09% ++ 1.00% 2.03% Portfolio turnover rate........... 91% 53% 70% 46% 91% 53% Average commission rate paid per share........................... $.0588 N/A N/A N/A $.0588 N/A September 2, 1994* through December 31, 1994 Per Share Data: Net asset value, beginning of period.......................... $18.28 Income (loss) from investment operations: Net investment income........... .19 Net realized and unrealized gain (loss) on investments......... (.81 ) Total from investment operations.................. (.62 ) Less distributions to shareholders from: Net investment income........... (.19 ) Net realized gain on investments................... (.82 ) Distributions in excess of net investment income............. (.04 ) Distributions in excess of net realized gain on investments................... -- Total distributions........... (1.05 ) Net asset value, end of period........................ $16.61 Total Return+..................... (3.4% ) Ratios & Supplemental Data: Net assets, end of period (000's omitted)........................ $485 Ratios to average net assets: Expenses........................ 1.68% ++ Net investment income........... 2.16% ++ Portfolio turnover rate........... 70% 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. Contingent deferred sales charges are not reflected. ++ Annualized. See accompanying notes to financial statements. 44
EVERGREEN VALUE FUND -- CLASS Y SHARES (photo of building) Financial Highlights -- (continued) Year Ended December 31, 1996 1995 1994 1993 Per Share Data: Net asset value, beginning of year...................................... $20.45 $16.61 $17.63 $17.11 Income from investment operations: Net investment income................................................. .44 .57 .56 .52 Net realized and unrealized gain (loss) on investments...................................................... 3.49 4.72 (.20) 1.12 Total from investment operations.................................... 3.93 5.29 .36 1.64 Less distributions to shareholders from: Net investment income................................................. (.47) (.55) (.56) (.52) Net realized gain on investments...................................... (3.32) (.90) (.82) (.58) Distributions in excess of net investment income...................... -- -- -- (.02) Distributions in excess of net realized gain on investments........... (.02) -- -- -- Total distributions................................................. (3.81) (1.45) (1.38) (1.12) Net asset value, end of year.......................................... $20.57 $20.45 $16.61 $17.63 Total Return............................................................ 19.2% 32.2% 2.1% 9.7% Ratios & Supplemental Data: Net assets, end of year (in millions)................................... $996 $761 $507 $463 Ratios to average net assets: Expenses.............................................................. .66% .65% .68% .65% Net investment income................................................. 2.02% 3.02% 3.21% 2.98% Portfolio turnover rate................................................. 91% 53% 70% 46% Average commission rate paid per share.................................. $.0588 N/A N/A N/A 1992 Per Share Data: Net asset value, beginning of year...................................... $17.08 Income from investment operations: Net investment income................................................. .49 Net realized and unrealized gain (loss) on investments...................................................... .90 Total from investment operations.................................... 1.39 Less distributions to shareholders from: Net investment income................................................. (.49) Net realized gain on investments...................................... (.87) Distributions in excess of net investment income...................... -- Distributions in excess of net realized gain on investments........... -- Total distributions................................................. (1.36) Net asset value, end of year.......................................... $17.11 Total Return............................................................ 8.3% Ratios & Supplemental Data: Net assets, end of year (in millions)................................... $326 Ratios to average net assets: Expenses.............................................................. .68%** Net investment income................................................. 2.90%** Portfolio turnover rate................................................. 56% Average commission rate paid per share.................................. N/A 1992
* Commencement of class operations. ** 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................................................................................. .69% Net investment income.................................................................... 2.89%
See accompanying notes to financial statements. 45 Combined Notes to Financial Statements NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS The Evergreen Growth and Income Funds (the "Funds") are separate open-end management investment companies registered under the Investment Company Act of 1940, as amended (the "Act"). The Evergreen Growth and Income Funds included herein consist of Evergreen Growth and Income Fund ("Growth and Income"), Evergreen Small Cap Equity Income Fund ("Small Cap"), Evergreen Utility Fund ("Utility") and Evergreen Value Fund ("Value"). Growth and Income's investment objective is to achieve a return composed of capital appreciation and current income by investing in the securities of companies which are undervalued in the marketplace. Small Cap's investment objective is to achieve a return consisting of current income and capital appreciation in the value of its shares. Utility's investment objective is to achieve a return consisting of high current income and moderate capital appreciation by investing in a diversified portfolio of equity and debt securities of utility companies. Value's investment objective is long-term capital appreciation with current income as a secondary objective. NOTE 2 -- ACQUISITION INFORMATION Effective January 1, 1996, First Fidelity Bancorporation ("First Fidelity") merged with First Union National Bank of North Carolina ("First Union"). Effective on the close of business on January 19, 1996, Growth and Income acquired substantially all of the net assets of FFB Lexicon Capital Appreciation Fund, an open-end investment company registered under the Act valued at $159,432,723. The net assets were exchanged through a non-taxable exchange for 8,631,861 Class Y shares of Growth and Income valued at $18.47 per share. The acquired net assets consisted primarily of portfolio securities with unrealized appreciation of $31,537,903. The aggregate net assets of Growth and Income upon the acquisition were $375,936,243. Effective on the close of business on January 19, 1996, Value acquired substantially all of the net assets of FFB Lexicon Select Value Fund and FFB Equity Fund, open-end investment companies registered under the Act valued at $95,883,824 and $14,077,973, respectively. The net assets of these Funds were exchanged through a non-taxable exchange for 4,720,676 and 692,924 Class Y shares of Value valued at $20.31 per share. The acquired net assets consisted primarily of portfolio securities with unrealized appreciation of $12,858,729 and $2,218,691, respectively. The aggregate net assets of Value upon the acquisitions were $1,310,431,335. In addition, on June 30, 1995, Value acquired substantially all of the net assets of ABT Growth and Income Trust, an open-end investment company registered under the Act valued at $63,356,435. The net assets were exchanged through a non-taxable exchange for 3,289,535 Class A Shares of Value valued at $19.26 per share. The acquired net assets consisted primarily of portfolio securities with unrealized appreciation of $10,278,721. The aggregate net assets of Value upon the acquisition were $935,777,632. On June 30, 1995, Utility acquired substantially all of the net assets of ABT Utility Income Fund, Inc., an open-end investment company registered under the Act valued at $99,162,259. The net assets were exchanged through a non-taxable exchange for 10,160,068 Class A shares of Utility valued at $9.76 per share. The acquired net assets consisted primarily of portfolio securities with unrealized appreciation of $6,321,522. The aggregate net assets of Utility upon the acquisition were $140,913,190. NOTE 3 -- 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 securities traded in the over-the-counter market are valued at the mean between the last 46 Combined Notes to Financial Statements NOTE 3 -- SIGNIFICANT ACCOUNTING POLICIES -- continued 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 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 monthly for Utility and quarterly for Growth and Income, Small Cap and Value. 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. To the extent these differences are permanent in nature, such amounts are reclassified within the components of net assets. As of December 31, 1996, the following reclassifications have been made to increase (decrease) such accounts with offsetting adjustments made to paid-in capital.
Distribution Undistributed in Excess of Net Investment Realized Gain Income on Investments Growth and Income.. ($17,263) $ 17,263 Utility............ ($ 3,135) $ 3,135
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. Capital losses incurred after October 31 within a fund's fiscal year are deemed to arise on the first business day of the following fiscal year for tax purposes. In its prior fiscal year, Small Cap incurred and had elected to defer such capital losses of $11,493 to the current fiscal year. 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. 47 Combined Notes to Financial Statements NOTE 3 -- SIGNIFICANT ACCOUNTING POLICIES -- continued Unamortized Organization Expenses -- The expenses of Small Cap incurred in connection with its organization are being deferred and amortized over a period of benefit not to exceed five years from the date it commenced operations. Use of Estimates -- The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. NOTE 4 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Investment Advisory Agreements -- First Union is entitled to an annual fee of .50 of 1% of Utility's and Value's average daily net assets pursuant to each Fund's investment advisory agreement. First Union voluntarily waived $396,483 of its fee for Utility for the year ended December 31, 1996. Pursuant to an agreement with Growth and Income's and Small Cap'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 Growth and Income's and Small Cap's average daily net assets, respectively, in accordance with the following schedule: First $750 million 1.00% Next $250 million 0.90% Over $1 billion 0.80%
Evergreen Asset has agreed to reimburse Small Cap to the extent that the Fund's operating expenses (including the investment advisory fee and amortization of organizational expenses but excluding interest, taxes, brokerage commissions, 12b-1 distribution and shareholder services fees and extraordinary expenses) exceed 1.50% of its average daily net assets until the Fund's net assets reach $15 million. Evergreen Asset waived all of its advisory fee aggregating $63,333 for the year ended December 31, 1996, and reimbursed other expenses amounting to $133,406. Additionally, for Growth and Income, Evergreen Asset voluntarily waived $5,000 of its advisory fee. First Union and Evergreen Asset can modify or terminate voluntary waivers at any time. Lieber & Company, an affiliate of First Union, is the investment sub-adviser to Growth and Income and Small Cap 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 transactions executed during the year ended December 31, 1996, Growth and Income and Small Cap incurred brokerage commissions of $429,888 and $13,246, respectively, with Lieber & Company. Lieber & Company is reimbursed by Evergreen Asset, at no additional expense to the Funds, for its cost of providing investment advisory services. Administration Agreement -- Evergreen Asset furnishes Growth and Income and Small Cap 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 Fund's sub-administrator through December 31, 1996. As sub-administrator, Furman Selz provided the officers of the Funds. For Growth and Income and Small Cap, Furman Selz' fee was paid by Evergreen Asset and was not a fund expense. 48 Combined Notes to Financial Statements NOTE 4 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES -- continued Evergreen Asset is also Utility's and Value's administrator and Furman Selz was sub-administrator through December 31, 1996. Evergreen Asset's and Furman Selz' fees for Utility and Value 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 is 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 Janaury 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, Growth and Income and Small Cap have entered into distribution agreements with Evergreen Keystone Distributor, Inc. ("EKD") (formerly Evergreen Funds Distributor, Inc.), a subsidiary of Furman Selz, whereby Growth and Income and Small Cap will compensate EKD for its services at a rate which may not exceed an annual fee of .25 of 1% of its Class A Shares average daily net assets and an annual fee of 1% of Class B and Class C Share's 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 Funds' Class B and Class C Shares. In connection with their Plans, Utility and Value have entered into a distribution agreement with EKD whereby they 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 B and C shareholders. Utility and Value have entered into a Shareholder Services Agreement with FUBS whereby they will compensate up to an annual fee of .25 of 1% of Class B and C average net assets for certain services provided to shareholders. 49 Combined Notes to Financial Statements NOTE 4 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES -- continued 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 Growth and Income $158,858 Small Cap 340 Utility 7,857 Value 56,609
Organizational Expenses -- Organizational expenses for Utility were initially borne by the Fund's prior administrator. Utility agreed to reimburse such expenses during the five-year period following its commencement of operations. As a result of a change in the administration agreement, First Union purchased the remaining unreimbursed organizational expenses from the prior administrator. As of, and for the year ended December 31, 1996, Utility paid and has a remaining liability of $19,269 and $13,766, respectively. 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 Growth and Income and Value, 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 $11,011 and $110,847 for Growth and Income and Value, respectively. NOTE 5 -- 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% 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 4) and have exclusive voting rights with respect to their distribution plans. 50 Combined Notes to Financial Statements NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
Year Ended Year Ended* December 31, 1996 December 31, 1995 Growth and Income Shares Amount Shares Amount Class A Shares sold..................................................... 3,719,917 $76,959,622 1,049,648 $ 17,981,665 Shares issued on reinvestment of distributions.................. 69,271 1,546,893 29,563 545,083 Shares redeemed................................................. (1,044,500) (21,729,967) (59,282) (1,048,468) Net increase.................................................... 2,744,688 56,776,548 1,019,929 17,478,280 Class B Shares sold..................................................... 8,914,571 185,314,202 2,516,682 43,094,733 Shares issued on reinvestment of distributions.................. 160,953 3,613,927 66,937 1,234,636 Shares redeemed................................................. (646,461) (13,411,376) (97,308) (1,763,506) Net increase.................................................... 8,429,063 175,516,753 2,486,311 42,565,863 Class C Shares sold..................................................... 348,918 7,294,757 106,185 1,808,328 Shares issued on reinvestment of distributions.................. 5,130 115,108 2,716 50,033 Shares redeemed................................................. (29,065) (597,615) (5,395) (96,507) Net increase.................................................... 324,983 6,812,250 103,506 1,761,854 Class Y Shares sold..................................................... 9,899,164 200,509,060 3,937,086 68,368,276 Shares issued in acquisition of FFB Lexicon Capital Appreciation Fund.......................................................... 8,631,861 159,432,723 -- -- Shares issued on reinvestment of distributions.................. 349,251 7,729,161 211,697 3,882,512 Shares redeemed................................................. (6,820,349) (135,786,868) (1,658,100) (27,997,743) Net increase.................................................... 12,059,927 231,884,076 2,490,683 44,253,045 Total net increase resulting from Fund share transactions.................................................. 23,558,661 $470,989,627 6,100,429 $106,059,042
* 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. 51 Combined Notes to Financial Statements NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
Year Ended Year Ended December 31, 1996 December 31, 1995* Small Cap Shares Amount Shares Amount Class A Shares sold...................................................................... 23,318 $ 285,774 20,272 $ 210,173 Shares issued on reinvestment of distributions................................... 1,564 19,575 1,218 13,667 Shares redeemed.................................................................. (17,926) (213,193) (2,789) (30,712) Net increase..................................................................... 6,956 92,156 18,701 193,128 Class B Shares sold...................................................................... 27,963 341,494 24,055 248,049 Shares issued on reinvestment of distributions................................... 2,883 36,358 1,305 14,752 Shares redeemed.................................................................. (966) (11,697) (2,383) (26,158) Net increase..................................................................... 29,880 366,155 22,977 236,643 Class C Shares sold...................................................................... 3,956 48,265 1,928 19,533 Shares issued on reinvestment of distributions................................... 136 1,697 -- -- Shares redeemed.................................................................. (1,838) (22,125) 116 1,317 Net increase..................................................................... 2,254 27,837 2,044 20,850 Class Y Shares sold...................................................................... 289,906 3,628,792 93,274 973,677 Shares issued on reinvestment of distributions................................... 25,358 316,899 25,655 285,901 Shares redeemed.................................................................. (75,598) (912,038) (76,033) (807,281) Net increase..................................................................... 239,666 3,033,653 42,896 452,297 Total net increase resulting from Fund share transactions........................ 278,756 $3,519,801 86,618 $ 902,918
* For Class A and Class B shares, the Fund share transaction activity reflects the period January 3, 1995, (commencement of class operations) through December 31, 1995. For Class C shares, the Fund share transaction activity reflects the period January 24, 1995, (commencement of class operations) through December 31, 1995. 52 Combined Notes to Financial Statements NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
Year Ended Year Ended December 31, 1996 December 31, 1995 Utility Shares Amount Shares Amount Class A Shares sold......................................................... 246,512 $ 2,626,118 190,219 $ 1,885,138 Shares issued in acquisition of ABT Utility Income Fund, Inc.................................................. -- -- 10,160,068 99,162,259 Shares issued on reinvestment of distributions...................... 478,287 5,051,093 505,736 5,335,896 Shares redeemed..................................................... (1,609,448) (16,984,094) (1,333,516) (13,551,249) Net increase (decrease)............................................. (884,649) (9,306,883) 9,522,507 92,832,044 Class B Shares sold......................................................... 787,800 8,401,385 506,602 4,989,454 Shares issued on reinvestment of distributions...................... 183,056 1,935,353 222,027 2,287,981 Shares redeemed..................................................... (630,402) (6,652,890) (626,919) (6,110,450) Net increase........................................................ 340,454 3,683,848 101,710 1,166,985 Class C Shares sold......................................................... 25,812 274,673 10,650 109,078 Shares issued on reinvestment of distributions...................... 1,963 20,723 1,497 15,571 Shares redeemed..................................................... (13,100) (135,909) (3,614) (37,152) Net increase........................................................ 14,675 159,487 8,533 87,497 Class Y Shares sold......................................................... 106,165 1,120,499 184,329 1,826,095 Shares issued on reinvestment of distributions...................... 7,089 74,971 8,025 84,251 Shares redeemed..................................................... (644,560) (6,607,014) (49,697) (487,291) Net increase (decrease)............................................. (531,306) (5,411,544) 142,657 1,423,055 Total net increase (decrease) resulting from Fund share transactions...................................................... (1,060,826) ($10,875,092) 9,775,407 $95,509,581
53 Combined Notes to Financial Statements NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
Year Ended Year Ended December 31, 1996 December 31, 1995 Value Shares Amount Shares Amount Class A Shares sold................................................... 1,109,850 $ 23,895,251 628,945 $ 12,018,651 Shares issued in acquisition of ABT Growth and Income Trust... -- -- 3,289,535 63,356,435 Shares issued on reinvestment of distributions................ 2,371,895 49,562,452 883,572 17,771,730 Shares redeemed............................................... (1,836,296) (39,736,035) (1,863,758) (35,747,673) Net increase.................................................. 1,645,449 33,721,668 2,938,294 57,399,143 Class B Shares sold................................................... 2,197,426 47,442,303 951,887 18,428,845 Shares issued on reinvestment of distributions................ 1,374,236 28,693,188 394,396 7,933,916 Shares redeemed............................................... (873,740) (18,943,891) (723,565) (13,658,563) Net increase.................................................. 2,697,922 57,191,600 622,718 12,704,198 Class C Shares sold................................................... 38,761 832,827 15,721 307,770 Shares issued on reinvestment of distributions................ 10,328 215,421 2,274 45,762 Shares redeemed............................................... (17,818) (377,207) (7,532) (149,074) Net increase.................................................. 31,271 671,041 10,463 204,458 Class Y Shares sold................................................... 15,195,754 324,801,783 14,762,272 278,777,942 Shares issued in acquisition of FFB Lexicon Select Value Fund........................................................ 4,720,676 95,883,824 -- -- Shares issued in acquisition of FFB Equity Fund............... 692,924 14,077,973 -- -- Shares issued on reinvestment of distributions................ 5,208,388 108,890,530 2,044,972 40,900,972 Shares redeemed............................................... (14,584,293) (316,060,052) (10,121,343) (193,762,147) Net increase.................................................. 11,233,449 227,594,058 6,685,901 125,916,767 Total net increase resulting from Fund share transactions..... 15,608,091 $ 319,178,367 10,257,376 $ 196,224,566
NOTE 6 -- 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 Growth and Income............... $ 238,741,288 $ 61,805,548 Small Cap....................... 6,550,736 3,042,710 Utility......................... 83,136,428 96,084,227 Value........................... 1,210,509,734 1,274,623,554
54 Combined Notes to Financial Statements NOTE 6 -- INVESTMENT TRANSACTIONS -- continued On December 31, 1996, the composition of unrealized appreciation and depreciation of investment securities based on the aggregate cost of investments for federal tax purposes was as follows:
Appreciation Depreciation Net Tax Cost Growth and Income...... $184,455,990 $ 7,157,090 $177,298,900 $ 605,787,421 Small Cap.............. 1,588,227 83,235 1,504,992 8,571,352 Utility................ 19,488,289 1,534,140 17,954,149 118,597,731 Value.................. 257,436,859 20,707,007 236,729,852 1,258,512,816
NOTE 7 -- FINANCING AGREEMENT Effective July 3, 1996, a financing agreement was put in place between all of the Evergreen Funds and their custodian, 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 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. State Street acts as agent for the Banks, and as agent is entitled to a fee of $15,000 which is allocated to all of the Evergreen 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 deferred 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 $6,332, $3,391, $3,548 and $32,133 for Growth and Income, Small Cap, Utility and Value, respectively. 55 Independent Auditors' Report TO THE TRUSTEES AND SHAREHOLDERS OF EVERGREEN GROWTH AND INCOME FUND EVERGREEN SMALL CAP EQUITY INCOME FUND EVERGREEN UTILITY FUND EVERGREEN VALUE FUND We have audited the accompanying statements of assets and liabilities, including the statements of investments, for the Evergreen Growth and Income 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 Growth and Income 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 Small Cap Equity Income 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 October 1, 1993 (commencement of operations) through December 31, 1993 were audited by other auditors, whose report thereon dated February 15, 1996 was unqualified. Evergreen Utility Fund -- statement of operations for the year ended December 31, 1996, statements of changes in net assets for each of the years in the two-year period then ended and the financial highlights for each of the years or periods from January 4, 1994 (commencements of operations) through December 31, 1996. Evergreen Value 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. 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 according with generally accepted accounting 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 managements, 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 Growth and Income Fund, Evergreen Small Cap Equity Income Fund, Evergreen Utility Fund and Evergreen Value 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 the generally accepted accounting principles. KPMG PEAT MARWICK LLP Pittsburgh, Pennsylvania February 19, 1997 56 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 * Trustees for Growth and Income and Small Cap only. + Trustee Emeritus FEDERAL INCOME TAX STATUS OF DISTRIBUTIONS (UNAUDITED) During the fiscal year ended December 31, 1996, Growth and Income, Small Cap, Utility and Value paid $8,393,650, $278,035, $2,982,605 and $189,689,078, respectively, of net long term capital gain distributions. For corporate taxpayers, 94.50%, 90.56%, 99.06% and 64.56% of the ordinary income distributions paid during the fiscal year ended December 31, 1996, by Growth and Income, Small Cap, Utility and Value, respectively, qualified for corporate dividends received deduction. This brochure must be preceeded or accompanied by a prospectus of an Evergreen fund contained herein. The prospectus contains more complete information, including fees and expenses, and should be read carefully before investing or sending money. NOT May lose value FDIC No bank guarantee INSURED Evergreen Keystone Distributor, Inc. 46797 450390 2/97 -----END PRIVACY-ENHANCED MESSAGE-----