<PAGE>
Evergreen
National
Municipal
Bond Funds
November 30, 1998
Semiannual Report
[ARTWORK APPEARS HERE]
[LOGO OF EVERGREEN FUNDS/SM/ APPEARS HERE]
<PAGE>
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Table of Contents
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Letter to Shareholders .................................................... 1
For Your Information ...................................................... 2
Evergreen High Grade Municipal
Bond Fund
Fund at a Glance .......................................................... 3
Portfolio Manager Interview ............................................... 4
Evergreen Municipal Bond Fund
Fund at a Glance .......................................................... 6
Portfolio Manager Interview ............................................... 7
Evergreen Short Intermediate
Municipal Fund
Fund at a Glance .......................................................... 9
Portfolio Manager Interview ............................................... 10
Financial Highlights
Evergreen High Grade Municipal Bond Fund .................................. 12
Evergreen Municipal Bond Fund ............................................. 14
Evergreen Short Intermediate Municipal Fund ............................... 16
Schedule of Investments
Evergreen High Grade Municipal Bond Fund .................................. 18
Evergreen Municipal Bond Fund ............................................. 23
Evergreen Short Intermediate Municipal Fund ............................... 35
Statements of Assets and Liabilities ...................................... 39
Statements of Operations .................................................. 40
Statements of Changes in Net Assets ....................................... 41
Combined Notes to Financial
Statements ................................................................ 44
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Evergreen Funds
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Evergreen Funds is one of the nation's fastest growing investment companies with
over $50 billion in assets under management.
With over 70 mutual funds to choose among and acclaimed service and operations
capabilities, investors enjoy a broad range of quality investment products and
services designed to meet their needs.
The Evergreen Funds employ intensive, research-driven investment strategies
executed by over 90 research analysts and portfolio managers. The fund company
remains dedicated to meeting the needs of investors and their advisors in a
global economy. Look to the Evergreen Funds to provide a distinctive level of
service and excellence in investment management.
This semiannual report must be preceded 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.
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Mutual Funds: ARE NOT FDIC INSURED May lose value . Are not bank guaranteed
-----------------------------------------------------------------
Evergreen Distributor, Inc.
Evergreen(SM) is a Service Mark of Evergreen Investment Services, Inc.
<PAGE>
Letter to Shareholders
----------------------
January 1999
[PICTURE OF WILLIAM M. ENNIS APPEARS HERE]
William M. Ennis
Managing Director
Dear Shareholders:
We are pleased to provide you the Evergreen National Municipal Bond Funds
semiannual report covering the six months ended November 30, 1998. Municipal
bond funds continue to do their job and provide good returns with relatively
less volatility than some other asset classes, as well as provide strong after-
tax returns./1/
Increased Market Volatility in 1998
During the year, interest rates declined while inflation was low and investors
became concerned about a possible slowdown in economic growth. Despite the
volatility which started in July, the market ended on a positive note, as
indicated by the Dow Jones Industrial Average posting a 16.1% gain and the S & P
500 returning 26.7% for the year ended December 31, 1998. The financial markets
have certainly experienced increased volatility compared to the smoother ride
experienced in the past few years, and we expect volatility to continue. We
encourage you to take this opportunity to talk to your financial representative
and review your investment time horizon and ensure you are on track with your
goals.
Introduction of the Euro
On January 1, 1999, eleven European countries adopted the euro as their
currency. Currently, the wholesale markets and government and financial sectors
have converted to the euro, and new securities will be issued in euro
denomination only. Full conversion to the new currency will not be completed
until 2002.
At this point it is still unclear how the euro conversion will affect foreign
exchange rates, interest rates and the value of European securities, but we
believe the potential benefits to globally oriented investors are significant.
They include changes in currency risk, increased competition, and a central
bank. Foreign exchange risk may decrease for the countries participating in the
European Union; however, currency risk associated with rises and declines of the
value of the euro versus the dollar will still exist. Most noticeable for
investors will be the ability to compare the value of companies across the
European Union member countries without having to factor in the effect of
fluctuating currencies. Increased competition resulting from deregulation and
economic unification may produce a wave of merger and acquisition activity,
which could present attractive investment opportunities for those able to
identify the companies most inclined to benefit from restructuring. Finally, the
European Central Bank, comparable to the U.S. Federal Reserve, will provide
European Union countries with a unified monetary policy for the first time.
Municipal Bond Funds' Name Change
Effective January 5, 1999, the investment policy of the Evergreen High Grade Tax
Free Fund and the Evergreen Tax Free Fund changed with respect to municipal
bonds subject to the federal Alternative Minimum Tax ("AMT"). Formerly, the
Funds could not invest more than 20% of their assets in municipal bonds subject
to AMT. Although it is unlikely that the Funds would fully invest in AMT bonds,
the policy change allows the Funds to invest up to 100% of their assets in this
type of security. We believe this change will allow us more flexibility in
managing the Funds, enabling us to seek higher yields without lowering overall
credit quality. We have changed the Fund's names accordingly to Evergreen High
Grade Municipal Bond Fund and Evergreen Municipal Bond Fund.
If you have any questions about the funds in this report or any other Evergreen
Funds, please contact your financial representative or call us at 800.343.2898,
and we will be happy to assist you.
Thank you for your continued investment with Evergreen Funds.
Sincerely,
/s/ William M. Ennis
William M. Ennis
Managing Director
Evergreen Funds
/1/Some portion of the Funds' income may be subject to certain state
and local taxes and, depending on your tax status, the federal
alternative minimum tax. 1
<PAGE>
For Your Information
--------------------
Good News!
Effective for the 1998 Tax Year, long-term capital gains taxes are reduced to
20%.
Year 2000/2/
We have been addressing the Year 2000 issue since February 1996 and have adopted
an industry best practices methodology for the project. Our team is on schedule
to complete the following milestones: Inventory and Assessment, Remediation,
Testing and Contingency. Although Evergreen Funds is striving to identify and
correct every issue under our control related to the Year 2000, it would be
impossible to guarantee a problem-free transition into the next millennium. Our
goal, however, is that our shareholders experience virtually no impact on the
products and services we deliver.
Cost Savings
In an effort to achieve efficiencies and cost savings, we are combining your
funds' required mailings so you only receive one per household, based on the
registration last name and exact address./3/ This reduces the mailing costs, not
to mention the amount of paper needed to print, which in turn benefits your
funds by reducing the overall expenses. If you prefer to receive separate copies
of reports and prospectuses for each registered holder in your household, please
notify us by calling the number on your statement and we will adjust our records
accordingly.
New Evergreen Funds
Evergreen introduces three new funds:
Evergreen Tax Strategic Equity Fund: seeks to maximize the after-tax total
return on its portfolio of investments by using a combination of stock selection
strategies and trading techniques.
Evergreen Select Equity Index Fund: seeks investment results that achieve price
and yield performance similar to the S&P 500 Index.
Evergreen Masters Fund: blends growth and value, large- and mid-cap stocks into
one convenient portfolio. Diversification is taken one step further by employing
four management teams, Evergreen, MFS, Oppenheimer, and Putnam.
Talk to your financial representative or call us at 800.343.2898 for a
prospectus and more information.
/2/The information above constitutes Year 2000 Readiness Disclosure, as defined
in the Year 2000 Information and Readiness Disclosure Act.
/3/If you purchased your shares through a financial representative, we may not
be able to consolidate your mailings by last name and address, because that
institution controls the mailings.
2
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EVERGREEN
High Grade Municipal Bond Fund
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Fund at a Glance as of November 30, 1998
We had a favorable environment, and we made some modifications to the Fund's
strategy in an effort to add to yield and to reduce volatility or fluctuations
in the Fund's net asset value (NAV).
Portfolio
Management
----------
[PICTURE OF JAMES T. COLBY III APPEARS HERE]
James T. Colby III
Tenure: February 1992
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CURRENT INVESTMENT STYLE
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[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 11/30/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses paid by the
shareholders investing in each class. Historical performance for Classes B and
Y, prior to their respective inception dates of January 11, 1993 and February
28, 1994, reflects that of Class A, the original class offered, and includes
appropriate 12b-1 fees for Class A. If appropriate fees were reflected for Class
B, returns would have been lower. For Class Y, if 12b-1 fees were not reflected,
returns would have been higher. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. The LBMBI is an unmanaged index and does not include
transaction costs associated with buying and selling securities nor any
management fees. The Consumer Price Index is a commonly used measure of
inflation and does not represent an investment return. It is not possible to
invest directly in an index.
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PERFORMANCE AND RETURNS*
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Class A Class B Class Y
................................................................................
Average Annual Returns
................................................................................
6 months with sales charge -1.19% -1.60% n/a
................................................................................
6 months w/o sales charge 3.74% 3.35% 3.87%
................................................................................
1 year with sales charge 2.28% 1.59% n/a
................................................................................
1 year w/o sales charge 7.39% 6.59% 7.66%
................................................................................
3 years 4.03% 4.04% 6.00%
................................................................................
5 years 4.85% 4.80% 6.13%
................................................................................
Since Inception 6.54% 6.68% 7.50%
................................................................................
Maximum Sales Charge 4.75% 5.00% n/a
Front End CDSC
................................................................................
SEC Yield 4.08% 3.52% 4.54%
................................................................................
Taxable Equivalent Yield** 7.09% 5.83% 7.52%
................................................................................
6 months distributions per share $0.52 $0.47 $0.53
................................................................................
* Adjusted for maximum applicable sales charge.
** Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
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LONG TERM GROWTH
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[LINE GRAPH APPEARS HERE]
Class A Shares LBMBI CPI
2/28/95 9,526 10,000 10,000
11/30/95 10,539 10,991 10,175
11/30/96 10,999 11,637 10,510
11/30/97 11,603 12,471 10,703
11/30/98 12,460 13,439 10,882
Comparison of a $10,000 investment in Evergreen High Grade Municipal Bond Fund
Class A, versus a similar investment in the Lehman Brothers Municipal Bond Index
(LBMBI) and the Consumer Price Index (CPI).
3
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EVERGREEN
High Grade Municipal Bond Fund
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Portfolio Manager Interview
What was performance like during the six-month period?
The Evergreen High Grade Municipal Bond Fund continued to have very strong
performance during the six months ended November 30, 1998. The Fund's Class A
Shares had a total return of 3.7%, Class B Shares had a total return of 3.4% and
Class Y Shares had a total return of 3.9%. These returns are unadjusted for any
applicable sales charges. During the same six-month period, the average insured
municipal bond fund had a total return of 3.4%, according to Lipper Inc., an
independent monitor of mutual fund performance. The Fund has consistently been
in the first or second quartile of its Lipper category during the past five
years.(1)
Portfolio
Characteristics
---------------
................................................................................
Total Net Assets: $127,328,522
................................................................................
Average Credit Quality: AAA
................................................................................
Average Maturity: 21 years
................................................................................
Average Duration: 8.2 years
................................................................................
What factors contributed to the performance?
We had a favorable environment, and we made some modifications to the Fund's
strategy in an effort to add to yield and to reduce volatility or fluctuations
in the Fund's net asset value (NAV). One of the steps we took was to reduce the
Fund's emphasis on premium and non-callable bonds. Non-callable bonds are bonds
that cannot be called back by their issuers before maturity, while premium bonds
are those selling above their par value. In their place, we bought more current-
coupon bonds, or bonds that were selling closer to their par value. These bonds
tend not to fluctuate in price as much as premium and non-callable bonds, while
delivering more yield to the Fund.
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PORTFOLIO QUALITY
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(based on 11/30/98 portfolio assets)
[PIE CHART APPEARS HERE]
AAA -- 77.4%
AA -- 15.8%
A -- 6.0%
NR -- 0.8%
While we kept the Fund's emphasis on insured bonds, we lowered the weighting of
these bonds from 87% on May 31 to about 71% on November 30, as these tend to
exhibit more price volatility than un-insured bonds. Average credit quality of
the Fund remains the highest, at AAA.
We kept the Fund's duration and average maturity, which reflect the Fund's
sensitivity to changes in interest rates, slightly longer than the Lipper fund
group average. In general, bond portfolios with longer durations or average
maturities have higher yields than portfolios with shorter durations or average
maturities, but their prices also are more likely to change faster as interest
rates change. On November 30, the Fund's effective duration was 8.2 years and
average maturity was about 21 years. During a period of declining interest
rates, as we witnessed during the six months of the fiscal period, a longer
duration or average maturity tended to help performance.
(1) Source: Lipper, Inc. For the 1- and 5-year periods ended November 30, 1998,
the Fund's Class A shares ranked 8 out of 47 and 9 out of 30, respectively,
in the insured municipal bond funds category tracked by Lipper, Inc. The
rankings are based on total return and do not include the effect of a sales
charge. Past performance is no guarantee of future results.
4
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EVERGREEN
High Grade Municipal Bond Fund
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Portfolio Manager Interview
What was the investment environment like during the period?
Interest rates declined during a period of very low inflation and deepening
concerns about the possibility of a slowdown in economic growth. Municipal bonds
performed well, although not as well as U.S. Treasury securities, which
benefited from a global flight-to-quality as investors sought out the safest
possible securities in a time of volatility and uncertainty.
During the six months, the yield on the 30-year Treasury Bond declined from
5.82% to 5.06%. At one point, it reached a low of 4.72%. The declines in yields
of municipal bonds were not as dramatic. One factor was that many Treasury bond
buyers, such as foreign investors, have no reason to invest in municipal bonds
for their tax benefits. A second factor was that there was a strong flow of new
municipal bonds issued in the market, keeping municipal bond yields somewhat
higher than they might otherwise have been. Through November 30, new municipal
bond issuance had risen almost 30% over 1997, and 1998 was well on its way to
having the second highest issuance of new municipal bonds in history. In
addition, demand for bonds has been muted because so many individual investors
have been attracted by the strong performance of the equity markets over the
past three years.
As a result, by November 30, the yield on a 30-year AAA-rated municipal bond was
about 98% of the yield on a 30-year Treasury. With the tax advantages of
municipal bonds, municipal bond investors were receiving greater income on an
after-tax basis than they could receive in government securities. In fact, we
believe municipal bonds are as attractively priced as they have been for the
past 20 years, and represent a significant investment opportunity for investors
of virtually all income tax brackets.
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PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(based on 11/30/98 net assets)
[PIE CHART APPEARS HERE]
Other investments and other assets and liabilities, net -- 16.4%
Industrial Development/Pollution Control -- 13.6%
Housing -- 13.6%
Hospitals -- 11.2%
Electric Power -- 11.1%
General Obligation-Local -- 9.6%
Water & Sewer -- 9.3%
Airports -- 8.4%
Transportation -- 4.0%
General Obligation-State -- 2.8%
What is your outlook?
The outlook is positive for municipal bonds in general, and especially for
insured municipal bonds. We believe high grade municipal bonds represent an
unusually attractive investment opportunity for several reasons.
First, conditions in the high grade bond market are favorable, because we have
a continued forecast for low inflation and slow economic growth. Interest rates
are likely to remain low. We would not be surprised if the Federal Reserve Board
lowers short-term interest rates once or twice more during the first six months
of 1999. This is good for the bond market.
Second, the municipal bond market is priced extremely attractively relative to
the U.S. Treasury market. At a time when U.S. Treasury Bonds are yielding about
5%, the after-tax yield of AAA-rated municipal bonds is about 7%.
Third, insured municipal bonds also offer additional potential. While insured
bonds presently comprise about 52% of new issuance in the municipal bond market,
there is some speculation that this percentage may decrease, as insurers become
less aggressive in seeking business. If this were to occur, the relative value
of insured bonds would be even more attractive, and opportunities for improved
performance would increase. We believe the Fund is very well positioned to take
advantage of opportunities in the market.
5
<PAGE>
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EVERGREEN
Municipal Bond Fund
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Fund at a Glance as of November 30, 1998
Our portfolio re-structuring was designed to strive for more consistent
performance by concentrating on enhancing the portfolio's yield and emphasizing
sector and security selection.
Portfolio
Management
----------
[PHOTO OF JAMES T. COLBY III APPEARS HERE]
James T. Colby III
Tenure: April 1998
[PHOTO OF GEORGE J. KIMBALL APPEARS HERE]
George J. Kimball
Tenure: April 1998
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CURRENT INVESTMENT STYLE
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 11/30/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses paid by the
shareholders investing in each class. Historical performance for Classes A and
C, prior to their respective inception dates of January 20, 1998 and January 26,
1998, reflects that of Class B, the original class offered, and have been
adjusted for appropriate 12b-1 fees for each class. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. The LBMBI is an unmanaged index and
does not include transaction costs associated with buying and selling securities
nor any management fees. The CPI is a commonly used measure of inflation and
does not represent an investment return. It is not possible to invest directly
in an index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C
................................................................................
Average Annual Returns
................................................................................
6 months with sales charge -1.65% -2.03% 1.89%
................................................................................
6 months w/o sales charge 3.26% 2.87% 2.87%
................................................................................
1 year with sales charge 1.37% 0.79% 4.65%
................................................................................
1 year w/o sales charge 6.42% 5.72% 5.65%
................................................................................
3 years 4.07% 4.58% 4.99%
................................................................................
5 years 4.44% 4.76% 4.67%
................................................................................
10 years 6.96% 6.96% 6.54%
................................................................................
Since Inception 7.28% 7.02% 6.78%
................................................................................
Maximum Sales Charge 4.75% 5.00% n/a
Front End CDSC
................................................................................
SEC Yield 4.29% 3.75% 3.74%
................................................................................
Taxable Equivalent Yield** 7.45% 6.21% 6.19%
................................................................................
6 months distributions per share $0.29 $0.26 $0.26
................................................................................
* Adjusted for maximum applicable sales charge
** Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
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LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Class B Shares LBMBI CPI
11/30/88 10,000 10,000 10,000
11/30/89 11,008 11,101 10,465
11/30/90 11,747 11,957 11,122
11/30/91 12,760 13,184 11,455
11/30/92 13,911 14,506 11,804
11/30/93 15,303 16,114 12,120
11/30/94 14,181 15,268 12,444
11/30/95 16,709 18,153 12,764
11/30/96 17,526 19,220 13,184
11/30/97 18,541 20,598 13,425
11/30/98 19,599 22,197 13,649
Comparison of a $10,000 investment in Evergreen Municipal Bond Fund Class B,
versus a similar investment in the Lehman Brothers Municipal Bond Index (LBMBI)
and the Consumer Price Index (CPI).
6
<PAGE>
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EVERGREEN
Municipal Bond Fund
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Portfolio Manager Interview
How did the Fund perform?
The Evergreen Municipal Bond Fund's performance showed substantial improvement
during the six-month period ended November 30, 1998, as changes in the Fund's
investment strategy took effect. For the period, the Fund's Class A shares had a
total return of 3.3%, while both Class B Shares and Class C Shares had a return
of 2.9%. These returns are unadjusted for any applicable sales charges. During
the period, the average performance of general municipal bond funds was 3.2%, as
measured by Lipper Inc., an independent monitor of mutual fund performance.
Portfolio
Characteristics
---------------
Total Net Assets: $1,288,484,389
................................................................................
Average Credit Quality: AA
................................................................................
Average Maturity: 20 years
................................................................................
Average Duration: 8.3 years
................................................................................
What contributed to the improved performance?
We believe our portfolio re-structuring, implemented in April 1998 when we took
over the fund, had a positive effect. This re-structuring, which we outlined in
the May 31, 1998 Annual Report, was designed to strive for more consistent
performance by concentrating on enhancing the portfolio's yield and emphasizing
sector and security selection. We reduced the Fund's emphasis on pre-refunded
bonds, which are older bonds issued at higher interest rates, from about 12% of
net assets to less than 3%. We also lowered the emphasis on non-callable bonds,
which can't be called back by their issuers before maturity. These two types of
bonds typically pay lower yields than other bonds of comparable quality and
maturity. While we continued to emphasize better quality holdings, we were more
flexible in individual selection.
We sold the three types of bonds--pre-refunded, non-callable and AAA-rated--to
pick up incremental yield in other bonds we think represented more attractive
values. We believe this more yield-sensitive strategy will not only result in
higher current income, but in more consistent, less volatile performance. During
the six months, the yield generated by the Fund's portfolio actually increased
despite an environment of falling interest rates.
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PORTFOLIO QUALITY
- --------------------------------------------------------------------------------
(based on 11/30/98 portfolio assets)
[PIE CHART APPEARS HERE]
AAA: 61.2%
AA: 15.9%
A: 12.0%
BBB: 9.0%
NR: 1.1%
BB: 0.5%
B: 0.3%
What was the environment like during the June 1-November 30 period?
In general, it was a period of declining interest rates and rising bond
prices--especially for U.S. Treasuries, which benefited from a flight-to-quality
during a time of volatility and uncertainty in many markets throughout the
world. During the period, the yield on the 30-year Treasury Bond declined from
5.82% to 5.06%. At one point, it reached a low of 4.72%. Municipal bonds also
experienced declining rates and rising prices, but not nearly as significantly
as did Treasury securities. One factor was that many Treasury bond buyers, such
as foreign investors, have no reason to invest in municipal bonds for their tax
benefits. A second factor was that there was a strong
7
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Municipal Bond Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
flow of new municipal bonds issued in the market, keeping municipal bond yields
somewhat higher than they might otherwise have been. Through November 30, new
municipal bond issuance had risen almost 30% over 1997, and 1998 was well on its
way to having the second highest issuance of new municipal bonds in history. In
addition, demand for bonds has been muted because so many individual investors
have been attracted by the strong performance of the equity markets over the
past three years.
As a result, by November 30, the yield on a 30-year AAA-rated municipal bond was
about 98% of the yield on a 30-year Treasury. With the tax advantages of
municipal bonds, municipal bond investors were receiving greater income, on an
after-tax basis, than they could receive in government securities. In fact, we
believe municipal bonds are as attractively priced as they have been for the
past 20 years, and represent a significant investment opportunity for investors
of virtually all income tax brackets.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(based on 11/30/98 net assets)
[PIE CHART APPEARS HERE]
Other investments and other
assets and liabilities, net 31.5%
Housing 14.4%
Hospitals 13.8%
Electric Power 10.1%
Transportation 7.4%
Industrial Development/Pollution Control 6.8%
Water & Sewer 5.7%
General Obligation - Local 5.3%
General Obligation - State 5.0%
In this environment, what were your principal strategies?
We continued to implement the strategy we discussed in the last report,
replacing pre-refunded and non-callable bonds, and adding bonds from the
housing, healthcare and industrial revenue sectors, where we had the opportunity
to pick up additional yield. While we lowered the quality somewhat, the
portfolio remained very high quality, with average credit quality of AA.
The Fund had a marginally longer duration or average maturity than the average
fund in its Lipper category. On November 30, effective duration was 8.3% and
average maturity was 20 years. Duration and maturity are two different measures
of interest-rate sensitivity. Bonds with longer durations or maturities tend to
experience greater price changes when interest rates change than bonds with
shorter durations or maturities. During a period of declining interest rates,
the slightly longer duration and average maturity of the Fund tended to help
performance.
What is your outlook?
We believe municipal bonds represent an extraordinary opportunity for investors.
The general outlook for bonds, including municipal bonds, is favorable. We have
a continued forecast for low inflation and slow economic growth. In this
environment, interest rates are likely to remain low. We would not be surprised
if the Federal Reserve Board lowers short-term interest rates once or twice more
during the first six months of 1999. This is good for the bond market.
Second, the municipal bond market is priced extremely attractively relative to
the U.S. Treasury market. At a time when U.S. Treasury Bonds are yielding about
5%, the after-tax yield of AAA-rated municipal bonds is about 7%.
In this environment, while we are positive about the outlook for municipal
bonds, we also will be watchful for any sign that weakness in the economy could
undermine credit quality and affect the ability of bond issuers to pay interest
that is due. For example, we will be very careful about adding any additional
industrial revenue bonds, but we believe municipal bonds offer very attractive
value to investors.
8
<PAGE>
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EVERGREEN
Short Intermediate Municipal Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of November 30, 1998
A favorable duration strategy and strong security selection contributed to
strong performance, allowing the Fund to perform well against its peer group.
Portfolio Management
- --------------------
[PHOTO OF RICHARD K. MARRONE APPEARS HERE]
Richard K. Marrone
Tenure: December 1, 1997
- ------------------------
CURRENT INVESTMENT STYLE
- ------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 11/30/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses paid by the
shareholders investing in each class. Historical performance for Class A and B,
prior to their January 5, 1995 inception date, reflects that of Class Y, the
original class offered, and does not include 12b-1 fees. If such fees were
reflected, returns would have been lower. The investment return and principal
value will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than original cost. The LB3YMBI is an unmanaged index and does not
include transaction costs associated with buying and selling securities nor any
management fees. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class Y
................................................................................
Average Annual Returns
................................................................................
6 mos. with sales charge -0.55% -2.67% n/a
................................................................................
6 mos. w/o sales charge 2.79% 2.33% 2.87%
................................................................................
1 year with sales charge 1.73% -0.91% n/a
................................................................................
1 year w/o sales charge 5.13% 4.09% 5.13%
................................................................................
3 years 3.11% 2.37% 4.38%
................................................................................
5 years 3.19% 2.83% 3.95%
................................................................................
Since Inception 4.43% 4.43% 4.99%
................................................................................
Maximum Sales Charge 3.25% 5.00% n/a
Front End CDSC
................................................................................
30-day SEC Yield 3.68% 2.92% 3.92%
................................................................................
Taxable Equivalent Yield** 6.29% 4.83% 6.49%
................................................................................
6 months distributions per share $0.28 $0.24 $0.29
................................................................................
* Adjusted for maximum applicable sales charge.
** Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[CHART APPEARS HERE]
Class A Shares LB3YMBI CPI
1/31/95 9,671 10,000 10,000
11/30/95 10,252 10,753 10,216
11/30/96 10,656 11,271 10,552
11/30/97 11,047 11,814 10,745
11/30/98 11,614 12,484 10,925
Comparison of a $10,000 investment in Evergreen Short Intermediate Municipal
Fund Class A, versus a similar investment in the Lehman Brothers 3 Year
Municipal Bond Index (LB3YMBI) and the Consumer Price Index (CPI).
9
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Short Intermediate Municipal Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did your Fund perform during the six months?
The Evergreen Short-Intermediate Municipal Bond Fund Class Y posted a total
return of 2.9% for the six months ended November 30; while Class A and B
returned 2.8% and 2.3%, respectively, unadjusted for applicable sales charges.
For the last six months, the Fund's Class A and Y shares outpaced the 2.7%
average return of 30 short-intermediate municipal bond funds tracked by Lipper,
Inc., an independent monitor of mutual fund performance.
Portfolio Characteristics
- -------------------------
Total Net Assets: $171,602,068
.....................................
Average Credit Quality AA+
.....................................
Average Maturity 5.0 years
.....................................
Average Duration 3.8 years
.....................................
What was the investing environment like during this period?
The primary component affecting both the fixed income and equity markets during
the past six months was the continued volatility in foreign financial markets.
In the U.S. fixed income markets, global economic turmoil prompted a flight-to-
quality that fueled a strong performance by U.S. Treasuries while municipal
bonds lagged modestly.
Despite modest underperformance versus Treasuries, declining interest rates
boosted municipal bond prices and contributed to record new issuance for the
year. In fact, the yield on the bellwether 30-year Treasury Bond fell from 5.82%
to a low of nearly 4.72%, before rebounding to 5.06% on November 30.
How did your investment strategy impact performance?
A favorable duration strategy and strong security selection contributed to
strong performance, allowing the Fund to perform well against its peer group.
In anticipation of lower interest rates we actively pursued zero-coupon bonds, a
security that enjoys significant price appreciation in periods of declining
rates. We strategically purchased a number of these securities over the past
several months before they became scarce, and benefited from their subsequent
strong performance.
Another contributor to total return was the portfolio's long duration stance,
which helped performance within the declining interest rate environment.
Duration was increased from 3.5 years to 3.8 years (nearly 8%) during the six
months, and fueled the Fund's total return as interest rates declined.
- ------------------------
PORTFOLIO CREDIT QUALITY
- ------------------------
(based on 11/30/98 portfolio assets)
AAA -- 36.1%
A -- 20.3%
[PIE CHART APPEARS HERE] BBB -- 16.6%
AA -- 14.1%
NR -- 12.9%
10
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Short Intermediate Municipal Fund
- --------------------------------------------------------------------------------
Porrtfolio Manager Interview
What is your outlook going forward?
From a historical perspective, valuation levels of municipal bonds, relative to
Treasuries, are currently very attractive. In our opinion, this has created a
buying opportunity that we expect to capitalize upon in the coming quarters.
From an economic perspective, we believe current fundamentals suggest a low
inflationary environment, which should support range-bound interest rates
through the next couple of quarters.
In addition, we anticipate some volatility in the municipal markets as the
global economic crisis continues to filter back to U.S. markets. Therefore, we
will maintain a cautionary stance and continue to emphasize the portfolio's
income orientation to contribute to performance.
11
<PAGE>
[LOGO HIGH GRADE MUNICIPAL BOND FUND APPEARS HERE]
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Year Ended Year Ended Year Ended
Ended May 31, August 31, December 31,
November 30, 1998 ----------------- ----------------- ------------------
(Unaudited) 1998 1997 (a) 1996 1995 (b) 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Net asset value,
beginning of period $ 11.36 $ 10.89 $ 10.72 $ 10.69 $ 9.79 $ 11.16 $ 10.42
------- ------- ------- ------- ------- ------- --------
...........................................................................................................
Income from investment
operations
...........................................................................................................
Net investment income 0.25 0.47 0.37 0.52 0.34 0.52 0.54
...........................................................................................................
Net realized and
unrealized gains or
losses on securities 0.17 0.48 0.17 0.03 0.90 (1.37) 0.81
------- ------- ------- ------- ------- ------- --------
...........................................................................................................
Total from investment
operations 0.42 0.95 0.54 0.55 1.24 (0.85) 1.35
------- ------- ------- ------- ------- ------- --------
...........................................................................................................
Less distributions
...........................................................................................................
From net investment
income (0.25) (0.48) (0.37) (0.52) (0.34) (0.52) (0.54)
From capital gains (0.27) 0 0 0 0 0 (0.07)
------- ------- ------- ------- ------- ------- --------
...........................................................................................................
Total distributions (0.52) (0.48) (0.37) (0.52) (0.34) (0.52) (0.61)
------- ------- ------- ------- ------- ------- --------
...........................................................................................................
Net asset value, end of
period $ 11.26 $ 11.36 $ 10.89 $ 10.72 $ 10.69 $ 9.79 $ 11.16
------- ------- ------- ------- ------- ------- --------
...........................................................................................................
Total return+ 3.74% 8.88% 5.13% 5.21% 12.83% (7.71%) 13.25%
...........................................................................................................
Ratios/supplemental data
...........................................................................................................
Net assets, end of
period (thousands) $67,659 $64,526 $45,814 $50,569 $58,751 $57,676 $101,352
...........................................................................................................
Ratios to average net
assets
...........................................................................................................
Expenses 0.95%++ 1.09% 1.03%++ 0.89% 1.06%++ 1.01% 0.85%
...........................................................................................................
Expenses, after fee
credits 0.95%++ 1.09% 1.03%++ -- -- -- --
...........................................................................................................
Expenses, excluding fee
waivers and expense
reimbursements 0.95%++ 1.09% 1.11%++ 1.09% 1.09%++ 1.02% 1.07%
...........................................................................................................
Net investment income 4.27%++ 4.25% 4.60%++ 4.78% 4.93%++ 5.04% 4.99%
...........................................................................................................
Portfolio turnover rate 43% 127% 114% 65% 27% 53% 14%
...........................................................................................................
<CAPTION>
Six Months Year Ended Year Ended Year Ended
Ended May 31, August 31, December 31,
November 30, 1998 ----------------- ----------------- ------------------
(Unaudited) 1998 1997 (a) 1996 1995 (b) 1994 1993 (c)
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value,
beginning of period 11.36 10.89 10.72 10.69 9.79 11.16 10.42
------- ------- ------- ------- ------- ------- --------
Income from investment
operations
...........................................................................................................
Net investment income 0.20 0.39 0.31 0.44 0.29 0.46 0.47
...........................................................................................................
Net realized and
unrealized gains or
losses on securities 0.17 0.48 0.17 0.03 0.90 (1.37) 0.81
------- ------- ------- ------- ------- ------- --------
...........................................................................................................
Total from investment
operations 0.37 0.87 0.48 0.47 1.19 (0.91) 1.28
------- ------- ------- ------- ------- ------- --------
...........................................................................................................
Less distributions
...........................................................................................................
From net investment
income (0.20) (0.40) (0.31) (0.44) (0.29) (0.46) (0.47)
From capital gains (0.27) 0 0 0 0 0 (0.07)
------- ------- ------- ------- ------- ------- --------
...........................................................................................................
Total distributions (0.47) (0.40) (0.31) (0.44) (0.29) (0.46) (0.54)
------- ------- ------- ------- ------- ------- --------
...........................................................................................................
Net asset value, end of
period 11.26 11.36 10.89 10.72 10.69 9.79 11.16
------- ------- ------- ------- ------- ------- --------
...........................................................................................................
Total return+ 3.35% 8.07% 4.55% 4.42% 12.27% (8.24%) 12.52%
...........................................................................................................
Ratios/supplemental data
...........................................................................................................
Net assets, end of
period (thousands) $32,614 $32,822 $31,874 $32,221 $34,206 $32,435 $ 41,030
...........................................................................................................
Ratios to average net
assets
...........................................................................................................
Expenses 1.70%++ 1.84% 1.78%++ 1.64% 1.81%++ 1.58% 1.35%++
...........................................................................................................
Expenses, after fee
credits 1.70%++ 1.84% 1.78%++ -- -- -- --
...........................................................................................................
Expenses excluding
waivers and expense
reimbursements 1.70%++ 1.84% 1.86%++ 1.84% 1.84%++ 1.59% 1.57%++
...........................................................................................................
Net investment income 3.53%++ 3.51% 3.85%++ 4.03% 4.18%++ 4.47% 4.44%++
...........................................................................................................
Portfolio turnover rate 43% 127% 114% 65% 27% 53% 14%
...........................................................................................................
</TABLE>
+ Excluding applicable sales charges.
++ Annualized.
(a) For the nine months ended May 31, 1997. The Fund changed its fiscal year
end from August 31 to May 31, effective May 31, 1997.
(b) For the eight months ended August 31, 1995. The Fund changed its fiscal
year end from December 31 to August 31, effective August 31, 1995.
(c) For the period from January 11, 1993 (commencement of class operations) to
December 31, 1993.
See Combined Notes to Financial Statements.
12
<PAGE>
[LOGO HIGH GRADE MUNICIPAL BOND FUND APPEARS HERE]
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Year Ended Year Ended
Ended May 31, August 31,
November 30, 1998 ----------------- ----------------- Period Ended
(Unaudited) 1998 1997 (a) 1996 1995 (b) December 31, 1994 (c)
<S> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
Net asset value,
beginning of period $ 11.36 $ 10.89 $ 10.72 $ 10.69 $ 9.79 $10.93
------- ------- ------- ------- ------- ------
..............................................................................................................
Income from investment
operations
..............................................................................................................
Net investment income 0.26 0.51 0.39 0.55 0.36 0.46
..............................................................................................................
Net realized and
unrealized gains or
losses on securities 0.17 0.47 0.17 0.03 0.90 (1.14)
------- ------- ------- ------- ------- ------
..............................................................................................................
Total from investment
operations 0.43 0.98 0.56 0.58 1.26 (0.68)
------- ------- ------- ------- ------- ------
..............................................................................................................
Less distributions
..............................................................................................................
From net investment
income (0.26) (0.51) (0.39) (0.55) (0.36) (0.46)
From capital gains (0.27) 0 0 0 0 0
------- ------- ------- ------- ------- ------
..............................................................................................................
Total distributions (0.53) (0.51) (0.39) (0.55) (0.36) (0.46)
------- ------- ------- ------- ------- ------
..............................................................................................................
Net asset value, end of
period $ 11.26 $ 11.36 $ 10.89 $ 10.72 $ 10.69 $ 9.79
------- ------- ------- ------- ------- ------
..............................................................................................................
Total return 3.87% 9.15% 5.32% 5.47% 13.02% (6.29%)
..............................................................................................................
Ratios/supplemental data
..............................................................................................................
Net assets, end of
period (thousands) $27,055 $24,976 $24,441 $25,112 $25,079 $4,318
..............................................................................................................
Ratios to average net
assets
..............................................................................................................
Expenses 0.70%++ 0.84% 0.78%++ 0.64% 0.81%++ 0.76%++
..............................................................................................................
Expenses, after fee
credits 0.70%++ 0.84% 0.78%++ -- -- --
..............................................................................................................
Expenses excluding
waivers and expense
reimbursements 0.70%++ 0.84% 0.86%++ 0.84% 0.84%++ 0.77%++
..............................................................................................................
Net investment income 4.53%++ 4.51% 4.85%++ 5.03% 5.18%++ 5.46%++
..............................................................................................................
Portfolio turnover rate 43% 127% 114% 65% 27% 53%
..............................................................................................................
</TABLE>
++ Annualized.
(a) For the nine months ended May 31, 1997. The Fund changed its fiscal year
end from August 31 to May 31, effective May 31, 1997.
(b) For the eight months ended August 31, 1995. The Fund changed its fiscal
year end from December 31 to August 31, effective August 31, 1995.
(c) For the period from February 28, 1994 (commencement of class operations) to
December 31, 1994.
See Combined Notes to Financial Statements.
13
<PAGE>
[LOGO OF MUNICIPAL BOND FUND APPEARS HERE]
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended
November 30, 1998 Year Ended
(Unaudited) May 31, 1998 (b)
<S> <C> <C>
CLASS A SHARES
Net asset value, beginning of period $ 7.78 $ 7.91
---------- ----------
............................................................................
Income from investment operations
............................................................................
Net investment income 0.18 0.13+++
............................................................................
Net realized and unrealized gains or
losses on securities and futures
contracts (0.05) (0.13)
---------- ----------
............................................................................
Total from investment operations 0.13 0
---------- ----------
............................................................................
Less distributions
............................................................................
From net investment income (0.18) (0.13)
............................................................................
From capital gains (0.11) 0
---------- ----------
............................................................................
Total distributions (0.29) (0.13)
---------- ----------
............................................................................
Net asset value, end of period $ 7.62 $ 7.78
---------- ----------
............................................................................
Total return+ 3.26% 0.04%
............................................................................
Ratios/supplemental data
............................................................................
Net assets, end of period (thousands) $1,163,997 $1,243,327
............................................................................
Ratios to average net assets
............................................................................
Expenses 0.85%++ 0.93%++
............................................................................
Expenses, after fee credits 0.85%++ 0.93%++
............................................................................
Net investment income 4.53%++ 4.69%++
............................................................................
Portfolio turnover rate 53% 77%
............................................................................
</TABLE>
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
November 30, 1998 Year Ended -----------------------------------------------------------
(Unaudited) May 31, 1998 (a) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value,
beginning of period $ 7.78 $ 7.82 $ 7.71 $ 7.86 $ 7.10 $ 8.12 $ 8.04
-------- -------- ---------- ---------- ---------- ---------- ----------
.............................................................................................................................
Income from investment
operations
.............................................................................................................................
Net investment income 0.15 0.12+++ 0.38 0.41 0.41 0.37 0.39
.............................................................................................................................
Net realized and
unrealized gains or
losses on securities
and future contracts (0.05) (0.03) 0.23 (0.17) 0.74 (0.96) 0.48
-------- -------- ---------- ---------- ---------- ---------- ----------
.............................................................................................................................
Total from investment
operations 0.10 0.09 0.61 0.24 1.15 (0.59) 0.87
-------- -------- ---------- ---------- ---------- ---------- ----------
.............................................................................................................................
Less distributions
.............................................................................................................................
From net investment
income (0.15) (0.13) (0.50) (0.39) (0.39) (0.43) (0.45)
.............................................................................................................................
From capital gains (0.11) 0 0 0 0 0 (0.34)
-------- -------- ---------- ---------- ---------- ---------- ----------
.............................................................................................................................
Total distributions (0.26) (0.13) (0.50) (0.39) (0.39) (0.43) (0.79)
-------- -------- ---------- ---------- ---------- ---------- ----------
.............................................................................................................................
Net asset value, end of
period $ 7.62 $ 7.78 $ 7.82 $ 7.71 $ 7.86 $ 7.10 $ 8.12
-------- -------- ---------- ---------- ---------- ---------- ----------
.............................................................................................................................
Total return+ 2.87% 1.15% 8.15% 3.15% 16.61% (7.34%) 11.15%
.............................................................................................................................
Ratios/supplemental data
.............................................................................................................................
Net assets, end of
period (thousands) $117,135 $124,664 $1,375,730 $1,557,886 $1,204,468 $1,197,727 $1,548,503
.............................................................................................................................
Ratios to average net
assets
.............................................................................................................................
Expenses 1.60%++ 1.26%++ 0.96% 0.87% 0.95% 1.55% 1.66%
.............................................................................................................................
Expenses, after fee
credits 1.60%++ 1.25%++ 0.96% 0.86% 0.94% -- --
.............................................................................................................................
Net investment income 3.79%++ 4.32%++ 4.97% 5.34% 5.41% 4.92% 4.72%
.............................................................................................................................
Portfolio turnover rate 53% 77% 126% 69% 56% 84% 76%
.............................................................................................................................
</TABLE>
+ Excluding applicable sales charges.
++ Annualized.
+++ Calculation based on average shares outstanding.
(a) For the five months ended May 31, 1998. The Fund changed its fiscal year
end from December 31 to May 31, effective May 31, 1998.
(b) For the period from January 20, 1998 (commencement of class operations) to
May 31, 1998.
See Combined Notes to Financial Statements.
14
<PAGE>
[LOGO OF MUNICIPAL BOND FUND APPEARS HERE]
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended
November 30, 1998 Year Ended
(Unaudited) May 31, 1998 (a)
<S> <C> <C>
CLASS C SHARES
Net asset value, beginning of period $ 7.78 $ 7.85
------ ------
................................................................................
Income from investment operations
................................................................................
Net investment income 0.15 0.11+++
................................................................................
Net realized and unrealized gains or
losses on securities and future contracts (0.05) (0.07)
------ ------
................................................................................
Total from investment operations 0.10 0.04
------ ------
................................................................................
Less distributions
................................................................................
From net investment income (0.15) (0.11)
................................................................................
From capital gains (0.11) 0
------ ------
................................................................................
Total distributions (0.26) (0.11)
------ ------
................................................................................
Net asset value, end of period $ 7.62 $ 7.78
------ ------
................................................................................
Total return+ 2.87% 0.46%
................................................................................
Ratios/supplemental data
................................................................................
Net assets, end of period (thousands) $7,352 $7,708
................................................................................
Ratios to average net assets
................................................................................
Expenses 1.60%++ 1.68%++
................................................................................
Expenses, after fee credits 1.60%++ 1.68%++
................................................................................
Net investment income 3.78%++ 3.94%++
................................................................................
Portfolio turnover rate 53% 77%
................................................................................
</TABLE>
+ Excluding applicable sales charges.
++ Annualized.
+++ Calculation based on average shares outstanding.
(a) For the period from January 26, 1998 (commencement of class operations) to
May 31, 1998.
See Combined Notes to Financial Statements.
15
<PAGE>
[LOGO OF SHORT INTERMEDIATE MUNICIPAL FUND APPEARS HERE]
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Year Ended Year Ended
Ended May 31, August 31,
November 30, 1998 ---------------- -----------------
(Unaudited) 1998 1997 (a) 1996 1995 (b)
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
Net asset value,
beginning of period $10.19 $10.09 $10.08 $ 10.17 $ 9.97
------ ------ ------ ------- ------
.....................................................................................
Income from investment
operations
.....................................................................................
Net investment income 0.20 0.41 0.30 0.43 0.30
.....................................................................................
Net realized and
unrealized gains or
losses on securities 0.08 0.10 0.01 (0.09) 0.20
------ ------ ------ ------- ------
.....................................................................................
Total from investment
operations 0.28 0.51 0.31 0.34 0.50
------ ------ ------ ------- ------
.....................................................................................
Less distributions
.....................................................................................
From net investment
income (0.20) (0.41) (0.30) (0.43) (0.30)
.....................................................................................
From capital gains (0.08) 0 0 0 0
------ ------ ------ ------- ------
.....................................................................................
Total distributions (0.28) (0.41) (0.30) (0.43) (0.30)
------ ------ ------ ------- ------
.....................................................................................
Net asset value, end of
period $10.19 $10.19 $10.09 $ 10.08 $10.17
------ ------ ------ ------- ------
.....................................................................................
Total return+ 2.79% 5.11% 3.08% 3.37% 5.09%
.....................................................................................
Ratios/supplemental data
.....................................................................................
Net assets, end of
period (thousands) $7,663 $6,569 $6,072 $27,722 $6,820
.....................................................................................
Ratios to average net
assets
.....................................................................................
Expenses 0.75%++ 0.81% 0.84%++ 0.80% 0.70%++
.....................................................................................
Expenses, after fee
credits 0.74%++ 0.81% 0.83%++ -- --
.....................................................................................
Expenses, excluding fee
waivers and expense
reimbursements 0.76%++ 0.85% 0.96%++ 1.11% 1.14%++
.....................................................................................
Net investment income 4.00%++ 4.01% 3.94%++ 4.05% 4.32%++
.....................................................................................
Portfolio turnover rate 36% 78% 34% 29% 80%
.....................................................................................
<CAPTION>
Six Months Year Ended Year Ended
Ended May 31, August 31,
November 30, 1998 ---------------- -----------------
(Unaudited) 1998 1997 (a) 1996 1995 (b)
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value,
beginning of period $10.19 $10.10 $10.08 $ 10.17 $ 9.97
------ ------ ------ ------- ------
.....................................................................................
Income from investment
operations
.....................................................................................
Net investment income 0.16 0.32 0.23 0.34 0.24
.....................................................................................
Net realized and
unrealized gains or
losses on securities 0.08 0.09 0.02 (0.09) 0.20
------ ------ ------ ------- ------
.....................................................................................
Total from investment
operations 0.24 0.41 0.25 0.25 0.44
------ ------ ------ ------- ------
.....................................................................................
Less distributions
.....................................................................................
From net investment
income (0.16) (0.32) (0.23) (0.34) (0.24)
.....................................................................................
From capital gains (0.08) 0 0 0 0
------ ------ ------ ------- ------
.....................................................................................
Total distributions (0.24) (0.32) (0.23) (0.34) (0.24)
------ ------ ------ ------- ------
.....................................................................................
Net asset value, end of
period $10.19 $10.19 $10.10 $ 10.08 $10.17
------ ------ ------ ------- ------
.....................................................................................
Total return+ 2.33% 4.07% 2.49% 2.44% 4.50%
.....................................................................................
Ratios/supplemental data
.....................................................................................
Net assets, end of
period (thousands) $6,179 $5,790 $6,742 $ 7,413 $6,050
.....................................................................................
Ratios to average net
assets
.....................................................................................
Expenses 1.65%++ 1.71% 1.73%++ 1.67% 1.58%++
.....................................................................................
Expenses, after fee
credits 1.64%++ 1.71% 1.73%++ -- --
.....................................................................................
Expenses, excluding fee
waivers and expense
reimbursements 1.66%++ 1.74% 1.86%++ 2.07% 2.26%++
.....................................................................................
Net investment income 3.09%++ 3.11% 3.04%++ 3.28% 3.50%++
.....................................................................................
Portfolio turnover rate 36% 78% 34% 29% 80%
.....................................................................................
</TABLE>
+ Excluding applicable sales charges.
++ Annualized.
(a) For the nine months ended May 31, 1997. The Fund changed its fiscal year
end from August 31 to May 31, effective May 31, 1997.
(b) For the period from January 5, 1995 (commencement of class operations) to
August 31, 1995.
See Combined Notes to Financial Statements.
16
<PAGE>
[LOGO OF SHORT INTERMEDIATE MUNICIPAL FUND APPEARS HERE]
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended May 31, Year Ended August 31,
November 30, 1998 ---------------------- -------------------------
(Unaudited) 1998 1997 (a) 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
Net asset value,
beginning of period $ 10.19 $ 10.10 $ 10.07 $ 10.17 $ 10.21 $ 10.58
-------- --------- -------- ------- ------- -------
.................................................................................................
Income from investment
operations
.................................................................................................
Net investment income 0.21 0.42 0.30 0.43 0.46 0.47
.................................................................................................
Net realized and
unrealized gains or
losses on securities 0.08 0.09 0.03 (0.10) (0.04) (0.32)
-------- --------- -------- ------- ------- -------
.................................................................................................
Total from investment
operations 0.29 0.51 0.33 0.33 0.42 0.15
-------- --------- -------- ------- ------- -------
.................................................................................................
Less distributions
.................................................................................................
From capital gains (0.08) 0 0 0 0 (0.02)
-------- --------- -------- ------- ------- -------
.................................................................................................
From net investment
income (0.21) (0.42) (0.30) (0.43) (0.46) (0.50)
.................................................................................................
Total distributions (0.29) (0.42) (0.30) (0.43) (0.46) (0.52)
-------- --------- -------- ------- ------- -------
.................................................................................................
Net asset value, end of
period $ 10.19 $ 10.19 $ 10.10 $ 10.07 $ 10.17 $ 10.21
-------- --------- -------- ------- ------- -------
.................................................................................................
Total return 2.87% 5.11% 3.36% 3.30% 4.20% 1.40%
.................................................................................................
Ratios/supplemental data
.................................................................................................
Net assets, end of
period (thousands) $157,760 $ 167,905 $ 32,293 $34,893 $40,581 $53,417
.................................................................................................
Ratios to average net
assets
.................................................................................................
Expenses 0.65%++ 0.66% 0.74%++ 0.70% 0.74% 0.58%
.................................................................................................
Expenses, after fee
credits 0.64%++ 0.66% 0.73%++ -- -- --
.................................................................................................
Expenses, excluding fee
waivers and expense
reimbursements 0.66%++ 0.70% 0.86%++ 0.90% 0.86% 0.83%
.................................................................................................
Net investment income 4.09%++ 4.18% 4.04%++ 4.27% 4.52% 4.54%
.................................................................................................
Portfolio turnover rate 36% 78% 34% 29% 80% 32%
.................................................................................................
</TABLE>
++ Annualized.
(a) For the nine months ended May 31, 1997. The Fund changed its fiscal year
end from August 31 to May 31, effective May 31, 1997.
See Combined Notes to Financial Statements.
17
<PAGE>
[LOGO OF HIGH GRADE MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - 97.1%
Alabama - 1.0%
$1,215,000 Jefferson County, Alabama,
Sewer Revenue, Series D
5.75%, 2/1/27...................................... $ 1,309,114
------------
Alaska - 3.1%
Alaska, Industrial Development & Export Authority
Power Revenue, Snettisham Hydroelectric, Series 1:
2,000,000 5.00%, 1/1/27, (AMBAC).............................. 1,932,580
1,000,000 5.25%, 1/1/22, (AMBAC).............................. 1,000,840
1,000,000 Valdez, Alaska,
Marine Terminal Revenue Refunding, Pipeline Inc.
Project, Series B
5.50%, 10/1/28..................................... 1,013,730
------------
3,947,150
------------
Arizona - 0.9%
1,000,000 Creighton, Arizona,
Elementary School District No. 14 of Maricopa
County, School Improvements (Project of 1990),
Series C 1991
6.50%, 7/1/07, (FGIC).............................. 1,169,820
------------
California - 5.5%
1,000,000 California State, Department of Water Resources,
Central Valley Project Water Systems, Series Q
5.375%, 12/1/27, (MBIA)............................ 1,040,370
1,000,000 California State, Public Works Lease, California
State University Project, Series A
5.375%, 10/1/17, (AMBAC)........................... 1,053,410
1,000,000 Orange County, California,
Public Finance Authority
5.75%, 12/1/10, (AMBAC)............................ 1,116,920
2,000,000 San Francisco, California,
City & County International Airport Revenue, Second
Series, Issue 10-A
5.70%, 5/1/26, (MBIA).............................. 2,113,300
500,000 San Mateo County, California,
Joint Powers Finance Authority, Lease Revenue,
Capital Projects Program, 1993 Series A
6.50%, 7/1/16, (MBIA).............................. 604,845
1,000,000 Southern California, Public Power Authority, Mead
Adelanto Project, Series A
5.00%, 7/1/17, (AMBAC)............................. 1,010,650
------------
6,939,495
------------
Colorado - 3.0%
1,500,000 Arapahoe County, Colorado,
Public Highway Authority, Capital Improvements
Trust Fund Revenue, (E-470 Project)
6.15%, 8/31/26, (MBIA)............................. 1,692,840
1,000,000 Colorado State, Public Highway Authority, (E-470
Project), Senior Series A
5.75%, 9/1/14...................................... 1,117,040
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Colorado - continued
$1,000,000 Denver, Colorado,
City & County Airport Revenue, Airport Systems
Revenue
5.00%, 11/15/25, (FSA)............................. $ 976,820
------------
3,786,700
------------
District of Columbia - 1.6%
2,000,000 District of Columbia, Revenue, Carnegie Endowment
5.75%, 11/15/26.................................... 2,098,680
------------
Florida - 3.3%
1,000,000 Florida State, Board of Education Capital Outlay,
General Obligation, Series A
5.00%, 6/1/27...................................... 995,780
2,000,000 Florida State, Housing Finance Corp. Revenue,
Homeowner Mortgage, Series 2
5.35%, 1/1/21, (MBIA).............................. 2,033,760
50,000 Jacksonville, Florida,
Electric Authority Revenue,
Series 3-A
5.20%, 10/1/02..................................... 52,529
1,000,000 Orange County, Florida,
Health Facilities Authority Revenue, Orlando
Regional Healthcare Systems, Series 1996C
6.25%, 10/1/16, (MBIA)............................. 1,175,020
------------
4,257,089
------------
Georgia - 1.0%
50,000 De Kalb County, Georgia,
Health Facilities, General Obligation
5.30%, 1/1/03...................................... 52,851
1,000,000 Georgia State, Municipal Electric Authority, Power
Revenue, Special Obligation Bond, Series Y
6.50%, 1/1/17, (MBIA).............................. 1,194,460
------------
1,247,311
------------
Hawaii - 0.0%
50,000 Hawaii State, General Obligation, Series CE
5.20%, 6/1/04...................................... 52,742
------------
Idaho - 0.6%
720,000 Idaho State, Housing Agency, Single Family Mortgage
Revenue,
Series C-1
6.30%, 7/1/11...................................... 770,191
------------
Illinois - 9.2%
85,000 Bloomingdale, Illinois,
General Obligation
5.45%, 1/1/09...................................... 90,183
2,150,000 Chicago, Illinois,
General Obligation, Series 1995
6.125%, 1/1/16, (AMBAC)............................ 2,389,639
</TABLE>
18
<PAGE>
[LOGO OF HIGH GRADE MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Illinois - continued
$3,000,000 Illinois State, Development Finance Authority
Pollution Control Refunding Revenue, (Commonwealth
Edison Co. Project), Series 1994D
6.75%, 3/1/15, (AMBAC)............................. $ 3,409,500
1,500,000 Illinois State, Health Facilities Authority Revenue,
Loyola University Health Systems, Series A
6.00%, 7/1/13, (MBIA).............................. 1,692,240
1,750,000 Illinois State, Health Facilities Authority, Health
Facilities Refunding Revenue, Series 1992AA
6.50%, 6/1/12, (MBIA).............................. 2,070,022
Illinois State, Sales Tax Revenue:
60,000 4.90%, 6/15/07...................................... 63,208
1,000,000 5.50%, 6/15/20...................................... 1,032,630
1,000,000 Illinois State, Metropolitan Pier & Exposition
Authority, Dedicated State Tax Revenue, McCormick
Plantation Expansion, Series A
5.25%, 6/15/27..................................... 1,011,950
------------
11,759,372
------------
Indiana - 2.4%
1,500,000 Indiana State, Middle School Building Corp.,
Lawrence Township of Marion County, First Mortgage
Revenue
6.875%, 7/5/11, (MBIA)............................. 1,841,265
1,000,000 Indiana State, Transportation Finance Authority,
Highway Revenue,
Series 1992A
6.80%, 12/1/16, (MBIA)............................. 1,225,550
------------
3,066,815
------------
Massachusetts - 3.0%
50,000 Massachusetts State, Bay Transportation Authority,
General Transportation Systems Revenue, Series A
5.30%, 3/1/05...................................... 53,504
1,000,000 Massachusetts State, General Obligation, Series A
6.50%, 11/1/14, (AMBAC)............................ 1,205,150
1,000,000 Massachusetts State, Industrial Finance Agency
Revenue, Parking Facilities, Avon Associates LLC,
Series A
5.375%, 4/1/20, (MBIA)............................. 1,023,350
Massachusetts State, Port Authority Revenue, Series
A:
1,000,000 5.00%, 7/1/27....................................... 980,570
500,000 5.75%, 7/1/12....................................... 559,205
------------
3,821,779
------------
Michigan - 3.9%
2,500,000 Detroit, Michigan,
Water Supply Systems Revenue, Senior Lien, Series A
6.00%, 7/1/14, (MBIA).............................. 2,844,225
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Michigan - continued
$1,000,000 Detroit, Michigan,
City School District Refunding, Series C
5.25%, 5/1/13, (FGIC).............................. $ 1,062,490
1,000,000 Michigan State, Hospital Finance Authority Revenue,
Henry Ford Health, Series A
5.25%, 11/15/25.................................... 1,004,410
------------
4,911,125
------------
Minnesota - 0.4%
450,000 Minnesota State, Housing Finance Agency, Single
Family Mortgage Revenue, Series H
6.70%, 1/1/18...................................... 484,637
------------
Mississippi - 0.9%
1,000,000 Mississippi State, Home Corp., Single Family
Revenue, Class 7, Series B
5.25%, 6/1/30, (FNMA & GNMA)....................... 1,083,560
------------
Nebraska - 1.6%
2,000,000 Nebraska State, Investment Finance Authority, Single
Family Housing Revenue, Series F
5.60%, 9/1/20, (GNMA).............................. 2,034,140
------------
Nevada - 0.8%
1,000,000 Clark County, Nevada,
School District, Building & Renovations, General
Obligation, Series B
5.25%, 6/15/17, (FGIC)............................. 1,031,010
------------
New Jersey - 0.1%
65,000 Medford Township, New Jersey,
Board of Education, General Obligation
5.95%, 2/1/03, (FGIC).............................. 70,405
------------
New Mexico - 2.2%
500,000 Albuquerque, New Mexico,
Airport Revenue, Series 1995 A
6.35%, 7/1/07, (AMBAC)............................. 542,650
2,100,000 Farmington, New Mexico,
Pollution Control Revenue, Public Service Company
of San Juan, Series C
5.70%, 12/1/16, (AMBAC)............................ 2,268,504
------------
2,811,154
------------
New York - 11.8%
Long Island, New York,
Power Authority, Electric Systems Revenue, Series
A:
1,750,000 5.50%, 12/1/29...................................... 1,809,622
2,250,000 5.75%, 12/1/24...................................... 2,416,995
1,000,000 New York & New Jersey
Port Authority, 104th Series
5.20%, 7/15/21, (AMBAC)............................ 1,017,390
500,000 New York & New Jersey,
Port Authority, 97th Series
6.50%, 7/15/19, (FGIC)............................. 558,495
</TABLE>
19
<PAGE>
[LOGO OF HIGH GRADE MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
New York - continued
New York City, New York,
Municipal Water Finance Authority, Series B:
$1,000,000 5.50%, 6/15/27, (MBIA).............................. $ 1,055,410
2,000,000 5.75%, 6/15/29, (MBIA).............................. 2,159,740
700,000 New York City, New York,
Municipal Water Finance Authority, Water & Sewer
Systems Revenue
5.75%, 6/15/26, (MBIA)............................. 752,150
1,600,000 New York State, Mortgage Agency Revenue Series 73-A
5.30%, 10/1/28..................................... 1,612,400
1,500,000 New York State, Housing Finance Agency Revenue,
Series 1994 B
6.35%, 8/15/23, (AMBAC)............................ 1,626,660
1,000,000 New York State, Local Government Assistance Corp.
5.50%, 4/1/21...................................... 1,030,620
1,000,000 New York State, Mortgage Agency Revenue, Homeowner
Mortgage, Series 70
5.375%, 10/1/17.................................... 1,023,240
------------
15,062,722
------------
North Dakota - 2.6%
3,000,000 Mercer County, North Dakota,
Pollution Control Revenue, (Basin Electric Power,
Cooperative-Antelope Valley), Second Series
6.05%, 1/1/19, (AMBAC)............................. 3,290,790
------------
Ohio - 3.0%
2,000,000 Hamilton County, Ohio,
Sales Tax Revenue, Hamilton County Football,
Project B
5.00%, 12/1/18, (MBIA)............................. 2,004,860
1,000,000 Ohio State, Board of Education, Kings Local School
District, City of Warren, General Obligation,
Series 1995
7.50%, 12/1/16, (FGIC)............................. 1,325,920
455,000 Ohio State, Housing Finance Agency, Residential
Mortgage Revenue, 1995 Series A-2
6.625%, 3/1/26, (GNMA)............................. 491,223
------------
3,822,003
------------
Pennsylvania - 2.2%
100,000 Delaware County, Pennsylvania, Villanova University
Revenue,
Series A
4.625%, 12/1/07, (MBIA)............................ 103,538
110,000 Lehigh County, Pennsylvania,
General Obligation
5.125%, 11/15/08, (FGIC)........................... 115,076
100,000 Pennsylvania State, Industrial Development Authority
Revenue, Economic Development
5.00%, 7/1/04, (AMBAC)............................. 104,551
50,000 Pennsylvania State, State Turnpike Commission,
Turnpike Revenue, Series F
7.25%, 12/1/17, (AMBAC)............................ 52,977
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Pennsylvania - continued
$1,000,000 Pittsburgh, Pennsylvania,
General Obligation, Series D
5.00%, 9/1/19, (FGIC).............................. $ 998,640
100,000 Pittsburgh, Pennsylvania,
School District, General Obligation, Series A
4.85%, 9/1/03...................................... 104,371
50,000 Scranton, Lackawanna,
Pennsylvania, Health & Welfare Authority Revenue
5.00%, 1/1/06, (MBIA).............................. 52,522
100,000 Tunkhannock, Pennsylvania,
Area School District, General Obligation
4.55%, 7/15/08, (AMBAC)............................ 102,321
90,000 University of Pittsburgh, Pennsylvania, The
Commonwealth System of Higher Education, University
Capital Projects Revenue
5.05%, 6/1/10, (FGIC).............................. 94,801
1,000,000 York County, Pennsylvania,
Solid Waste & Refuse Authority, Solid Waste Systems
Revenue
5.50%, 12/1/12, (FGIC)............................. 1,094,330
------------
2,823,127
------------
South Carolina - 3.8%
2,300,000 Greenville, South Carolina,
Hospital Systems, Hospital Facilities Revenue,
Series A
5.75%, 5/1/14...................................... 2,458,516
South Carolina State, Port Authority Revenue:
1,075,000 Refunded, 6.625%, 7/1/11............................ 1,163,870
1,075,000 Series 1991, 6.625%, 7/1/11, (AMBAC)................ 1,163,032
------------
4,785,418
------------
Tennessee - 1.5%
1,700,000 Knox County, Tennessee,
Health, Educational & Housing Facility Board,
Hospital Facility Revenue, (Fort Sanders Alliance),
Series 1993
6.25%, 1/1/13, (MBIA).............................. 1,971,065
------------
Texas - 5.2%
1,500,000 Austin, Texas,
Airport System Revenue, Prior Lien, Series 1995A
6.125%, 11/15/25, (MBIA)........................... 1,649,175
1,000,000 Dallas, Texas,
Special Tax Revenue, Series A
5.25%, 8/15/16, (AMBAC)............................ 1,037,150
1,500,000 Hays, Texas,
Consolidated Independent School District, General
Obligation
5.875%, 8/15/22.................................... 1,633,560
1,000,000 Houston, Texas,
Water Conveyance System Contract, COP, Series 1993
H
7.50%, 12/15/14, (AMBAC)........................... 1,302,950
</TABLE>
20
<PAGE>
[LOGO OF HIGH GRADE MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Texas - continued
$1,000,000 Texas State, Department of Housing & Community
Affairs, Residential Mortgage Revenue, Series A
5.25%, 7/1/18, (GNMA & FNMA)...................... $ 1,007,080
------------
6,629,915
------------
Utah - 0.9%
1,000,000 Salt Lake City, Utah,
Salt Lake County Airport Revenue, Series 1993A
6.00%, 12/1/12, (FGIC)............................ 1,089,590
------------
Virginia - 3.9%
2,000,000 Hanover County, Virginia,
Industrial Development Authority Revenue, Memorial
Regional Medical Center Project, Series 1995
6.375%, 8/15/18, (MBIA)........................... 2,381,280
1,000,000 Loudoun County, Virginia,
Sanitation Authority Water & Sewer Revenue
4.75%, 1/1/21, (MBIA)............................. 969,360
1,545,000 Virginia State, Housing Development Authority,
Commonwealth Mortgage Revenue, Series D
5.40%, 7/1/21..................................... 1,564,853
------------
4,915,493
------------
Washington - 5.7%
1,000,000 Chelan County, Washington,
Public Utility District, Consolidated Revenue,
Series A
5.25%, 7/1/33, (FSA).............................. 996,970
2,500,000 City of Tacoma, Washington,
Electric Systems Refunding Revenue, Series 1994
6.25%, 1/1/15, (FGIC)............................. 2,760,750
2,500,000 Port Seattle, Washington,
Passenger Facility Charge Revenue, Series A
5.00%, 12/1/23, (MBIA)............................ 2,468,375
1,000,000 Seattle, Washington,
Port Revenue, Series A
5.50%, 10/1/22, (FGIC)............................ 1,055,100
------------
7,281,195
------------
West Virginia - 0.4%
500,000 West Virginia State, Housing Development Funding
Revenue, Series A
6.05%, 5/1/27..................................... 536,595
------------
Wisconsin - 9.1%
4,500,000 Superior, Wisconsin,
Limited Obligation Refunding Revenue, Midwest
Energy Resource Co. Project, Series E-1991
6.90%, 8/1/21, (FGIC)............................. 5,679,990
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Wisconsin - continued
$1,000,000 Wisconsin State, Health & Educational Facilities
Authority Revenue, Childrens Hospital of Wisconsin
Inc.
5.00%, 2/15/18, (AMBAC)............................ $ 996,260
Wisconsin State, Housing & Economic Development
Authority, Home Ownership Revenue:
1,250,000 Series B, 5.60%, 3/1/28............................. 1,283,475
2,500,000 Series H, 5.75%, 9/1/28............................. 2,584,875
80,000 Wisconsin State, Transportation Revenue,
Prerefunded, Series B
5.50%, 7/1/22...................................... 84,654
920,000 Wisconsin State, Transportation Revenue, Unrefunded
Balance, Series B, 5.50%, 7/1/22................... 939,725
------------
11,568,979
------------
Puerto Rico - 2.5%
1,000,000 Commonwealth of Puerto Rico, General Obligation
6.50%, 7/1/10, (MBIA).............................. 1,200,070
500,000 Puerto Rico, Electric Power Authority, Power
Refunding Revenue, Series Y
6.50%, 7/1/06, (MBIA).............................. 579,655
335,000 Puerto Rico, Housing, Bank & Finance Agency, Single
Family Mortgage Revenue, 6.10%, 10/1/15,
(GNMA, FNMA & FHLMC)............................... 356,554
1,000,000 Puerto Rico, Public Finance Corp., Commonwealth
Appropriated Revenue, Series A
5.375%, 6/1/16, (AMBAC)............................ 1,079,920
------------
3,216,199
------------
Total Long-Term Municipal Obligations
(cost $116,513,880)................................ 123,645,380
------------
</TABLE>
<TABLE>
<CAPTION>
Shares
<C> <S> <C> <C>
MUTUAL FUND SHARES - 1.7%
2,137,054 Federated Municipal Obligations Fund (cost
$2,137,054)........................................ 2,137,054
------------
Total Investments -
(cost $118,650,934)......................... 98.8% 125,782,434
Other Assets and
Liabilities - net........................... 1.2 1,546,088
----- ------------
Net Assets - ................................ 100.0% $127,328,522
===== ============
</TABLE>
21
<PAGE>
[LOGO OF HIGH GRADE MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
The Fund invests primarily in debt securities issued by municipalities.
The ability of the issuers of debt securities to meet their obligations
may be affected by economic developments in a specific industry or munic-
ipality. In order to reduce risk associated with such economic develop-
ments, securities may possess municipal bond insurance from various fi-
nancial institutions and financial guaranty assurance agencies. Therefore
the Funds may be more affected by developments in the insurance industry
or a specific municipal bond insurer. At November 30, 1998, 71.2% of the
securities, as a percentage of net assets, are backed by bond insurance
of various financial institutions and financial guaranty assurance agen-
cies. At November 30, 1998, the Fund had securities backed by bond insur-
ance of the following financial institutions representing more than 5% of
net assets:
AMBAC 21.8%
FGIC 14.2%
MBIA 29.8%
Summary of Abbreviations:
AMBAC Insured by American Municipal Bond Assurance Corporation
COP Certificate of Participation
FGIC Insured by Federal Guaranty Insurance Company
FHLMC Insured by Federal Home Loan Mortgage Corporation
FNMA Insured by Federal National Mortgage Association
FSA Insured by Financial Security Assurance Corporation
GNMA Insured by Government National Mortgage Association
MBIA Insured by Municipal Bond Investors Assurance Corporation
See Combined Notes to Financial Statements.
22
<PAGE>
[LOGO OF MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - 97.4%
Alabama - 1.6%
Alabama State, Housing Finance Authority, Single
Family Revenue:
$ 2,005,000 Collateralized Home Mortgage,
Series D-1 6.00%, 10/1/16........................ $ 2,126,323
35,000 Series A-2 10.75%, 6/1/13........................ 37,476
2,000,000 Alabama State, Water Pollution Control Authority,
Revolving Fund Loan, Series B
5.50%, 8/15/16.................................. 2,087,900
655,000 Birmingham, Alabama,
Airport Authority, Airport Revenue
5.625%, 7/1/26, (MBIA).......................... 696,291
3,895,000 Jefferson County, Alabama,
Board of Education, Capital Outlay, School
Warrants, Series A
5.80%, 2/15/20, (FSA)........................... 4,240,175
9,900,000 Jefferson County, Alabama,
Sewer Revenue, Series A54
7.92%, 2/1/27 (d)............................... 11,385,495
--------------
20,573,660
--------------
Alaska - 3.8%
15,000,000 Alaska State, Energy Authority, Utilities
Revenue, Linked Bulls/Bears Floaters
6.60%, 7/1/15, (FGIC) (c)....................... 17,947,650
15,580,000 Alaska State, Housing Finance Corp., General
Obligation, Series A-2, 5.75%, 6/1/24........... 16,132,623
Alaska State, Industrial Development and Export
Authority:
5,000,000 Refunding, Revolving Fund, Series A
5.20%, 4/1/18.................................... 5,018,900
5,000,000 Snettisham Hydroelec, Series 1
5.25%, 1/1/22................................... 5,069,550
5,000,000 Valdez, Alaska,
Marine Terminal Revenue, Pipeline, Inc. Project,
Series C
5.65%, 12/1/28.................................. 5,103,700
--------------
49,272,423
--------------
Arizona - 1.4%
850,000 Chandler, Arizona,
Water & Sewer Revenue
6.75%, 7/1/06, (FGIC)........................... 912,620
Maricopa County, Arizona, Elementary School
District:
2,000,000 No. 008, Osborn Refunding
7.50%, 7/1/07, (MBIA)............................ 2,480,080
3,750,000 No. 068, Series A
6.75%, 7/1/14, (AMBAC)........................... 4,297,987
6,000,000 No. 069
8.125%, 1/1/10, (MBIA)........................... 7,979,040
2,030,000 Pima County, Arizona,
Unified School District No. 001, General
Obligation
7.50%, 7/1/03, (FGIC)........................... 2,335,637
--------------
18,005,364
--------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
California - 7.9%
$ 1,500,000 Abag, California,
Rhoda Haas Goldman Plaza Finance Authority for
Non Profit Corps., COP
5.125%, 5/15/15, (California Mortgage Insured)... $ 1,509,075
1,000,000 Anaheim, California,
Public Financing Authority, Lease Revenue, Public
Improvements Project, Series C
6.00%, 9/1/16, (FSA)............................. 1,155,280
7,750,000 California State, Educational Facilities Authority
Revenue, Stanford University, Series N
5.20%, 12/1/27................................... 7,922,282
2,500,000 California State, General Obligation, Series BH,
AMT
5.50%, 12/1/18................................... 2,569,725
California State Housing Finance Agency Revenue:
12,000,000 Home Mortgage, Series D
5.85%, 8/1/17..................................... 12,702,120
1,980,000 Home Mortgage, Series H
6.25%, 8/1/27..................................... 2,107,948
7,000,000 Multifamily Housing, Series B
5.40%, 8/1/18, (MBIA)............................. 7,103,250
California State, Public Works Board, Lease
Revenue:
California State University Projects, Series A:
8,775,000 5.50%, 10/1/14.................................... 9,375,034
9,000,000 5.50%, 10/1/15.................................... 9,542,340
5,150,000 5.25%, 10/1/16.................................... 5,322,268
9,195,000 Community College Projects, Series B, 5.625%,
3/1/16, (AMBAC).................................. 9,878,832
3,700,000 Correctional State Prison, Series E
5.50%, 6/1/15.................................... 4,028,005
200,000 Los Angeles County, California, Public Works
Financing Authority, Lease Revenue, Multiple
Capital Facilities Project, Series B
5.125%, 12/1/17, (AMBAC)......................... 203,880
2,750,000 Palm Desert, California,
Financing Authority, Tax Allocation Revenue,
Project Area No.1, 5.625%, 4/1/23, (MBIA)........ 2,929,410
550,000 Poway, California,
Community Facilities District, Special Tax,
Parkway Business Center
6.75%, 8/15/15................................... 601,667
3,765,000 San Francisco, California, International Airport
Revenue, Series Issue 10-A, AMT
5.70%, 5/1/26.................................... 3,999,635
</TABLE>
23
<PAGE>
[LOGO OF MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
California - continued
$11,915,000 San Joaquin Hills, California,
Toll Road Revenue, Senior Lien,
(Eff. Yield 7.748%)
0.00%, 1/1/19 (b)............................... $ 4,371,137
3,000,000 San Jose, California, Redevelopment Agency, Tax
Allocation, Merged Area Redevelopment Project,
Series B
5.75%, 8/1/11................................... 3,224,580
400,000 San Juan, California,
MSR Public Power Agency Revenue, Series B
6.75%, 7/1/11................................... 436,272
Southern California State, Public Power
Authority:
3,000,000 Power Project Revenue, Mead Adelanto Project,
Series A
5.00%, 7/1/17, (AMBAC)........................... 3,018,720
10,000,000 Transmission Project Revenue, (Eff. Yield 5.93%)
0.00%, 7/1/15, (FGIC)(b)......................... 4,484,000
Victor Valley, California,
Joint Unified High School District, General
Obligation:
3,780,000 (Eff. Yield 6.25%)
0.00%, 9/1/11, (MBIA)(b)........................ 2,131,088
4,450,000 (Eff. Yield 6.35%)
0.00%, 9/1/13, (MBIA)(b)......................... 2,228,026
625,000 Vista, California,
Community Development Commission Tax Allocation
Revenue, Vista Redevelopment Project
6.00%, 9/1/10................................... 724,475
--------------
101,569,049
--------------
Colorado - 6.2%
4,000,000 Araphoe County, Colorado,
Single Family Mortgage Revenue, Series A,
(Eff. Yield 6.00%)
0.00%, 9/1/10 (b)............................... 2,310,000
5,000,000 Colorado Springs, Colorado, Company Utilities
Revenue, Series A 5.375%, 11/15/26.............. 5,149,400
Colorado State, East 470 Public Highway Authority
Revenue, Senior Series B:
9,795,000 (Eff. Yield 5.30%)
0.00%, 9/1/13 (b)................................ 4,840,885
4,000,000 (Eff. Yield 5.35%)
0.00%, 9/1/14 (b)................................ 1,855,880
5,000,000 (Eff. Yield 5.449%)
0.00%, 9/1/17 (b)................................ 1,957,000
1,880,000 Colorado State, Health Facilities Authority
Revenue, Sisters Charity Health Care, Series A
6.25%, 5/15/09, (MBIA)........................... 2,173,280
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Colorado - continued
Colorado State, Housing Finance Authority
Revenue, Single Family Mortgage:
$ 2,275,000 Series A-2, AMT 6.60%, 5/1/28.................... $ 2,513,989
3,000,000 Series B- 2, 6.40%, 11/1/24...................... 3,270,120
Denver, Colorado,
City & County Airport Revenue:
140,000 Prerefunded Balance, Series A
8.00%, 11/15/25.................................. 156,467
865,000 Prerefunded Balance, Series B
7.25%, 11/15/12.................................. 986,671
3,000,000 Series A, AMT
5.00%, 11/15/25, (FSA)........................... 2,926,710
8,200,000 Series D, 7.75%, 11/15/13........................ 10,493,458
Unrefunded Balance:
3,385,000 Series B, 7.25%, 11/15/12........................ 3,743,945
720,000 Series A, 7.25%, 11/15/25........................ 825,574
5,480,000 Series A, 7.50%, 11/15/23........................ 6,360,033
9,700,000 Series D, 7.75%, 11/15/21........................ 10,714,620
915,000 Series A, 8.00%, 11/15/25........................ 993,589
385,000 Series A, 8.00%, 11/15/25........................ 421,825
8,060,000 Series A, 8.75%, 11/15/23........................ 9,137,542
El Paso County, Colorado,
School District No. 11, Colorado Springs:
2,310,000 6.50%, 12/1/12................................... 2,812,725
2,000,000 7.10%, 12/1/13................................... 2,570,320
1,000,000 7.10%, 12/1/16................................... 1,290,910
2,250,000 Larimer County, Colorado,
School District
7.00%, 12/15/16, (MBIA).......................... 2,891,115
--------------
80,396,058
--------------
Connecticut - 0.2%
2,000,000 Connecticut State, Housing Finance Authority
Revenue, AMT
5.375%, 11/15/18................................. 2,023,120
--------------
Delaware - 0.1%
1,600,000 Delaware State, Health Facilities Authority
Revenue, Medical Center of Delaware
7.00%, 10/1/15, (MBIA).......................... 1,836,416
--------------
District of Columbia - 1.5%
1,500,000 District of Columbia Revenue, American
Association for the Advancement of Science
5.25%, 1/1/16, (AMBAC).......................... 1,549,020
3,765,000 District of Columbia, Hospital Revenue,
Medatlantic Healthcare Group, Series A
6.00% 8/15/11, (MBIA)........................... 4,278,320
</TABLE>
24
<PAGE>
[LOGO OF MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
District of Columbia - continued
$ 8,000,000 District of Columbia, Housing Revenue, Carnegie
Endowment for International Peace
5.75%, 11/15/26................................. $ 8,442,720
5,705,000 Washington, District of Columbia, Convention
Center Authority, Dedicated Tax Revenue,
Senior Lien
5.00%, 10/1/21, (AMBAC)......................... 5,621,023
--------------
19,891,083
--------------
Florida - 2.6%
10,000,000 Florida State, Board of Education, Capital
Outlay, General Obligation, Public Education,
Series B
5.75%, 6/1/17................................... 10,666,400
Gainesville, Florida,
Utilities Systems Revenue, Series B:
1,000,000 5.50%, 10/1/13................................... 1,059,320
435,000 7.50%, 10/1/08................................... 549,435
695,000 7.50%, 10/1/09................................... 888,474
420,000 Hillsborough County, Florida, Housing Finance
Agency, Single Family Mortgage Revenue, Series A
7.30%, 4/1/22................................... 437,758
3,580,000 Jacksonville, Florida,
Transportation Authority Revenue
9.20%, 1/1/15................................... 5,185,630
300,000 Lee County, Florida,
Solid Waste Systems Revenue, Series B
7.00%, 10/1/11.................................. 331,479
8,000,000 Miami-Dade County, Florida,
Special Obligation, Series A,
(Eff. Yield 5.50%)
0.00%, 10/1/16 (b).............................. 3,293,200
2,000,000 Orange County, Florida,
Health Facilities Authority Revenue, Orlando
Regional Healthcare, Series A
6.25%, 10/1/18, (MBIA).......................... 2,348,600
495,000 Orange County, Florida,
Housing Finance Authority Revenue, Single Family
Mortgage, Series B
6.85%, 10/1/27,
(GNMA/FNMA)..................................... 532,318
2,960,000 Orlando-Orange County, Florida,
Expressway Authority Revenue
8.25%, 7/1/15, (FGIC)........................... 4,173,926
1,250,000 Palm Beach County, Florida,
Health Facilities Authority Revenue, Waterford
Project
5.50%, 10/1/15.................................. 1,254,437
1,000,000 Sarasota County, Florida,
Utilities Systems Revenue
6.50%, 10/1/22.................................. 1,153,110
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Florida - continued
$ 500,000 Tampa, Florida,
Allegheny Health Systems Revenue
6.50%, 12/1/23.................................. $ 576,825
500,000 Tarpon Springs, Florida,
Health Facilities Authority, Hospital Revenue,
Tarpon Springs Hospital
8.75%, 5/1/12................................... 511,470
--------------
32,962,382
--------------
Georgia - 3.2%
4,255,000 Atlanta, Georgia,
Metropolitan Rapid Transit Authority, Sales Tax
Revenue, Series P
6.25%, 7/1/11, (AMBAC).......................... 5,008,177
3,000,000 Forsyth County, Georgia,
School District, General Obligation
6.75%, 7/1/16................................... 3,681,360
6,500,000 Fulton County, Georgia, Development Authority
Special Facilities Revenue, Delta Airlines Inc.
Project
5.45%, 5/1/23................................... 6,430,905
9,800,000 Georgia State, Municipal Electric Authority,
Power Revenue, Series B
6.375%, 1/1/16.................................. 11,534,502
10,700,000 Georgia State, General Obligation, Series C
5.25%, 4/1/11................................... 11,608,002
2,620,000 Private Colleges & University Facilities
Authority Revenue, Georgia, Mercer University
Project
6.40%, 11/1/11, (MBIA).......................... 3,108,578
--------------
41,371,524
--------------
Hawaii - 0.6%
Hawaii State, Department of Budget and Finance,
Special Purpose Revenue, Hawaiian Electric Co.,
Inc., Series A:
2,000,000 4.95%, 4/1/12.................................... 2,048,480
2,000,000 5.65%, 10/1/27, (MBIA)........................... 2,167,360
4,060,000 Hawaii State, Housing Finance & Development Corp.
Revenue, Series C, AMT
5.35%, 7/1/20................................... 4,084,563
--------------
8,300,403
--------------
Idaho - 0.1%
715,000 Idaho State, Housing Finance Authority Revenue,
Single Family Mortgage Bonds, Series D-1
8.00%, 1/1/20................................... 797,282
--------------
</TABLE>
25
<PAGE>
[LOGO OF MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Illinois - 4.4%
$ 5,000,000 Chicago, Illinois,
Public Building Commerce, Building Revenue,
Series A
5.75%, 12/1/18, (MBIA).......................... $ 5,329,700
1,890,000 Chicago, Illinois,
Single Family Mortgage Revenue, Series B, 6.95%,
9/1/28.......................................... 2,109,826
4,000,000 Illinois State, Development Finance Authority,
Pollution Control Revenue, Commonwealth Edison
Company Project, Series D
6.75%, 3/1/15, (AMBAC) ......................... 4,587,680
3,000,000 Illinois State, Educational Facilities Authority
Revenue, Centegra Health Systems
5.25%, 9/1/24................................... 2,950,200
2,000,000 Illinois State, General Obligation
5.70%, 4/1/10................................... 2,143,440
9,000,000 Illinois State, Sales Tax Revenue, Series P
6.50%, 6/15/22.................................. 10,773,630
2,965,000 Kankakee, Illinois,
Sewer Revenue
6.875%, 5/1/11, (FGIC).......................... 3,331,978
Metropolitan Fair & Exposition Authority Revenue,
Illinois:
14,000,000 (Eff. Yield 6.75%)
0.00%, 6/15/16 (b)............................... 5,861,940
3,000,000 Series A 5.00%, 6/1/15........................... 2,993,310
10,000,000 Northern Illinois State, University Revenues,
Auxiliary Facilities Systems
5.75%, 4/1/22, (FGIC)........................... 10,825,300
4,950,000 Quincy, Illinois,
Blessing Hospital Revenue
6.00%, 11/15/18................................. 5,195,718
--------------
56,102,722
--------------
Indiana - 1.3%
3,000,000 Goshen, Indiana,
Revenue, Greencroft Obligation Group
5.75%, 8/15/28.................................. 2,909,040
6,800,000 Indiana State, Housing Finance Authority, Single
Family Mortgage Revenue, Series A3, AMT
5.375%, 1/1/23,
(FNMA/GNMA)..................................... 6,847,736
5,000,000 Indianapolis, Indiana,
Gas Utility Revenue, Refunding Distribution
Systems, Series A
5.00%, 8/15/24.................................. 4,901,150
1,640,000 St. Joseph County, Indiana, Educational
Facilities Revenue, University of Notre Dame
6.50%, 3/1/26................................... 2,024,350
--------------
16,682,276
--------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Kansas - 0.2%
$ 2,000,000 Burlington, Kansas,
Pollution Control Revenue, Kansas Gas & Electric
Co. Project
7.00%, 6/1/31, (MBIA)........................... $ 2,184,340
--------------
Kentucky - 1.8%
8,000,000 Carroll County, Kentucky,
Pollution Control Revenue, Kentucky Utility Co.,
Series A
7.45%, 9/15/16.................................. 9,036,720
6,000,000 Jefferson County, Kentucky, Hospital Revenue,
Linked ACEs/INFLOs
6.436%, 10/1/14, (MBIA) (c)..................... 6,560,880
4,000,000 Kentucky State, Housing Corp. Housing Revenue,
Series B
5.30%, 7/1/18................................... 4,041,680
2,725,000 Trimble County, Kentucky,
Pollution Control Revenue, Louisville Gas &
Electric Co.
7.625%, 11/1/20................................. 2,945,916
--------------
22,585,196
--------------
Louisiana - 1.5%
3,000,000 Louisiana State, Offshore Term Refunding, Loop
LLC Project
5.20%, 10/1/18.................................. 2,981,340
1,395,000 Louisiana State, Public Facilities Authority,
Health & Education Revenue, Series D
7.90%, 12/1/15.................................. 1,422,900
Louisiana State, Public Facilities Authority,
Hospital Revenue, Franciscan Missionaries:
5,000,000 Series A, 5.50%, 7/1/10.......................... 5,445,650
4,345,000 Series C, 5.375%, 7/1/13......................... 4,553,604
New Orleans, Louisiana, General Obligation:
6,960,000 (Eff. Yield 6.05%)
0.00%, 9/1/14, (AMBAC) (b)....................... 3,239,184
2,800,000 (Eff. Yield 7.10%)
0.00%, 9/1/15, (AMBAC) (b)....................... 1,241,380
--------------
18,884,058
--------------
Maine - 0.3%
4,000,000 Maine State, Housing Authority Revenue, Mortgage
Purchase, Series C2, AMT
6.05%, 11/15/28................................. 4,172,680
--------------
Massachusetts - 6.2%
Massachusetts Bay Transportation Authority
Revenue:
3,000,000 Coupon Transportation Systems, Series B
5.00%, 3/1/28.................................... 2,946,210
7,950,000 General Transportation Systems: Series A
6.25%, 3/1/12.................................... 9,298,797
</TABLE>
26
<PAGE>
[LOGO OF MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Massachusetts - continued
Massachusetts Bay Transportation Authority Revenue:
$ 1,950,000 Series A
7.00%, 3/1/21, (MBIA).............................. $ 2,415,816
2,125,000 Series B, 6.20%, 3/1/16............................ 2,488,481
Massachusetts State, Development Finance Agency
Revenue:
700,000 New England Center for Children
5.875%, 11/1/18.................................... 710,640
1,000,000 Regis College
5.25%, 10/1/18..................................... 981,750
2,000,000 Massachusetts State, General Obligation,
Consolidated Loan, Series C
5.25%, 8/1/16..................................... 2,082,480
Massachusetts State, Health & Educational
Facilities Authority Revenue:
5,450,000 Boston Medical Center, Series A
5.25%, 7/1/14...................................... 5,653,939
1,900,000 Cape Cod Healthcare, Series B
5.45%, 11/15/23.................................... 1,902,527
12,245,000 Caregroup Issue, Series A
5.00%, 7/1/18...................................... 12,138,591
5,000,000 Jordan Hospital, Series D
5.25%, 10/1/23..................................... 4,878,100
2,900,000 Milford Whitinsville Regional Hospital, Series C
5.25%, 7/15/18..................................... 2,854,296
700,000 Milton Hospital, Series B
7.25%, 7/1/05...................................... 746,900
500,000 North Adams Regional Hospital, Series C, 6.75%,
7/1/09............................................. 543,985
4,250,000 Massachusetts State, Housing Finance Agency
Revenue, Housing Development,
Series D, AMT
5.40%, 6/1/20..................................... 4,297,515
Massachusetts State, Industrial Finance Agency
Revenue:
2,600,000 College of Holy Cross
5.00%, 9/1/23...................................... 2,574,676
1,000,000 Parking Facilities Revenue, Avon Associate, Series
A
5.375%, 4/1/20, (MBIA)............................. 1,012,850
4,750,000 Refunding, Ogden Haverhill Project, Series A
5.60%, 12/1/19..................................... 4,754,180
8,500,000 Massachusetts State, Industrial Finance Agency
Solid Waste Disposal Revenue, Senior Lien,
Massachusetts Recycling Association,
9.00%, 8/1/16 (e)................................. 2,824,975
6,800,000 Massachusetts State, Municipal Wholesale Electric
Co., Power Supply Systems Revenue, Series A
7.02%, 7/1/18..................................... 7,223,368
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Massachusetts - continued
$20,000,000 Massachusetts State, Turnpike Authority,
Metropolitan Highway Systems Revenue, Senior
Series C,
(Eff. Yield 5.549%)
0.00%, 1/1/22 (b)............................... $ 6,287,400
610,000 Massachusetts State, Water Pollution Abatement
Trust Revenue, Pool Loan Program, Series 2
6.125%, 2/1/08.................................. 700,231
--------------
79,317,707
--------------
Michigan - 2.9%
1,000,000 Michigan State, Building Authority Revenue,
Facilities Program, Series II,
(Eff. Yield 5.25%)
0.00%, 10/15/11, (AMBAC)(b)..................... 558,570
2,860,000 Michigan State, Higher Education Student Loan,
Series XVII-B
5.40%, 6/1/18, (AMBAC).......................... 2,822,477
Michigan State, Hospital Finance Authority
Revenue:
6,970,000 Henry Ford Health Systems, Series A
5.25%, 11/15/20.................................. 7,007,498
7,500,000 Oakwood Hospital Obligation Group, Series A
5.625%, 11/1/18.................................. 7,841,550
10,000,000 Monroe County, Michigan, Economic Development
Corp., Limited Obligation Revenue, Detroit
Edison Co.
6.95%, 9/1/22, (FGIC)........................... 12,962,400
Wayne Charter County, Michigan, Airport Revenue,
Detroit Metropolitan Wayne County Airport:
3,500,000 Series A, AMT
5.25%, 12/1/18, (MBIA)........................... 3,561,180
3,000,000 Series B
5.25%, 12/1/17, (MBIA)........................... 3,082,380
--------------
37,836,055
--------------
Minnesota - 1.1%
Minneapolis & St. Paul, Minnesota, Metropolitan
Airports Common Airport Revenue, Series B, AMT:
5,000,000 5.25%, 1/1/14, (AMBAC)........................... 5,198,200
9,150,000 5.25%, 1/1/15, (AMBAC)........................... 9,472,812
--------------
14,671,012
--------------
Mississippi - 0.3%
1,000,000 Harrison County, Mississippi, Wastewater
Treatment Management District Revenue
8.50%, 2/1/13................................... 1,423,400
2,000,000 Mississippi State, Home Corp., Single Family
Revenue Mortgage, Series B, Class 7
5.25%, 6/1/99, (FNMA/GNMA)...................... 2,138,660
--------------
3,562,060
--------------
</TABLE>
27
<PAGE>
[LOGO OF MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Missouri - 1.3%
$ 4,900,000 Bridgeton, Missouri,
Industrial Development Authority Revenue, Senior
Housing Revenue, The Sarah Community Project
5.80%, 5/1/18................................... $ 4,842,425
500,000 Joplin, Missouri,
Industrial Development Authority Revenue,
Catholic Health Initiatives, Series A
5.125%, 12/1/15................................. 505,030
4,200,000 Kansas City, Missouri, Municipal Assistance Corp.
Revenue, Refunding Leasehold, Series A
5.125%, 4/15/15, (MBIA) 4,274,298
2,040,000 Missouri State, Housing Development Commission,
Single Family Mortgage Revenue, Series B
6.45%, 9/1/27................................... 2,179,373
Sikeston, Missouri,
Electric Revenue:
450,000 6.00%, 6/1/13, (MBIA)............................ 513,491
200,000 6.00%, 6/1/14, (MBIA)............................ 228,374
3,200,000 St. Louis, Missouri, Airport Revenue, Lambert
St. Louis International Airport, Series B, AMT
5.25%, 7/1/27, (FGIC)........................... 3,239,968
1,250,000 West Plains, Missouri, Industrial Development
Authority, Hospital Revenue, Ozarks Medical
Center
5.65%, 11/15/22................................. 1,263,662
--------------
17,046,621
--------------
Nebraska - 1.2%
15,000,000 Nebraska State, Investment Finance Authority,
Single Family Housing Revenue, Series F
5.60%, 9/1/20,
(GNMA/FNMA/FHLMC)............................... 15,208,950
--------------
Nevada - 1.4%
Clark County, Nevada:
4,905,000 Airport Revenue, Series A
5.50%, 7/1/15, (MBIA)........................... 5,222,108
6,000,000 General Obligation, Series A
7.50%, 6/1/09, (AMBAC)........................... 7,600,440
5,000,000 Nevada State, Municipal Bond Bank Projects 66 &
67, General Obligation, Series A
5.00%, 5/15/28, (FGIC)........................... 4,917,800
--------------
17,740,348
--------------
New Hampshire - 1.9%
3,155,000 New Hampshire State, Higher Education & Health
Facilities Authority, Frisbie Memorial Hospital
Revenue
6.125%, 10/1/13.................................. 3,305,620
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
New Hampshire - continued
$20,615,000 New Hampshire State, Turnpike Systems Revenue
5.75%, 4/1/20.................................... $ 21,449,701
--------------
24,755,321
--------------
New Jersey - 0.2%
1,000,000 Gloucester County, New Jersey, Improvement
Authority, Solid Waste Resource Recovery
Revenue, SES Gloucester Company LP Project,
Series A
8.125%, 7/1/10,
(LOC: Fuji Bank Ltd.)............................ 1,003,880
1,000,000 New Jersey State, Health Care Facilities
Financing Authority Revenue, Jersey Shore
Medical Center
6.125%, 7/1/12, (AMBAC).......................... 1,109,940
1,055,000 Salem County, New Jersey, Pollution Control
Finance Authority, Waste Disposal Revenue
6.50%, 11/15/21.................................. 1,128,734
--------------
3,242,554
--------------
New Mexico - 1.5%
1,500,000 Albuquerque, New Mexico, Hospital System Revenue,
Series A
6.375%, 8/1/07, (MBIA)........................... 1,633,710
Farmington, New Mexico, Pollution Control
Revenue:
10,000,000 Public Service Co. of San Juan, Series C
5.70%, 12/1/16, (AMBAC).......................... 10,819,200
5,000,000 Southern California Edison Co., Series A
5.875%, 6/1/23, (MBIA)........................... 5,382,250
1,000,000 University of New Mexico, New Mexico, University
Revenues, Series A
6.00%, 6/1/21.................................... 1,137,300
--------------
18,972,460
--------------
New York - 10.8%
Long Island Power Authority, New York, Electric
Systems Revenue:
5,000,000 5.00%, 4/1/13, (MBIA)............................ 5,115,200
12,750,000 Series A, 5.75%, 12/1/24......................... 13,619,423
Metropolitan Transportation Authority, New York,
Transportation Facilities Revenue:
10,000,000 Series A 5.70%, 7/1/17, (MBIA)................... 10,794,400
11,600,000 Service Contract, Series 7
5.625%, 7/1/16................................... 12,000,316
5,000,000 Service Contract, Series R
5.50%, 7/1/17.................................... 5,224,700
</TABLE>
28
<PAGE>
[LOGO OF MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
New York - continued
New York City, New York:
Prerefunded Balance, Series A:
$ 85,000 5.75%, 8/1/10, (FGIC).............................. $ 91,873
365,000 7.75%, 8/15/08..................................... 408,585
195,000 7.75%, 8/15/14..................................... 218,285
315,000 Unrefunded Balance, Series A
5.75%, 8/1/10, (FGIC).............................. 334,895
New York City, New York, Municipal Water Finance
Authority, Water & Sewer Systems Revenue:
14,900,000 Series A65
7.77%, 6/15/29 (a)................................. 17,169,568
Series B:
5,000,000 5.125%, 6/15/17, (FSA)............................. 5,070,900
1,300,000 5.75%, 6/15/26, (MBIA)............................. 1,396,694
6,000,000 5.75%, 6/15/26, (MBIA/IBC)......................... 6,489,060
New York City, New York, General Obligation:
300,000 Prerefunded Balance, Series A
7.75%, 8/15/15..................................... 335,823
2,500,000 Refunded Balance, Series G
6.75%, 2/1/09, (FGIC).............................. 2,978,425
Unrefunded Balance, Series A:
250,000 7.75%, 8/15/08..................................... 276,912
140,000 7.75%, 8/15/14..................................... 154,577
220,000 7.75%, 8/15/15..................................... 242,966
New York State, Dormitory Authority Revenue:
4,200,000 Buena Vida Nursing Home, Series A
5.25%, 7/1/28, (Sonyma)............................ 4,175,808
3,980,000 City University Educational Facilities, Series D
7.00%, 7/1/09, (FGIC/TCRS)......................... 4,741,971
5,000,000 Mental Health Services Facilities, Series A
5.75%, 8/15/22..................................... 5,261,500
4,700,000 Refunding Secured, Brookdale Hospital Medical
Center
5.10%, 2/15/12, (ACA/CBI/FSA)...................... 4,977,018
2,500,000 Secured Hospital, Interfaith Medical Center, Series
A
5.25%, 2/15/16..................................... 2,515,625
545,000 New York State, Environmental Facilities Corp.,
Pollution Control Revenue, State Water Revolving
Fund, Unrefunded Balance, Series E
6.875%, 6/15/10................................... 594,737
7,000,000 New York State, Housing Corp. Revenue, Series A,
(Eff. Yield 6.17%)
0.00%, 11/1/10 (b)................................ 6,675,620
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
New York - continued
New York State, Medical Care Facilities, Finance
Agency Revenue:
$ 2,900,000 6.375%, 8/15/14, (FGIC).......................... $ 3,257,135
2,140,000 6.375%, 11/15/19, (AMBAC)........................ 2,403,134
1,435,000 Health Center Projects, Series A
6.375%, 11/15/19................................. 1,578,859
New York State, Mortgage Agency Revenue,
Homeowener Mortgage:
4,500,000 Series 27
6.90%, 4/1/15.................................... 4,855,230
6,400,000 Series 69
5.50%, 10/1/28................................... 6,496,256
6,000,000 Series 73-A, AMT
5.30%, 10/1/28 (c)............................... 6,000,120
1,125,000 New York State, Power Authority Revenue, General
Purpose Revenue
7.00%, 1/1/18................................... 1,362,386
1,175,000 New York State, Urban Development Corp. Revenue,
Correctional Facilities, Series A
6.50%, 1/1/09................................... 1,362,201
500,000 Niagara Falls, New York, Public Improvement,
General Obligation
7.50%, 3/1/14, (MBIA)........................... 657,605
470,000 Triborough Bridge & Tunnel Authority, New York,
Special Obligation, Refunding, Series A
5.25%, 1/1/14, (FGIC)........................... 489,453
--------------
139,327,260
--------------
North Dakota - 1.6%
North Dakota State, Housing Finance Agency
Revenue:
Housing Finance Program, Home Mortgage Finance,
Series C:
15,000,000 5.50%, 7/1/29, (MBIA)............................ 15,205,950
5,000,000 5.55%, 7/1/29.................................... 5,063,700
--------------
20,269,650
--------------
Ohio - 2.8%
2,000,000 Adams County, Ohio, Valley Local School District,
General Obligation
7.00%, 12/1/15.................................. 2,531,800
2,000,000 Butler County, Ohio, Transportation Improvement
District Revenue, Series A
6.00%, 4/1/12, (FSA)............................ 2,248,600
7,000,000 Cleveland, Ohio, Public Power Systems Revenue,
First Mortgage, Series A
7.00%, 11/15/16, (MBIA)......................... 8,191,610
12,000,000 Hamilton County, Ohio,
Sales Tax Revenue, Hamilton County Football
Project, Series B
5.00%, 12/1/18, (MBIA).......................... 12,014,160
</TABLE>
29
<PAGE>
[LOGO OF MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Ohio - continued
$ 2,500,000 Montgomery County, Ohio, Hospital Revenue,
Kettering Medical Center
6.25%, 4/1/20, (MBIA)........................... $ 2,958,625
1,000,000 Ohio State, Higher Educational Facility
Commission Revenue
6.125%, 11/15/17, (MBIA)........................ 1,101,940
6,500,000 Ohio State, Housing Finance Agency, Residential
Mortgage Revenue, Series B, AMT
5.40%, 9/1/29, (GNMA)........................... 6,520,800
--------------
35,567,535
--------------
Pennsylvania - 4.4%
2,500,000 Allegheny County, Pennsylvania, Sewer Revenue
(Eff. Yield 6.10%)
0.00%, 6/1/15, (FGIC)(b)........................ 1,112,875
2,000,000 Lebanon County, Pennsylvania, Good Samaritan
Hospital Authority, Project Revenue
6.00%, 11/15/18................................. 2,090,200
2,000,000 McKeesport, Pennsylvania, Area School District,
General Obligation, Series B,
(Eff. Yield 6.25%)
0.00%, 10/1/15, (FSA)(b)........................ 886,020
900,000 Montgomery County, Pennsylvania, Industrial
Development & Pollution Control, Philadelphia
Electric Co.
7.60%, 4/1/21................................... 974,232
2,650,000 Penn Hills Township, Pennsylvania, General
Obligation, Series B,
(Eff. Yield 6.79%)
0.00%, 6/1/13, (AMBAC) (b)...................... 1,338,648
4,000,000 Pennsylvania State, Higher Educational Facilities
Authority Revenue, Allegheny General Hospital,
Series A
7.125%, 9/1/07.................................. 3,575,200
5,545,000 Pennsylvania State, Housing Finance Agency
Revenue, Residential Development,
Section 8, Series A
7.60%, 7/1/13................................... 5,916,903
1,750,000 Pennsylvania State, Industrial Development
Authority Revenue,
6.00%, 1/1/12, (AMBAC).......................... 1,905,330
Philadelphia, Pennsylvania,
Hospital & Higher Education Facilities Authority
Revenue:
3,000,000 Albert Einstein Medical Center
7.00%, 10/1/21................................... 3,317,370
1,000,000 Community College, Series B
6.50%, 5/1/07, (MBIA)............................ 1,156,430
7,360,000 Philadelphia, Pennsylvania, Municipal Authority
Revenue, Municipal Services Building Lease,
(Eff. Yield 7.50%)
0.00%, 3/15/14, (FSA) (b)....................... 3,502,845
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Pennsylvania - continued
Philadelphia, Pennsylvania,
Water & Wastewater Revenue:
$ 9,600,000 5.00%, 6/15/16, (FSA)............................ $ 9,607,104
4,610,000 5.50%, 8/1/14, (MBIA)............................ 4,847,092
5,000,000 5.60%, 8/1/18, (MBIA)............................ 5,248,800
6,350,000 Sayre, Pennsylvania,
Health Care Facilities Authority Revenue,
Guthrie Healthcare, Series A
7.10%, 3/1/17................................... 6,865,620
2,000,000 Shaler, Pennsylvania,
Area School District, General Obligation, Series
A,
(Eff. Yield 5.55%)
0.00%, 11/15/17, (FGIC) (b)..................... 784,920
Shaler, Pennsylvania,
Area School District, Series A:
2,000,000 (Eff. Yield 5.60%)
0.00%, 11/15/18, (FGIC) (b)...................... 739,860
2,000,000 (Eff. Yield 5.60%)
0.00%, 11/15/19, (FGIC) (b)...................... 701,000
2,550,000 Washington County, Pennsylvania, Hospital
Authority Revenue, Shadyside Hospital Project
5.75%, 12/15/14, (AMBAC)........................ 2,732,197
--------------
57,302,646
--------------
South Carolina - 1.2%
South Carolina State, Ports Authority Revenue:
4,880,000 5.00%, 7/1/16, (FSA)............................. 4,828,662
3,095,000 5.375%, 7/1/15, (FSA)............................ 3,211,403
7,500,000 York County, South Carolina, Industrial
Development Revenue, Exempt Facilities, Hoechst
Celanese Corp.
5.70%, 1/1/24................................... 7,625,550
--------------
15,665,615
--------------
South Dakota - 0.5%
6,620,000 South Dakota State, Housing Development Authority
Revenue, Homeownership Mortgage, Series F
5.80%, 5/1/28................................... 6,849,251
--------------
Tennessee - 3.2%
7,465,000 Bristol, Tennessee,
Health & Educational Facilities Authority
Revenue, Bristol Memorial Hospital
6.75%, 9/1/10, (FGIC)........................... 9,019,960
Knox County, Tennessee,
Health & Educational Facilities Authority
Revenue, Fort Sanders Alliance:
9,000,000 Series B, 7.25%, 1/1/10.......................... 11,137,770
4,500,000 Series C, 5.25%, 1/1/15.......................... 4,698,675
10,000,000 Metro Government, Nashville & Davidson Counties,
Tennessee, Step Bond,
(Eff. Yield 4.92%)
0.00%, 1/1/12, (FGIC) (b)....................... 12,846,700
</TABLE>
30
<PAGE>
[LOGO OF MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Tennessee - continued
$ 4,000,000 Tennessee State, Housing Development Authority
Revenue, Homeownership Program,
Issue 2, AMT
5.35%, 7/1/23................................... $ 4,017,080
--------------
41,720,185
--------------
Texas - 7.3%
10,000,000 Alliance, Texas,
Airport Authority, Inc., Texas Special
Facilities Revenue, Federal Express Corp.
Project
6.375%, 4/1/21.................................. 10,754,500
Austin, Texas,
Utility Systems Revenue:
5,000,000 5.75%, 5/15/24, (FGIC)........................... 5,276,650
2,000,000 Series B
5.70%, 11/15/21, (MBIA).......................... 2,146,680
Bexar, Texas,
Metropolitan Water District Waterworks Systems
Revenue:
840,000 Prerefunded
5.875%, 5/1/22, (MBIA)........................... 941,296
Unrefunded Balance:
1,160,000 5.875%, 5/1/22, (MBIA)........................... 1,253,774
25,000 6.625%, 5/1/14, (AMBAC).......................... 27,274
30,000 Brazos County, Texas,
Health Facilities Development Revenue,
Franciscan Service Corp., Series B
5.375%, 1/1/22, (MBIA).......................... 30,802
60,000 Brazos County, Texas,
Housing Finance Corp., Single Family Mortgage
Revenue
5.80%, 9/1/25, (GNMA/FNMA)...................... 62,237
2,400,000 Brownsville, Texas,
Utilities Systems Revenue
6.25%, 9/1/14, (MBIA)........................... 2,839,944
5,000,000 Gulf Coast, Texas,
Industrial Development Authority, Waste Disposal
Revenue, Valero Refining Project
5.60%, 12/1/31.................................. 4,963,950
Harris County, Texas,
Health Facilities Development Corp., Hospital
Revenue:
5,000,000 6.60%, 6/1/14.................................... 5,716,000
2,480,000 Hermann Hospital Project
6.375%, 10/1/17.................................. 2,809,915
2,525,000 Memorial Hospital Systems Project:
7.125%, 6/1/15................................... 2,799,417
Series A:
3,215,000 6.00%, 6/1/09.................................... 3,633,850
1,990,000 6.00%, 6/1/12.................................... 2,250,272
School Health Care Systems, Series B:
5,000,000 5.75%, 7/1/27.................................... 5,269,250
10,000,000 5.75%, 7/1/27, (MBIA)............................ 10,854,400
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Texas - continued
$ 4,000,000 Harris County, Texas,
Toll Road Revenue, Subordinate Lien, Series A
7.00%, 8/15/10.................................. $ 4,937,800
Houston, Texas,
Airport Systems Revenue:
5,000,000 Special Facilities Continental Airlines, Series B
6.125%, 7/15/27.................................. 5,137,100
2,500,000 Subordinated Lien, Series B, AMT
5.00%, 7/1/25, (FGIC)............................ 2,435,725
Houston, Texas,
Water & Sewer Systems Revenue:
2,700,000 Junior Lien, Series C
(Eff. Yield 6.85%)
0.00%, 12/1/10 (b)............................... 1,566,945
3,000,000 Series C, (Eff. Yield 6.90%)
0.00%, 12/1/11 (b)............................... 1,638,720
1,090,000 Montgomery County, Texas, General Obligation,
(Eff. Yield 5.30%)
0.00%, 3/1/10, (MBIA) (b)....................... 657,325
2,000,000 Port Arthur, Texas,
Navigation District, General Obligation,
(Eff. Yield 4.90%)
0.00%, 3/1/09, (AMBAC) (b)...................... 1,278,040
2,000,000 Port Corpus Christi, Texas,
Industrial Development Revenue, Valero Energy
Corp. AMT
5.125%, 4/1/09.................................. 2,015,720
1,085,000 Rio Grande Valley, Texas,
Health Facilities Corp., Hospital Revenue,
Baptist Medical Project
8.00%, 8/1/17................................... 1,109,412
2,565,000 Tarrant County, Texas,
Health Facilities Development Revenue, Texas
Health Resources Systems, Series A
5.75%, 2/15/15, (MBIA).......................... 2,827,707
6,415,000 Tarrant County, Texas,
Housing Finance Corp. Revenue, Single Family
Mortgage, Series A,
(Eff. Yield 11.00%)
0.00%, 9/15/16, (MBIA) (b)...................... 2,628,803
2,500,000 Texas State, General Obligation, RIBS, Series B
8.516%, 9/30/11 (a)............................. 3,351,825
Texas State, Municipal Power Agency Revenue:
175,000 5.25%, 9/1/12, (MBIA)............................ 178,595
130,000 6.10%, 9/1/09.................................... 148,948
1,125,000 (Eff. Yield 7.35%)
0.00%, 9/1/08, (AMBAC) (b)....................... 736,852
1,475,000 University of Texas, Texas, University Revenues,
Unrefunded Balance, Series B
6.75%, 8/15/13.................................. 1,595,124
--------------
93,874,852
--------------
</TABLE>
31
<PAGE>
[LOGO OF MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Utah - 0.9%
$ 120,000 Utah State, Housing Finance Agency, Single Family
Mortgage Revenue, Series C2
7.95%, 7/1/10................................... $ 125,392
Utah State, Intermountain Power Agency Revenue:
10,000,000 Series A
5.25%, 7/1/15, (MBIA)............................ 10,273,300
6,500,000 Series C,
(Eff. Yield 6.80%)
0.00%, 7/1/20 (b)................................ 1,167,400
--------------
11,566,092
--------------
Vermont - 0.4%
3,000,000 Vermont State, Educational & Health Building
Financing Agency Revenue, Middlebury College
Project
6.00%, 11/1/22.................................. 3,230,970
1,485,000 Vermont State, Housing Finance Agency Revenue,
Single Family, Series 1
8.15%, 5/1/25................................... 1,502,315
--------------
4,733,285
--------------
Virginia - 1.9%
3,290,000 Virginia State, Housing Development Authority,
General Obligation, Series D, Subseries D-2
5.40%, 7/1/21................................... 3,315,497
Virginia State, Housing Development Authority,
Multifamily Housing Revenue:
3,245,000 Series E, AMT
5.60%, 11/1/17................................... 3,347,769
11,640,000 Subseries B, AMT
5.50%, 1/1/22.................................... 11,813,320
Winchester, Virginia,
Industrial Development, Hospital Revenue,
Winchester Medical Center:
5,500,000 5.50%, 1/1/15, (AMBAC)........................... 5,768,730
--------------
24,245,316
--------------
Washington - 2.2%
3,675,000 Chelan County, Washington,
Public Utility, District #001, Conservation
Revenue Chelan Hydro Division II, Series A, AMT
5.25%, 7/1/33, (FSA)............................ 3,695,617
King County, Washington,
General Obligation:
4,400,000 Refunding, Renton School District No. 403
5.25%, 6/1/12................................... 4,593,908
2,000,000 School District No. 415
5.875%, 6/1/16, (FSA)............................ 2,152,360
1,000,000 Tacoma, Washington,
Electric Systems Revenue
6.25%, 1/1/15, (FGIC)........................... 1,095,230
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Washington - continued
Washington State, General Obligation:
$ 1,000,000 Series A, 6.75%, 2/1/15.......................... $ 1,216,170
5,000,000 Series C, 5.00%, 1/1/22, (FGIC).................. 4,959,700
3,650,000 Washington State, Housing Finance Commission
Revenue, Single Family Program, Series 4-A, AMT
5.40%, 12/1/24, (FNMA/GNMA)..................... 3,675,805
Washington State, Public Power Supply System:
4,000,000 Nuclear Project No. 3,
(Eff. Yield 10.09%)
0.00%, 7/1/12 (b)................................ 2,059,800
4,780,000 Nuclear Project No. 3, Series 1993-B
5.60%, 7/1/15, (MBIA)............................ 4,943,715
--------------
28,392,305
--------------
Wisconsin - 0.4%
5,000,000 Wisconsin State, Housing & Economic Development
Authority, General Obligation, Series D
5.40%, 9/1/18................................... 5,043,050
--------------
Wyoming - 0.8%
10,170,000 Wyoming State, Community Development Authority,
Housing Revenue, Series 4
5.85%, 6/1/28................................... 10,603,344
--------------
Puerto Rico - 2.3%
Commonwealth of Puerto Rico, General Obligation:
3,000,000 6.45%, 7/1/17................................... 3,424,440
2,600,000 (Eff. Yield 5.53%)
0.00%, 7/1/14, (MBIA)(b)......................... 1,248,104
Commonwealth of Puerto Rico, Highway &
Transportation Authority Revenue:
10,000,000 Series A,
(Eff. Yield 4.95%)
0.00%, 7/1/15, (AMBAC)(b)........................ 4,527,900
9,590,000 Series Y, 5.50%, 7/1/26.......................... 10,005,822
3,330,000 Commonwealth of Puerto Rico, Industrial, Tourist,
Educational, Medical, Environmental Control
Facilities, Finance Authority Revenue
6.25%, 7/1/24................................... 3,704,126
6,250,000 Commonwealth of Puerto Rico, Public Buildings
Authority, General Obligation, Guaranteed Public
Education & Health Facilities, Step Bond, Series
M, (Eff. Yield 5.74%)
5.70%, 7/1/16 (b) .............................. 6,540,937
--------------
29,451,329
--------------
Total Long-Term Municipal Obligations
(cost $1,199,466,210) .......................... 1,254,574,839
--------------
</TABLE>
32
<PAGE>
[LOGO OF MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM MUNICIPAL SECURITIES - 0.8% (a)
California - 0.0%
$ 715,000 Irvine Ranch, California,
Water District Revenue, Consolidated Bonds
3.25%, 10/01/10,
(LOC: Landesbank Hessen) ....................... $ 715,000
59,000 Tustin, California,
Improvement Bond Act 1915, Reassessment District
No. 95-2, Special Assessment, Series A
3.25%, 9/13/02,
(LOC: Kredietbank N.V.) ........................ 59,000
--------------
774,000
--------------
Florida - 0.0%
55,000 Dade County, Florida,
Health Facilities Authority, Hospital Revenue,
Miami Children's Hospital Project
3.30%, 9/01/20,
(LOC: Barnett Bank of South Florida) ........... 55,000
40,000 Dade County, Florida,
Water & Sewer Systems Revenue
3.00%, 10/22/05,
(SPA: Commerzbank & Ins.
by FGIC) ....................................... 40,000
--------------
95,000
--------------
Massachusetts - 0.1%
875,000 Massachusetts State, Health & Educational
Facilities Authority Revenue, Capital Assets
Program, Series D
2.95%, 1/01/35,
(SPA: Credit Suisse & Ins.
by MBIA) ....................................... 875,000
--------------
Missouri - 0.1%
795,000 Kansas City, Missouri,
Industrial Development Authority, Hospital
Revenue, Insured
Research Health Services Systems
3.25%, 4/15/15,
(SPA: Bank of America, Illinois & Ins. by MBIA)
................................................ 795,000
50,000 Missouri State, Health & Educational Facilities
Authority Revenue, Christian Health Services,
Series A
3.05%, 12/19/01,
(LOC: Morgan Guaranty Trust) ................... 50,000
--------------
845,000
--------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM MUNICIPAL SECURITIES - continued
New Mexico - 0.1%
$ 1,200,000 Farmington, New Mexico,
Pollution Control Revenue,
Public Service Company of
Arizona, Series B
3.25%, 9/24/01,
(LOC: Barclays Bank PLC) ....................... $ 1,200,000
--------------
New York - 0.3%
3,700,000 Long Island Power Authority,
New York, Electric Systems Revenue, Series 5
3.25%, 5/1/33,
(LOC: ABN Amro Bank N.V. & Morgan Guaranty
Trust).......................................... 3,700,000
New York City, New York,
Municipal Water Finance Authority, Water & Sewer
Systems Revenue:
10,000 3.30%, 6/15/24,
(FGIC & SPA: FGIC)............................... 10,000
350,000 Series G, 3.25%, 6/15/24,
(SPA: FGIC & Ins. by FGIC)....................... 350,000
--------------
4,060,000
--------------
Texas - 0.0%
355,000 Coastal Bend, Texas,
Health Facilities Development, Incarnate World
Health
Systems Revenue
3.20%, 8/27/15,
(LOC: First National
Bank of Chicago)................................ 355,000
--------------
Wyoming - 0.2%
Uinta County, Wyoming,
Pollution Control Revenue, Refunding, Chevron
USA, Inc. Project:
2,100,000 3.25%, 12/22/01.................................. 2,100,000
150,000 3.25%, 8/20/15................................... 150,000
--------------
2,250,000
--------------
Total Short-Term Municipal Securities
(cost $10,454,000).............................. 10,454,000
--------------
</TABLE>
Shares
<TABLE>
<S> <C> <C> <C>
MUTUAL FUND SHARES - 1.1%
14,443,470 Federated Municipal Obligations Fund
(cost $14,443,470)...................................... 14,443,470
----------
Total Investments -
(cost $1,224,363,680)..................... 99.3% 1,279,472,309
Other Assets and Liabilities - net......... 0.7 9,012,080
----- --------------
Net Assets -............................... 100.0% $1,288,484,389
===== ==============
</TABLE>
33
<PAGE>
[LOGO OF MUNICIPAL BOND FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
The Fund invests primarily in debt securities issued by municipalities. The
ability of the issuers of debt securities to meet their obligations may be af-
fected by economic developments in a specific industry or municipality. In or-
der to reduce risk associated with such economic developments, securities may
possess municipal bond insurance from various financial institutions and finan-
cial guaranty assurance agencies. Therefore the Funds may be more affected by
developments in the insurance industry or a specific municipal bond insurer. At
November 30, 1998, 38.2% of the securities, as a percentage of net assets, are
backed by bond insurance of various financial institutions and financial guar-
anty assurance agencies. At November 30, 1998, the Fund had securities backed
by bond insurance of the following financial institutions representing more
than 5% of net assets:
MBIA 15.0%
FGIC 9.0%
AMBAC 7.5%
(a) Securities are variable or floating rate instruments with periodic
demand features. The Fund is entitled to full payment of principal
and accrued interest upon surrendering the security to the issuing
agent.
(b) Effective yield (calculated at date of purchase) is the annual yield
at which the bond accretes until its maturity date.
(c) At the discretion of the portfolio manager, these securities may be
separated into securities with interest or principal payments that
are linked to another rate or index and therefore would be considered
derivative securities.
(d) Securities that may be resold to "qualified institutional buyers" un-
der rule 144a or securities offered pursuant to Section 4(2) of the
Securities Act of 1933, as amended. These securities have been deter-
mined to be liquid under the guidelines established by the Board of
Trustees.
(e)Security which has defaulted on payment of interest and/or principal.
The Fund has stopped accruing income on that so identified.
Summary of Abbreviations:
ACA American Capital Access
ACEs Auction Rate Securities
AMBAC Insured by American Municipal Bond Assurance Corp.
AMT Alternative Minimum Tax
COP Certificate of Participation
FGIC Insured by Federal Guaranty Insurance Co.
FHLMC Insured by Federal Home Loan Mortgage Corp.
FNMA Insured by Federal National Mortgage Assn.
FSA Insured by Financial Security Assurance Corp.
GNMA Insured by Government National Mortgage Assn.
IBC Insured Bond Certification
INFLOs Inverse Floating Rate Securities
LOC Letter of Credit
MBIA Insured by Municipal Bond Investors Assurance Corp.
RIBs Residual Interest Bonds
SPA Special Purchase Agreement
TCRS Transferable Custody Receipts
See Combined Notes to Financial Statements.
34
<PAGE>
[LOGO OF SHORT INTERMEDIATE MUNICIPAL FUND APPEARS HERE]
Schedule of Investments
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - 98.0%
Alabama - 4.1%
$ 7,000,000 Huntsville, Alabama,
Warrants, Series A
4.50%, 12/1/00 (a)................................ $ 7,010,710
------------
Arizona - 2.4%
3,040,000 Maricopa County, Arizona,
Unified School District Number 41, Refunding
Bonds,
(Eff. Yield 5.07%)
0.00%, 7/1/04, (FGIC) (b)......................... 2,429,963
1,600,000 Pima County, Arizona,
General Obligation, Series 1992
6.55%, 7/1/01..................................... 1,715,088
------------
4,145,051
------------
California - 3.8%
900,000 California State, General Obligation
7.00%, 8/1/02, (FGIC)............................. 1,003,590
5,000,000 San Joaquin Hills, California,
Transportation Corridor Agency, Toll Road Revenue,
Series A
(Eff. Yield 4.60%)
0.00%, 1/15/02 (b)................................ 4,412,500
1,025,000 Stockton, California,
Health Facilities Revenue, Series A
5.00%, 12/1/01.................................... 1,049,559
------------
6,465,649
------------
Colorado - 7.3%
16,520,000 Arapahoe County, Colorado,
Capital Improvement Highway Revenue,
(Eff. Yield 4.75%)
0.00%, 8/31/05 (b)................................ 8,306,917
140,000 Colorado State, Student Obligation Board Authority,
Student Loan Revenue, Series B
6.125%, 12/1/98................................... 140,007
1,500,000 Denver, Colorado,
City & County Airport Revenue, Series C
6.35%, 11/15/01................................... 1,589,235
1,085,000 Denver, Colorado,
Health & Hospital Revenue,
Series A
5.00%, 12/1/03.................................... 1,113,948
1,300,000 Weld County, Colorado,
Industrial Development Revenue, Monfort Inc.
6.75%, 12/15/01................................... 1,383,395
------------
12,533,502
------------
Florida - 14.2%
3,700,000 Broward County, Florida,
Resource Recovery Revenue, Wheelabrator
Technologies,
7.95%, 12/1/08.................................... 3,944,644
3,000,000 Florida State, Board of Education, Capital Outlay,
General Obligation
6.75%, 6/1/00..................................... 3,145,440
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Florida - continued
Florida State, Health Care Facilities Revenue,
Halifax Hospital Medical Center Series A:
$ 1,080,000 4.40%, 4/1/04...................................... $ 1,094,299
1,300,000 4.50%, 4/1/06...................................... 1,315,327
4,905,000 Jacksonville, Florida,
Industrial Development Revenue Refunding, TTX
Company Project
5.40%, 3/1/01..................................... 5,086,240
Leon County, Florida,
Educational Facilities Authority, COP, Southgate:
680,000 9.00%, 9/1/99, (ETM)............................... 709,723
740,000 9.00%, 9/1/00, (ETM)............................... 809,508
810,000 9.00%, 9/1/01, (ETM)............................... 923,052
880,000 9.00%, 9/1/02, (ETM)............................... 1,040,917
960,000 9.00%, 9/1/03, (ETM)............................... 1,174,166
1,550,000 Palm Beach County, Florida,
Solid Waste Authority Revenue, Refunding &
Improvements
5.50%, 12/1/02, (MBIA)............................ 1,652,920
Pinellas County, Florida,
Educational Facilities Authority Revenue:
330,000 4.10%, 10/1/99..................................... 332,040
375,000 4.55%, 10/1/02..................................... 379,931
390,000 4.60%, 10/1/03..................................... 395,413
410,000 4.65%, 10/1/04..................................... 415,580
470,000 4.90%, 10/1/07..................................... 477,722
320,000 4.95%, 10/1/08..................................... 325,213
1,000,000 Sarasota, Florida,
General Obligation
6.85%, 8/1/00..................................... 1,053,470
------------
24,275,605
------------
Illinois - 2.2%
Illinois State, Development Finance Authority
Revenue:
2,765,000 5.00%, 7/1/06...................................... 2,803,212
1,000,000 Refunding Community Rehabilitation Providers,
Series A
5.35%, 7/1/00...................................... 1,017,980
------------
3,821,192
------------
Iowa - 1.3%
2,000,000 Iowa State, Loan Liquidity Corp., Student Loan
Revenue, Series B
6.65%, 3/1/03..................................... 2,167,760
------------
Maine - 1.8%
3,000,000 Baileyville, Maine,
Pollution Control Revenue, Georgia- Pacific Corp.
Project
4.75%, 6/1/05..................................... 3,052,020
------------
Massachusetts - 2.8%
1,000,000 Massachusetts State, Health & Educational
Facilities Revenue
4.55%, 1/1/21 (c)................................. 1,015,980
</TABLE>
35
<PAGE>
[LOGO OF SHORT INTERMEDIATE MUNICIPAL FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Massachusetts - continued
Massachusetts State, Industrial Development
Revenue:
$ 420,000 Series 1986G 5.30%, 12/1/06........................ $ 420,000
520,000 Series 1986I 5.30%, 12/1/06........................ 520,000
835,000 Series 1996A 5.35%, 11/1/07 (c).................... 868,709
995,000 Series 1996B 5.35%, 11/1/07 (c).................... 1,035,168
1,000,000 New England Education Loan Marketing Corp., Student
Loan Revenue, Series 1993B
5.40%, 6/1/00..................................... 1,023,940
------------
4,883,797
------------
Michigan - 1.5%
2,500,000 Wayne Charter County, Michigan,
Airport Revenue
5.25%, 12/1/04.................................... 2,652,975
------------
Minnesota - 0.6%
1,015,000 City of Minneapolis & St. Paul,
Minnesota, Housing & Redevelopment Authority
Revenue, Single Family Mortgage, Series 1996A
5.125%, 6/1/00, (FGIC) (c)........................ 1,018,147
------------
Missouri - 0.4%
710,000 North Kansas City, Missouri,
School District, General Obligation, Direct
Deposit Program, Series 1996
6.70%, 3/1/00..................................... 738,563
------------
Nebraska - 0.6%
1,000,000 Nebraska State, Higher Education Loan Program,
Student Loan Revenue, Senior Subordinated Lien,
Series A
6.65%, 6/1/08..................................... 1,000,100
------------
New Jersey - 9.4%
New Jersey State, Economic Development Authority
Revenue: First Mortgage, Franciscan Oaks Project:
1,545,000 5.20%, 10/1/04..................................... 1,571,543
825,000 5.40%, 10/1/06..................................... 853,199
1,075,000 5.50%, 10/1/07..................................... 1,119,247
Refunding First Mortgage, Keswick Pines:
100,000 4.50%, 1/1/99...................................... 100,087
480,000 4.70%, 1/1/00...................................... 482,674
695,000 4.85%, 1/1/01...................................... 701,762
805,000 5.00%, 1/1/02...................................... 814,547
845,000 5.10%, 1/1/03...................................... 857,962
465,000 5.15%, 1/1/04...................................... 472,626
500,000 5.25%, 1/1/05...................................... 509,565
975,000 5.35%, 1/1/06...................................... 996,216
925,000 5.45%, 1/1/07...................................... 950,447
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
New Jersey - continued
$ 3,365,000 New Jersey State, Health Care Facilities Financing
Authority Revenue, Atlantic City Medical Center,
Series C
6.30%, 7/1/01...................................... $ 3,564,948
3,000,000 New Jersey State, Turnpike Authority, Turnpike
Revenue, Series C
6.50%, 1/1/06...................................... 3,175,080
------------
16,169,903
------------
New Mexico - 4.5%
6,680,000 Alamogordo, New Mexico,
Hospital Revenue, Gerald Champion Memorial
Hospital Project
5.00%, 1/1/08...................................... 6,916,472
795,000 New Mexico State, Educational Assistance
Foundation, Student Loan Revenue, Series A
6.70%, 4/1/02, (AMBAC)............................. 851,763
------------
7,768,235
------------
New York - 2.7%
New York City, New York,
General Obligation:
Prerefunded Bonds, Series L:
305,000 5.00%, 8/1/01, (ETM)............................... 313,802
145,000 5.25%, 8/1/00, (ETM)............................... 149,256
Unrefunded Balance, Series L:
1,145,000 5.00%, 8/1/01...................................... 1,178,045
855,000 5.25%, 8/1/00...................................... 877,409
2,000,000 New York City, New York,
Industrial Development Agency, Special Facility
Revenue, Terminal One Group Association Project
6.00%, 1/1/07...................................... 2,173,520
------------
4,692,032
------------
Ohio - 0.6%
940,000 Cincinnati, Ohio,
The Student Loan Funding Corp., Student Loan
Revenue, Series 1993A
5.50%, 12/1/01..................................... 966,658
------------
Oklahoma - 6.1%
4,450,000 Oklahoma State, Housing Development Authority
Revenue, Lease Purchase Program, Series A
4.75%, 12/1/02..................................... 4,485,466
5,500,000 Oklahoma State, Housing
Finance Agency,
Single Family Revenue, Mortgage Homeownership
Loan D-2
6.25%, 9/1/29...................................... 5,908,925
------------
10,394,391
------------
Pennsylvania - 7.7%
4,835,000 Dauphin County, Pennsylvania, General Authority
Revenue,
Series A
5.125%, 1/15/03.................................... 4,868,071
</TABLE>
36
<PAGE>
[LOGO OF SHORT INTERMEDIATE MUNICIPAL FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Pennsylvania - continued
$ 500,000 Pennsylvania State, General Obligation, Series 1971
6.00%, 12/15/98.................................... $ 500,550
5,000,000 Pennsylvania State, Higher Educational Facilities
Authority, Health Services Revenue, University of
Pennsylvania, Series A
7.00%, 1/1/08...................................... 5,713,400
1,950,000 Philadelphia, Pennsylvania,
Water & Sewer Revenue,
16th Series
7.50%, 8/1/01...................................... 2,175,011
------------
13,257,032
------------
South Dakota - 0.6%
1,000,000 South Dakota State, Housing Development Authority
Revenue, Homeownership Mortgage,
Series J
4.60%, 5/1/02, (FNMA).............................. 1,014,560
------------
Texas - 3.7%
1,000,000 Austin, Texas,
Utility Systems Revenue, Series A
9.50%, 6/15/00..................................... 1,085,300
2,500,000 Houston, Texas,
Airport Systems Revenue, Subordinated Lien, Series
A
6.75%, 7/1/08...................................... 2,707,825
1,315,000 North Texas State, Health Facilities Development
Corp., Hospital Revenue, Limited Regional Health
Care Systems Inc. Project
4.40%, 9/1/01...................................... 1,337,776
1,155,000 Texas State, Department of Housing and Community
Affairs, Single Family Mortgage Revenue,
Series 1996E
4.45%, 3/1/99, (MBIA).............................. 1,156,848
------------
6,287,749
------------
Utah - 10.3%
5,000,000 Utah State, General Obligation,
Series A
5.00%, 7/1/03...................................... 5,258,800
3,000,000 Utah State, Board of Regents, Student Loan Revenue,
Series F
7.05%, 11/1/03, (AMBAC)............................ 3,215,220
Utah State, Intermountain Power Agency, Power
Supply Revenue:
1,000,000 1985 Series D
(Eff. Yield 9.70%)
0.00%, 7/1/00 (b).................................. 943,660
5,000,000 Series B
6.50%, 7/1/04, (MBIA).............................. 5,614,700
1,760,000 Series B
(Eff. Yield 7.00%)
0.00%, 7/1/00 (b).................................. 1,660,842
1,000,000 Series B
(Eff. Yield 7.50%)
0.00%, 7/1/00 (b).................................. 943,660
------------
17,636,882
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG-TERM MUNICIPAL OBLIGATIONS - continued
Vermont - 2.9%
$ 4,385,000 Vermont State, General Obligation
6.00%, 12/1/06, (AMBAC)............................ $ 4,945,359
------------
Washington - 2.6%
2,950,000 Washington State, General Obligation, Motor Vehicle
Fuel Tax,
Series R-92D
5.60%, 9/1/01...................................... 3,099,978
1,360,000 Washington State, Public Power Supply Revenue,
Series B
5.00%, 7/1/01...................................... 1,400,474
------------
4,500,452
------------
Wisconsin - 0.6%
1,000,000 Milwaukee, Wisconsin,
Metropolitan Sewage District, General Obligation,
Series 1989A
7.00%, 9/1/01...................................... 1,085,540
------------
U. S. Virgin Islands - 3.3%
3,500,000 Virgin Islands, Public Finance Authority Revenue,
Senior Lien, Series C
5.00%, 10/1/03..................................... 3,607,275
2,000,000 Virgin Islands, Water & Power Authority, Electric
Systems Revenue
5.125%, 7/1/03..................................... 2,077,380
------------
5,684,655
------------
Total Long-Term Municipal Obligations
(cost $165,285,492)............................... 168,168,519
------------
</TABLE>
<TABLE>
<CAPTION>
Shares
<C> <S> <C> <C>
Mutual Fund Shares - 0.5%
852,000 Federated Municipal Obligations Fund
(cost $852,000)............................. 852,000
------------
Total Investments -
(cost $166,137,492).................. 98.5% 169,020,519
Other Assets and Liabilities - net.... 1.5 2,581,549
----- ------------
Net Assets - ......................... 100.0% $171,602,068
===== ============
</TABLE>
37
<PAGE>
[LOGO OF SHORT INTERMEDIATE MUNICIPAL FUND APPEARS HERE]
Schedule of Investments(continued)
November 30, 1998 (Unaudited)
(a) Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pursuant to Section 4(2) of the Securities
Act of 1933, as amended. These securities have been determined to be liquid
under guide-lines established by the Board of Trustees.
(b) Effective yield (calculated at the date of purchase) is the yield at which
the bond accretes on an annual basis until maturity date.
(c) Security is a variable or floating rate instrument with periodic demand
features. The Fund is entitled to full payment of principal and accrued in-
terest upon surrendering the security to the issuing agent.
The Fund invests primarily in debt securities issued by municipalities. The
ability of the issuers of debt securities to meet their obligations may be af-
fected by economic developments in a specific industry or municipality. In or-
der to reduce risk associated with such economic developments, securities may
possess municipal bond insurance from various financial institutions and finan-
cial guaranty assurance agencies. Therefore the Funds may be more affected by
developments in the insurance industry or a specific municipal bond insurer. At
November 30, 1998, 16.3% of the securities, as a percentage of net assets, are
backed by bond insurance of various financial institutions and financial guar-
anty assurance agencies. At November 30, 1998, the Fund had securities backed
by bond insurance of the following financial institutions representing more
than 5% of net assets:
AMBAC 5.3%
Summary of Abbreviations:
AMBAC Insured by American Municipal Bond Assurance Corporation
COP Certficate of Participation
ETM Escrowed to Maturity
FGIC Insured by Federal Guaranty Insurance Corporation
FNMA Insured by Federal National Mortgage Association
MBIA Insured by Municipal Bond Insurance Association
See Combined Notes to Financial Statements.
38
<PAGE>
[LOGO OF NATIONAL MUNICIPAL BOND FUND APPEARS HERE]
Statements of Assets and Liabilities
November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
High Grade Short Intermediate
Fund Municipal Fund Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Identified cost of
securities.................... $118,650,934 $1,224,363,680 $166,137,492
Net unrealized gain or loss on
securities.................... 7,131,500 55,108,629 2,883,027
- --------------------------------------------------------------------------------
Investments at market value.... $125,782,434 $1,279,472,309 $169,020,519
Cash........................... 0 0 140
Receivable for investments
sold.......................... 3,399,363 13,504,954 0
Receivable for Fund shares
sold.......................... 191,003 163,707 82,450
Interest receivable............ 2,287,419 20,191,601 2,995,976
Prepaid expenses and other
assets........................ 24,891 239,112 42,544
- --------------------------------------------------------------------------------
Total assets................. 131,685,110 1,313,571,683 172,141,629
- --------------------------------------------------------------------------------
Liabilities
Distributions payable.......... 183,009 2,433,713 393,267
Payable for investments
purchased..................... 3,991,345 20,134,861 0
Payable for Fund shares
redeemed...................... 12,021 1,240,255 5,488
Advisory fees payable.......... 52,175 447,429 72,750
Distribution fees payable...... 48,273 571,804 4,495
Due to other related parties... 2,758 24,955 0
Due to custodian............... 1,703 6,264 0
Accrued expenses and other
liabilities................... 65,304 228,013 63,561
- --------------------------------------------------------------------------------
Total liabilities............ 4,356,588 25,087,294 539,561
- --------------------------------------------------------------------------------
Net assets..................... $127,328,522 $1,288,484,389 $171,602,068
- --------------------------------------------------------------------------------
Net assets represented by
Paid-in capital................ $119,776,964 $1,232,283,270 $168,150,401
Undistributed net investment
income........................ 98,606 397,681 0
Accumulated net realized gain
on securities and futures
contracts..................... 321,452 694,809 568,640
Net unrealized gain on
securities.................... 7,131,500 55,108,629 2,883,027
- --------------------------------------------------------------------------------
Total net assets............. $127,328,522 $1,288,484,389 $171,602,068
- --------------------------------------------------------------------------------
Net assets consists of
Class A........................ $ 67,659,059 $1,163,997,367 $ 7,663,072
Class B........................ 32,614,187 117,135,258 6,178,950
Class C........................ 0 7,351,764 0
Class Y........................ 27,055,276 0 157,760,046
- --------------------------------------------------------------------------------
$127,328,522 $1,288,484,389 $171,602,068
- --------------------------------------------------------------------------------
Shares outstanding
Class A........................ 6,010,779 152,805,972 752,180
Class B........................ 2,897,452 15,377,480 606,512
Class C........................ 0 965,148 0
Class Y........................ 2,403,599 0 15,484,743
- --------------------------------------------------------------------------------
Net asset value per share
Class A........................ $ 11.26 $ 7.62 $ 10.19
- --------------------------------------------------------------------------------
Class A -- Offering price
(based on sales charge of
4.75%, 4.75% and 3.25%,
respectively)................. $ 11.82 $ 8.00 $ 10.53
- --------------------------------------------------------------------------------
Class B........................ $ 11.26 $ 7.62 $ 10.19
- --------------------------------------------------------------------------------
Class C........................ N/A $ 7.62 N/A
- --------------------------------------------------------------------------------
Class Y........................ $ 11.26 N/A $ 10.19
- --------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
39
<PAGE>
[LOGO OF NATIONAL MUNICIPAL BOND FUND APPEARS HERE]
Statements of Operations
Six Months Ended November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
High Grade Municipal Short Intermediate
Fund Fund Fund
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment income
Interest......................... $3,324,323 $35,864,745 $4,140,653
- -------------------------------------------------------------------------------
Expenses
Advisory fee..................... 317,707 2,766,121 437,372
Distribution Plan expenses....... 248,927 2,151,596 33,307
Transfer agent fees.............. 57,096 763,962 19,471
Administrative services fees..... 17,197 103,214 0
Trustees' fees and expenses...... 1,274 22,546 426
Custodian fees................... 18,886 235,483 45,446
Registration and filing fees..... 12,896 40,236 40,972
Professional fees................ 10,903 15,862 13,265
Shareholder reports expense...... 9,831 33,900 18,839
Other............................ 581 41,459 1,388
- -------------------------------------------------------------------------------
Total expenses.................. 695,298 6,174,379 610,486
Less: Fee credits.............. (623) (18,712) (10,299)
Fee waivers and expense
reimbursements............... 0 0 (7,043)
- -------------------------------------------------------------------------------
Net expenses.................... 694,675 6,155,667 593,144
- -------------------------------------------------------------------------------
Net investment income............ 2,629,648 29,709,078 3,547,509
- -------------------------------------------------------------------------------
Net realized and unrealized gain
or loss on securities and
futures contracts
Realized gain or loss on:
Securities...................... 1,645,033 19,772,356 1,383,709
Futures contracts............... 0 (316,197) 0
- -------------------------------------------------------------------------------
Net realized gain on securities
and future contracts............ 1,645,033 19,456,159 1,383,709
Net change in unrealized gain or
loss on securities.............. 297,724 (7,091,260) (159,683)
- -------------------------------------------------------------------------------
Net realized and unrealized gain
on securities and futures
contracts....................... 1,942,757 12,364,899 1,224,026
- -------------------------------------------------------------------------------
Net increase in net assets
resulting from operations....... $4,572,405 $42,073,977 $4,771,535
- -------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
40
<PAGE>
[LOGO OF NATIONAL MUNICIPAL BOND FUND APPEARS HERE]
Statements of Changes in Net Assets
Six Months Ended November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
High Grade Municipal Short Intermediate
Fund Fund Fund
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations
Net investment income....... $ 2,629,648 $ 29,709,078 $ 3,547,509
Net realized gain or loss
on securities and futures
contracts.................. 1,645,033 19,456,159 1,383,709
Net change in unrealized
gain or loss on
securities................. 297,724 (7,091,260) (159,683)
- -------------------------------------------------------------------------------
Net increase in net assets
resulting from
operations................ 4,572,405 42,073,977 4,771,535
- -------------------------------------------------------------------------------
Distributions to
shareholders from
Net investment income
Class A.................... (1,444,217) (27,239,666) (135,938)
Class B.................... (581,281) (2,314,415) (92,396)
Class C.................... 0 (142,698) 0
Class Y.................... (604,150) 0 (3,319,175)
Net realized gains on
investments
Class A.................... (1,616,602) (35,326,188) (56,521)
Class B.................... (780,637) (3,564,826) (44,004)
Class C.................... 0 (220,155) 0
Class Y.................... (641,983) 0 (1,185,596)
- -------------------------------------------------------------------------------
Total distributions to
shareholders............. (5,668,870) (68,807,948) (4,833,630)
- -------------------------------------------------------------------------------
Capital share transactions
Proceeds from shares sold... 12,797,507 18,736,333 16,239,951
Proceeds from reinvestment
of distributions........... 3,841,715 40,034,284 1,564,353
Payment for shares
redeemed................... (12,484,096) (119,251,405) (26,403,781)
Proceeds from shares issued
in connection with the
acquisition of:
CoreFund Intermediate
Municipal Bond Fund....... 1,945,718 0 0
- -------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
capital share
transactions.............. 6,100,844 (60,480,788) (8,599,477)
- -------------------------------------------------------------------------------
Total increase (decrease)
in net assets............ 5,004,379 (87,214,759) (8,661,572)
Net assets
Beginning of period......... 122,324,143 1,375,699,148 180,263,640
- -------------------------------------------------------------------------------
End of period............... $127,328,522 $1,288,484,389 $171,602,068
- -------------------------------------------------------------------------------
Undistributed net investment
income..................... $ 98,606 $ 397,681 $ 0
- -------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
41
<PAGE>
[LOGO OF NATIONAL MUNICIPAL BOND FUND APPEARS HERE]
Statements of Changes in Net Assets
Year Ended May 31, 1998
<TABLE>
<CAPTION>
High Grade Municipal Short Intermediate
Fund Fund* Fund
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations
Net investment income....... $ 4,436,727 $ 26,943,450 $ 5,133,040
Net realized gain on
securities and futures
contracts.................. 3,360,972 16,376,119 1,471,537
Net change in unrealized
gain or loss on
securities................. 1,019,154 (25,411,876) (795,050)
- -------------------------------------------------------------------------------
Net increase in net assets
resulting from
operations................ 8,816,853 17,907,693 5,809,527
- -------------------------------------------------------------------------------
Distributions to
shareholders from
Net investment income
Class A.................... (2,198,256) (21,756,580) (225,168)
Class B.................... (1,156,701) (5,153,488) (197,697)
Class C.................... 0 (109,908) 0
Class Y.................... (1,132,786) 0 (4,710,175)
- -------------------------------------------------------------------------------
Total distributions to
shareholders.............. (4,487,743) (27,019,976) (5,133,040)
- -------------------------------------------------------------------------------
Capital share transactions
Proceeds from shares sold... 14,810,240 21,942,896 22,513,095
Proceeds from reinvestment
of distributions........... 2,594,120 12,966,083 1,482,137
Payment for shares
redeemed................... (23,942,474) (125,945,502) (52,702,874)
Proceeds from shares issued
in connection with the
acquisition of:
Blanchard Flexible Tax-
Free Bond Fund............ 22,403,925 0 0
Common Trust Fund -
Intermediate Tax Exempt
Bond Fund................. 0 0 148,714,787
Evergreen Short
Intermediate Municipal
Fund - California......... 0 0 14,473,407
Evergreen Tax Free Income
Fund...................... 0 100,118,341 0
- -------------------------------------------------------------------------------
Net increase in net assets
resulting from capital
share transactions........ 15,865,811 9,081,818 134,480,552
- -------------------------------------------------------------------------------
Total increase (decrease)
in net assets............ 20,194,921 (30,465) 135,157,039
Net assets
Beginning of period......... 102,129,222 1,375,729,613 45,106,601
- -------------------------------------------------------------------------------
End of period............... $122,324,143 $1,375,699,148 $180,263,640
- -------------------------------------------------------------------------------
Undistributed net
investment income.......... $ 98,606 $ 385,382 $ 0
- -------------------------------------------------------------------------------
</TABLE>
*Five months ended May 31, 1998. During the period, Municipal Fund changed its
fiscal year end from December 31 to May 31.
See Combined Notes to Financial Statements.
42
<PAGE>
[LOGO OF NATIONAL MUNICIPAL BOND FUND APPEARS HERE]
Statements of Changes in Net Assets
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Municipal
Fund
- --------------------------------------------------------------------------------
<S> <C>
Operations
Net investment income......................................... $ 70,854,337
Net realized gain on securities and futures contracts......... 37,097,062
Net change in unrealized gain or loss on securities........... 2,027,467
- --------------------------------------------------------------------------------
Net increase in net assets resulting from operations......... 109,978,866
- --------------------------------------------------------------------------------
Distributions to shareholders from
Net investment income
Class B...................................................... (73,972,795)
Net realized gain on securities
Class B...................................................... (17,063,591)
- --------------------------------------------------------------------------------
Total distributions to shareholders.......................... (91,036,386)
- --------------------------------------------------------------------------------
Capital share transactions
Proceeds from shares sold..................................... 39,118,274
Proceeds from reinvestment of distributions................... 53,790,716
Payment for shares redeemed................................... (294,007,649)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from capital
share transactions.......................................... (201,098,659)
- --------------------------------------------------------------------------------
Total decrease in net assets................................ (182,156,179)
Net assets
Beginning of period........................................... 1,557,885,792
- --------------------------------------------------------------------------------
End of period................................................. $1,375,729,613
- --------------------------------------------------------------------------------
Undistributed net investment income........................... $ 467,027
- --------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
43
<PAGE>
[LOGO APPEARS HERE]
Combined Notes to Financial Statements (Unaudited)
1. ORGANIZATION
The Evergreen National Municipal Bond Funds consist of Evergreen High Grade Mu-
nicipal Bond Fund ("High Grade Fund") (formerly Evergreen High Grade Tax Free
Fund), Evergreen Municipal Bond Fund ("Municipal Fund") (formerly Evergreen Tax
Free Fund) and Evergreen Short Intermediate Municipal Fund ("Short Intermediate
Fund") (collectively, the "Funds"). Each Fund is a diversified series of Ever-
green Municipal Trust (the "Trust"), a Delaware business trust organized on
September 17, 1997. The Trust is an open-end management investment company reg-
istered under the Investment Company Act of 1940, as amended (the "1940 Act").
The Funds offer Class A, Class B, Class C or Class Y shares. Class A shares are
sold with a maximum front-end sales charge of 4.75% for both the High Grade
Fund and Municipal Fund and a maximum front-end sales charge of 3.25% for the
Short Intermediate Fund. Class B and Class C shares are sold without a front-
end sales charge, but pay a higher ongoing distribution fee than Class A. Class
B shares are sold subject to a contingent deferred sales charge that is payable
upon redemption and decreases depending on how long the shares have been held.
Class B shares purchased after January 1, 1997 will automatically convert to
Class A shares after seven years. Class B shares purchased prior to January 1,
1997 retain their existing conversion rights. Class C shares are sold subject
to a contingent deferred sales charge payable on shares redeemed within one
year after the month of purchase. Class Y shares are sold at net asset value
and are not subject to contingent deferred sales charges or distribution fees.
Class Y shares are sold only to investment advisory clients of First Union Cor-
poration ("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. High Grade Fund and Short Interme-
diate Fund currently do not offer Class C shares and Municipal Fund does not
offer Class Y shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently fol-
lowed by the Funds in the preparation of their financial statements. The poli-
cies are in conformity with generally accepted accounting principles, which re-
quire management to make estimates and assumptions that affect amounts reported
herein. Actual results could differ from these estimates.
A. Valuation of Securities
An independent pricing service values each Fund's municipal bonds at fair value
using a variety of factors which may include yield, liquidity, interest rate
risk, credit quality, coupon, maturity and type of issue. Securities for which
market quotations are not readily available or valuations are not readily
available from an independent pricing service (including restricted securities)
are valued at fair value as determined in good faith according to procedures
approved by the Board of Trustees.
Securities with remaining maturities of 60 days or less are carried at amor-
tized cost, which approximates market value.
B. Futures Contracts
In order to gain exposure to or protect against changes in security values, the
Municipal Fund may buy and sell futures contracts.
The initial margin deposited with a broker when entering into a futures trans-
action is subsequently adjusted by daily payments or receipts as the value of
the contract changes. Such changes are recorded as unrealized gains or losses.
Realized gains or losses are recognized on closing the contract.
Risks of entering into futures contracts include (i) the possibility of an il-
liquid market for the contract, (ii) the possibility that a change in the value
of the contract may not correlate with changes in the value of the underlying
instrument or index, and (iii) the credit risk that the other party will not
fulfill their obligations under the contract. Futures contracts also involve
elements of market risk in excess of the amount reflected in the statement of
assets and liabilities.
44
<PAGE>
[LOGO APPEARS HERE]
Combined Notes to Financial Statements(Unaudited) (continued)
C. Derivative Securities
The Municipal Fund may invest in derivative securities. A derivative security
is any investment that derives its value from an underlying security, asset or
market index. Greater market fluctuations may result if these securities are
leveraged. The Fund invests in these types of securities when it is consistent
with its investment objectives.
D. Security Transactions and Investment Income
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premiums.
E. Federal Taxes
The Funds have qualified and intend to continue to qualify as regulated
investment companies under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Funds will not incur any federal tax liability since they
are expected to distribute all of their net investment company taxable income,
net tax-exempt income and net capital gains, if any, to their shareholders. The
Funds also intend to avoid any excise tax liability by making the required
distributions under the Code. Accordingly, no provision for federal taxes is
required. 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.
F. Distributions
Distributions from net investment income for the Funds are declared daily and
paid monthly. Distributions from net realized capital gains, if any, are paid
at least annually. Distributions to shareholders are recorded at the close of
business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles. Certain distributions paid during previous
years have been reclassified to conform with current period presentation.
G. Class Allocations
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the rela-
tive net assets of each class. Currently, class specific expenses are limited
to expenses incurred under the Distribution Plans for each class.
3. ACQUISITIONS
On July 31, 1997, Short Intermediate Fund acquired substantially all the assets
and assumed certain liabilities of Evergreen Short Intermediate Municipal Fund-
California in exchange for Class A, Class B and Class Y shares of Short Inter-
mediate Fund.
On November 21, 1997, Short Intermediate Fund acquired substantially all the
assets and assumed certain liabilities of Common Trust Fund - Intermediate Tax
Exempt Bond Fund in exchange for Class Y shares of Short Intermediate Fund.
On January 23, 1998, Municipal Fund acquired substantially all the assets and
assumed certain liabilities of Evergreen Tax Free Income Fund, in an exchange
for Class A, Class B and Class C shares of Municipal Fund.
On February 28, 1998, High Grade Fund acquired all of the assets and assumed
certain liabilities of Blanchard Flexible Tax-Free Bond Fund, in an exchange
for Class A shares of High Grade Fund.
On July 24, 1998, High Grade Fund acquired all of the assets and assumed cer-
tain liabilities of CoreFund Intermediate Municipal Bond Fund, in an exchange
for Class A and Class Y shares of High Grade Fund.
45
<PAGE>
[LOGO APPEARS HERE]
Combined Notes to Financial Statements(Unaudited) (continued)
These acquisitions were accomplished by a tax-free exchange of the respective
shares of each Fund. The value of net assets acquired, number of shares issued,
unrealized appreciation acquired and the aggregate net assets of each Fund im-
mediately after the acquisition are as follows:
<TABLE>
<CAPTION>
Value of Net Number of Unrealized Net Assets
Acquiring Fund Acquired Fund Assets Acquired Shares Issued Appreciation After Acquisition
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Short Intermediate Evergreen Short Intermediate $ 14,473,407 1,419,771 $ 203,594 $ 59,045,106
Fund................... Municipal Fund - California
Short Intermediate Common Trust Fund - Intermediate $148,714,787 14,616,570 $3,195,888 $ 194,719,999
Fund................... Tax Exempt Bond Fund
Municipal Fund.......... Evergreen Tax Free Income Fund $100,118,341 12,757,974 $6,341,257 $1,467,541,556
High Grade Fund......... Blanchard Flexible Tax-Free Bond Fund $ 22,403,925 1,966,629 $1,611,908 $ 127,402,909
High Grade Fund......... CoreFund Intermediate Municipal $ 1,945,718 171,570 $ 51,328 $ 127,732,184
Bond Fund
</TABLE>
4. CAPITAL SHARE TRANSACTIONS
Each Fund has an unlimited number of shares of beneficial interest with a par
value of $0.001 authorized. Shares of beneficial interest of the Funds are cur-
rently divided into Class A, Class B, Class C or Class Y. Transactions in
shares of the Funds were as follows:
High Grade Fund
<TABLE>
<CAPTION>
Six Months Ended
November 30,1998 Year Ended
(unaudited) May 31, 1998
--------------------- -----------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold................... 658,908 $ 7,489,970 352,430 $ 3,971,088
Shares issued in reinvestment
of distributions............. 189,458 2,144,286 122,837 1,383,168
Shares redeemed............... (592,445) (6,803,809) (971,142) (10,944,155)
Shares issued in connection
with the acquisition of:
Blanchard Flexible Tax-Free
Bond Fund.................... 1,966,629 22,403,925
CoreFund Intermediate
Municipal Bond Fund.......... 76,637 869,114 0 0
- --------------------------------------------------------------------------------
Net increase.................. 332,558 $ 3,699,561 1,470,754 $ 16,814,026
- --------------------------------------------------------------------------------
Class B
Shares sold................... 228,100 $ 2,613,114 414,162 $ 4,656,253
Shares issued in reinvestment
of distributions............. 75,131 849,962 61,515 692,436
Shares redeemed............... (294,040) (3,369,011) (514,611) (5,780,674)
- --------------------------------------------------------------------------------
Net increase (decrease)....... 9,191 $ 94,065 (38,934) $ (431,985)
- --------------------------------------------------------------------------------
Class Y
Shares sold................... 236,254 $ 2,694,423 548,341 $ 6,182,899
Shares issued in reinvestment
of distributions............. 75,016 847,467 46,065 518,516
Shares redeemed............... (200,503) (2,311,276) (641,096) (7,217,645)
Shares issued in connection
with the acquisition of
CoreFund Intermediate
Municipal Bond Fund.......... 94,933 1,076,604 0 0
- --------------------------------------------------------------------------------
Net increase (decrease)....... 205,700 $ 2,307,218 (46,690) $ (516,230)
- --------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
[LOGO APPEARS HERE]
Combined Notes to Financial Statements(Unaudited) (continued)
Municipal Fund
<TABLE>
<CAPTION>
Six Months Ended
November 30, 1998 Year Ended
(Unaudited) May 31, 1998*
-------------------------- ---------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold............. 1,444,006 $ 11,100,649 404,689 $ 3,409,126
Shares issued in
reinvestment of
distributions.......... 4,728,680 36,324,410 1,526,223 11,889,303
Shares redeemed......... (13,239,459) (102,622,662) (12,806,920) (100,036,093)
Shares issued in
connection with the
acquisition of
Evergreen Tax Free
Income Fund........... 0 0 8,443,496 66,261,386
Automatic conversion of
Class B shares......... 0 0 162,305,257 1,285,292,084
- ---------------------------------------------------------------------------------
Net increase
(decrease)............. (7,066,773) $ (55,197,603) 159,872,745 $1,266,815,806
- ---------------------------------------------------------------------------------
</TABLE>
* For the period from January 20, 1998 (Commencement of Class Operations) to
May 31, 1998.
<TABLE>
<CAPTION>
Six Months Ended
November 30, 1998 Five Months Ended Year Ended
(Unaudited) May 31, 1998* December 31, 1997
------------------------ ----------------------------- --------------------------
Shares Amount Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class B
Shares sold............. 888,771 $ 6,877,964 2,346,134 $ 18,452,022 5,057,416 $ 39,118,274
Shares issued in
reinvestment of
distributions.......... 448,415 3,442,793 130,151 1,014,991 6,963,866 53,790,716
Shares redeemed......... (1,989,940) (15,400,528) (3,205,499) (25,180,245) (38,141,778) (294,007,649)
Shares issued in
connection with the
acquisition of
Evergreen Tax Free
Income Fund............ 3,247,599 25,484,520 0 0
Automatic conversion of
shares to Class A
shares................. (162,305,257) (1,285,292,084) 0 0
- -------------------------------------------------------------------------------------------------------------
Net decrease............ (652,754) $ (5,079,771) (159,786,872) $(1,265,520,796) (26,120,496) $(201,098,659)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Fund changed its fiscal year end from December 31 to May 31, as of May 31,
1998.
<TABLE>
<CAPTION>
Six Months Ended
November 30, 1998 Year Ended
(Unaudited) May 31, 1998*
--------------------- ---------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class C
Shares sold..................... 98,142 $ 757,720 10,499 $ 81,748
Shares issued in reinvestment of
distributions.................. 34,757 267,081 7,950 61,789
Shares redeemed................. (158,868) (1,228,215) (94,211) (729,164)
Shares issued in connection with
the acquisition of
Evergreen Tax Free Income Fund.. 0 0 1,066,879 8,372,435
- ---------------------------------------------------------------------------------
Net increase (decrease)......... (25,969) $ (203,414) 991,117 $7,786,808
- ---------------------------------------------------------------------------------
</TABLE>
* For the period from January 26, 1998 (Commencement of Class Operations) to
May 31, 1998.
47
<PAGE>
[LOGO APPEARS HERE]
Combined Notes to Financial Statements(Unaudited) (continued)
Short Intermediate Fund
<TABLE>
<CAPTION>
Six Months Ended
November 30, 1998 Year Ended
(Unaudited) May 31, 1998
------------------------ ------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold............... 210,929 $ 2,164,348 383,419 $ 3,907,614
Shares issued in
reinvestment of
distributions............ 9,314 95,179 15,389 156,458
Shares redeemed........... (112,747) (1,155,172) (356,623) (3,624,581)
Shares issued in
connection with the
acquisition of
Evergreen Short
Intermediate Municipal
Fund - California........ 0 0 736 7,495
- --------------------------------------------------------------------------------
Net increase.............. 107,496 $ 1,104,355 42,921 $ 446,986
- --------------------------------------------------------------------------------
Class B
Shares sold............... 96,129 $ 981,749 107,260 $ 1,092,900
Shares issued in
reinvestment of
distributions............ 9,647 98,609 14,126 143,788
Shares redeemed........... (67,336) (688,933) (227,503) (2,313,782)
Shares issued in
connection with the
acquisition of
Evergreen Short
Intermediate Municipal
Fund - California........ 0 0 6,897 70,307
- --------------------------------------------------------------------------------
Net increase (decrease)... 38,440 $ 391,425 (99,220) $ (1,006,787)
- --------------------------------------------------------------------------------
Class Y
Shares sold............... 1,279,741 $ 13,093,854 1,719,348 $ 17,512,581
Shares issued in
reinvestment of
distributions............ 134,307 1,370,565 116,093 1,181,891
Shares redeemed........... (2,402,172) (24,559,676) (4,588,604) (46,764,511)
Shares issued in
connection with the
acquisition of:
Common Trust Fund -
Intermediate Tax Exempt
Bond Fund................ 0 0 14,616,570 148,714,787
Evergreen Short
Intermediate Municipal
Fund - California........ 0 0 1,412,138 14,395,605
- --------------------------------------------------------------------------------
Net increase (decrease)... (988,124) $(10,095,257) 13,275,545 $135,040,353
- --------------------------------------------------------------------------------
</TABLE>
5. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) were as follows for the six months ended November 30,
1998:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases from Sales
-------------------------
<S> <C> <C>
High Grade Fund....................... $ 54,011,654 $ 55,113,923
Municipal Fund........................ 695,965,076 841,649,251
Short Intermediate Fund............... 62,017,993 65,575,701
</TABLE>
On July 24, 1998, High Grade Fund acquired securities with a cost basis of
$1,825,647 resulting from the Fund's acquisition of CoreFund Intermediate Mu-
nicipal Bond Fund.
6. DISTRIBUTION PLANS
Evergreen Distributor, Inc. ("EDI"), a wholly-owned subsidiary of The BISYS
Group Inc. ("BISYS"), serves as principal underwriter to each of the Funds.
Each Fund has adopted Distribution Plans for each class of shares, except Class
Y, as allowed by Rule 12b-1 of the 1940 Act. Distribution plans permit a fund
to reimburse its principal underwriter for costs related to selling shares of
the fund and for various other services. These costs, which consist primarily
of commissions and service fees to broker-dealers who sell shares of the fund,
are paid by the fund through expenses called "Distribution Plan expenses". Each
class, except Class Y, currently pays a service fee equal to 0.25% of the aver-
age daily net asset of the class. These expenses are currently limited to 0.25%
annually of the average daily net assets of the Class A shares of High Grade
Fund and Municipal Fund and 0.10% annually of the average daily net assets of
the Class A shares of Short Intermediate Fund. In addition, Class B and Class C
also pay distribution fees equal to 0.75% of the average daily net assets of
the class. Distribution Plan expenses are calculated daily and paid monthly.
48
<PAGE>
[LOGO APPEARS HERE]
Combined Notes to Financial Statements(Unaudited) (continued)
During the six months ended November 30, 1998, amounts paid or accrued to EDI
pursuant to each Fund's Class A, Class B and Class C Distribution Plans were as
follows:
<TABLE>
<CAPTION>
Class A Class B Class C
---------------------------
<S> <C> <C> <C>
High Grade Fund.................... $ 84,421 $164,506 $ --
Municipal Fund..................... 1,502,403 611,443 37,750
Short Intermediate Fund............ 3,401 29,906 --
</TABLE>
Each of the Distribution Plans may be terminated at any time by vote of the In-
dependent Trustees or by vote of a majority of the outstanding voting shares of
the respective class.
Contingent deferred sales charges paid by redeeming shareholders are paid to
EDI.
7. INVESTMENT ADVISORY AGREEMENT AND OTHER AFFILIATED TRANSACTIONS
Evergreen Investment Management ("EIM") (formerly the Capital Management Group
("CMG"), a division of First Union National Bank ("FUNB"), serves as the in-
vestment adviser to the High Grade Fund and is paid an advisory fee that is
computed daily and paid monthly at an annual rate of 0.50% of the Fund's aver-
age daily net assets.
Evergreen Investment Management Company (formerly Keystone Investment Manage-
ment Company) ("EIMC"), a subsidiary of First Union, is the investment adviser
for Municipal Fund and is paid an advisory fee that is calculated daily and
paid monthly. The advisory fee is calculated at an annual rate of 2.00% of Mu-
nicipal Fund's gross investment income plus an amount determined by applying
percentage rates, starting at 0.50% and declining to 0.25% per annum as net as-
sets increase, to the average daily net assets of the Fund.
Evergreen Asset Management Corp. ("EAMC"), a wholly-owned subsidiary of First
Union, is the investment adviser for the Short Intermediate Fund and is paid an
advisory fee that is computed daily and paid monthly at an annual rate of 0.50%
of the Fund's average daily net assets. Out of its fee, EAMC pays Evergreen In-
vestment Services for its services as administrator, BISYS for its services as
sub-administrator and Lieber & Company, an affiliate of First Union, for its
services as sub-adviser. During the six months ended November 30, 1998, EAMC
waived $7,043 of its advisory fee.
For each of the Funds, Evergreen Investment Services, Inc. ("EIS"), a subsidi-
ary of First Union, is the administrator and BISYS serves as the sub-adminis-
trator for each Fund. As administrator, EIS provides the Funds with facilities,
equipment and personnel. As sub-administrator to the Funds, BISYS provides the
officers of the Funds. Officers of the Funds and affiliated Trustees receive no
compensation directly from the Funds.
For their services to the High Grade Fund, EIS and BISYS is entitled to an an-
nual fee based on the average daily net assets of the funds administered by EIS
for which First Union or its investment advisory subsidiaries are also the in-
vestment advisers. The administration fee is calculated by applying percentage
rates, which start at 0.05% and decline to 0.01% per annum as net assets in-
crease, to the average daily net asset value of the Fund. The sub-administra-
tion fee is calculated by applying percentage rates, which start at 0.01% and
decline to 0.004% per annum as net assets increase, to the average daily net
assets of the Fund. For the six months ended November 30, 1998, the High Grade
Fund paid $13,705 to EIS for its services as administrator. For Short Interme-
diate Fund and Municipal Fund, the administration and sub-administration fee is
paid by their respective investment adviser and is not a Fund expense. During
the six months ended November 30, 1998, Municipal Fund reimbursed EIMC for cer-
tain administration and accounting expenses amounting to $103,214.
Evergreen Service Company ("ESC"), an indirect, wholly-owned subsidiary of
First Union, serves as the transfer and dividend disbursing agent for each
Fund. The Funds have entered into an expense offset arrangement with ESC relat-
ing to certain cash balances held at First Union for the benefit of the Ever-
green Funds.
At November 30, 1998, FUNB owned directly or beneficially, 74% of the outstand-
ing shares of the Short Intermediate Fund.
49
<PAGE>
[LOGO APPEARS HERE]
Combined Notes to Financial Statements(Unaudited) (continued)
8. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an expense offset arrangement with their custodian.
The assets deposited with the custodian under this expense offset arrangement
could have been invested in income-producing assets.
9. DEFERRED TRUSTEES' FEES
Each Independent Trustee of the Funds may defer any or all compensation related
to performance of their duties as Trustees. The Trustees' deferred balances are
allocated to deferral accounts, which are included in the accrued expenses for
each Fund. The investment performance of the deferral accounts are based on the
investment performance of certain Evergreen Funds. Any gains earned or losses
incurred in the deferral accounts are reported in each Fund's Trustees' fees
and expenses. Trustees will be paid either in one lump sum or in quarterly in-
stallments 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.
10. FINANCING AGREEMENTS
Certain of the Evergreen Funds, State Street Bank and Trust ("SSB") and a group
of banks (the "Banks") entered into a financing agreement, dated December 22,
1997, as amended November 20, 1998. Under this agreement, the Banks provide an
unsecured credit facility in the aggregate amount of $400 million ($275 million
committed and $125 million uncommitted). The credit facility is allocated, un-
der the terms of the financing agreement, among the Banks. The credit facility
is to be accessed by the Funds for temporary or emergency purposes only and is
subject to each Fund's borrowing restrictions. Borrowings under this facility
bore interest at 0.50% per annum above the Federal Funds rate. A commitment fee
of 0.065% per annum was incurred on the unused portion of the committed facili-
ty, which will be allocated to all funds. For its assistance in arranging this
financing agreement, the Capital Market Group of First Union was paid a one-
time arrangement fee of $27,500. State Street served as agent for the Banks,
and as administrative agent is entitled to a fee of $20,000 per annum which is
allocated to all of the participating Funds.
During the six months ended November 30, 1998, the Funds had no borrowings un-
der these agreements.
11. NAME CHANGES
Effective January 4, 1999, Evergreen High Grade Tax Free Fund and Evergreen Tax
Free Fund changed their names to Evergreen High Grade Municipal Bond Fund and
Evergreen Municipal Bond Fund, respectively. Additionally, the investment pol-
icy of the Funds has changed with respect to municipal bond subject to the fed-
eral Alternative Minimum Tax ("AMT"). Formerly, the Funds could not invest more
than 20% of their assets in municipal bonds subject to AMT. Currently, the
Funds may invest up to 100% of their assets in such bonds.
Effective, January 4, 1999, Capital Management Group ("CMG") changed its name
to Evergreen Investment Management ("EIM"), a division of First Union National
Bank.
12. SUBSEQUENT EVENTS
On December 22, 1998, the financing agreement referenced above was amended and
renewed among certain Evergreen Funds, SSB and the Bank of New York ("BONY").
Under this agreement, SSB and BONY provide an unsecured credit facility in the
aggregate amount of $150 million ($125 million committed and $25 million uncom-
mitted). The remaining terms and conditions of the agreement are unaffected.
50
<PAGE>
[LOGO APPEARS HERE]
Combined Notes to Financial Statements(Unaudited) (continued)
13. YEAR 2000
Like other investment companies, the Funds could be adversely affected if the
computer systems used by the Funds' investment advisors and the Funds' other
service providers are not able to perform their intended functions effectively
after 1999 because of the inability of computer software to distinguish the
year 2000 from the year 1900. The Funds' investment advisors are taking steps
to address this potential year 2000 problem with respect to the computer sys-
tems that they use and to obtain satisfactory assurances that comparable steps
are being taken by the Funds' other major service providers. At this time, how-
ever, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the Funds from this problem.
51
<PAGE>
Evergreen Funds
Money Market
Treasury Money Market Fund
Money Market Fund
Municipal Money Market Fund
Florida Municipal Money Market Fund
New Jersey Municipal Money Market Fund
Pennsylvania Municipal Money Market Fund
Tax Exempt
Short Intermediate Municipal Fund
High Grade Municipal Bond Fund
Municipal Bond Fund
California Municipal Bond Fund
Connecticut Municipal Bond Fund
Florida Municipal Bond Fund
Florida High Income Municipal Bond Fund
Georgia Municipal Bond Fund
Maryland Municipal Bond Fund
Massachusetts Municipal Bond Fund
Missouri Municipal Bond Fund
New Jersey Municipal Bond Fund
New York Municipal Bond Fund
North Carolina Municipal Bond Fund
Pennsylvania Municipal Bond Fund
South Carolina Municipal Bond Fund
Virginia Municipal Bond Fund
Income
Capital Preservation and Income Fund
Short Intermediate Bond Fund
Intermediate Term Government Securities Fund
Intermediate Term Bond Fund
U.S. Government Fund
Diversified Bond Fund
Strategic Income Fund
High Yield Bond Fund
Balanced
American Retirement Fund
Balanced Fund
Tax Strategic Foundation Fund
Foundation Fund
Growth & Income
Utility Fund
Income and Growth Fund
Fund for Total Return
Value Fund
Select Equity Index Fund
Blue Chip Fund
Growth and Income Fund
Small Cap Equity Income Fund
Domestic Growth
Tax Strategic Equity Fund
Strategic Growth Fund
Stock Selector Fund
Evergreen Fund
Masters Fund
Omega Fund
Small Company Growth Fund
Aggressive Growth Fund
Micro Cap Fund
Global International
Global Leaders Fund
International Growth Fund
Global Opportunities Fund
Precious Metals Fund
Emerging Markets Growth Fund
Latin America Fund
Express Line
800.346.3858
Investor Services
800.343.2898
Retirement Plan Services
800.247.4075
www.evergreen-funds.com
[LOGO OF EVERGREEN FUNDS/SM/ APPEARS HERE] [BULK POSTAGE STAMP APPEARS HERE]
