EVERGREEN INCOME ADVANTAGE FUND
SCHEDULE OF INVESTMENTS
continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2008 (unaudited)
|
At July 31, 2008, the Fund had the following credit default swap contracts outstanding:
Expiration
|
|
Counterparty
|
|
Reference Debt
Obligation/Index
|
|
Notional
Amount
|
|
Fixed
Payments
Made by
the Fund
|
|
Frequency
of Payments
Made
|
|
Unrealized
Gain (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
09/20/2013
|
|
UBS
|
|
Motorola, 6.05%, 09/01/2025
|
|
$
|
665,000
|
|
3.02%
|
|
Quarterly
|
|
$
|
2,201
|
|
09/20/2013
|
|
Lehman Brothers
|
|
Pulte, 5.25%, 01/15/2014
|
|
|
1,105,000
|
|
1.47%
|
|
Quarterly
|
|
|
(95
|
)
|
09/20/2013
|
|
Deutsche
|
|
Pulte, 5.25%, 01/15/2014
|
|
|
1,080,000
|
|
3.25%
|
|
Quarterly
|
|
|
(2,259
|
)
|
09/20/2013
|
|
UBS
|
|
Motorola, 6.05%, 09/01/2025
|
|
|
1,295,000
|
|
2.97%
|
|
Quarterly
|
|
|
7,031
|
|
09/20/2013
|
|
Lehman Brothers
|
|
Pulte, 5.25%, 01/15/2014
|
|
|
1,995,000
|
|
2.86%
|
|
Quarterly
|
|
|
27,040
|
|
Expiration
|
|
Counterparty
|
|
Reference Debt
Obligation/Index
|
|
Notional
Amount
|
|
Fixed
Payments
Received by
the Fund
|
|
Frequency
of Payments
Received
|
|
Unrealized
Gain (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/20/2012
|
|
UBS
|
|
Dow Jones CDX,
|
|
$
|
48,350
|
|
3.75%
|
|
Quarterly
|
|
$
|
(1,053
|
)
|
|
|
|
|
North American
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Grade Index
|
|
|
|
|
|
|
|
|
|
|
|
06/20/2013
|
|
JPMorgan Chase & Co.
|
|
Dow Jones CDX,
|
|
|
8,040,000
|
|
5.00%
|
|
Quarterly
|
|
|
(267,555
|
)
|
|
|
|
|
North American
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Grade Index
|
|
|
|
|
|
|
|
|
|
|
|
09/20/2013
|
|
Lehman Brothers
|
|
Centex, 5.25%, 06/15/2015
|
|
|
1,105,000
|
|
4.50%
|
|
Quarterly
|
|
|
(8,115
|
)
|
09/20/2013
|
|
Deutsche
|
|
Centex, 5.25%, 06/15/2015
|
|
|
1,080,000
|
|
4.75%
|
|
Quarterly
|
|
|
2,156
|
|
09/20/2013
|
|
Lehman Brothers
|
|
Motorola, 6.05%, 09/01/2025
|
|
|
1,550,000
|
|
2.39%
|
|
Quarterly
|
|
|
(42,616
|
)
|
09/20/2013
|
|
Lehman Brothers
|
|
Centex, 5.25%, 06/15/2015
|
|
|
1,995,000
|
|
3.85%
|
|
Quarterly
|
|
|
(63,119
|
)
|
12/13/2049
|
|
Lehman Brothers
|
|
CMBX North America AJ Index
|
|
|
565,000
|
|
0.08%
|
|
Quarterly
|
|
|
(13,733
|
)
|
12/13/2049
|
|
UBS
|
|
CMBX North America AAA Index
|
|
|
1,000,000
|
|
0.08%
|
|
Quarterly
|
|
|
74,655
|
|
12/13/2049
|
|
Lehman Brothers
|
|
CMBX North America AJ Index
|
|
|
1,050,000
|
|
1.47%
|
|
Quarterly
|
|
|
(66,367
|
)
|
12/13/2049
|
|
Goldman Sachs
|
|
CMBX North America AJ Index
|
|
|
1,250,000
|
|
1.47%
|
|
Quarterly
|
|
|
5,304
|
|
12/13/2049
|
|
Deutsche
|
|
CMBX North America AJ Index
|
|
|
800,000
|
|
1.47%
|
|
Quarterly
|
|
|
(418
|
)
|
On July 31, 2008, the aggregate cost of securities for federal income tax purposes was $1,481,450,174. The gross unrealized appreciation and depreciation on securities based on tax cost was $2,557,750 and $130,072,734, respectively, with a net unrealized depreciation of $127,514,984.
Valuation of investments
Portfolio debt securities acquired with more than 60 days to maturity are fair valued using matrix pricing methods determined by an independent pricing service which takes into consideration such factors as similar security prices, yields, maturities, liquidity and ratings. Securities for which valuations are not readily available from an independent pricing service may be
valued by brokers which use prices provided by market makers or estimates of market value obtained from yield data relating to investments or securities with similar characteristics.
Listed equity securities are usually valued at the last sales price or official closing price on the national securities exchange where the securities are principally traded.
Short-term securities with remaining maturities of 60 days or less at the time of purchase are valued at amortized cost, which approximates market value.
Investments in open-end mutual funds are valued at net asset value. Securities for which market quotations are not readily available or not reflective of current market value are valued at fair value as determined by the investment advisor in good faith, according to procedures approved by the Board of Trustees.
When-issued and delayed delivery transactions
The Fund records when-issued or delayed delivery securities as of trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked-to-market daily and begin earning interest on the settlement date. Losses may occur on these
transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Loans
The Fund may purchase loans through an agent, by assignment from another holder of the loan or as a participation interest in another holder’s portion of the loan. Loans are purchased on a when-issued or delayed delivery basis. Interest income is accrued based on the terms of the securities. Fees earned on loan purchasing activities are recorded as income when earned.
Loans involve interest rate risk, liquidity risk and credit risk, including the potential default or insolvency of the borrower.
As of July 31, 2008, the Fund had unfunded loan commitments of $33,052,809.
Securities lending
The Fund may lend its securities to certain qualified brokers in order to earn additional income. The Fund receives compensation in the form of fees or interest earned on the investment of any cash collateral received. The Fund also continues to receive interest and dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a market
value at least equal to the market value of the securities on loan, including accrued interest. In the event of default or bankruptcy by the borrower, the Fund could experience delays and costs in recovering the loaned securities or in gaining access to the collateral. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
Interest rate swaps
The Fund may enter into interest rate swap contracts to manage the Fund’s exposure to interest rates. Interest rate swaps involve the exchange between the Fund and another party of their commitments to pay or receive interest based on a notional principal amount.
The value of the swap contract is marked-to-market daily based upon quotations from market makers and any change in value is recorded as an unrealized gain or loss. Payments made or received are recorded as realized gains or losses. The Fund could be exposed to risks if the counterparty defaults on its obligation to perform or if there are unfavorable changes in the fluctuation
of interest rates.
EVERGREEN INCOME ADVANTAGE FUND
SCHEDULE OF INVESTMENTS
continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2008 (unaudited)
|
Credit default swaps
The Fund may enter into credit default swap contracts. Credit default swaps involve an exchange of a stream of payments for protection against the loss in value of an underlying security or index in the event of default or bankruptcy. Under the terms of the swap, one party acts as a guarantor and receives a periodic stream of payments that is a fixed percentage applied to a
notional principal amount over the term of the swap. The guarantor agrees to purchase the notional amount of the underlying instrument or index, at par, if a credit event occurs during the term of the swap. The Fund may enter into credit default swaps as either the guarantor or the counterparty.
Any premiums paid or received on the transactions are recorded as an asset or liability on the Statement of Assets and Liabilities and amortized. The value of the swap contract is marked-to-market daily based on quotations from an independent pricing service or market makers and any change in value is recorded as an unrealized gain or loss. Periodic payments made or received
are recorded as realized gains or losses. In addition, payments received or made as a result of a credit event or termination of the contract are recognized as realized gains or losses. The Fund could be exposed to risks if the guarantor defaults on its obligation to perform, or if there are unfavorable changes in the fluctuation of interest rates or in the price of the underlying security or index.
Valuation hierarchy
On May 1, 2008, the Fund implemented Statement of Financial Accounting Standards No. 157,
Fair Value Measurements
(“FAS 157”). FAS 157 establishes a single authoritative definition of fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. FAS 157 establishes a fair value hierarchy based upon the
various inputs used in determining the value of the Fund’s investments. These inputs are summarized into three broad levels as follows:
Level 1
|
–
|
quoted prices in active markets for identical securities
|
Level 2
|
–
|
other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
|
Level 3
|
–
|
significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)
|
The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
As of July 31, 2008, the inputs used in valuing the Fund’s assets, which are carried at fair value, were as follows:
Valuation Inputs
|
|
Investments in
Securities
|
|
Other Financial
Instruments*
|
|
|
|
|
|
|
|
|
|
Level 1 – Quoted Prices
|
|
$
|
138,349,003
|
|
$
|
0
|
|
Level 2 – Other Significant Observable Inputs
|
|
|
1,215,586,187
|
|
|
(584,542
|
)
|
Level 3 – Significant Unobservable Inputs
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,353,935,190
|
|
$
|
(584,542
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Other financial instruments include swap contracts.
|
Item 2 - Controls and Procedures
(a)
|
The registrant’s principal executive officer and principal financial officer have evaluated the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) within 90 days of this filing and have concluded that the registrant’s disclosure controls and procedures
were effective, as of that date, in ensuring that information required to be disclosed by the registrant in this Form N-Q was recorded, processed, summarized, and reported timely.
|
(b)
|
There has been no change in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the registrant’s last fiscal quarter that has materially affected, or is reasonable likely to materially affect, the registrant’s internal
control over financial reporting.
|
Item 3 - Exhibits
File the exhibits listed below as part of this Form. Letter or number the exhibits in the sequence indicated.
(a)
|
Separate certifications for the registrant’s principal executive officer and principal financial officer, as required by Rule 30a-2(a) under the Investment Company Act of 1940, are attached as EX-99.CERT.
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Evergreen Income Advantage Fund
|
|
|
|
|
By:
|
|
|
|
|
|
Dennis H. Ferro,
Principal Executive Officer
|
|
|
|
|
|
|
|
|
Date: September 24, 2008
|
|
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
|
|
|
|
By:
|
|
|
|
|
|
Dennis H. Ferro,
Principal Executive Officer
|
|
|
|
|
|
|
|
|
Date: September 24, 2008
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
Kasey Phillips
Principal Financial Officer
|
|
|
|
|
|
|
|
|
Date: September 24, 2008
|
|
|
|