EVERGREEN FIXED INCOME TRUST /DE/, 485BPOS, 1998-01-30

EVERGREEN FIXED INCOME TRUST /DE/
485BPOS, 1998-01-30

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1933 Act No. 333-37433
1940 Act No. 811-

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 2 [X]

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 2 [X]

EVERGREEN FIXED INCOME TRUST
(Exact Name of Registrant as Specified in Charter)

200 Berkeley Street, Boston, Massachusetts 02116-5034
(Address of Principal Executive Offices)

(617) 210-3200
(Registrant's Telephone Number)

The Corporation Trust Company
1209 Orange Street
Wilmington, Delaware 19801
(Name and Address of Agent for Service)

It is proposed that this filing will become effective:
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485

If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)

<PAGE>

EVERGREEN FIXED INCOME TRUST

CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 2
to
REGISTRATION STATEMENT

This Post-Effective Amendment No. 2 to Registrant's Registration Statement
No. 333-37433/811-7246 consists of the following pages, items of information
and documents:

The Facing Sheet

The Contents Page

The Cross-Reference Sheet

PART A
------

Prospectuses for Evergreen U.S. Government Fund, Evergreen Strategic
Income Fund, Evergreen Diversified Bond Fund, Evergreen High Yield Bond Fund
is contained herein.

Prospectuses for the following funds are contained in Registration Statement
No. 333-37433/811-7246 filed on December 12, 1997: Evergreen Captial
Preservation and Income Fund, Evergreen Intermediate-Term Government Securities
Fund, Evergreen Short-Intermediate Bond Fund.

Prospectuses for Evergreen Intermediate Term Bond Fund are contained in
Registration Statement No. 333-37433/811-7246 filed on November 10, 1997.

PART B
------

Statement of Additional Information for Evergreen U.S. Government Fund,
Evergreen Strategic Income Fund, Evergreen Diversified Bond Fund,
Evergreen High Yield Bond Fund is contained herein.

Statement of Additional Information for the following funds are contained in
Registration Statement No. 333-37433/811-7246 filed on December 12, 1997:
Evergreen Captial Preservation and Income Fund, Evergreen Intermediate-Term
Government Securities Fund, Evergreen Short-Intermediate Bond Fund.

Statement of Additional Information for Evergreen Intermediate Term Bond Fund
are contained in Registration Statement No. 333-37433/811-7246 filed on
November 10, 1997.

PART C
------

Financial Statements

Exhibits

Number of Holders of Securities

Indemnification

Business and Other Connections of Investment Adviser

Principal Underwriter

Location of Accounts and Records

Undertakings

Signatures

<PAGE>

EVERGREEN FIXED INCOME TRUST

Cross-Reference Sheet pursuant to Rules 404 and 495 under the Securities
Act of 1933.
<TABLE>
<CAPTION>
N-1A Item No. Location in Prospectus(es)
<S> <C>
Part A

Item 1. Cover Page Cover Page

Item 2. Synopsis and Fee Table Expense Information; Performance Data

Item 3. Condensed Financial Information Financial Highlights

Item 4. General Description of Registrant Additional Investment Information; Cover Page; Fund Description; Fund Objectives
and Polices; Investment Restrictions; Risk Factors; General Information

Item 5. Management of the Fund Fund Management; Expenses

Item 6. Capital Stock and Other Securities Fund Description; Dividends and Taxes; Fund Shares; Shareholder Services

Item 7. Purchase of Securities Being Offered Distribution Plan; How to Buy Shares; Pricing Shares; Shareholders Services

Item 8. Redemption or Repurchase How to Redeem Shares

Item 9. Pending Legal Proceedings Not Applicable

Location in Statement of
Part B Additional Information

Item 10. Cover Page Cover Page

Item 11. Table of Contents Table of Contents

Item 12. General Information and History Not Applicable

Item 13. Investment Objectives and Policies The Fund; Investment Restrictions; Appendix

Item 14. Management of the Fund Directors and Officers

Item 15. Control Persons and Principal Additional Information
Holders of Securities

Item 16. Investment Advisory and Other Services Additional Information; Distribution Plan; Expenses; Investment Adviser; Principal
Underwriter; Sales Charges; Service Providers

Item 17. Brokerage Allocation Brokerage

Item 18. Capital Stock and Other Securities Articles of Incorporation

Item 19. Purchase, Redemption and Pricing of Valuation of Securities; Securities Being Offered Distribution Plans; Additional
Information

Item 20. Tax Status Distributions and Taxes

Item 21. Underwriters Principal Underwriter

Item 22. Calculation of Performance Data Standardized Total Return and Yield Quaotations

Item 23. Financial Statements Financial Statements
</TABLE>

Part C

Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.

<PAGE>

EVERGREEN FIXED INCOME TRUST

PART A

PROSPECTUSES
<PAGE>

---------------------------------------------------------------------------
PROSPECTUS February 1, 1998
---------------------------------------------------------------------------
EVERGREEN LONG TERM BOND FUNDS
---------------------------------------------------------------------------
EVERGREEN U.S. GOVERNMENT FUND (logo)
EVERGREEN STRATEGIC INCOME FUND
EVERGREEN HIGH YIELD BOND FUND
EVERGREEN DIVERSIFIED BOND FUND
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
The Evergreen Long Term Bond Funds (the "Funds") are designed to
provide investors with a selection of investment alternatives which seek to
provide a high level of current income. This Prospectus provides
information regarding the Class A, Class B and Class C shares offered by
the Funds. Each Fund is, or is a series of, an open-end, diversified,
management investment company. This Prospectus sets forth concise
information about the Funds that a prospective investor should know before
investing. The address of the Funds is 200 Berkeley Street, Boston,
Massachusetts 02116.
A Statement of Additional Information for the Funds dated February
1, 1998, as supplemented from time to time, has been filed with the
Securities and Exchange Commission and is incorporated by reference herein.
The Statement of Additional Information provides information regarding
certain matters discussed in this Prospectus and other matters which may be
of interest to investors, and may be obtained without charge by calling the
Evergreen Funds at (800) 343-2898. There can be no assurance that the
investment objective of any Fund will be achieved. Investors are advised to
read this Prospectus carefully.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OTHER OBLIGATIONS
OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, ARE NOT INSURED OR
OTHERWISE PROTECTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY, AND
INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
KEEP THIS PROSPECTUS FOR FUTURE REFERENCE

<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
EXPENSE INFORMATION 3
FINANCIAL HIGHLIGHTS 4
DESCRIPTION OF THE FUNDS
Investment Objectives and Policies 10
Investment Practices and Restrictions 13
ORGANIZATION AND SERVICE PROVIDERS
Organization 21
Service Providers 21
Distribution Plans and Agreements 23
PURCHASE AND REDEMPTION OF SHARES
How to Buy Shares 24
How to Redeem Shares 27
Exchange Privilege 28
Shareholder Services 29
Banking Laws 30
OTHER INFORMATION
Dividends, Distributions and Taxes 31
General Information 32
</TABLE>

<PAGE>
- --------------------------------------------------------------------------------
EXPENSE INFORMATION
- --------------------------------------------------------------------------------
The table set forth below summarizes the shareholder transaction costs
associated with an investment in each Class A, Class B and Class C Shares of
each Fund. For further information see "Purchase and Redemption of Shares" and
"General Information -- Other Classes of Shares".
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES Class A Shares Class B Shares Class C Shares
-------------- ----------------- --------------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a % of offering price) 4.75% None None
Contingent Deferred Sales Charge (as a % of original purchase price or None(1) 5.00%(2) 1.00%(2)
redemption proceeds, whichever is lower)
</TABLE>
Annual operating expenses reflect the normal operating expenses of the
Fund, and include costs such as management, distribution and other fees. The
table below shows the Fund's actual or estimated annual operating expenses for
the fiscal period ending on the date set forth beside the Fund's name. The
example shows what you would pay if you invested $1,000 over the periods
indicated. The example assumes that you reinvest all of your dividends and that
the Fund's average annual return will be 5%. THE EXAMPLES ARE FOR ILLUSTRATION
PURPOSES ONLY AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR ANNUAL RETURN. THE FUND'S ACTUAL EXPENSES AND RETURNS WILL VARY. For
a more complete description of the various costs and expenses borne by the Funds
see "Organization and Service Providers".
EVERGREEN U.S. GOVERNMENT FUND (APRIL 30, 1997)
<TABLE>
<CAPTION>
EXAMPLES
---------------------------------------------------
Assuming Redemption Assuming no
ANNUAL OPERATING EXPENSES at End of Period Redemption
--------------------------- ----------------------------- ------------------
Class A Class B Class C Class A Class B Class C Class B Class C
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .50% .50% .50% After 1 Year $ 57 $ 68 $ 28 $ 18 $ 18
12b-1 Fees (3) .25% .75% .75% After 3 Years $ 77 $ 84 $ 54 $ 54 $ 54
Shareholder Service Fees -- .25% .25% After 5 Years $ 99 $ 114 $ 94 $ 94 $ 94
Other Expenses .23% .23% .23% After 10 Years $ 162 $ 175 $ 204 $ 175 $ 204
------- ------- -------
Total .98% 1.73% 1.73%
------- ------- -------
------- ------- -------
</TABLE>

EVERGREEN STRATEGIC INCOME FUND (APRIL 30, 1997)
<TABLE>
<CAPTION>
EXAMPLES
---------------------------------------------------
Assuming Redemption Assuming no
ANNUAL OPERATING EXPENSES at End of Period Redemption
--------------------------- ----------------------------- ------------------
Class A Class B Class C Class A Class B Class C Class B Class C
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .64% .64% .64% After 1 Year $ 60 $ 71 $ 31 $ 21 $ 21
12b-1 Fees (3) .23% .75% .75% After 3 Years $ 86 $ 94 $ 64 $ 64 $ 64
Shareholder Service Fees -- .25% .25% After 5 Years $ 114 $ 130 $ 110 $ 110 $ 110
Other Expenses .41% .40% .40% After 10 Years $ 195 $ 208 $ 237 $ 208 $ 237
------- ------- -------
Total 1.28% 2.04% 2.04%
------- ------- -------
------- ------- -------
</TABLE>

EVERGREEN HIGH YIELD BOND FUND (APRIL 30, 1998)
<TABLE>
<CAPTION>
EXAMPLES
---------------------------------------------------
Assuming Redemption Assuming no
ANNUAL OPERATING EXPENSES at End of Period Redemption
--------------------------- ----------------------------- ------------------
Class A Class B Class C Class A Class B Class C Class B Class C
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .58% .58% .58% After 1 Year $ 59 $ 70 $ 30 $ 20 $ 20
12b-1 Fees (3) .25% 1.00% 1.00% After 3 Years $ 83 $ 91 $ 61 $ 61 $ 61
Other Expenses .35% .35% .35% After 5 Years $ 109 $ 124 $ 104 $ 104 $ 104
------- ------- -------
Total 1.18% 1.93% 1.93% After 10 Years $ 184 $ 196 $ 225 $ 196 $ 225
------- ------- -------
------- ------- -------
</TABLE>

<PAGE>
EVERGREEN DIVERSIFIED BOND FUND (APRIL 30, 1998)
<TABLE>
<CAPTION>
EXAMPLES
---------------------------------------------------
Assuming Redemption Assuming no
ANNUAL OPERATING EXPENSES at End of Period Redemption
--------------------------- ----------------------------- ------------------
Class A Class B Class C Class A Class B Class C Class B Class C
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .52% .52% .52% After 1 Year $ 58 $ 69 $ 29 $ 19 $ 19
12b-1 Fees (3) .25% 1.00% 1.00% After 3 Years $ 81 $ 88 $ 58 $ 58 $ 58
Other Expenses .33% .33% .33%
------- ------- -------
Total 1.10% 1.85% 1.85%
------- ------- -------
------- ------- -------
</TABLE>

(1) Investments of $1 million or more are not subject to a front-end sales
charge, but may be subject to a contingent deferred sales charge upon
redemption within one year after the month of purchase.
(2) The deferred sales charge on Class B shares declines from 5% to 1% on
amounts redeemed within six years after the month of purchase. The deferred
sales charge on Class C shares is 1% on amounts redeemed within one year
after the month of purchase. No sales charge is imposed on redemptions made
thereafter. See "Purchase and Redemption of Shares" for more information.
(3) Long-term shareholders may pay more than the economic equivalent front-end
sales charges permitted by the National Association of Securities Dealers,
Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The tables on the following pages present, for each Fund, financial
highlights for a share outstanding throughout each period indicated. The
information in the tables for the five most recent fiscal periods or the life of
a Fund if shorter has been audited by KPMG Peat Marwick LLP, the Funds'
independent auditors. Class A and C shares of EVERGREEN HIGH YIELD BOND FUND and
EVERGREEN DIVERSIFIED BOND FUND commenced operations on January 9, 1998 and are
therefore not presented in the tables below. The tables appear in the Funds'
annual report to shareholders and should be read in conjunction with each Fund's
financial statements and related notes, which also appear, together with the
independent auditors' report, in the Funds' annual report to shareholders. The
Funds' financial statements, related notes, and independent auditors' report are
incorporated by reference into the Funds' Statement of Additional Information.
Further information about each Fund's performance is contained in the
Funds' annual report to shareholders, which may be obtained without charge.
EVERGREEN U.S. GOVERNMENT FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
SIX MONTHS JANUARY 11, 1993
ENDED TEN MONTHS YEAR SIX MONTHS YEAR (COMMENCEMENT OF
OCTOBER 31, ENDED ENDED ENDED ENDED OPERATIONS) TO
1997 APRIL 30, JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1997 (D) 1996 1995 (C) 1994 1993
----------- ---------- -------- ---------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of
period........................... $ 9.39 $ 9.42 $ 9.65 $ 9.07 $ 10.05 $ 10.00
----------- ---------- -------- ---------- ------------ --------
Income from investment operations:
Net investment income............ 0.31 0.52 0.63 0.33 0.66 0.68
Net realized and unrealized gain
(loss) on investments.......... 0.27 (0.03) (0.23 ) 0.58 (0.98) 0.05
----------- ---------- -------- ---------- ------------ --------
Total from investment
operations................... 0.58 0.49 0.40 0.91 (0.32) 0.73
----------- ---------- -------- ---------- ------------ --------
Less distributions from net
investment income................ (0.31) (0.52) (0.63 ) (0.33) (0.66) (0.68)
----------- ---------- -------- ---------- ------------ --------
Net asset value end of period...... $ 9.66 $ 9.39 $ 9.42 $ 9.65 $ 9.07 $ 10.05
----------- ---------- -------- ---------- ------------ --------
----------- ---------- -------- ---------- ------------ --------
TOTAL RETURN (B)................... 6.28% 5.30% 4.28% 10.17% (3.18%) 7.43%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Expenses......................... 1.02%(a) 0.98%(a) 0.99% 1.04%(a) 0.96% 0.68%(a)
Expenses excluding waivers and/or
reimbursements................. 1.02%(a) 0.98%(a) 0.99% 1.05%(a) 1.00% 0.99%(a)
Expenses excluding indirectly
paid expenses.................. 1.02%(a) 0.98%(a) -- -- -- --
Net investment income............ 6.38%(a) 6.60%(a) 6.61% 7.07%(a) 6.97% 6.93%(a)
Portfolio turnover rate............ 5% 12% 23% 0% 19% 39%
Net assets end of period
(thousands)...................... $37,329 $ 17,913 $20,345 $ 22,445 $ 23,706 $ 38,851
</TABLE>

<PAGE>
EVERGREEN U.S. GOVERNMENT FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
SIX MONTHS JANUARY 11, 1993
ENDED TEN MONTHS YEAR SIX MONTHS YEAR (COMMENCEMENT OF
OCTOBER 31, ENDED ENDED ENDED ENDED OPERATIONS) TO
1997 APRIL 30, JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1997 (D) 1996 1995 (C) 1994 1993
----------- ---------- -------- ---------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of
period........................... $ 9.39 $ 9.42 $ 9.65 $ 9.07 $ 10.05 $ 10.00
----------- ---------- -------- ---------- ------------ ----------------
Income from investment operations:
Net investment income............ 0.28 0.46 0.56 0.29 0.61 0.63
Net realized and unrealized gain
(loss) on investments.......... 0.26 (0.03) (0.23) 0.58 (0.98) 0.05
----------- ---------- -------- ---------- ------------ ----------------
Total from investment
operations................... 0.54 0.43 0.33 0.87 (0.37) 0.68
----------- ---------- -------- ---------- ------------ ----------------
Less distributions from net
investment income................ (0.27) (0.46) (0.56) (0.29) (0.61) (0.63)
----------- ---------- -------- ---------- ------------ ----------------
Net asset value end of period...... $ 9.66 $ 9.39 $ 9.42 $ 9.65 $ 9.07 $ 10.05
----------- ---------- -------- ---------- ------------ ----------------
----------- ---------- -------- ---------- ------------ ----------------
TOTAL RETURN (B)................... 5.88% 4.65% 3.50% 9.76% (3.75%) 6.91%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Expenses......................... 1.77%(a) 1.73%(a) 1.74% 1.79%(a) 1.54% 1.19%(a)
Expenses excluding waivers and
reimbursements................. 1.77%(a) 1.73%(a) 1.74% 1.80%(a) 1.58% 1.50%(a)
Expenses excluding indirectly
paid expenses.................. 1.77%(a) 1.73%(a) -- -- -- --
Net investment income............ 5.68%(a) 5.85%(a) 5.85% 6.32%(a) 6.42% 6.44%(a)
Portfolio turnover rate............ 5% 12% 23% 0% 19% 39%
Net assets end of period
(thousands)...................... $ 145,591 $142,371 $165,988 $192,490 $195,571 $236,696
</TABLE>

- -------------
(a) Annualized.
(b) Excluding applicable sales charges.
(c) The Fund changed its fiscal year end from December 31 to June 30.
(d) The Fund changed its fiscal year end from June 30 to April 30.
EVERGREEN U.S. GOVERNMENT FUND -- CLASS C SHARES
<TABLE>
<CAPTION>
SIX MONTHS SEPTEMBER 2, 1994
ENDED TEN MONTHS YEAR SIX MONTHS (DATE OF INITIAL
OCTOBER 31, ENDED ENDED ENDED PUBLIC OFFERING)
1997 APRIL 30, JUNE 30, JUNE 30, TO
(UNAUDITED) 1997 (D) 1996 1995 (C) DECEMBER 31, 1994
----------- ---------- -------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of period................. $ 9.39 $ 9.42 $ 9.65 $ 9.07 $ 9.39
----------- ---------- -------- ---------- --------
Income from investment operations:
Net investment income............................. 0.28 0.46 0.56 0.29 0.20
Net realized and unrealized gain (loss) on
investments..................................... 0.26 (0.03) (0.23 ) 0.58 (0.32)
----------- ---------- -------- ---------- --------
Total from investment operations................ 0.54 0.43 0.33 0.87 (0.12)
----------- ---------- -------- ---------- --------
Less distributions from net investment income....... (0.27) (0.46) (0.56 ) (0.29) (0.20)
----------- ---------- -------- ---------- --------
Net asset value end of period....................... $ 9.66 $ 9.39 $ 9.42 $ 9.65 $ 9.07
----------- ---------- -------- ---------- --------
----------- ---------- -------- ---------- --------
TOTAL RETURN (B).................................... 5.88% 4.65% 3.50% 9.76% (1.30%)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Expenses.......................................... 1.78%(a) 1.73%(a) 1.74% 1.79%(a) 1.71%(a)
Expenses excluding waivers and reimbursements..... 1.78%(a) 1.73%(a) 1.74% 1.80%(a) 1.75%(a)
Expenses excluding indirectly paid expenses....... 1.78%(a) 1.73%(a) -- -- --
Net investment income............................. 5.57%(a) 5.85%(a) 5.87% 6.36%(a) 6.70%(a)
Portfolio turnover rate............................. 5% 12% 23% 0% 19%
Net assets end of period (thousands)................ $ 6,260 $ 455 $ 649 $ 350 $ 266
</TABLE>

<PAGE>
EVERGREEN STRATEGIC INCOME FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
OCTOBER 31, NINE MONTHS ENDED YEAR ENDED JULY 31,
1997 (B) APRIL 30, 1997 -----------------------------------------
(UNAUDITED) (D) 1996 1995 1994 (B) 1993
----------- ----------------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of period............. $ 6.82 $ 6.77 $ 6.89 $ 7.35 $ 7.86 $ 7.02
----------- -------- ------- ------- -------- -------
Income from investment operations:
Net investment income......................... 0.25 0.37 0.54 0.64 0.61 0.69
Net realized and unrealized gain (loss) on
investments and foreign currency related
transactions................................ 0.24 0.09 (0.09) (0.45) (0.44) 0.89
----------- -------- ------- ------- -------- -------
Total from investment operations............ 0.49 0.46 0.45 0.19 0.17 1.58
----------- -------- ------- ------- -------- -------
Less distributions from:
Net investment income......................... (0.25) (0.38) (0.52) (0.60) (0.61) (0.72)
In excess of investment income................ 0 (0.03) 0 (0.03) (0.03) (0.02)
Tax basis return of capital................... 0 0 (0.05) (0.02) (0.04) 0
Net realized gains on investments and foreign
currency related transactions............... 0 0 0 0 0 0
----------- -------- ------- ------- -------- -------
Total distributions......................... (0.25) (0.41) (0.57) (0.65) (0.68) (0.74)
----------- -------- ------- ------- -------- -------
Net asset value end of period................... $ 7.06 $ 6.82 $ 6.77 $ 6.89 $ 7.35 $ 7.86
----------- -------- ------- ------- -------- -------
----------- -------- ------- ------- -------- -------
TOTAL RETURN (A)................................ 7.32% 6.80% 6.84% 3.00% 1.86% 24.13%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Expenses...................................... 1.31%(c) 1.28%(c) 1.30% 1.33% 1.32% 1.80%
Expenses excluding reimbursement.............. 1.31%(c) 1.28%(c) 1.30% 1.33% 1.32% 1.80%
Expenses excluding indirectly paid expenses... 1.31%(c) 1.26%(c) 1.28% -- -- --
Net investment income......................... 7.10%(c) 7.28%(c) 8.05% 9.31% 7.79% 9.50%
Portfolio turnover rate......................... 110% 86% 101% 95% 92% 151%
Net assets end of period (thousands)............ $64,683 $58,725 $68,118 $85,970 $105,181 $85,793
</TABLE>

<TABLE>
<CAPTION>
FEBRUARY 13, 1987
YEAR ENDED JULY 31, (COMMENCEMENT
----------------------------------------------------- OF OPERATIONS) TO
1992 1991 1990 1989 1988 JULY 31, 1987
------- ------- ------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA: (CONTINUED)
Net asset value beginning of period.................. $ 6.10 $ 7.17 $ 9.02 $ 9.36 $ 10.04 $ 10.00
------- ------- ------- -------- -------- --------
Income from investment operations:
Net investment income.............................. 0.78 0.89 1.03 1.10 1.05 0.22
Net realized and unrealized gain (loss) on
investments and foreign currency related
transactions..................................... 0.89 (1.01) (1.79) (0.31) (0.65) 0
------- ------- ------- -------- -------- --------
Total from investment operations................. 1.67 (0.12) (0.76) 0.79 0.40 0.22
------- ------- ------- -------- -------- --------
Less distributions from:
Net investment income.............................. (0.75) (0.89) (1.04) (1.11) (1.08) (0.18)
In excess of investment income..................... 0 (0.06) (0.05) 0 0 0
Tax basis return of capital........................ 0 0 0 0 0 0
Net realized gains on investments and foreign
currency related transactions.................... 0 0 0 (0.02) 0 0
------- ------- ------- -------- -------- --------
Total distributions.............................. (0.75) (0.95) (1.09) (1.13) (1.08) (0.18)
------- ------- ------- -------- -------- --------
Net asset value end of period........................ $ 7.02 $ 6.10 $ 7.17 $ 9.02 $ 9.36 $ 10.04
------- ------- ------- -------- -------- --------
------- ------- ------- -------- -------- --------
TOTAL RETURN (A)..................................... 28.73% 0.54% (8.55%) 9.00% 4.49% 2.20%(e)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Expenses........................................... 2.09% 2.00% 2.00% 1.81% 1.28% 1.00%(e)
Expenses excluding reimbursement................... 2.12% 2.25% 2.01% 1.90% 2.08% 6.08%(e)
Expenses excluding indirectly paid expenses........ -- -- -- -- -- --
Net investment income.............................. 11.73% 15.23% 12.91% 12.06% 10.98% 10.12%(e)
Portfolio turnover rate.............................. 95% 82% 36% 73% 46% 13%
Net assets end of period (thousands)................. $70,459 $70,246 $83,106 $138,499 $114,310 $ 8,191
</TABLE>

<PAGE>
EVERGREEN STRATEGIC INCOME FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED FEBRUARY 1, 1993
OCTOBER 31, NINE MONTHS ENDED YEAR ENDED JULY 31, (DATE OF INITIAL
1997 (B) APRIL 30, 1997 -------------------------------- PUBLIC OFFERING)
(UNAUDITED) (D) 1996 1995 1994 (B) TO JULY 31, 1993
----------- ----------------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of
period............................ $ 6.85 $ 6.81 $ 6.92 $ 7.38 $ 7.89 $ 7.07
----------- ----------------- -------- -------- -------- --------
Income from investment operations:
Net investment income............. 0.23 0.34 0.50 0.60 0.55 0.24
Net realized and unrealized gain
(loss) on investments and
foreign currency related
transactions.................... 0.24 0.07 (0.09) (0.47) (0.44) 0.92
----------- ----------------- -------- -------- -------- --------
Total from investment
operations.................... 0.47 0.41 0.41 0.13 0.11 1.16
----------- ----------------- -------- -------- -------- --------
Less distributions from:
Net investment income............. (0.23) (0.34) (0.47) (0.55) (0.55) (0.24)
In excess of net investment
income.......................... 0 (0.03) 0 (0.03) (0.03) (0.10)
Tax basis return of capital....... 0 0 (0.05) (0.01) (0.04) 0
----------- ----------------- -------- -------- -------- --------
Total distributions............. (0.23) (0.37) (0.52) (0.59) (0.62) (0.34)
----------- ----------------- -------- -------- -------- --------
Net asset value end of period....... $ 7.09 $ 6.85 $ 6.81 $ 6.92 $ 7.38 $ 7.89
----------- ----------------- -------- -------- -------- --------
----------- ----------------- -------- -------- -------- --------
TOTAL RETURN (A).................... 6.89% 6.06% 6.21% 2.12% 1.10% 16.75%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Expenses.......................... 2.08%(c) 2.04%(c) 2.07% 2.06% 2.07% 2.37%(c)
Expenses excluding indirectly paid
expenses........................ 2.08%(c) 2.02%(c) 2.05% -- -- --
Net investment income............. 6.33%(c) 6.52%(c) 7.28% 8.58% 7.11% 7.18%(c)
Portfolio turnover rate............. 110% 86% 101% 95% 92% 151%
Net assets end of period
(thousands)....................... $ 118,072 $ 110,082 $123,389 $149,091 $162,866 $ 35,415
</TABLE>

- -------------
(a) Excluding applicable sales charges.
(b) Calculation based on average shares outstanding.
(c) Annualized.
(d) The Fund changed its fiscal year end from July 31 to April 30.
EVERGREEN STRATEGIC INCOME FUND -- CLASS C SHARES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED FEBRUARY 1, 1993
OCTOBER 31, NINE MONTHS ENDED YEAR ENDED JULY 31, (DATE OF INITIAL
1997 (B) APRIL 30, 1997 ------------------------------- PUBLIC OFFERING)
(UNAUDITED) (D) 1996 1995 1994 (B) TO JULY 31, 1993
----------- ----------------- -------- ------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of period... $ 6.84 $ 6.80 $ 6.92 $ 7.37 $ 7.88 $ 7.07
----------- -------- -------- ------- -------- --------
Income from investment operations:
Net investment income............... 0.23 0.33 0.49 0.59 0.55 0.24
Net realized and unrealized gain
(loss) on investments and foreign
currency related transactions..... 0.24 0.08 (0.09) (0.45) (0.44 ) 0.91
----------- -------- -------- ------- -------- --------
Total from investment
operations...................... 0.47 0.41 0.40 0.14 0.11 1.15
----------- -------- -------- ------- -------- --------
Less distributions from:
Net investment income............... (0.23) (0.34) (0.47) (0.55) (0.55 ) (0.24)
In excess of net investment
income............................ 0 (0.03) 0 (0.03) (0.03 ) (0.10)
Tax basis return of capital......... 0 0 (0.05) (0.01) (0.04 ) 0
----------- -------- -------- ------- -------- --------
Total distributions............... (0.23) (0.37) (0.52) (0.59) (0.62 ) (0.34)
----------- -------- -------- ------- -------- --------
Net asset value end of period......... $ 7.08 $ 6.84 $ 6.80 $ 6.92 $ 7.37 $ 7.88
----------- -------- -------- ------- -------- --------
----------- -------- -------- ------- -------- --------
TOTAL RETURN (A)...................... 6.90% 6.07% 6.07% 2.27% 1.09% 16.61%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Expenses............................ 2.08%(c) 2.04%(c) 2.07% 2.08% 2.07% 2.25%(c)
Expenses excluding indirectly paid
expenses.......................... 2.08%(c) 2.03%(c) 2.05% -- -- --
Net investment income............... 6.34%(c) 6.52%(c) 7.29% 8.56% 7.09% 7.35%(c)
Portfolio turnover rate............... 110% 86% 101% 95% 92% 151%
Net assets end of period
(thousands)......................... $22,661 $24,304 $ 31,816 $46,221 $59,228 $ 19,706
</TABLE>

- -------------
(a) Excluding applicable sales charges.
(b) Calculation based on average shares outstanding.
(c) Annualized.
(d) The Fund changed its fiscal year end from July 31 to April 30.
7

<PAGE>
EVERGREEN HIGH YIELD BOND FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of period................................... $ 4.10 $ 4.42 $ 4.68 $ 5.13 $ 4.74
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income............................................... 0.32 0.32 0.38 0.38 0.45
Net realized and unrealized gain (loss) on
investments and foreign currency related transactions............. 0.28 (0.27) (0.15) (0.38) 0.44
-------- -------- -------- -------- --------
Total from investment operations.................................. 0.60 0.05 0.23 0 0.89
-------- -------- -------- -------- --------
Less distributions from:
Net investment income............................................... (0.32) (0.31) (0.37) (0.38) (0.45)
In excess of net investment income.................................. (0.01) (0.06) (0.02) (0.07) (0.05)
Tax basis return of capital......................................... 0 0 (0.10) 0 0
-------- -------- -------- -------- --------
Total distributions............................................... (0.33) (0.37) (0.49) (0.45) (0.50)
-------- -------- -------- -------- --------
Net asset value end of period......................................... $ 4.37 $ 4.10 $ 4.42 $ 4.68 $ 5.13
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (A)...................................................... 15.32% 1.38% 5.66% (0.41)% 20.28%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Expenses............................................................ 1.96% 1.94% 2.03% 1.84% 2.06%
Expenses excluding indirectly paid expenses......................... 1.95% 1.93% -- -- --
Net investment income............................................... 7.63% 7.92% 8.64% 7.57% 9.30%
Portfolio turnover rate............................................... 138% 116% 82% 110% 125%
Net assets end of period (thousands).................................. $547,390 $593,681 $764,965 $766,283 $972,164
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------------------------------------
1992 1991 1990 1989 1988
-------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA: (CONTINUED)
Net asset value beginning of period............................... $ 4.19 $ 5.02 $ 6.38 $ 6.91 $ 7.66
-------- -------- -------- ---------- ----------
Income from investment operations:
Net investment income........................................... 0.49 0.61 0.68 0.83 0.80
Net realized and unrealized gain (loss) on
investments and foreign currency related transactions......... 0.58 (0.72) (1.18) (0.51) (0.71)
-------- -------- -------- ---------- ----------
Total from investment operations.............................. 1.07 (0.11) (0.50) 0.32 0.09
-------- -------- -------- ---------- ----------
Less distributions from:
Net investment income........................................... (0.50) (0.72) (0.78) (0.85) (0.84)
In excess of net investment income.............................. (0.02) 0 (0.08) 0 0
Tax basis return of capital..................................... 0 0 0 0 0
-------- -------- -------- ---------- ----------
Total distributions........................................... (0.52) (0.72) (0.86) (0.85) (0.84)
-------- -------- -------- ---------- ----------
Net asset value end of period..................................... $ 4.74 $ 4.19 $ 5.02 $ 6.38 $ 6.91
-------- -------- -------- ---------- ----------
-------- -------- -------- ---------- ----------
TOTAL RETURN (A).................................................. 27.25% 0.03% (7.84)% 4.95% 1.66%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Expenses........................................................ 2.17% 2.34% 2.06% 1.97% 1.82%
Expenses excluding indirectly paid expenses..................... -- -- -- -- --
Net investment income........................................... 10.86% 14.64% 12.77% 12.36% 11.29%
Portfolio turnover rate........................................... 94% 78% 45% 75% 81%
Net assets end of period (thousands).............................. $841,757 $710,590 $820,940 $1,188,660 $1,274,673
</TABLE>

- -------------
(a) Excluding applicable sales charges.
8

<PAGE>
EVERGREEN DIVERSIFIED BOND FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF YEAR... $14.65 $15.09 $15.28 $17.06 $16.44 $15.37 $15.51 $17.74
-------- -------- -------- -------- ---------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income............... 0.91 0.95 1.06 1.06 1.28 1.33 1.33 1.53
Net realized and unrealized gain
(loss) on investments and foreign
currency related transactions...... 0.84 (0.35) 0.11 (1.62) 0.70 1.14 0.17 (1.94)
-------- -------- -------- -------- ---------- -------- -------- --------
Total from investment operations.... 1.75 0.60 1.17 (0.56) 1.98 2.47 1.50 (0.41)
-------- -------- -------- -------- ---------- -------- -------- --------
LESS DISTRIBUTIONS FROM:
Net investment income............... (0.93) (0.96) (1.06) (1.22) (1.28) (1.33) (1.63) (1.61)
In excess of net investment
income............................. (0.05) 0 (0.22) 0 (0.08) (0.07) (0.01) (0.21)
Tax basis return of capital......... 0 (0.08) (0.08) 0 0 0 0 0
Net realized gain on investments.... 0 0 0 0 0 0 0 0
-------- -------- -------- -------- ---------- -------- -------- --------
Total distributions................. (0.98) (1.04) (1.36) (1.22) (1.36) (1.40) (1.64) (1.82)
-------- -------- -------- -------- ---------- -------- -------- --------
NET ASSET VALUE END OF YEAR......... $15.42 $14.65 $15.09 $15.28 $17.06 $16.44 $15.37 $15.51
-------- -------- -------- -------- ---------- -------- -------- --------
-------- -------- -------- -------- ---------- -------- -------- --------
TOTAL RETURN (A).................... 12.25% 4.03% 8.13% (3.53%) 12.73% 16.88% 10.58% (2.44%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses..................... 1.88% 1.84% 1.81% 1.75% 1.89% 1.99% 1.94% 1.89%
Total expenses, excluding
indirectly paid expenses......... 1.87% 1.83% -- -- -- -- -- --
Net investment income.............. 6.07% 6.42% 7.05% 6.48% 7.73% 8.29% 8.74% 9.26%
PORTFOLIO TURNOVER RATE............. 138% 246% 178% 200% 133% 117% 101% 43%
NET ASSETS END OF YEAR
(THOUSANDS)........................ $457,701 $559,792 $734,837 $814,245 $1,004,393 $902,339 $814,528 $860,615
<CAPTION>

1989 1988
---------- --------
<S> <C> <C>
NET ASSET VALUE BEGINNING OF YEAR... $17.99 $18.91
---------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income............... 1.71 1.78
Net realized and unrealized gain
(loss) on investments and foreign
currency related transactions...... (0.13) (0.81)
---------- --------
Total from investment operations.... 1.58 0.97
---------- --------
LESS DISTRIBUTIONS FROM:
Net investment income............... (1.83) (1.85)
In excess of net investment
income............................. 0 0
Tax basis return of capital......... 0 0
Net realized gain on investments.... 0 (0.04)
---------- --------
Total distributions................. (1.83) (1.89)
---------- --------
NET ASSET VALUE END OF YEAR......... $17.74 $17.99
---------- --------
---------- --------
TOTAL RETURN (A).................... 9.23% 5.61%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses..................... 1.84% 1.68%
Total expenses, excluding
indirectly paid expenses......... -- --
Net investment income.............. 9.52% 9.82%
PORTFOLIO TURNOVER RATE............. 47% 46%
NET ASSETS END OF YEAR
(THOUSANDS)........................ $1,000,305 $838,892
</TABLE>

- -------------
(a) Excluding applicable sales charges.
9

<PAGE>
- --------------------------------------------------------------------------------
DESCRIPTION OF THE FUNDS
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
Each Fund's investment objectives are nonfundamental; as a result a Fund
may change its objectives without a shareholder vote. Each Fund has also adopted
certain fundamental investment policies which are mainly designed to limit a
Fund's exposure to risk. Each Fund's fundamental policies cannot be changed
without a shareholder vote. See the Statement of Additional Information ("SAI")
for more information regarding a Fund's fundamental investment policies or other
related investment policies. There can be no assurance that a Fund's investment
objectives will be achieved.
In addition to the investment policies detailed below, each Fund may
employ certain additional investment strategies which are discussed in
"Investment Practices and Restrictions", below. There can be no assurance that
any Fund's investment objective will be achieved.
EVERGREEN U.S. GOVERNMENT FUND
The investment objective of EVERGREEN U.S. GOVERNMENT FUND is to achieve
a high level of current income consistent with stability of principal. The Fund
will invest in debt instruments issued or guaranteed by the U.S. government, its
agencies, or instrumentalities ("U.S. government securities"), and is suitable
for conservative investors seeking high current yields plus relative safety. It
permits an investor to participate in a portfolio that benefits from active
management of a blend of securities and maturities to maximize the opportunities
and minimize the risks created by changing interest rates.
In addition to U.S. government securities, the Fund may invest in:
Securities representing ownership interests in mortgage pools
("mortgage-backed securities"). The yield and maturity characteristics of
mortgage-backed securities correspond to those of the underlying mortgages, with
interest and principal payments including prepayments (i.e. paying remaining
principal before the mortgage's scheduled maturity) passed through to the holder
of the mortgage-backed securities. The yield and price of mortgage-backed
securities will be affected by prepayments which substantially shorten effective
maturities. Thus, during periods of declining interest rates, prepayments may be
expected to increase, requiring the Fund to reinvest the proceeds at lower
interest rates, making it difficult to effectively lock in high interest rates.
Conversely, mortgage-backed securities may experience less pronounced declines
in value during periods of rising interest rates.
Securities representing ownership interests in a pool of assets
("asset-backed securities"), for which automobile and credit card receivables
are the most common collateral. Because much of the underlying collateral is
unsecured, asset-backed securities are structured to include additional
collateral and/or additional credit support to protect against default. The
Fund's investment adviser evaluates the strength of each particular issue of
asset-backed security, taking into account the structure of the issue and its
credit support. (See "Investment Practices and Restrictions -- Risk
Characteristics of Asset-Backed Securities".)
Collateralized mortgage obligations ("CMOs") are issued by
single-purpose, stand-alone entities. A CMO is a mortgage-backed security that
manages the risk of prepayment by separating mortgage pools into short, medium
and long term portions. These portions are generally retired in sequence as the
underlying mortgage loans in the mortgage pool are repaid. Similarly, as
prepayments are made, the portion of CMO first to mature will be retired prior
to its maturity, thus having the same effect as the prepayment of mortgages
underlying a mortgage-backed security. The issuer of a series of CMOs may elect
to be treated as a Real Estate Mortgage Investment Conduit (a "REMIC"), which
has certain special tax attributes. The Fund will invest only in CMOs which are
rated AAA by a nationally recognized statistical rating organization and which
may be: (a) collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government; (b) collateralized by pools of mortgages
in which payment of principal and interest is guaranteed by the issuer and such
guarantee is collateralized by U.S. government securities; or
10

<PAGE>
(c) securities in which the proceeds of the issuance are invested in mortgage
securities and payment of the principal and interest are supported by the credit
of an agency or instrumentality of the U.S. government.
The Fund may invest up to 20% of its total assets in (i) CMOs and
commercial paper which matures in 270 days or less so long as at least two of
its ratings are high quality ratings by nationally recognized statistical rating
organizations (i.e., A-1 or A-2 by Standard & Poor's Ratings Group ("S&P"),
Prime-1 or Prime-2 by Moody's Investors Service ("Moody's"), or F-1 or F-2 by
Fitch Investors Service, L.P. ("Fitch")), and (ii) bonds and other debt
securities rated Baa or higher by Moody's or BBB or higher by S&P, or which, if
unrated, are considered to be of comparable quality by the investment adviser.
Bonds rated Baa by Moody's or BBB by S&P have speculative
characteristics. Changes in economic conditions or other circumstances are more
likely to weaken such bonds' prospects for principal and interest payments than
higher rated bonds. However, like the higher rated bonds, these securities are
considered to be investment grade. (See the description of the rating categories
contained in the Statement of Additional Information.)
EVERGREEN STRATEGIC INCOME FUND
The investment objective of EVERGREEN STRATEGIC INCOME FUND is high
current income from interest on debt securities. Secondarily, the Fund considers
potential for growth of capital in selecting securities. The Fund intends to
allocate its assets principally between eligible domestic high yield, high risk
bonds and debt securities of foreign governments and foreign corporations. In
addition, the Fund will, from time to time, allocate a portion of its assets to
U.S. government securities. This allocation will be made on the basis of the
investment advisers assessment of global opportunities for high income. From
time to time, the Fund may invest 100% of its assets in U.S. or foreign
securities.
The Fund may invest in:
Domestic High Yield Bonds. The Fund may invest principally in domestic
high yield, high risk bonds, commonly known as "junk bonds." High-yield bonds in
which the fund may invest include zero coupon bonds and payment-in-kind
securities ("PIKs"), debentures, convertible debentures, fixed, increasing and
adjustable rate bonds, stripped bonds, mortgage bonds, mortgage backed
securities, corporate notes (including convertible notes) with maturities at the
date of issue of at least five years (which may be senior or junior to other
bonds), equipment trust certificates, and units consisting of bonds with stock
or warrants to buy stock attached. For information about the risks of investing
in high-yield bonds, see the section entitled "Investment Practices and
Restrictions."
Foreign Securities. The Fund may invest in debt obligations (which may be
denominated in U.S. dollars or in non-U.S. currencies) issued or guaranteed by
foreign corporations, certain supranational entities (such as the World Bank),
foreign governments, their agencies and instrumentalities, and debt obligations
issued by U.S. corporations denominated in non-U.S. currencies. These debt
obligations may include bonds, debentures, notes and short-term obligations.
U.S. Government Securities. The Fund may invest in U.S. government
securities, including zero coupon U.S. Treasury securities, mortgage-backed
securities and money market instruments.
While the Fund may invest in securities of any maturity, it is currently
expected that the Fund will not invest in securities with maturities of more
than 30 years.
Other Eligible Securities
Under ordinary circumstances, the Fund may also invest a limited portion
of its assets in the securities described below. When, in the investment
adviser's opinion, market conditions warrant, the Fund may invest up to 100% of
its assets for temporary defensive purposes in the money market securities
described below.
Equity Securities. The Fund may invest in preferred stocks, including
adjustable rate and convertible preferred stocks, common stocks and other equity
securities, including convertible securities and warrants, which may be used to
create other permissible investments. Such investments must be consistent with
the Fund's
11

<PAGE>
primary objective of seeking a high level of current income or be acquired as
part of a unit combining income and equity securities. In addition, the Fund may
invest in limited partnerships, including master limited partnerships.
Money Market Securities. The Fund may invest in the following types of
money market securities: (1) obligations issued or guaranteed by the U.S.
government its agencies or instrumentalities of the U.S. government; (2)
commercial paper, including master demand notes, that at the date of investment
is rated A-1, the highest grade by S&P, Prime-1, the highest grade by Moody's,
or, if not rated by such services, is issued by a company that at the date of
investment has an outstanding issue rated A or better by S&P or Moody's; (3)
obligations, including certificates of deposit and bankers' acceptances, of
banks or savings and loan associations having at least $1 billion in assets that
are members of the Federal Deposit Insurance Corporation, including U.S.
branches of foreign banks and foreign branches of U.S. banks; and (4)
obligations of U.S. corporations that at the date of investment are rated A or
better by S&P or Moody's.
EVERGREEN HIGH YIELD BOND FUND
The investment objective of EVERGREEN HIGH YIELD BOND FUND is generous
income. The generous income sought by the Fund is ordinarily associated with
high yield, high risk bonds and similar securities in the lower rating
categories of the recognized rating agencies or with securities that are
unrated. While growth of capital is not a Fund objective, the Fund may purchase
securities that offer the possibility of capital appreciation in addition to
income, provided the acquisition of such securities does not conflict with the
Fund's objective of generous income.
The Fund intends to invest at least 65% of its total assets in bonds,
debentures and other income obligations. The Fund's portfolio ordinarily
includes a substantial number of bonds, debentures, and other income obligations
that are rated by S&P or Moody's as below investment grade, i.e., S&P rating
below BBB and Moody's rating below Baa.
The Fund may purchase securities with any rating or may purchase unrated
securities, which are not necessarily of lower quality than rated securities,
but may not be as attractive to as many buyers. While the Fund's investment
adviser performs its own credit analyses of the Fund's investments and does not
rely on ratings assigned by rating services, bonds rated below-investment grade
generally involve greater volatility of price and risk or principal and income
than bonds in the higher rating categories and are, on balance, considered
predominantly speculative.
The Fund may invest up to 50% of its assets in securities that are
principally traded in securities markets located outside the United States.
In addition, the Fund may invest in limited partnerships, including
master limited partnerships, and may invest up to 25% of its assets in foreign
securities. The Fund may also invest in participations in bank loans.
Other Eligible Securities. When market conditions warrant, the Fund may invest
up to 100% of its assets for temporary or defensive purposes in short-term
investments. Such investments, which must mature within one year of their
purchase, consist of U.S. government securities; instruments, including
certificates of deposit, demand and time deposits and bankers' acceptances, of
banks that are members of the Federal Deposit Insurance Corporation and have
assets of at least $1 billion, including U.S. branches of foreign banks and
foreign branches of U.S. banks; prime commercial paper, including master demand
notes; and repurchase agreements secured by U.S. government securities.
The Fund may also invest in preferred stock, including convertible
preferred and adjustable rate preferred stocks; warrants, which may be used to
create permissible investments; and common stock of issuers that are objects of
acquisition attempts, are undergoing reorganization through bankruptcy or
otherwise, or are in the process of refinancing. Investments in common stocks of
such issuers are expected to provide the Fund with the opportunity to receive
high-yielding, fixed-income securities. Investments in common stocks will be
limited to those stocks that the Fund's investment adviser believes will assist
the Fund in achieving its investment objective.
EVERGREEN DIVERSIFIED BOND FUND
The Fund seeks maximum income without undue risk of principal.
12

<PAGE>
The Fund invests at least 65% of its total assets in bonds, which are
debt instruments used by issuers to borrow money from investors. The Fund
invests in debt instruments that are normally characterized by relatively
liberal returns and moderate price fluctuations. Such debt instruments, which
include both secured and unsecured debt obligations, will have a rating of BBB
or higher by S&P, Baa or higher by Moody's, BBB or higher by Fitch, or, if not
rated or rated under a different system, will be of comparable quality to
obligations so rated as determined by another nationally recognized statistical
ratings organization or by the Fund's investment adviser. As a group, such debt
instruments usually possess a fairly high degree of dependability of interest
payments. While the Fund's primary objective is income, the Fund gives careful
consideration to security of principal, marketability and diversification.
The Fund seeks to maximize return with respect to a portion of its
assets. Such maximum return is ordinarily associated with high yield, high risk
bonds and similar securities in the lower rating categories of the recognized
rating agencies or with securities that are unrated (high yield bonds). The
degree to which the Fund will hold such securities will, among other things,
depend upon its adviser's economic forecast and its judgment as to the
comparative values offered by high yield, high risk bonds and higher quality
issues. The Fund's investments in high yield, high risk bonds will not exceed
35% of its assets.
The Fund may invest up to 50% of its assets in securities that are
principally traded in securities markets located outside of the United States.
Other Eligible Securities. The Fund's investments may include limited
partnerships, including master limited partnerships, participations in bank
loans, fixed and adjustable rate or stripped bonds, including zero coupon bonds
and payment-in-kind securities ("PIKs"), debentures, notes, equipment trust
certificates, U.S. government securities, and debt securities convertible into
or exchangeable for preferred or common stock. The Fund may invest in preferred
stock, including adjustable rate preferred stock, and warrants, which can be
used to purchase or create otherwise permissible investments. The Fund may
continue to hold preferred or common stock received in connection with
convertible or exchangeable securities and may hold common stock received in
connection with the purchase of a permitted security.
The Fund may invest, for temporary defensive purposes, up to 100% of its
assets in short-term obligations. Such obligations may include master demand
notes, commercial paper and notes, bank deposits and other financial institution
obligations.
The Fund may also invest in certain derivative instruments, including
options and futures transactions, collateralized mortgage obligations,
structured notes, interest rate swaps, index swaps, currency swaps and caps and
floors. These basic vehicles can also be combined to created more complex
products called hybrid derivatives or structured securities.
INVESTMENT PRACTICES AND RESTRICTIONS
Risk Factors. Bond prices move inversely to interest rates, i.e. as interest
rates decline the values of the bonds increase, and vice versa. The longer the
maturity of a bond, the greater the exposure to market price fluctuations. The
same market factors are reflected in the share price or net asset value of bond
funds which will vary with interest rates. In addition, certain of the
obligations in which each Fund may invest may be variable or floating rate
instruments, which may involve a conditional or unconditional demand feature,
and may include variable amount master demand notes. While these types of
instruments may, to a certain degree, offset the risk to principal associated
with rising interest rates, they would not be expected to appreciate in a
falling interest rate environment.
Defensive Investments. The Funds may invest without limitation in high quality
money market instruments, such as notes, certificates of deposit or bankers'
acceptances, or U.S. government securities if, in the opinion of each Fund's
investment adviser, market conditions warrant a temporary defensive investment
strategy.
Downgrades. If any security invested in by any of the Funds loses its rating or
has its rating reduced after a Fund has purchased it, a Fund is not required to
sell or otherwise dispose of the security, but may consider doing so.
Repurchase Agreements. The Funds may invest in repurchase agreements. A
repurchase agreement is an agreement by which a Fund purchases a security
(usually U.S. government securities) for cash and obtains a simultaneous
commitment from the seller (usually a bank or broker/dealer) to repurchase the
security at an
13

<PAGE>
agreed-upon price and specified future date. The repurchase price reflects an
agreed-upon interest rate for the time period of the agreement. The Funds' risk
is the inability of the seller to pay the agreed-upon price on the delivery
date. However, this risk is tempered by the ability of the Fund to sell the
security in the open market in the case of a default. In such a case, a Fund may
incur costs in disposing of the security which would increase Fund expenses. The
Funds' investment adviser will monitor the creditworthiness of the firms with
which the Funds enter into repurchase agreements.
When-Issued and Delayed Delivery Transactions. The Funds may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which a Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause a
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, a Fund may pay more or less than the market value of the securities
on the settlement date. The Funds may dispose of a commitment prior to
settlement if the investment adviser deems it appropriate to do so. In addition,
the Funds may enter into transactions to sell their purchase commitments to
third parties at current market values and simultaneously acquire other
commitments to purchase similar securities at later dates. The Funds may realize
short-term profits or losses upon the sale of such commitments.
Securities Lending. In order to generate additional income, the Funds may lend
portfolio securities on a short-term or long-term basis to broker/dealers,
banks, or other institutional borrowers of securities. The Funds will only enter
into loan arrangements with creditworthy borrowers and will receive collateral
in the form of cash or U.S. government securities equal to at least 100% of the
value of the securities loaned. Loans of securities by the Funds will not exceed
15% (in the case of EVERGREEN STRATEGIC INCOME FUND and EVERGREEN HIGH YIELD
BOND FUND); one-third (in the case of EVERGREEN U.S. GOVERNMENT FUND); and 30%
(in the case of EVERGREEN DIVERSIFIED BOND FUND) of the value of their total
assets. There is the risk that when lending portfolio securities, the securities
may not be available to a Fund on a timely basis and a Fund may, therefore, lose
the opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
Options and Futures. The Funds may engage in options and futures transactions.
Options and futures transactions are intended to enable a Fund to manage market,
interest rate or exchange rate risk, and the Funds do not use these transactions
for speculation or leverage.
The Funds may attempt to hedge all or a portion of their portfolios
through the purchase of both put and call options on their portfolio securities
and listed put options on financial futures contracts for portfolio securities.
EVERGREEN STRATEGIC INCOME FUND and EVERGREEN HIGH YIELD BOND FUND may also
purchase call options on financial futures contracts. The Funds may also write
covered call options on their portfolio securities to attempt to increase their
current income. The Funds will maintain their positions in securities, option
rights, and segregated cash subject to puts and calls until the options are
exercised, closed, or have expired. An option position may be closed out only on
an exchange which provides a secondary market for an option of the same series.
The Funds may write (i.e., sell) covered call and put options. By writing
a call option, a Fund becomes obligated during the term of the option to deliver
the securities underlying the option upon payment of the exercise price. By
writing a put option, a Fund becomes obligated during the term of the option to
purchase the securities underlying the option at the exercise price if the
option is exercised. The Funds also may write straddles (combinations of covered
puts and calls on the same underlying security). The Funds may only write
"covered" options. This means that so long as a Fund is obligated as the writer
of a call option, it will own the underlying securities subject to the option
or, in the case of call options on U.S. Treasury bills, a Fund might own
substantially similar U.S. Treasury bills. A Fund will be considered "covered"
with respect to a put option it writes if, so long as it is obligated as the
writer of the put option, it deposits and maintains with its custodian in a
segregated account liquid assets having a value equal to or greater than the
exercise price of the option.
The principal reason for writing call or put options is to obtain,
through a receipt of premiums, a greater current return than would be realized
on the underlying securities alone. The Funds receive a premium from writing a
call or put option which they retain whether or not the option is exercised. By
writing a call option, the Funds might lose the potential for gain on the
underlying security while the option is open, and by writing a put option the
14

<PAGE>
Funds might become obligated to purchase the underlying securities for more than
their current market price upon exercise.
A futures contract is a firm commitment by two parties: the seller, who
agrees to make delivery of the specific type of instrument called for in the
contract ("going short"), and the buyer, who agrees to take delivery of the
instrument ("going long") at a certain time in the future. Financial futures
contracts call for the delivery of particular debt instruments issued or
guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of
the U.S. government. If a Fund would enter into financial futures contracts
directly to hedge its holdings of fixed income securities, it would enter into
contracts to deliver securities at an undetermined price (i.e., "go short") to
protect itself against the possibility that the prices of its fixed income
securities may decline during a Fund's anticipated holding period. A Fund would
"go long" (agree to purchase securities in the future at a predetermined price)
to hedge against a decline in market interest rates.
The Funds may also enter into currency and other financial futures
contracts and write options on such contracts. The Funds intend to enter into
such contracts and related options for hedging purposes. The Funds will enter
into futures on securities, currencies, or index-based futures contracts in
order to hedge against changes in interest or exchange rates or securities
prices. A futures contract on securities or currencies is an agreement to buy or
sell securities or currencies during a designated month at whatever price exists
at that time. A futures contract on a securities index does not involve the
actual delivery of securities, but merely requires the payment of a cash
settlement based on changes in the securities index. The Funds do not make
payment or deliver securities upon entering into a futures contract. Instead,
they put down a margin deposit, which is adjusted to reflect changes in the
value of the contract and which remains in effect until the contract is
terminated.
The Funds may sell or purchase currency and other financial futures
contracts. When a futures contract is sold by a Fund, the profit on the contract
will tend to rise when the value of the underlying securities or currencies
declines and to fall when the value of such securities or currencies increases.
Thus, the Funds sell futures contracts in order to offset a possible decline in
the profit on their securities or currencies. If a futures contract is purchased
by a Fund, the value of the contract will tend to rise when the value of the
underlying securities or currencies increases and to fall when the value of such
securities or currencies declines.
The Funds may enter into closing purchase and sale transactions in order
to terminate a futures contract and may buy or sell put and call options for the
purpose of closing out their options positions. The Funds' ability to enter into
closing transactions depends on the development and maintenance of a liquid
secondary market. There is no assurance that a liquid secondary market will
exist for any particular contract or at any particular time. As a result, there
can be no assurance that the Funds will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If the
Funds are not able to enter into an offsetting transaction, the Funds will
continue to be required to maintain the margin deposits on the contract and to
complete the contract according to its terms, in which case the Funds would
continue to bear market risk on the transaction.
Risk Characteristics of Options and Futures. Although options and futures
transactions are intended to enable the Funds to manage market, exchange, or
interest rate risks, these investment devices can be highly volatile, and the
Funds' use of them can result in poorer performance (i.e., the Funds' returns
may be reduced). A Fund's attempt to use such investment devices for hedging
purposes may not be successful. Successful futures strategies require the
ability to predict future movements in securities prices, interest rates and
other economic factors. When the Funds use financial futures contracts and
options on financial futures contracts as hedging devices, there is a risk that
the prices of the securities subject to the financial futures contracts and
options on financial futures contracts may not correlate perfectly with the
prices of the securities in the Funds' portfolios. This may cause the financial
futures contract and any related options to react to market changes differently
than the portfolio securities. In addition, each Fund's investment adviser could
be incorrect in its expectations and forecasts about the direction or extent of
market factors, such as interest rates, securities price movements, and other
economic factors. Even if a Fund's investment adviser correctly predicts
interest rate movements, a hedge could be unsuccessful if changes in the value
of a Fund's futures position did not correspond to changes in the value of its
investments. In these events, the Funds may lose money on the financial futures
contracts or the options on financial futures contracts. It is not certain that
a secondary market for positions in financial futures contracts or for options
on financial futures contracts will exist at all times. Although each Fund's
investment adviser will consider liquidity before entering into financial
futures contracts or options on financial futures contracts transactions, there
is no assurance that a liquid
15

<PAGE>
secondary market on an exchange will exist for any particular financial futures
contract or option on a financial futures contract at any particular time. The
Funds' ability to establish and close out financial futures contracts and
options on financial futures contract positions depends on this secondary
market. If a Fund is unable to close out its position due to disruptions in the
market or lack of liquidity, the Fund may lose money on the futures contract or
option, and the losses to a Fund could be significant.
Zero-Coupon and Stripped Securities. The Funds may invest in zero-coupon and
stripped securities. Zero-coupon securities in which the Funds may invest are
debt obligations which are generally issued at a discount and payable in full at
maturity, and which do not provide for current payments of interest prior to
maturity. Zero-coupon securities usually trade at a deep discount from their
face or par value and are subject to greater market value fluctuations from
changing interest rates than debt obligations of comparable maturities which
make current distributions of interest. As a result, the net asset value of
shares of the Funds may fluctuate over a greater range than shares of other
mutual funds investing in securities making current distributions of interest
and having similar maturities.
Zero-coupon securities may include U.S. Treasury bills issued directly by
the U.S. Treasury or other short-term debt obligations, and longer-term bonds or
notes and their unmatured interest coupons which have been separated by their
holder, typically a custodian bank or investment banking firm. A number of
securities firms and banks have stripped the interest coupons from the
underlying principal (the "corpus") of U.S. Treasury securities and resold them
in custodial receipt programs with a number of different names, including
Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual on
Treasuries ("CATS"). The underlying U.S. Treasury bonds and notes themselves are
held in book-entry form at the Federal Reserve Bank or, in the case of bearer
securities (i.e., unregistered securities which are owned ostensibly by the
bearer or holder thereof), in trust on behalf of the owners thereof.
In addition, the Treasury has facilitated transfers of ownership of
zero-coupon securities by accounting separately for the beneficial ownership of
particular interest coupons and corpus payments on Treasury securities through
the Federal Reserve book-entry record-keeping system. The Federal Reserve
program as established by the Treasury Department is known as "STRIPS" or
"Separate Trading of Registered Interest and Principal of Securities". Under the
STRIPS program, the Funds will be able to have their beneficial ownership of
U.S. Treasury zero-coupon securities recorded directly in the book-entry
record-keeping system in lieu of having to hold certificates or other evidence
of ownership of the underlying U.S. Treasury securities.
When debt obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The principal
or corpus is sold at a deep discount because the buyer receives only the right
to receive a future fixed payment on the security and does not receive any
rights to periodic cash interest payments. Once stripped or separated, the
corpus and coupons may be sold separately. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold in
such bundled form. Purchasers of stripped obligations acquire, in effect,
discount obligations that are economically identical to the zero-coupon
securities issued directly by the obligor.
Foreign Investments. EVERGREEN STRATEGIC INCOME FUND, EVERGREEN HIGH YIELD BOND
FUND and EVERGREEN DIVERSIFIED BOND FUND may invest in foreign securities, which
may involve additional risks. Specifically, they may be affected by the strength
of foreign currencies relative to the U.S. dollar, or by political or economic
developments in foreign countries. Accounting procedures and government
supervision may be less stringent than those applicable to U.S. companies. There
may be less publicly available information about a foreign company than about a
U.S. company. Foreign markets may be less liquid or more volatile than U.S.
markets and may offer less protection to investors. It may also be more
difficult to enforce contractual obligations abroad than would be the case in
the United States because of differences in the legal systems. Foreign
securities may be subject to foreign taxes, which may reduce yield, and may be
less marketable than comparable U.S. securities. All these factors are
considered by each Fund's investment adviser before making any of these types of
investments.
Foreign Currency Transactions. As discussed above, the EVERGREEN STRATEGIC
INCOME FUND, EVERGREEN HIGH YIELD BOND FUND and EVERGREEN DIVERSIFIED BOND FUND
may invest in securities of foreign issuers. When a Fund invests in foreign
securities, they usually will be denominated in foreign currencies, and a Fund
temporarily may hold funds in foreign currencies. Thus, the value of Fund shares
may be affected by changes in exchange rates.
16

<PAGE>
As one way of managing exchange rate risk, in addition to entering into
currency futures contracts, the Funds may enter into forward currency exchange
contracts (agreements to purchase or sell currencies at a specified price and
date). The exchange rate for the transaction (the amount of currency a Fund will
deliver or receive when the contract is completed) is fixed when a Fund enters
into the contract. A Fund usually will enter into these contracts to stabilize
the U.S. dollar value of a security it has agreed to buy or sell. The Fund
intends to use these contracts to hedge the U.S. dollar value of a security it
already owns, particularly if a Fund expects a decrease in the value of the
currency in which the foreign security is denominated. Although a Fund will
attempt to benefit from using forward contracts, the success of its hedging
strategy will depend on the investment adviser's ability to predict accurately
the future exchange rates between foreign currencies and the U.S. dollar. The
value of a Fund's investments denominated in foreign currencies will depend on
the relative strength of those currencies and the U.S. dollar, and a Fund may be
affected favorably or unfavorably by changes in the exchange rates or exchange
control regulations between foreign currencies and the U.S. dollar. Changes in
foreign currency exchange rates also may affect the value of dividends and
interest earned, gains and losses realized on the sale of securities and net
investment income and gains, if any, to be distributed to shareholders by a
Fund. Although the Funds do not currently intend to do so, the Funds may also
purchase and sell options related to foreign currencies. The Funds do not intend
to enter into foreign currency transactions for speculation or leverage.
Structured Securities. Structured securities represent interests in entities
organized and operated solely for the purpose of restructuring the investment
characteristics of sovereign debt obligations or foreign government securities.
This type of restructuring involves the deposit with or purchase by an entity,
such as a corporation or trust, of specified instruments (such as commercial
bank loans or Brady Bonds) and the issuance by that entity of one or more
classes of structured securities backed by, or representing interests in, the
underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued structured securities to create securities
with different investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to structured securities is dependent on the extent of the cash
flow on the underlying instruments. Because structured securities typically
involve no credit enhancement, their credit risk generally will be equivalent to
that of the underlying instruments. Structured securities of a given class may
be either subordinated or unsubordinated to the right of payment of another
class. Subordinated structured securities typically have higher yields and
present greater risks than unsubordinated structured securities.
Asset-Backed Securities. The Funds may invest in asset-backed securities.
Asset-backed securities are created by the grouping of certain governmental,
government-related and private loans, receivables and other lender assets into
pools. Interests in these pools are sold as individual securities. Payments from
the asset pools may be divided into several different tranches of debt
securities, with some tranches entitled to receive regular installments of
principal and interest, other tranches entitled to receive regular installments
of interest, with principal payable at maturity or upon specified call dates,
and other tranches only entitled to receive payments of principal and accrued
interest at maturity or upon specified call dates. Different tranches of
securities will bear different interest rates, which may be fixed or floating.
Because the loans held in the asset pool often may be prepaid without
penalty or premium, asset-backed securities and mortgage backed securities are
generally subject to higher prepayment risks than most other types of debt
instruments. Prepayment risks on mortgage securities tend to increase during
periods of declining mortgage interest rates, because many borrowers refinance
their mortgages to take advantage of the more favorable rates. Depending upon
market conditions, the yield that the Funds receive from the reinvestment of
such prepayments, or any scheduled principal payments, may be lower than the
yield on the original mortgage security. As a consequence, mortgage securities
may be a less effective means of "locking in" interest rates than other types of
debt securities having the same stated maturity and may also have less potential
for capital appreciation. For certain types of asset pools, such as CMOs,
prepayments may be allocated to one tranche of securities ahead of other
tranches, in order to reduce the risk of prepayment for the other tranches.
Prepayments may result in a capital loss to the Funds to the extent that
the prepaid mortgage securities were purchased at a market premium over their
stated amount. Conversely, the prepayment of mortgage securities purchased at a
market discount from their stated principal amount will accelerate the
recognition of interest income by the Funds which would be taxed as ordinary
income when distributed to the shareholders. The credit characteristics of
asset-backed securities also differ in a number of respects from those of
traditional debt
17

<PAGE>
securities. The credit quality of most asset-backed securities depends primarily
upon the credit quality of the assets underlying such securities, how well the
entity issuing the securities is insulated from the credit risk of the
originator or any other affiliated entities, and the amount and quality of any
credit enhancement to such securities.
Risk Characteristics of High Yield Bonds. EVERGREEN STRATEGIC INCOME FUND,
EVERGREEN HIGH YIELD BOND FUND and EVERGREEN DIVERSIFIED BOND FUND may invest in
high yield bonds. While investment in high yield bonds provides opportunities to
maximize return over time, investors should be aware of the following risks
associated with high yield bonds:
(1) High yield bonds are rated below investment grade, i.e., BB or lower
by S&P or Ba or lower by Moody's. Securities so rated are considered
predominantly speculative with respect to the ability of the issuer to meet
principal and interest payments.
(2) The lower ratings of these securities reflect a greater possibility
that adverse changes in the financial condition of the issuer or in general
economic conditions, or both, or an unanticipated rise in interest rates may
impair the ability of the issuer to make payments of interest and principal,
especially if the issuer is highly leveraged. Such issuer's ability to meet its
debt obligations may also be adversely affected by specific corporate
developments or the issuer's inability to meet specific projected business
forecasts or the unavailability of additional financing. Also, an economic
downturn or an increase in interest rates may increase the potential for default
by the issuers of these securities.
(3) Their value may be more susceptible to real or perceived adverse
economic, company or industry conditions and publicity than is the case for
higher quality securities.
(4) Their value, like those of other fixed income securities, fluctuates
in response to changes in interest rates, generally rising when interest rates
decline and falling when interest rates rise. For example, if interest rates
increase after a fixed income security is purchased, the security, if sold prior
to maturity, may return less than its cost. The prices of below-investment grade
bonds, however, are generally less sensitive to interest rate changes than the
prices of higher-rated bonds, but are more sensitive to adverse or positive
economic changes or individual corporate developments.
(5) The secondary market for such securities may be less liquid at
certain times than the secondary market for higher quality debt securities,
which may adversely effect (1) the market price of the security, (2) a Fund's
ability to dispose of particular issues and (3) a Fund's ability to obtain
accurate market quotations for purposes of valuing its assets.
(6) Zero coupon bonds and PIKs involve additional risks. Zero coupon
bonds and PIKs do not require the periodic payment of interest. PIKs are debt
obligations that provide that the issuer may, at its option, pay interest on
such bonds in cash or in the form of additional debt obligations. Such
investments may experience greater fluctuation in value due to changes in
interest rates than debt obligations that pay interest currently. Even though
these investments do not pay current interest in cash, a Fund is, nonetheless,
required by tax laws to accrue interest income on such investments and to
distribute such amounts at least annually to shareholders. Thus, a Fund could be
required at times to liquidate investments in order to fulfill its intention to
distribute substantially all of its net income as dividends. A Fund will not be
able to purchase additional income producing securities with cash used to make
such distributions, and its current income ultimately may be reduced as a
result.
The generous income sought by a Fund is ordinarily associated with
securities in the lower rating categories of the recognized rating agencies or
with securities that are unrated. Such securities are generally rated BB or
lower by S&P or Ba or lower by Moody's. The Funds may invest in securites that
are rated as low as D by S&P or C- by Moody's. The Funds may also invest in
unrated securities that, in the investment adviser's judgment, offer comparable
yields and risks as securities that are rated. It is possible for securities
rated D or C-, respectively, to have defaulted on payments of principal and/or
interest at the time of investment. The Statement of Additional Information
describes these rating categories. The Funds intend to invest in D rated debt
only in cases when, in the investment adviser's judgment, there is a distinct
prospect of improvement in the issuer's financial position as a result of the
completion of reorganization or otherwise.
The investment adviser considers the ratings of S&P and Moody's assigned
to various securities, but does not rely solely on these ratings because (1) S&P
and Moody's assigned ratings are based largely on historical
18

<PAGE>
financial data and may not accurately reflect the current financial outlook of
companies; and (2) there can be large differences among the current financial
conditions of issuers within the same category.
The following tables show the weighted average percentages of the Fund's
assets invested at the end of each month during the fiscal period set forth
beside the Fund's name in securities assigned to the various rating categories
and in unrated securities determined by the investment adviser to be of
comparable quality. The rated asset percentages shown have received equivalent
ratings from S&P and Moody's except where ratings are "split," i.e., different
between S&P and Moody's. In such instances, the higher of the two ratings is
shown and the lower rating is no more than one grade below the higher one. For
the purposes of the tables, only the S&P rating system is used. Since the
percentages in the tables are based on month-end averages throughout the fiscal
period, they do not reflect the Fund's holdings at any one point in time. The
percentages in each category may be higher or lower on any day than those shown
in the table below.
EVERGREEN STRATEGIC INCOME FUND (APRIL 30, 1997)
<TABLE>
<CAPTION>
*UNRATED SECURITIES
OF COMPARABLE
RATED SECURITIES QUALITY AS
AS PERCENTAGE OF PERCENTAGE OF
RATING FUND'S ASSETS FUND'S ASSETS
- ----------------------------------------- ---------------- -------------------
<S> <C> <C>
AAA 24.93% 0.00%
AA 10.72% 0.00%
A 3.06% 0.00%
BBB 0.11% 0.00%
BBB split 0.45% N/A
BB 8.97% 0.39%
BB split 11.18% N/A
B 21.63% 5.82%
B split 0.36% N/A
CCC 0.00% 0.01%
D 0.00% 1.03%
Unrated* 7.25%
U.S. governments,
equities and others 11.34%
--------
TOTAL 100.00%
--------
--------
</TABLE>

<PAGE>
EVERGREEN HIGH YIELD BOND FUND (JULY 31, 1997)
<TABLE>
<CAPTION>
*UNRATED SECURITIES
OF COMPARABLE
RATED SECURITIES QUALITY AS
AS PERCENTAGE OF PERCENTAGE OF
RATING FUND'S ASSETS FUND'S ASSETS
- ----------------------------------------- ---------------- -------------------
<S> <C> <C>
AAA 0.00% 0.00%
AA 0.00% 0.00%
A 0.00% 0.00%
BBB 0.00% 0.00%
BBB split 1.68% 0.00%
BB 12.51% 0.00%
BB split 17.64% 0.00%
B 54.84% 4.01%
B split 2.04% 0.00%
CCC 0.35% 0.23%
D 0.00% 0.03%
Unrated* 4.27%
U.S. governments,
cash, equities
and others 6.67%
--------
TOTAL 100.00%
--------
--------
</TABLE>

EVERGREEN DIVERSIFIED BOND FUND (AUGUST 31, 1997)
<TABLE>
<CAPTION>
*UNRATED SECURITIES
OF COMPARABLE
RATED SECURITIES QUALITY AS
AS PERCENTAGE OF PERCENTAGE OF
RATING FUND'S ASSETS FUND'S ASSETS
- ----------------------------------------- ---------------- -------------------
<S> <C> <C>
AAA 23.49% 0.00%
AA 13.63% 0.00%
A 13.83% 0.00%
BBB 6.46% 0.00%
BBB split 0.20% 0.00%
BB 7.32% 0.17%
BB split 8.21% 0.00%
B 12.59% 0.00%
B split 0.40% 0.00%
CCC 0.00% 0.00%
D 0.00% 0.00%
Unrated* 0.17%
U.S. governments,
cash, equities
and others 13.70%
--------
TOTAL 100.00%
--------
--------
</TABLE>

Since the Funds take an aggressive approach to investing, the investment
adviser attempts to maximize the return by controlling risk through
diversification, credit analysis, review of sector and industry trends, interest
rate forecasts and economic analysis. The investment adviser's analysis of
securities focuses on factors such as interest or dividend coverage, asset
values, earning prospects and the quality of management of the company. In
making investment recommendations, the investment adviser also considers current
income, potential for capital appreciation, maturity structure, quality
guidelines, coupon structure, average yield, yield to maturity and the
percentage of zero coupon bonds, PIKs and non-accruing items in a Fund's
portfolio.
Income and yields on high yield, high risk securities, as on all
securities, will fluctuate over time.
20

<PAGE>
Borrowing. The Funds may not borrow money except as a temporary measure to
facilitate redemption requests or for extraordinary or emergency purposes. The
proceeds from borrowings may be used to facilitate redemption requests which
might otherwise require the untimely disposition of portfolio securities. The
specific limits applicable to borrowing by each Fund are set forth in the
Statement of Additional Information.
Illiquid Securities. The Funds may invest up to 15% of their net assets in
illiquid securities and other securities which are not readily marketable.
Repurchase agreements with maturities longer than seven days will be included
for the purpose of the foregoing 15% limit. The inability of a Fund to dispose
of illiquid or not readily marketable investments readily or at a reasonable
price could impair a Fund's ability to raise cash for redemptions or other
purposes.
Restricted Securities. The Funds may invest in restricted securities, including
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933 (the "1933 Act"). Generally, Rule 144A establishes a safe harbor from the
registration requirements of the 1933 Act for resale by large institutional
investors of securities not publicly traded in the United States. Each Fund's
investment adviser determines the liquidity of Rule 144A securities according to
guidelines and procedures adopted by the Fund's Board of Trustees. The Board of
Trustees monitors the investment advisers' application of those guidelines and
procedures. Securities eligible for resale pursuant to Rule 144A, which each
Fund's investment adviser has determined to be liquid or readily marketable are
not subject to the 15% limit on illiquid securities.
- --------------------------------------------------------------------------------
ORGANIZATION AND SERVICE PROVIDERS
- --------------------------------------------------------------------------------
ORGANIZATION
Fund Structure. Each Fund is an investment pool, which invests shareholders'
money towards a specified goal. Each Fund is a diversified series of an
open-end, investment management company, called "Evergreen Fixed Income Trust"
(the "Trust"). The Trust is a Delaware business trust organized on September 17,
1997.
Board of Trustees. The Trust is supervised by a Board of Trustees that is
responsible for representing the interests of shareholders. The Trustees meet
periodically throughout the year to oversee a Fund's activities, reviewing,
among other things, a Fund's performance and its contractual arrangements with
various service providers.
Shareholder Rights. All shareholders of a given Class participate equally in
dividends and distributions from a Fund's assets and have equal liquidation and
other rights. Shareholders may exchange shares as described under "Exchanges,"
but will have no other preference, conversion, exchange or preemptive rights.
When issued and paid for, your shares will be fully paid and nonassessable.
Shares of the Fund are redeemable, transferable and freely assignable as
collateral. The Fund may establish additional classes or series of shares.
The Funds do not hold annual shareholder meetings; a Fund may, however,
hold special meetings for such purposes as electing or removing Trustees,
changing fundamental policies and approving investment advisory agreements or
12b-1 plans. In addition, a Fund is prepared to assist shareholders in
communicating with one another for the purpose of convening a meeting to elect
trustees. If any matters are to be voted on by shareholders, each share owned as
of the record date for the meeting would be entitled to one vote for each dollar
of net asset value applicable to each share.
SERVICE PROVIDERS
Investment Adviser. The investment advisor to EVERGREEN U.S. GOVERNMENT FUND is
the Capital Management Group of First Union National Bank ("FUNB"), a subsidiary
of First Union Corporation. First Union Corporation and FUNB are located at 201
South College Street, Charlotte, North Carolina 28288-0630. First Union
Corporation and its subsidiaries provide a broad range of financial services to
individuals and businesses throughout the United States.
The investment adviser to EVERGREEN STRATEGIC INCOME FUND, EVERGREEN HIGH
YIELD BOND FUND and EVERGREEN DIVERSIFIED BOND FUND is Keystone Investment
Management Company ("Keystone"). Keystone has
21

<PAGE>
provided investment advisory and management services to investment companies and
private accounts since it was organized in 1932. Keystone is an indirect
subsidiary of FUNB.
The EVERGREEN U.S. GOVERNMENT FUND pays FUNB an annual fee for its
services equal to 0.50 of 1% of the Fund's average daily net assets.
The EVERGREEN STRATEGIC INCOME FUND, EVERGREEN HIGH YIELD BOND FUND and
EVERGREEN DIVERSIFIED BOND FUND pay Keystone a fee, calculated on an annual
basis, equal to 2.0% of gross dividend and interest income of the Fund plus
0.50% of the first $100,000,000 of the aggregate net asset value of shares of
each Fund, plus 0.45% of the next $100,000,000, plus 0.40% of the next
$100,000,000, plus 0.35% of the next $100,000,000, plus 0.30% of the next
$100,000,000, plus 0.25% of amounts over $500,000,000, computed as of the close
of business each business day and paid monthly.
Portfolio Managers. Rollin C. Williams is the Portfolio Manager of the EVERGREEN
U.S. GOVERNMENT FUND. Mr. Williams has over 28 years of banking and investment
management experience. In addition to managing First Union's Diversified Bond
Group Trust, he is also responsible for the management of over $2.2 billion in
fixed income portfolios. Prior to joining First Union, Mr. Williams was the head
of fixed income investment at Dominion Trust Company in Roanoke, VA. Mr.
Williams has been with First Union since 1993 when Dominion was acquired by the
bank; he started with Dominion Trust Company in 1988. Since joining First Union,
Mr. Williams has been a Vice President and Senior Portfolio Manager.
The Portfolio Manager of EVERGREEN STRATEGIC INCOME FUND and EVERGREEN
HIGH YIELD BOND FUND is Prescott B. Crocker. Mr. Crocker is a Senior Vice
President, Senior Portfolio Manager and Head of the High Yield Bond Team at
Keystone. Mr. Crocker joined Keystone in 1997 and initially served as the
manager of the domestic high yield bond portion of the Fund's portfolio. From
1993 until he joined Keystone, Mr. Crocker held various positions at Boston
Security Counsellors, including President and Chief Investment Officer, and was
Managing Director and Portfolio Manager at Northstar Investment Management. Mr.
Crocker has 25 years of experience in fixed income investment management.
The Portfolio Manager of the EVERGREEN DIVERSIFIED BOND FUND is
Christopher C. Conkey. Mr. Conkey has served as Chief Investment Officer of
Fixed Income for the past nine months and as Head of the High Grade Bond Team
for Keystone for the last three years. During the past five years at Keystone
Mr. Conkey has also served as portfolio manager of several high grade fixed
income funds, several high grade-high yield fixed income funds and several
off-shore closed-end fixed income funds.
Administrator. Evergreen Investment Services, Inc. ("EIS") serves as
administrator to EVERGREEN U.S. GOVERNMENT FUND, subject to the supervision and
control of the Trustees. EIS provides the Fund with facilities, equipment and
personnel. For its services as administrator, EIS is entitled to receive a fee
based on the aggregate average daily net assets of the Fund at a rate based on
the total assets of all the mutual funds advised by First Union subsidiaries.
The administration fee is calculated in accordance with the following schedule:
<TABLE>
<CAPTION>
Administration Fee
- -------------------
<S> <C>
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
0.010% on assets in excess of $30 billion
</TABLE>

<PAGE>
Principal Underwriter. Evergreen Distributor, Inc. ("EDI"), a subsidiary of The
BISYS Group, Inc. located at 125 West 55th Street, New York, New York 10019, is
the principal underwriter of each Fund.
DISTRIBUTION PLANS AND AGREEMENTS
Distribution Plans. Each Fund's Class A, Class B and Class C shares pay for the
expenses associated with the distribution of its shares according to
distribution plans adopted pursuant to Rule 12b-1 under the Investment Company
Act of 1940 (the "1940 Act") (each a "Plan" or collectively the "Plans"). Under
the Plans, each Fund may incur distribution-related and shareholder
servicing-related expenses which are based upon a maximum annual rate as a
percentage of each Fund's average daily net assets attributable to the Class, as
follows:
<TABLE>
<S> <C>
Class A shares 0.75%, currently limited to 0.25%
Class B shares 1.00%
Class C shares 1.00%
</TABLE>

Of the amount that each Class may pay under its respective Plan, up to
0.25% may constitute a service fee to be used to compensate organizations, which
may include each Fund's investment adviser or its affiliates, for personal
services rendered to shareholders and/or the maintenance of shareholder
accounts. The Funds may not pay any distribution or services fees during any
fiscal period in excess of the amounts set forth above. Amounts paid under the
Distribution Plans are used to compensate the Fund's distributor pursuant to the
Distribution Agreements entered into by the Fund.
Distribution Agreements. Each Fund has also entered into a distribution
agreement (each a "Distribution Agreement" or collectively the "Distribution
Agreements") with EDI. Pursuant to the Distribution Agreements, each Fund will
compensate EDI for its services as distributor based upon the maximum annual
rate as a percentage of each Fund's average daily net assets attributable to the
Class, as follows:
<TABLE>
<S> <C>
Class A shares 0.25%
Class B shares 1.00%
Class C shares 1.00%
</TABLE>

The Distribution Agreements provide that EDI will use the distribution
fee received from a Fund for payments (1) to compensate broker-dealers or other
persons for distributing shares of the Fund, including interest and principal
payments made in respect of amounts paid to broker-dealers or other persons that
have been financed (EDI may assign its rights to receive compensation under the
Plans to secure such financings), (2) to otherwise promote the sale of shares of
the Fund, and (3) to compensate broker-dealers, depository institutions and
other financial intermediaries for providing administrative, accounting and
other services with respect to the Fund's shareholders. FUNB or its affiliates
may finance the payments made by EDI to compensate broker-dealers or other
persons for distributing shares of the Fund.
In the case of EVERGREEN STRATEGIC INCOME FUND the compensation paid to
EDI under its Distribution Agreement is only with respect to shares of the Fund
sold on or after December 1, 1996. In consideration of the services rendered by
the distributor of the Class B and Class C shares of EVERGREEN STRATEGIC INCOME
FUND sold prior to December 1, 1996, namely EIS, the Fund's Trustees have
determined to continue the payments called for under the distribution agreements
in effect between the Fund and EIS with respect to the assets of the Fund
represented by such shares.
In the event the Fund acquires the assets of other mutual funds,
compensation paid to EDI under the Distribution Agreements may be paid by EDI to
the distributors of the acquired funds or their predecessors.
Since EDI's compensation under the Distribution Agreements is not
directly tied to the expenses incurred by EDI, the amount of compensation
received by it under the Distribution Agreements during any year may be more or
less than its actual expenses and may result in a profit to EDI. Distribution
expenses incurred by EDI in one fiscal year that exceed the level of
compensation paid to EDI for that year may be paid from distribution fees
received from a Fund in subsequent fiscal years.
The Plans are in compliance with the Conduct Rules of the National
Association of Securities Dealers, Inc. which effectively limit the annual
asset-based sales charges and service fees that a mutual fund may pay on a class
of shares to an annual rate of 0.75% and 0.25%, respectively, of the average
aggregate annual net assets
23

<PAGE>
attributable to that class. The rules also limit the aggregate of all front-end,
deferred and asset-based sales charges imposed with respect to a class of shares
by a mutual fund that also charges a service fee to 6.25% of cumulative gross
sales of shares of that class, plus interest on the unpaid amount at the prime
rate plus 1% per annum.
- --------------------------------------------------------------------------------
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
You may purchase shares of any of the Funds through broker-dealers, banks
or other financial intermediaries, or directly through EDI. In addition, you may
purchase shares of any of the Funds by mailing to that Fund, c/o Evergreen
Service Company, P.O. Box 2121, Boston, Massachusetts 02106-2121, a completed
Application and a check payable to the Fund. You may also telephone
1-800-343-2898 to obtain the number of an account to which you can wire or
electronically transfer funds and then send in a completed Application. The
minimum initial investment is $1,000, which may be waived in certain situations.
Subsequent investments in any amount may be made by check, by wiring federal
funds, by direct deposit or by an electronic funds transfer.
There is no minimum amount for subsequent investments. Investments of $25
or more are allowed under the Systematic Investment Plan. See the Application
for more information.
Class A Shares-Front-End Sales Charge Alternative. You may purchase Class A
shares of each Fund at net asset value plus an initial sales charge on purchases
under $1,000,000. You may purchase $1,000,000 or more of Class A shares without
a front-end sales charge; however, a contingent deferred sales charge ("CDSC")
equal to the lesser of 1% of the purchase price or the redemption value will be
imposed on shares redeemed during the month of purchase and the 12-month period
following the month of purchase. The schedule of charges for Class A shares is
as follows:
Initial Sales Charge
<TABLE>
<CAPTION>
As a % of the Net As a % of the Commission to Dealer/Agent
Amount of Purchase Amount Invested Offering Price as a % of Offering Price
<S> <C> <C> <C>
Less than $ 50,000 4.99% 4.75% 4.25%
$ 50,000 - $ 99,999 4.71% 4.50% 4.25%
$ 100,000 - $ 249,999 3.90% 3.75% 3.25%
$ 250,000 - $ 499,999 2.56% 2.50% 2.00%
$ 500,000 - $ 999,999 2.04% 2.00% 1.75%
1.00% of the amount invested up
to $2,999,999;
.50% of the amount invested over
$1,000,000 or more None None $2,999,999, up to $4,999,999;
and
.25% of the excess over
$4,999,999
</TABLE>

No front-end sales charges are imposed on Class A shares purchased by (a)
institutional investors, which may include bank trust departments and registered
investment advisers; (b) investment advisers, consultants or financial planners
who place trades for their own accounts or the accounts of their clients and who
charge such clients a management, consulting, advisory or other fee; (c) clients
of investment advisers or financial planners who place trades for their own
accounts if the accounts are linked to the master account of such investment
advisers or financial planners on the books of the broker-dealer through whom
shares are purchased; (d) institutional clients of broker-dealers, including
retirement and deferred compensation plans and the trusts used to fund these
plans, which place trades through an omnibus account maintained with a Fund by
the broker-dealer; (e) shareholders of record on October 12, 1990 in any series
of Evergreen Investment Trust in existence on that date, and the members of
their immediate families; (f) current and retired employees of FUNB and its
affiliates, EDI and any broker-dealer with whom EDI has entered into an
agreement to sell shares of the Funds, and members of the immediate families of
such employees; (g) and upon the initial purchase of an Evergreen fund by
investors reinvesting the proceeds from a redemption within the preceding thirty
days of shares of other mutual funds,
24

<PAGE>
provided such shares were initially purchased with a front-end sales charge or
subject to a CDSC. Certain broker-dealers or other financial institutions may
impose a fee on transactions in shares of the Funds.
Class A shares may also be purchased at net asset value by a corporation
or certain other qualified retirement plan or a non-qualified deferred
compensation plan or a Title I tax sheltered annuity or TSA plan sponsored by an
organization having 100 or more eligible employees, or a TSA plan sponsored by a
public education entity having 5,000 or more eligible employees.
In connection with sales made to plans of the type described in the
preceding sentence EDI will pay broker-dealers and others concessions at the
rate of 0.50% of the net asset value of the shares purchased. These payments are
subject to reclaim in the event the shares are redeemed within twelve months
after purchase.
Certain employer-sponsored retirement or savings plans, including
eligible 401(k) plans, may purchase Class A shares at net asset value provided
that such plans meet certain required minimum number of eligible employees or
required amount of assets. The CDSC applicable to Class B shares also is waived
on redemptions of shares by such plans. Additional information concerning the
waiver of sales charges is set forth in the SAI.
When Class A shares are sold, EDI will normally retain a portion of the
applicable sales charge and pay the balance to the broker-dealer or other
financial intermediary through whom the sale was made. EDI may also pay fees to
banks from sales charges for services performed on behalf of the customers of
such banks in connection with the purchase of shares of the Funds. In addition
to compensation paid at the time of sale, entities whose clients have purchased
Class A shares may receive a trailing commission equal to 0.25% of the average
daily net asset value on an annual basis of Class A shares held by their
clients. Certain purchases of Class A shares may qualify for reduced sales
charges in accordance with a Fund's Concurrent Purchases, Rights of
Accumulation, Letter of Intent, certain Retirement Plans and Reinstatement
Privilege. Consult the Application for additional information concerning these
reduced sales charges.
Class B Shares_--_Deferred Sales Charge Alternative. You may purchase Class B
shares at net asset value without an initial sales charge. However, you may pay
a CDSC if you redeem shares within six years after the month of purchase. The
amount of the CDSC (expressed as a percentage of the lesser of the current net
asset value or original cost) will vary according to the number of years from
the month of purchase of Class B shares as set forth below.
<TABLE>
<CAPTION>
CDSC
Redemption Timing Imposed
- ------------------------------------------------------------------------------------------------------------------ --------
<S> <C>
Month of purchase and the first twelve-month period following the month of purchase............................... 5.00%
Second twelve-month period following the month of purchase........................................................ 4.00%
Third twelve-month period following the month of purchase......................................................... 3.00%
Fourth twelve-month period following the month of purchase........................................................ 3.00%
Fifth twelve-month period following the month of purchase......................................................... 2.00%
Sixth twelve-month period following the month of purchase......................................................... 1.00%
No CDSC is imposed on amounts redeemed thereafter.
</TABLE>
With respect to EVERGREEN HIGH YIELD BOND FUND and EVERGREEN DIVERSIFIED
BOND FUND if you redeem shares purchased after January 1, 1995, but before
January 9, 1998, you will pay a CDSC according to the CDSC schedule in effect at
the time you bought the shares.
The CDSC is deducted from the amount of the redemption and is paid to
EDI. In the event the Fund acquires the assets of other mutual funds, the CDSC
may be paid by EDI to the distributors of the acquired funds. Class B shares are
subject to higher distribution and/or shareholder service fees than Class A
shares for a period of seven years after the month of purchase (after which it
is expected that they will convert to Class A shares without imposition of a
front-end sales charge). The higher fees mean a higher expense ratio, so Class B
shares pay correspondingly lower dividends and may have a lower net asset value
than Class A shares. The Funds will not normally accept any purchase of Class B
shares in the amount of $250,000 or more.
At the end of the period ending seven years after the end of the calendar
month in which the shareholder's purchase order was accepted, Class B shares
will automatically convert to Class A shares and will no longer be subject to a
higher distribution services fee (and, with respect to EVERGREEN U.S. GOVERNMENT
FUND, the
25

<PAGE>
Shareholder Service Plan Fee) imposed on Class B shares. Such conversion will be
on the basis of the relative net asset values of the two Classes, without the
imposition of any sales load, fee or other charge. The purpose of the conversion
feature is to reduce the distribution services fee paid by holders of Class B
shares that have been outstanding long enough for the Distributor to have been
compensated for the expenses associated with the sale of such shares.
Class C Shares -- Level-Load Alternative. Class C shares are only offered
through broker-dealers who have special distribution agreements with EDI. You
may purchase Class C shares at net asset value without any initial sales charge
and, therefore, the full amount of your investment will be used to purchase Fund
shares. However, you will pay a 1.00% CDSC, if you redeem shares during the
month of purchase and the 12-month period following the month of purchase. No
CDSC is imposed on amounts redeemed thereafter. Class C shares incur higher
distribution and/or shareholder service fees than Class A shares but, unlike
Class B shares, do not convert to any other class of shares of a Fund. The
higher fees mean a higher expense ratio, so Class C shares pay correspondingly
lower dividends and may have a lower net asset value than Class A shares. The
Funds will not normally accept any purchase of Class C shares in the amount of
$500,000 or more. No CDSC will be imposed on Class C shares purchased by
institutional investors, and through employee benefit and savings plans eligible
for the exemption from front-end sales charges described under "Class A
Shares-Front End Sales Charge Alternative," above. Broker-dealers and other
financial intermediaries whose clients have purchased Class C shares may receive
a trailing commission equal to 0.75% of the average daily net asset value of
such shares on an annual basis held by their clients more than one year from the
date of purchase. The payment of trailing commissions will commence immediately
with respect to shares eligible for exemption from the CDSC normally applicable
to Class C shares.
Contingent Deferred Sales Charge. Certain shares with respect to which a Fund
did not pay a commission on issuance, including shares obtained from dividend or
distribution reinvestment are not subject to a CDSC. Any CDSC imposed upon the
redemption of Class A, Class B or Class C shares is a percentage of the lesser
of (1) the net asset value of the shares redeemed or (2) the net asset value at
the time of purchase of such shares.
No CDSC is imposed on a redemption of shares of the Fund in the event of
(1) death or disability of the shareholder; (2) a lump-sum distribution from a
401(k) plan or other benefit plan qualified under the Employee Retirement Income
Security Act of 1974 ("ERISA"); (3) automatic withdrawals from ERISA plans if
the shareholder is at least 59 1/2 years old; (4) involuntary redemptions of
accounts having an aggregate net asset value of less than $1,000; (5) automatic
withdrawals under the Systematic Withdrawal Plan of up to 1.00% per month of the
shareholder's initial account balance; (6) withdrawals consisting of loan
proceeds to a retirement plan participant; (7) financial hardship withdrawals
made by a retirement plan participant; (8) withdrawals consisting of returns of
excess contributions or excess deferral amounts made to a retirement plan
participant.
The Funds may also sell Class A, Class B or Class C shares at net asset
value without any initial sales charge or CDSC to certain Directors, Trustees,
officers and employees of the Funds, Keystone, FUNB, Evergreen Asset Management
Corp. ("Evergreen Asset"), EDI and certain of their affiliates, and to members
of the immediate families of such persons, to registered representatives of
firms with dealer agreements with EDI, and to a bank or trust company acting as
a trustee for a single account.
How the Funds Value their Shares. The net asset value of each Class of shares of
a Fund is calculated by dividing the value of the amount of the Fund's net
assets attributable to that Class by the number of outstanding shares of that
Class. Shares are valued each day the New York Stock Exchange (the "Exchange")
is open as of the close of regular trading (currently 4:00 p.m. Eastern time).
The securities in a Fund are valued at their current market value determined on
the basis of market quotations or, if such quotations are not readily available,
such other methods as the Trustees believe would accurately reflect fair value.
Non-dollar denominated securities will be valued as of the close of the Exchange
at the closing price of such securities in their principal trading markets.
General. The decision as to which Class of shares is more beneficial to you
depends on the amount of your investment and the length of time you will hold
it. If you are making a large investment, thus qualifying for a reduced sales
charge, you might consider Class A shares. If you are making a smaller
investment, you might consider Class B shares since 100% of your purchase is
invested immediately and since such shares will convert to Class A shares, which
incur lower ongoing distribution and/or shareholder service fees, after seven
years. If you are unsure of the time period of your investment, you might
consider Class C shares since there are no initial sales charges
26

<PAGE>
and, although there is no conversion feature, the CDSC only applies to
redemptions made during the first year. Consult your financial intermediary for
further information. The compensation received by dealers and agents may differ
depending on whether they sell Class A, Class B or Class C shares. There is no
size limit on purchases of Class A shares.
In addition to the discount or commission paid to broker-dealers, EDI may
from time to time pay to broker-dealers additional cash or other incentives that
are conditioned upon the sale of a specified minimum dollar amount of shares of
a Fund and/or other Evergreen funds. Such incentives will take the form of
payment for attendance at seminars, lunches, dinners, sporting events or theater
performances, or payment for travel, lodging and entertainment incurred in
connection with travel by persons associated with a broker-dealer and their
immediate family members to urban or resort locations within or outside the
United States. Such a dealer may elect to receive cash incentives of equivalent
amount in lieu of such payments. EDI may also limit the availability of such
incentives to certain specified dealers. EDI from time to time sponsors
promotions involving First Union Brokerage Services, Inc., an affiliate of each
Fund's investment adviser, and select broker-dealers, pursuant to which
incentives are paid, including gift certificates and payments in amounts up to
1% of the dollar amount of shares of a Fund sold. Awards may also be made based
on the opening of a minimum number of accounts. Such promotions are not being
made available to all broker-dealers. Certain broker-dealers may also receive
payments from EDI or a Fund's investment adviser over and above the usual trail
commissions or shareholder servicing payments applicable to a given Class of
shares.
Additional Purchase Information. As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor will be responsible for any loss a Fund or a Fund's investment adviser
incurs. If such investor is an existing shareholder, a Fund may redeem shares
from an investor's account to reimburse the Fund or its investment adviser for
any loss. In addition, such investors may be prohibited or restricted from
making further purchases in any of the Evergreen funds. The Funds will not
accept third party checks other than those payable directly to a shareholder
whose account has been in existence at least thirty days.
HOW TO REDEEM SHARES
You may "redeem" ( i.e., sell) your shares in a Fund to the Fund for cash
at their net redemption value on any day the Exchange is open, either directly
by writing to the Fund, c/o ESC, or through your financial intermediary. The
amount you will receive is based on the net asset value adjusted for fractions
of a cent (less any applicable CDSC) next calculated after a Fund receives your
request in proper form. Proceeds generally will be sent to you within seven
days. However, for shares recently purchased by check, a Fund will not send
proceeds until it is reasonably satisfied that the check has been collected
(which may take up to 15 days). Once a redemption request has been telephoned or
mailed, it is irrevocable and may not be modified or canceled.
Redeeming Shares Through Your Financial Intermediary. A Fund must receive
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value (less any applicable CDSC). Your
financial intermediary is responsible for furnishing all necessary documentation
to a Fund and may charge you for this service. Certain financial intermediaries
may require that you give instructions earlier than 4:00 p.m. (Eastern time).
Redeeming Shares Directly by Mail or Telephone. Send a signed letter of
instruction or stock power form to the Fund, c/o ESC, the registrar, transfer
agent and dividend-disbursing agent for each Fund. Stock power forms are
available from your financial intermediary, ESC, and many commercial banks.
Additional documentation is required for the sale of shares by corporations,
financial intermediaries, fiduciaries and surviving joint owners. Signature
guarantees are required for all redemption requests for shares with a value of
more than $50,000. Currently, the requirement for a signature guarantee has been
waived on redemptions of $50,000 or less when the account address of record has
been the same for a minimum period of 30 days. Each Fund and ESC reserve the
right to withdraw this waiver at any time. A signature guarantee must be
provided by a bank or trust company (not a Notary Public), a member firm of a
domestic stock exchange or by other financial institutions whose guarantees are
acceptable under the Securities Exchange Act of 1934 and ESC's policies.
Shareholders may redeem amounts of $1,000 or more (up to $50,000) from
their accounts by calling the telephone number on the front page of this
Prospectus between the hours of 8:00 a.m. and 6:00 p.m. (Eastern
27

<PAGE>
time) each business day (i.e., any weekday exclusive of days on which the
Exchange or ESC's offices are closed). The Exchange is closed on New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Redemption
requests received after 4:00 p.m. (Eastern time) will be processed using the net
asset value determined on the next business day. Such redemption requests must
include the shareholder's account name, as registered with a Fund, and the
account number. During periods of drastic economic or market changes,
shareholders may experience difficulty in effecting telephone redemptions. If
you cannot reach a Fund by telephone, you should follow the procedures for
redeeming by mail or through a broker-dealer as set forth herein. The telephone
redemption service is not made available to shareholders automatically.
Shareholders wishing to use the telephone redemption service must complete the
appropriate sections on the Application and choose how the redemption proceeds
are to be paid. Redemption proceeds will either (1) be mailed by check to the
shareholder at the address in which the account is registered or (2) be wired to
an account with the same registration as the shareholder's account in a Fund at
a designated commercial bank.
In order to insure that instructions received by ESC are genuine when you
initiate a telephone transaction, you will be asked to verify certain criteria
specific to your account. At the conclusion of the transaction, you will be
given a transaction number confirming your request, and written confirmation of
your transaction will be mailed the next business day. Your telephone
instructions will be recorded. Redemptions by telephone are allowed only if the
address and bank account of record have been the same for a minimum period of 30
days. Each Fund reserves the right at any time to terminate, suspend, or change
the terms of any redemption method described in this Prospectus, except
redemption by mail, and to impose fees.
Except as otherwise noted, the Funds, ESC and EDI will not assume
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over the Evergreen Express Line, or by telephone.
ESC will employ reasonable procedures to confirm that instructions received over
the Evergreen Express Line or by telephone are genuine. The Funds, ESC and EDI
will not be liable when following instructions received over the Evergreen
Express Line or by telephone that ESC reasonably believes are genuine.
Evergreen Express Line. The Evergreen Express Line offers you specific fund
account information and price and yield quotations as well as the ability to do
account transactions, including investments, exchanges and redemptions. You may
access the Evergreen Express Line by dialing toll free 1-800-346-3858 on any
touch-tone telephone, 24 hours a day, seven days a week.
General. The sale of shares is a taxable transaction for federal income tax
purposes. The Funds may temporarily suspend the right to redeem their shares
when (1) the Exchange is closed, other than customary weekend and holiday
closings; (2) trading on the Exchange is restricted; (3) an emergency exists and
the Funds cannot dispose of their investments or fairly determine their value;
or (4) the Securities and Exchange Commission ("SEC") so orders. The Funds
reserve the right to close an account that through redemption has fallen below
$1,000 and has remained so for 30 days. Shareholders will receive 60 days'
written notice to increase the account value to at least $1,000 before the
account is closed. The Funds have elected to be governed by Rule 18f-1 under the
1940 Act pursuant to which each Fund is obligated to redeem shares solely in
cash, up to the lesser of $250,000 or 1% of a Fund's total net assets, during
any ninety day period for any one shareholder.
EXCHANGE PRIVILEGE
How to Exchange Shares. You may exchange some or all of your shares for shares
of the same class in the other Evergreen funds through your financial
intermediary by calling or writing to ESC or by using the Evergreen Express Line
as described above. If the shares being tendered for exchange are still subject
to a CDSC or are eligible for conversion in a specified time, such remaining
charge or remaining time will carry over to the shares being acquired in the
exchange transaction. Once an exchange request has been telephoned or mailed, it
is irrevocable and may not be modified or canceled. Exchanges will be made on
the basis of the relative net asset values of the shares exchanged next
determined after an exchange request is received. An exchange which represents
an initial investment in another Evergreen fund is subject to the minimum
investment and suitability requirements of each Fund.
Each of the Evergreen funds has different investment objectives and
policies. For complete information, a prospectus of the fund into which an
exchange will be made should be read prior to the exchange. An exchange
28

<PAGE>
order must comply with the requirement for a redemption or repurchase order and
must specify the dollar value or number of shares to be exchanged. An exchange
is treated for federal income tax purposes as a redemption and purchase of
shares and may result in the realization of a capital gain or loss. Shareholders
are limited to five exchanges per calendar year, with a maximum of three per
calendar quarter. This exchange privilege may be modified or discontinued at any
time by the Fund upon sixty days' notice to shareholders and is only available
in states in which shares of the fund being acquired may lawfully be sold.
No CDSC will be imposed in the event shares are exchanged for shares of
the same class of other Evergreen funds. If you redeem shares, the CDSC
applicable to the shares of the Evergreen fund originally purchased for cash is
applied. Also, Class B shares will continue to age following an exchange for the
purpose of conversion to Class A shares and for the purpose of determining the
amount of the applicable CDSC.
Exchanges Through Your Financial Intermediary. A Fund must receive exchange
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to a Fund and may charge
you for this service.
Exchanges By Telephone And Mail. Exchange requests received by a Fund after 4:00
p.m. (Eastern time) will be processed using the net asset value determined at
the close of the next business day. During periods of drastic economic or market
changes, shareholders may experience difficulty in effecting telephone
exchanges. You should follow the procedures outlined below for exchanges by mail
if you are unable to reach ESC by telephone. If you wish to use the telephone
exchange service you should indicate this on the Application. As noted above,
each Fund will employ reasonable procedures to confirm that instructions for the
redemption or exchange of shares communicated by telephone are genuine. A
telephone exchange may be refused by a Fund or ESC if it is believed advisable
to do so. Procedures for exchanging Fund shares by telephone may be modified or
terminated at any time. Written requests for exchanges should follow the same
procedures outlined for written redemption requests in the section entitled "How
to Redeem Shares"; however, no signature guarantee is required.
SHAREHOLDER SERVICES
The Funds offer the following shareholder services. For more information
about these services or your account, contact your financial intermediary, ESC
or call the toll-free number on the front page of this Prospectus. Some services
are described in more detail in the Application.
Systematic Investment Plan. Under a Systematic Investment Plan, you may invest
as little as $25 per month to purchase shares of a Fund with no minimum initial
investment required.
Telephone Investment Plan. You may make investments into an existing account
electronically in amounts of not less than $100 or more than $10,000 per
investment. Telephone investment requests received by 4:00 p.m. (Eastern time)
will be credited to a shareholder's account the day the request is received.
Systematic Withdrawal Plan. When an account of $10,000 or more is opened or when
an existing account reaches that size, you may participate in the Systematic
Withdrawal Plan by filling out the appropriate part of the Application. Under
this Plan, you may receive (or designate a third party to receive) a monthly or
quarterly fixed-withdrawal payment in a stated amount of at least $75 and may be
as much as 1.0% per month or 3.0% per quarter of the total net asset value of
the Fund shares in your account when the Plan was opened. Fund shares will be
redeemed as necessary to meet withdrawal payments. All participants must elect
to have their dividends and capital gain distributions reinvested automatically.
Any applicable CDSC will be waived with respect to redemptions occurring under a
Systematic Withdrawal Plan during a calendar year to the extent that such
redemptions do not exceed 12% of (1) the initial value of the account plus (2)
the value, at the time of purchase, of any subsequent investments.
Investments Through Employee Benefit and Savings Plans. Certain qualified and
non-qualified benefit and savings plans may make shares of the Funds and the
other Evergreen funds available to their participants. Investments made by such
employee benefit plans may be exempt from front-end sales charges if they meet
the criteria set forth under "Class A Shares-Front End Sales Charge
Alternative". Evergreen Asset, Keystone or FUNB may provide compensation to
organizations providing administrative and recordkeeping services to plans which
make shares of the Evergreen funds available to their participants.
29

<PAGE>
Automatic Reinvestment Plan. For the convenience of investors, all dividends and
distributions are automatically reinvested in full and fractional shares of a
Fund at the net asset value per share at the close of business on the record
date, unless otherwise requested by a shareholder in writing. If the transfer
agent does not receive a written request for subsequent dividends and/or
distributions to be paid in cash at least three full business days prior to a
given record date, the dividends and/or distributions to be paid to a
shareholder will be reinvested.
Dollar Cost Averaging. Through dollar cost averaging you can invest a fixed
dollar amount each month or each quarter in any Evergreen fund. This results in
more shares being purchased when the selected fund's net asset value is
relatively low and fewer shares being purchased when the fund's net asset value
is relatively high and may result in a lower average cost per share than a less
systematic investment approach.
Prior to participating in dollar cost averaging, you must establish an
account in an Evergreen fund. You should designate on the application (1) the
dollar amount of each monthly or quarterly investment you wish to make and (2)
the fund in which the investment is to be made. Thereafter, on the first day of
the designated month, an amount equal to the specified monthly or quarterly
investment will automatically be redeemed from your initial account and invested
in shares of the designated fund.
If you are a Class A investor and paid a sales charge on your initial
purchase, the shares purchased will be eligible for Rights of Accumulation and
the sales charge applicable to the purchase will be determined accordingly. In
addition, the value of shares purchased will be included in the total amount
required to fulfill a Letter of Intent. If a sales charge was not paid on the
initial purchase, a sales charge will be imposed at the time of subsequent
purchases, and the value of shares purchased will become eligible for Rights of
Accumulation and Letters of Intent.
Two Dimensional Investing. You may elect to have income and capital gains
distributions from any class of Evergreen fund shares you own automatically
invested to purchase the same class of shares of any other Evergreen fund. You
may select this service on your Application and indicate the Evergreen fund(s)
into which distributions are to be invested.
Tax Sheltered Retirement Plans. The Funds have various retirement plans
available to eligible investors, including Individual Retirement Accounts
(IRAs); Rollover IRAs; Simplified Employee Pension Plans (SEPs); Savings
Incentive Match Plan for Employees (SIMPLEs); Tax Sheltered Annuity Plans;
403(b)(7) Plans; 401(k) Plans; Keogh Plans; Profit-Sharing Plans; Medical
Savings Accounts; Pension and Target Benefit and Money Purchase Plans. For
details, including fees and application forms, call toll free 1-800-247-4075 or
write to ESC.
BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Funds. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment adviser, transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase of
shares of such an investment company upon the order of its customer. Keystone,
since it is a subsidiary of FUNB, and FUNB are subject to and in compliance with
the aforementioned laws and regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in FUNB or Keystone being prevented from
continuing to perform the services required under the investment advisory
contract or from acting as agent in connection with the purchase of shares of
the Funds by its customers. If Keystone were prevented from continuing to
provide the services called for under the investment advisory agreement, it is
expected that the Trustees would identify, and call upon the Fund's shareholders
to approve, a new investment adviser. If this were to occur, it is not
anticipated that the shareholders of a Fund would suffer any adverse financial
consequences.
30

<PAGE>
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Funds intend to declare dividends from net investment income daily
and distribute to its shareholders such dividends monthly. The Funds intend to
declare and distribute all net realized capital gains at least annually.
Shareholders receive Fund distributions in the form of additional shares of that
class of shares upon which the distribution is based or, at the shareholder's
option, in cash. Shareholders of a Fund who have not opted to receive cash prior
to the payable date for any dividend from net investment income or the record
date for any capital gains distribution will have the number of such shares
determined on the basis of the Fund's net asset value per share computed at the
end of that day after adjustment for the distribution. Net asset value is used
in computing the number of shares in both capital gains and income distribution
investments.
Because Class A shares bear most of the costs of distribution of such
shares through payment of a front-end sales charge, while Class B and, when
applicable, Class C shares bear such expenses through a higher annual
distribution fee, expenses attributable to Class B shares and Class C shares
will generally be higher than those of Class A shares, and income distributions
paid by the Fund with respect to Class A shares will generally be greater than
those paid with respect to Class B and Class C shares.
Account statements and/or checks, as appropriate, will be mailed within
seven days after a Fund pays a distribution. Unless a Fund receives instructions
to the contrary before the record or payable date, as the case may be, it will
assume that a shareholder wishes to receive that distribution and future capital
gains and income distributions in shares. Instructions continue in effect until
changed in writing.
The Funds intend to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). While so qualified, it
is expected that each Fund will not be required to pay any Federal income taxes
on that portion of its investment company taxable income and any net realized
capital gains it distributes to shareholders. The Code imposes a 4%
nondeductible excise tax on regulated investment companies, such as a Fund, to
the extent they do not meet certain distribution requirements by the end of each
calendar year. Each Fund anticipates meeting such distribution requirements.
Any taxable dividend declared in October, November or December to
shareholders of record in such a month and paid by the following January 31 will
be includable in the taxable income of shareholders as if paid on December 31 of
the year in which the dividend was declared.
The Funds may be subject to foreign withholding taxes which would reduce
the yield on its investments. Tax treaties between certain countries and the
United States may reduce or eliminate such taxes. Shareholders of a Fund who are
subject to U.S. federal income tax may be entitled, subject to certain rules and
limitations, to claim a federal income tax credit or deduction for foreign
income taxes paid by a Fund. See the SAI for additional details. A Fund's
transactions in options, futures and forward contracts may be subject to special
tax rules. These rules can affect the amount, timing and characteristics of
distributions to shareholders.
The Funds are required by federal law to withhold 31% of reportable
payments (which may include dividends, capital gains distributions (if any) and
redemptions) paid to certain shareholders. In order to avoid this backup
withholding requirement, each investor must certify on the Application, or on a
separate form supplied by the Fund's transfer agent, that the Investor's social
security or taxpayer identification number is correct and that the investor is
not currently subject to backup withholding or is exempt from backup
withholding. A shareholder who acquires Class A shares of a Fund and sells or
otherwise disposes of such shares within 90 days of acquisition may not be
allowed to include certain sales charges incurred in acquiring such shares for
purposes of calculating gain and loss realized upon a sale or exchange of shares
of a Fund.
The Funds intend to distribute its net capital gains as capital gains
dividends. Shareholders should treat such dividends as long-term capital gains.
A Fund will designate capital gains distributions as such by a written notice
mailed to each shareholder no later than 60 days after the close of a Fund's
taxable year. If a shareholder receives a capital gain dividend and holds his
shares for six months or less, then any allowable loss on disposition of such
shares will be treated as a long-term capital loss to the extent of such capital
gain dividend.
31

<PAGE>
The foregoing discussion of federal income tax consequences is based on
tax laws and regulations in effect on the date of this Prospectus and is subject
to change by legislative or administrative action. As the foregoing discussion
is for general information only, you should also review the discussion of
"Additional Tax Information" contained in the SAI. In addition, you should
consult your own tax adviser as to the tax consequences of investing in a Fund,
including the application of state and local taxes which may be different from
the federal income tax consequences described above.
GENERAL INFORMATION
Portfolio Turnover. The estimated annual portfolio turnover rate for each Fund
is not expected to exceed 100%. A portfolio turnover rate of 100% would occur if
all of a Fund's portfolio securities were replaced in one year. The portfolio
turnover rate experienced by each Fund directly affects the transaction costs
relating to the purchase and sale of securities which each Fund bears directly.
A high rate of portfolio turnover will increase such costs. See the SAI for
further information regarding the practices of each Fund affecting portfolio
turnover.
Portfolio Transactions. Consistent with the Rules of Conduct of the National
Association of Securities Dealers, Inc., and subject to seeking best price and
execution, a Fund may consider sales of its shares as a factor in the selection
of dealers to enter into portfolio transactions with a Fund.
Other Classes of Shares. Each Fund currently offers four classes of shares,
Class A, Class B, Class C and Class Y, and may in the future offer additional
classes. Class Y shares are not offered by this Prospectus and are only
available to (1) persons who at or prior to December 31, 1994, owned shares in a
mutual fund advised by Evergreen Asset, (2) certain institutional investors and
(3) investment advisory clients of FUNB, Evergreen Asset, Keystone or their
affiliates. The dividends payable with respect to Class A, Class B and Class C
shares will be less than those payable with respect to Class Y shares due to the
distribution and shareholder servicing-related expenses borne by Class A, Class
B and Class C shares and the fact that such expenses are not borne by Class Y
shares. Investors should telephone (800) 343-2898 to obtain more information on
other classes of shares.
Performance Information. The Funds may quote their "total return" or "yield" for
specified periods in advertisements, reports, or other communications to
shareholders. Total return and yield are computed separately for each Class of
shares. Performance data for one or more Classes may be included in any
advertisement or sales literature using performance data of a Fund.
Yield is a way of showing the rate of income a Fund earns on its
investments as a percentage of the Fund's share price. The Fund's yield is
calculated according to accounting methods that are standardized by the SEC for
all stock and bond funds. Because yield accounting methods differ from the
method used for other accounting purposes, a Fund's yield may not equal its
distribution rate, the income paid to your account or the income reported in a
Fund's financial statements. To calculate yield, a Fund takes the interest and
dividend income it earned from its portfolio of investments (as defined by the
SEC formula) for a 30-day period (net of expenses), divides it by the average
number of shares entitled to receive dividends, and expresses the result as an
annualized percentage rate based on a Fund's share price at the end of the
30-day period. This yield does not reflect gains or losses from selling
securities.
Total returns are based on the overall dollar or percentage change in the
value of a hypothetical investment in a Fund. A Fund's total return shows its
overall change in value including changes in share prices and assumes all the
Fund's distributions are reinvested. A cumulative total return reflects a Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical annually compounded return that would have produced
the same cumulative total return if a Fund's performance had been constant over
the entire period. Because average annual total returns tend to smooth out
variations in a Fund's return, you should recognize that they are not the same
as actual year-by-year results. To illustrate the components of overall
performance, a Fund may separate its cumulative and average annual total returns
into income results and realized and unrealized gain or loss.
Comparative performance information may also be used from time to time in
advertising or marketing each Fund's shares, including data from Lipper
Analytical Services, Inc., Morningstar and other industry publications. The
Funds may also advertise in items of sales literature an "actual distribution
rate" which is computed by dividing the total ordinary income distributed (which
may include the excess of short-term capital gains over losses) to shareholders
for the latest twelve month period by the maximum public offering price per
share on the last day of the period. Investors should be aware that past
performance may not be reflective of future results.
32

<PAGE>
In marketing a Fund's shares, information may be provided that is
designed to help individuals understand their investment goals and explore
various financial strategies. Such information may include publications
describing general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; a questionnaire designed to
help create a personal financial profile; and an action plan offering investment
alternatives. The information provided to investors may also include discussions
of other Evergreen funds, products, and services, which may include: retirement
investing; brokerage products and services; the effects of periodic investment
plans and dollar cost averaging; saving for college; and charitable giving. In
addition, the information provided to investors may quote financial or business
publications and periodicals, including model portfolios or allocations, as they
relate to fund management, investment philosophy, and investment techniques. The
materials may also reprint, and use as advertising and sales literature,
articles from EVERGREEN EVENTS, a quarterly magazine provided free of charge to
Evergreen fund shareholders.
Additional Information. This Prospectus and the Statement of Additional
Information, which has been incorporated by reference herein, do not contain all
the information set forth in the Registration Statements filed by the Trust with
the SEC under the Securities Act of 1933, as amended. Copies of the Registration
Statement may be obtained at a reasonable charge from the SEC or may be
examined, without charge, at the offices of the SEC in Washington, D.C.
33

<PAGE>
INVESTMENT ADVISERS
Capital Management Group of First Union National Bank, 210 South College
Street, Charlotte, North Carolina, 28228
EVERGREEN U.S. GOVERNMENT FUND
Keystone Investment Management Company, 200 Berkeley Street, Boston,
Massachusetts 02116-5034
EVERGREEN STRATEGIC INCOME FUND
EVERGREEN HIGH YIELD BOND FUND
EVERGREEN DIVERSIFIED BOND FUND
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts
02205-9827
TRANSFER AGENT
Evergreen Service Company, P.O. Box 2121, Boston, Massachusetts 02106-2121
LEGAL COUNSEL
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W., Washington, D.C.
20036
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110
DISTRIBUTOR
Evergreen Distributor, Inc., 125 W. 55th Street, New York, New York 10019
64668 541291

<PAGE>

PROSPECTUS February 1, 1998

(Evergreen logo appears here)

EVERGREEN LONG TERM BOND FUNDS
EVERGREEN U.S. GOVERNMENT FUND
EVERGREEN STRATEGIC INCOME FUND
EVERGREEN HIGH YIELD BOND FUND
EVERGREEN DIVERSIFIED BOND FUND

CLASS Y SHARES
The Evergreen Long Term Bond Funds (the "Funds") are designed to
provide investors with a selection of investment alternatives which seek to
provide a high level of current income. This Prospectus provides
information regarding the Class Y shares offered by the Funds. Each Fund
is, or is a series of, an open-end, diversified, management investment
company. This Prospectus sets forth concise information about the Funds
that a prospective investor should know before investing. The address of
the Funds is 200 Berkeley Street, Boston, Massachusetts 02116.
A "Statement of Additional Information" for the Funds dated
February 1, 1998, as supplemented from time to time, has been filed with
the Securities and Exchange Commission and is incorporated by reference
herein. The Statement of Additional Information provides information
regarding certain matters discussed in this Prospectus and other matters
which may be of interest to investors, and may be obtained without charge
by calling the Evergreen Funds at (800) 343-2898. There can be no assurance
that the investment objective of any Fund will be achieved. Investors are
advised to read this Prospectus carefully.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED
OR OTHERWISE PROTECTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT
AGENCY AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
KEEP THIS PROSPECTUS FOR FUTURE REFERENCE

<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
EXPENSE INFORMATION 3
FINANCIAL HIGHLIGHTS 4
DESCRIPTION OF THE FUNDS
Investment Objectives and Policies 6
Investment Practices and Restrictions 9
ORGANIZATION AND SERVICE PROVIDERS
Organization 17
Service Providers 17
PURCHASE AND REDEMPTION OF SHARES
How to Buy Shares 18
How to Redeem Shares 19
Exchange Privilege 20
Shareholder Services 21
Banking Laws 21
OTHER INFORMATION
Dividends, Distributions and Taxes 22
General Information 23
</TABLE>

2
<PAGE>
EXPENSE INFORMATION
The table set forth below summarizes the shareholder transaction costs
associated with an investment in the Class Y shares of each Fund. For further
information see "Purchase and Redemption of Shares" and "General
Information -- Other Classes of Shares".
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases None
Sales Charge on Dividend Reinvestments None
Contingent Deferred Sales Charge None
Redemption Fee None
</TABLE>

Annual operating expenses reflect the normal operating expenses of the
Funds, and include costs such as management, distribution and other fees. The
table below shows the Fund's actual or estimated annual operating expenses for
the fiscal period ending on the date set forth beside each Fund's name. The
example shows what you would pay if you invested $1,000 over the periods
indicated. The example assumes that you reinvest all of your dividends and that
the Fund's average annual return will be 5%. THE EXAMPLES ARE FOR ILLUSTRATION
PURPOSES ONLY AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR ANNUAL RETURN. THE FUND'S ACTUAL EXPENSES AND RETURNS WILL VARY. For
a more complete description of the various costs and expenses borne by the Funds
see "Organization and Service Providers".
EVERGREEN U.S. GOVERNMENT FUND (APRIL 30, 1997)
<TABLE>
<CAPTION>
ANNUAL OPERATING
EXPENSES EXAMPLE
<S> <C> <C> <C>
Advisory Fees .50%
After 1 Year $ 7
12b-1 Fees --
After 3 Years $23
Other Expenses .23%
After 5 Years $41
After 10 Years $91
Total .73%
</TABLE>

EVERGREEN STRATEGIC INCOME FUND (APRIL 30, 1997)
<TABLE>
<CAPTION>
ANNUAL OPERATING
EXPENSES EXAMPLE
<S> <C> <C> <C>
Advisory Fees .64%
After 1 Year $ 11
12b-1 Fees --
After 3 Years $ 33
Other Expenses .40%
After 5 Years $ 57
After 10 Years $ 127
Total 1.04%
</TABLE>

EVERGREEN HIGH YIELD BOND FUND (APRIL 30, 1998)
<TABLE>
<CAPTION>
ANNUAL OPERATING
EXPENSES EXAMPLE
<S> <C> <C> <C>
Advisory Fees .58%
After 1 Year $ 9
12b-1 Fees --
After 3 Years $30
Other Expenses .35%
Total .93%
</TABLE>

EVERGREEN DIVERSIFIED BOND FUND (APRIL 30, 1998)
<TABLE>
<CAPTION>
ANNUAL OPERATING
EXPENSES EXAMPLE
<S> <C> <C> <C>
Advisory Fees .52%
After 1 Year $ 9
12b-1 Fees --
After 3 Years $27
Other Expenses .33%
Total .85%
</TABLE>

3
<PAGE>
FINANCIAL HIGHLIGHTS
The tables on the following pages present, for each Fund, financial
highlights for a share outstanding throughout each period indicated. The
information in the tables for the five most recent fiscal periods or the life of
a Fund if shorter has been audited by KPMG Peat Marwick LLP, the Funds'
independent auditors. As of the date of this Prospectus the EVERGREEN HIGH YIELD
BOND FUND and EVERGREEN DIVERSIFIED BOND FUND had not commenced operations.
Consequently, no financial highlights are currently available. The tables appear
in the Funds' annual report to shareholders and should be read in conjunction
with each Fund's financial statements and related notes, which also appear,
together with the independent auditors' report, in the Funds' annual report to
shareholders. The Funds' financial statements, related notes, and independent
auditors' report are incorporated by reference into the Funds' Statement of
Additional Information.
Further information about each Fund's performance is contained in the
Funds' annual report to shareholders, which may be obtained without charge.

EVERGREEN U.S. GOVERNMENT FUND -- CLASS Y SHARES
<TABLE>
<CAPTION>
SIX SEPTEMBER 2, 1993

TEN MONTHS YEAR MONTHS YEAR (DATE OF INITIAL
SIX MONTHS ENDED ENDED ENDED ENDED ENDED PUBLIC OFFERING)
OCTOBER 31, 1997 APRIL 30, JUNE 30, JUNE 30, DECEMBER 31, TO
PER SHARE DATA: (UNAUDITED) 1997 (D) 1996 1995 (C) 1994 DECEMBER 31, 1993
------------ ---------- --------- --------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value beginning of
period....................... $ 9.39 $ 9.42 $ 9.65 $ 9.07 $ 10.05 $ 10.25
------------ ---------- --------- --------- ------------ ------------------
Income from investment
operations:
Net investment income........ 0.32 0.54 0.66 0.34 0.69 0.25
Net realized and unrealized
gain (loss) on
investments................ 0.27 (0.03) (0.23) 0.58 (0.98) (0.20)
------------ ---------- --------- --------- ------------ ------------------
Total from investment
operations............... 0.59 0.51 0.43 0.92 (0.29) 0.05
------------ ---------- --------- --------- ---------- -----------
Less distributions from net
investment income............ (0.32) (0.54) (0.66) (0.34 ) (0.69) (0.25)
------------ ---------- --------- --------- ---------- -----------
Net asset value end of
period....................... $ 9.66 $ 9.39 $ 9.42 $ 9.65 $ 9.07 $ 10.05
============ ========== ========= ========= ========== ===========
TOTAL RETURN (B)............... 6.42% 5.52% 4.54% 10.30% (2.94%) 0.49%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Expenses..................... 0.77%(a) 0.73%(a) 0.74% 0.79%(a) 0.71% 0.48%(a)
Expenses excluding waivers
and reimbursements......... 0.77%(a) 0.73%(a) 0.74% 0.80%(a) 0.75% 0.79%(a)
Expenses excluding indirectly
paid expenses.............. 0.77%(a) 0.73%(a) -- -- -- --
Net investment income........ 6.67%(a) 6.85%(a) 6.86% 7.31%(a) 7.27% 7.20%(a)
Portfolio turnover rate........ 5% 12% 23% 0% 19% 39%
Net assets end of period
(thousands).................. $138,104 $ 127,099 $121,569 $16,934 $ 15,595 $14,486
</TABLE>
- ---------------
(a) Annualized.
(b) Excluding applicable sales charges.
(c) The Fund changed its fiscal year end from December 31 to June 30.
(d) The Fund changed its fiscal year end from June 30 to April 30.

4
<PAGE>
EVERGREEN STRATEGIC INCOME FUND -- CLASS Y SHARES
<TABLE>
<CAPTION>
JANUARY 13, 1997
(COMMENCEMENT
OF CLASS
SIX MONTHS ENDED OPERATIONS)
OCTOBER 31, 1997 TO
PER SHARE DATA: (UNAUDITED) APRIL 30, 1997
---------------- -----------------
<S> <C> <C>
Net asset value beginning of period................................................. $ 6.65 $ 7.03
Income from investment operations:
Net investment income............................................................. 0.25 0
Net realized and unrealized loss on investments and foreign currency related
transactions.................................................................... 0.24 (0.20)
Total from investment operations................................................ 0.49 (0.20)
Less distributions from:
Net investment income............................................................. (0.25) (0.17)
In excess of net investment income................................................ 0 (0.01)
Total distributions............................................................. (0.25) (0.18)
Net asset value end of period....................................................... $ 6.89 $ 6.65
TOTAL RETURN........................................................................ 7.39% (2.87%)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Expenses.......................................................................... 1.04%(a) 0.00%(a)
Expenses excluding indirectly paid expenses....................................... 1.04%(a) 0.00%(a)
Net investment income............................................................. 6.83%(a) 0.00%(a)
Portfolio turnover rate............................................................. 110% 86%
Net assets end of period............................................................ $1,237 $ 7
</TABLE>
- ---------------
(a) Annualized.
5
<PAGE>
DESCRIPTION OF THE FUNDS
INVESTMENT OBJECTIVES AND POLICIES
Each Fund's investment objective is nonfundamental; as a result, each
Fund may change its objective without a shareholder vote. The Funds have also
adopted certain fundamental investment policies which are mainly designed to
limit each Fund's exposure to risk. Each Fund's fundamental policies cannot be
changed without a shareholder vote. See the Statement of Additional Information
("SAI") for more information regarding each Fund's fundamental investment
policies or other related investment policies. There can be no assurance that
each Fund's investment objective will be achieved.
In addition to the investment policies detailed below, each Fund may
employ certain additional investment strategies which are discussed in
"Investment Practices and Restrictions". There can be no assurance that any
Fund's investment objective will be achieved.
EVERGREEN U.S. GOVERNMENT FUND
The investment objective of EVERGREEN U.S. GOVERNMENT FUND is to achieve
a high level of current income consistent with stability of principal. The Fund
will invest in debt instruments issued or guaranteed by the U.S. government, its
agencies, or instrumentalities ("U.S. government securities"), and is suitable
for conservative investors seeking high current yields plus relative safety. It
permits an investor to participate in a portfolio that benefits from active
management of a blend of securities and maturities to maximize the opportunities
and minimize the risks created by changing interest rates.
In addition to U.S. government securities, the Fund may invest in:
Securities representing ownership interests in mortgage pools
("mortgage-backed securities"). The yield and maturity characteristics of
mortgage-backed securities correspond to those of the underlying mortgages, with
interest and principal payments including prepayments (I.E. paying remaining
principal before the mortgage's scheduled maturity) passed through to the holder
of the mortgage-backed securities. The yield and price of mortgage-backed
securities will be affected by prepayments which substantially shorten effective
maturities. Thus, during periods of declining interest rates, prepayments may be
expected to increase, requiring the Fund to reinvest the proceeds at lower
interest rates, making it difficult to effectively lock in high interest rates.
Conversely, mortgage-backed securities may experience less pronounced declines
in value during periods of rising interest rates.
Securities representing ownership interests in a pool of assets
("asset-backed securities"), for which automobile and credit card receivables
are the most common collateral. Because much of the underlying collateral is
unsecured, asset-backed securities are structured to include additional
collateral and/or additional credit support to protect against default. The
Fund's investment adviser evaluates the strength of each particular issue of
asset-backed security, taking into account the structure of the issue and its
credit support. (See "Investment Practices and Restrictions, -- Risk
Characteristics of Asset-Backed Securities".)
Collateralized mortgage obligations ("CMOs") are issued by
single-purpose, stand-alone entities. A CMO is a mortgage-backed security that
manages the risk of prepayment by separating mortgage pools into short, medium
and long term portions. These portions are generally retired in sequence as the
underlying mortgage loans in the mortgage pool are repaid. Similarly, as
prepayments are made, the portion of CMO first to mature will be retired prior
to its maturity, thus having the same effect as the prepayment of mortgages
underlying a mortgage-backed security. The issuer of a series of CMOs may elect
to be treated as a Real Estate Mortgage Investment Conduit (a "REMIC"), which
has certain special tax attributes. The Fund will invest only in CMOs which are
rated AAA by a nationally recognized statistical rating organization and which
may be: (a) collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government; (b) collateralized by pools of mortgages
in which payment of principal and interest is guaranteed by the issuer and such
guarantee is collateralized by U.S. government securities; or (c) securities in
which the proceeds of the issuance are invested in mortgage securities and
payment of the principal and interest are supported by the credit of an agency
or instrumentality of the U.S. government.
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The Fund may invest up to 20% of its total assets in (i) CMOs and
commercial paper which matures in 270 days or less so long as at least two of
its ratings are high quality ratings by nationally recognized statistical rating
organizations (i.e., A-1 or A-2 by Standard & Poor's Ratings Group ("S&P"),
Prime-1 or Prime-2 by Moody's Investor Service ("Moody's"), or F-1 or F-2 by
Fitch Investors Service, L.P. ("Fitch")), and (ii) bonds and other debt
securities rated Baa or higher by Moody's or BBB or higher by S&P, or which, if
unrated, are considered to be of comparable quality by the investment adviser.
Bonds rated Baa by Moody's or BBB by S&P have speculative
characteristics. Changes in economic conditions or other circumstances are more
likely to weaken such bonds' prospects for principal and interest payments than
higher rated bonds. However, like the higher rated bonds, these securities are
considered to be investment grade. (See the description of the rating categories
contained in the Statement of Additional Information.)
EVERGREEN STRATEGIC INCOME FUND
The investment objective of EVERGREEN STRATEGIC INCOME FUND is high
current income from interest on debt securities. Secondarily, the Fund considers
potential for growth of capital in selecting securities. The Fund intends to
allocate its assets principally between eligible domestic high yield, high risk
bonds and debt securities of foreign governments and foreign corporations. In
addition, the Fund will, from time to time, allocate a portion of its assets to
U.S. government securities. This allocation will be made on the basis of the
investment adviser's assessment of global opportunities for high income. From
time to time, the Fund may invest 100% of its assets in U.S. or foreign
securities.
The Fund may invest in:
Domestic High Yield Bonds. The Fund may invest principally in domestic
high yield, high risk bonds, commonly known as "junk bonds." High-yield bonds in
which the fund may invest include zero coupon bonds and payment-in-kind
securities ("PIKs"), debentures, convertible debentures, fixed, increasing and
adjustable rate bonds, stripped bonds, mortgage bonds, mortgage backed
securities, corporate notes (including convertible notes) with maturities at the
date of issue of at least five years (which may be senior or junior to other
bonds), equipment trust certificates, and units consisting of bonds with stock
or warrants to buy stock attached. For information about the risks of investing
in high-yield bonds, see the section entitled "Investment Practices and
Restrictions."
Foreign Securities. The Fund may invest in debt obligations (which may be
denominated in U.S. dollars or in non-U.S. currencies) issued or guaranteed by
foreign corporations, certain supranational entities (such as the World Bank),
foreign governments, their agencies and instrumentalities, and debt obligations
issued by U.S. corporations denominated in non-U.S. currencies. These debt
obligations may include bonds, debentures, notes and short-term obligations.
U.S. Government Securities. The Fund may invest in U.S. government
securities, including zero coupon U.S. Treasury securities, mortgage-backed
securities and money market instruments.
While the Fund may invest in securities of any maturity, it is currently
expected that the Fund will not invest in securities with maturities of more
than 30 years.
Other Eligible Securities
Under ordinary circumstances, the Fund may also invest a limited portion
of its assets in the securities described below. When, in the investment
adviser's opinion, market conditions warrant, the Fund may invest up to 100% of
its assets for temporary defensive purposes in the money market securities
described below. When the Fund is investing for temporary defensive purposes, it
is not pursuing its investment objective.
Equity Securities. The Fund may invest in preferred stocks, including
adjustable rate and convertible preferred stocks, common stocks and other equity
securities, including convertible securities and warrants, which may be used to
create other permissible investments. Such investments must be consistent with
the Fund's primary objective of seeking a high level of current income or be
acquired as part of a unit combining income and equity securities. In addition,
the Fund may invest in limited partnerships, including master limited
partnerships.
Money Market Securities. The Fund may invest in the following types of
money market securities: (1) obligations issued or guaranteed by the U.S.
government its agencies or instrumentalities of the U.S.
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government; (2) commercial paper, including master demand notes, that at the
date of investment is rated A-1, the highest grade by S&P, Prime-1, the highest
grade by Moody's, or, if not rated by such services, is issued by a company that
at the date of investment has an outstanding issue rated A or better by S&P or
Moody's; (3) obligations, including certificates of deposit and bankers'
acceptances, of banks or savings and loan associations having at least $1
billion in assets that are members of the Federal Deposit Insurance Corporation,
including U.S. branches of foreign banks and foreign branches of U.S. banks; and
(4) obligations of U.S. corporations that at the date of investment are rated A
or better by S&P or Moody's.
EVERGREEN HIGH YIELD BOND FUND
The investment objective of EVERGREEN HIGH YIELD BOND FUND is generous
income. The generous income sought by the Fund is ordinarily associated with
high yield, high risk bonds and similar securities in the lower rating
categories of the recognized rating agencies or with securities that are
unrated. While growth of capital is not a Fund objective, the Fund may purchase
securities that offer the possibility of capital appreciation in addition to
income, provided the acquisition of such securities does not conflict with the
Fund's objective of generous income.
The Fund intends to invest at least 65% of its total assets in bonds,
debentures and other income obligations. The Fund's portfolio ordinarily
includes a substantial number of bonds, debentures, and other income obligations
that are rated by S&P or Moody's as below investment grade, i.e., S&P rating
below BBB and Moody's rating below Baa.
The Fund may purchase securities with any rating or may purchase unrated
securities, which are not necessarily of lower quality than rated securities,
but may not be as attractive to as many buyers. While the Fund's investment
adviser performs its own credit analyses of the Fund's investments and does not
rely on ratings assigned by rating services, bonds rated below-investment grade
generally involve greater volatility of price and risk or principal and income
than bonds in the higher rating categories and are, on balance, considered
predominantly speculative.
The Fund may invest up to 50% of its assets in securities that are
principally traded in securities markets located outside the United States.
In addition, the Fund may invest in limited partnerships, including
master limited partnerships, and may invest up to 25% of its assets in foreign
securities. The Fund may also invest in participations in bank loans.
Other Eligible Securities. When market conditions warrant, the Fund may invest
up to 100% of its assets for temporary or defensive purposes in short-term
investments. Such investments, which must mature within one year of their
purchase, consist of U.S. government securities; instruments, including
certificates of deposit, demand and time deposits and bankers' acceptances, of
banks that are members of the Federal Deposit Insurance Corporation and have
assets of at least $1 billion, including U.S. branches of foreign banks and
foreign branches of U.S. banks; prime commercial paper, including master demand
notes; and repurchase agreements secured by U.S. government securities.
The Fund may also invest in preferred stock, including convertible
preferred and adjustable rate preferred stocks; warrants, which may be used to
create permissible investments; and common stock of issuers that are objects of
acquisition attempts, are undergoing reorganization through bankruptcy or
otherwise, or are in the process of refinancing. Investments in common stocks of
such issuers are expected to provide the Fund with the opportunity to receive
high-yielding, fixed-income securities. Investments in common stocks will be
limited to those stocks that the Fund's investment adviser believes will assist
the Fund in achieving its investment objective.
EVERGREEN DIVERSIFIED BOND FUND
The Fund seeks maximum income without undue risk of principal.
The Fund invests at least 65% of its total assets in bonds, which are
debt instruments used by issuers to borrow money from investors. The Fund
invests in debt instruments that are normally characterized by relatively
liberal returns and moderate price fluctuations. Such debt instruments, which
include both secured and unsecured debt obligations, will have a rating of BBB
or higher by S&P, Baa or higher by Moody's, BBB or higher by Fitch, or, if not
rated or rated under a different system, will be of comparable quality to
obligations so rated as determined by another nationally recognized statistical
ratings organization or by the Fund's investment adviser. As a group, such debt
instruments usually possess a fairly high degree of dependability of interest
payments. While the Fund's
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primary objective is income, the Fund gives careful consideration to security of
principal, marketability and diversification.
The Fund seeks to maximize return with respect to a portion of its
assets. Such maximum return is ordinarily associated with high yield, high risk
bonds and similar securities in the lower rating categories of the recognized
rating agencies or with securities that are unrated (high yield bonds). The
degree to which the Fund will hold such securities will, among other things,
depend upon its adviser's economic forecast and its judgment as to the
comparative values offered by high yield, high risk bonds and higher quality
issues. The Fund's investments in high yield, high risk bonds will not exceed
35% of its assets.
The Fund may invest up to 50% of its assets in securities that are
principally traded in securities markets located outside of the United States.
Other Eligible Securities. The Fund's investments may include limited
partnerships, including master limited partnerships, participations in bank
loans, fixed and adjustable rate or stripped bonds, including zero coupon bonds
and payment-in-kind securities ("PIKs"), debentures, notes, equipment trust
certificates, U.S. government securities, and debt securities convertible into
or exchangeable for preferred or common stock. The Fund may invest in preferred
stock, including adjustable rate preferred stock, and warrants, which can be
used to purchase or create otherwise permissible investments. The Fund may
continue to hold preferred or common stock received in connection with
convertible or exchangeable securities and may hold common stock received in
connection with the purchase of a permitted security.
The Fund may invest, for temporary defensive purposes, up to 100% of its
assets in short-term obligations. Such obligations may include master demand
notes, commercial paper and notes, bank deposits and other financial institution
obligations.
The Fund may also invest in certain derivative instruments, including
options and futures transactions, collateralized mortgage obligations,
structured notes, interest rate swaps, index swaps, currency swaps and caps and
floors. These basic vehicles can also be combined to created more complex
products called hybrid derivatives or structured securities.
INVESTMENT PRACTICES AND RESTRICTIONS
Risk Factors. Bond prices move inversely to interest rates, i.e. as interest
rates decline the values of the bonds increase, and vice versa. The longer the
maturity of a bond, the greater the exposure to market price fluctuations. The
same market factors are reflected in the share price or net asset value of bond
funds which will vary with interest rates. In addition, certain of the
obligations in which each Fund may invest may be variable or floating rate
instruments, which may involve a conditional or unconditional demand feature,
and may include variable amount master demand notes. While these types of
instruments may, to a certain degree, offset the risk to principal associated
with rising interest rates, they would not be expected to appreciate in a
falling interest rate environment.
Defensive Investments. The Funds may invest without limitation in high quality
money market instruments, such as notes, certificates of deposit or bankers'
acceptances, or U.S. government securities if, in the opinion of each Fund's
investment adviser, market conditions warrant a temporary defensive investment
strategy.
Downgrades. If any security invested in by any of the Funds loses its rating or
has its rating reduced after a Fund has purchased it, a Fund is not required to
sell or otherwise dispose of the security, but may consider doing so.
Repurchase Agreements. The Funds may invest in repurchase agreements. A
repurchase agreement is an agreement by which a Fund purchases a security
(usually U.S. government securities) for cash and obtains a simultaneous
commitment from the seller (usually a bank or broker/dealer) to repurchase the
security at an agreed-upon price and specified future date. The repurchase price
reflects an agreed-upon interest rate for the time period of the agreement. The
Funds' risk is the inability of the seller to pay the agreed-upon price on the
delivery date. However, this risk is tempered by the ability of the Fund to sell
the security in the open market in the case of a default. In such a case, a Fund
may incur costs in disposing of the security which would increase Fund expenses.
The Funds' investment adviser will monitor the creditworthiness of the firms
with which the Funds enter into repurchase agreements.
When-Issued and Delayed Delivery Transactions. The Funds may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which a Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause a
Fund to
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miss a price or yield considered to be advantageous. Settlement dates may be a
month or more after entering into these transactions, and the market values of
the securities purchased may vary from the purchase prices. Accordingly, a Fund
may pay more or less than the market value of the securities on the settlement
date. The Funds may dispose of a commitment prior to settlement if the
investment adviser deems it appropriate to do so. In addition, the Funds may
enter into transactions to sell their purchase commitments to third parties at
current market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Funds may realize short-term profits or
losses upon the sale of such commitments.
Securities Lending. In order to generate additional income, the Funds may lend
portfolio securities on a short-term or long-term basis to broker/dealers,
banks, or other institutional borrowers of securities. The Funds will only enter
into loan arrangements with creditworthy borrowers and will receive collateral
in the form of cash or U.S. government securities equal to at least 100% of the
value of the securities loaned. Loans of securities by the Funds will not exceed
15% (in the case of EVERGREEN STRATEGIC INCOME FUND and EVERGREEN HIGH YIELD
BOND FUND; one-third (in the case of EVERGREEN U.S. GOVERNMENT FUND); and 30%
(in the case of EVERGREEN DIVERSIFIED BOND FUND) of the value of their total
assets. There is the risk that when lending portfolio securities, the securities
may not be available to a Fund on a timely basis and a Fund may, therefore, lose
the opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
Options and Futures. The Funds may engage in options and futures transactions.
Options and futures transactions are intended to enable a Fund to manage market,
interest rate or exchange rate risk, and the Funds do not use these transactions
for speculation or leverage.
The Funds may attempt to hedge all or a portion of their portfolios
through the purchase of both put and call options on their portfolio securities
and listed put options on financial futures contracts for portfolio securities.
EVERGREEN STRATEGIC INCOME FUND and EVERGREEN HIGH YIELD BOND FUND may also
purchase call options on financial futures contracts. The Funds may also write
covered call options on their portfolio securities to attempt to increase their
current income. The Funds will maintain their positions in securities, option
rights, and segregated cash subject to puts and calls until the options are
exercised, closed, or have expired. An option position may be closed out only on
an exchange which provides a secondary market for an option of the same series.
The Funds may write (i.e., sell) covered call and put options. By writing
a call option, a Fund becomes obligated during the term of the option to deliver
the securities underlying the option upon payment of the exercise price. By
writing a put option, a Fund becomes obligated during the term of the option to
purchase the securities underlying the option at the exercise price if the
option is exercised. The Funds also may write straddles (combinations of covered
puts and calls on the same underlying security). The Funds may only write
"covered" options. This means that so long as a Fund is obligated as the writer
of a call option, it will own the underlying securities subject to the option
or, in the case of call options on U.S. Treasury bills, a Fund might own
substantially similar U.S. Treasury bills. A Fund will be considered "covered"
with respect to a put option it writes if, so long as it is obligated as the
writer of the put option, it deposits and maintains with its custodian in a
segregated account liquid assets having a value equal to or greater than the
exercise price of the option.
The principal reason for writing call or put options is to obtain,
through a receipt of premiums, a greater current return than would be realized
on the underlying securities alone. The Funds receive a premium from writing a
call or put option which they retain whether or not the option is exercised. By
writing a call option, the Funds might lose the potential for gain on the
underlying security while the option is open, and by writing a put option the
Funds might become obligated to purchase the underlying securities for more than
their current market price upon exercise.
A futures contract is a firm commitment by two parties: the seller, who
agrees to make delivery of the specific type of instrument called for in the
contract ("going short"), and the buyer, who agrees to take delivery of the
instrument ("going long") at a certain time in the future. Financial futures
contracts call for the delivery of particular debt instruments issued or
guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of
the U.S. government. If a Fund would enter into financial futures contracts
directly to hedge its holdings of fixed income securities, it would enter into
contracts to deliver securities at an undetermined price (i.e., "go short") to
protect itself against the possibility that the prices of its fixed income
securities may decline during a Fund's anticipated holding period. A Fund would
"go long" (agree to purchase securities in the future at a predetermined price)
to hedge against a decline in market interest rates.
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The Funds may also enter into currency and other financial futures
contracts and write options on such contracts. The Funds intend to enter into
such contracts and related options for hedging purposes. The Funds will enter
into futures on securities, currencies, or index-based futures contracts in
order to hedge against changes in interest or exchange rates or securities
prices. A futures contract on securities or currencies is an agreement to buy or
sell securities or currencies during a designated month at whatever price exists
at that time. A futures contract on a securities index does not involve the
actual delivery of securities, but merely requires the payment of a cash
settlement based on changes in the securities index. The Funds do not make
payment or deliver securities upon entering into a futures contract. Instead,
they put down a margin deposit, which is adjusted to reflect changes in the
value of the contract and which remains in effect until the contract is
terminated.
The Funds may sell or purchase currency and other financial futures
contracts. When a futures contract is sold by a Fund, the profit on the contract
will tend to rise when the value of the underlying securities or currencies
declines and to fall when the value of such securities or currencies increases.
Thus, the Funds sell futures contracts in order to offset a possible decline in
the profit on their securities or currencies. If a futures contract is purchased
by a Fund, the value of the contract will tend to rise when the value of the
underlying securities or currencies increases and to fall when the value of such
securities or currencies declines.
The Funds may enter into closing purchase and sale transactions in order
to terminate a futures contract and may buy or sell put and call options for the
purpose of closing out their options positions. The Funds' ability to enter into
closing transactions depends on the development and maintenance of a liquid
secondary market. There is no assurance that a liquid secondary market will
exist for any particular contract or at any particular time. As a result, there
can be no assurance that the Funds will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If the
Funds are not able to enter into an offsetting transaction, the Funds will
continue to be required to maintain the margin deposits on the contract and to
complete the contract according to its terms, in which case the Funds would
continue to bear market risk on the transaction.
Risk Characteristics of Options and Futures. Although options and futures
transactions are intended to enable the Funds to manage market, exchange, or
interest rate risks, these investment devices can be highly volatile, and the
Funds' use of them can result in poorer performance (i.e., the Funds' returns
may be reduced). A Fund's attempt to use such investment devices for hedging
purposes may not be successful. Successful futures strategies require the
ability to predict future movements in securities prices, interest rates and
other economic factors. When the Funds use financial futures contracts and
options on financial futures contracts as hedging devices, there is a risk that
the prices of the securities subject to the financial futures contracts and
options on financial futures contracts may not correlate perfectly with the
prices of the securities in the Funds' portfolios. This may cause the financial
futures contract and any related options to react to market changes differently
than the portfolio securities. In addition, each Fund's investment adviser could
be incorrect in its expectations and forecasts about the direction or extent of
market factors, such as interest rates, securities price movements, and other
economic factors. Even if each Fund's investment adviser correctly predicts
interest rate movements, a hedge could be unsuccessful if changes in the value
of a Fund's futures position did not correspond to changes in the value of its
investments. In these events, the Funds may lose money on the financial futures
contracts or the options on financial futures contracts. It is not certain that
a secondary market for positions in financial futures contracts or for options
on financial futures contracts will exist at all times. Although each Fund's
investment adviser will consider liquidity before entering into financial
futures contracts or options on financial futures contracts transactions, there
is no assurance that a liquid secondary market on an exchange will exist for any
particular financial futures contract or option on a financial futures contract
at any particular time. The Funds' ability to establish and close out financial
futures contracts and options on financial futures contract positions depends on
this secondary market. If a Fund is unable to close out its position due to
disruptions in the market or lack of liquidity, the Fund may lose money on the
futures contract or option, and the losses to a Fund could be significant.
Zero-Coupon and Stripped Securities. The Funds may invest in zero-coupon and
stripped securities. Zero-coupon securities in which the Funds may invest are
debt obligations which are generally issued at a discount and payable in full at
maturity, and which do not provide for current payments of interest prior to
maturity. Zero-coupon securities usually trade at a deep discount from their
face or par value and are subject to greater market value fluctuations from
changing interest rates than debt obligations of comparable maturities which
make current distributions of interest. As a result, the net asset value of
shares of the Funds may fluctuate over a greater range than shares of other
mutual funds investing in securities making current distributions of interest
and having similar maturities.
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Zero-coupon securities may include U.S. Treasury bills issued directly by
the U.S. Treasury or other short-term debt obligations, and longer-term bonds or
notes and their unmatured interest coupons which have been separated by their
holder, typically a custodian bank or investment banking firm. A number of
securities firms and banks have stripped the interest coupons from the
underlying principal (the "corpus") of U.S. Treasury securities and resold them
in custodial receipt programs with a number of different names, including
Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual on
Treasuries ("CATS"). The underlying U.S. Treasury bonds and notes themselves are
held in book-entry form at the Federal Reserve Bank or, in the case of bearer
securities (i.e., unregistered securities which are owned ostensibly by the
bearer or holder thereof), in trust on behalf of the owners thereof.
In addition, the Treasury has facilitated transfers of ownership of
zero-coupon securities by accounting separately for the beneficial ownership of
particular interest coupons and corpus payments on Treasury securities through
the Federal Reserve book-entry record-keeping system. The Federal Reserve
program as established by the Treasury Department is known as "STRIPS" or
"Separate Trading of Registered Interest and Principal of Securities". Under the
STRIPS program, the Funds will be able to have their beneficial ownership of
U.S. Treasury zero-coupon securities recorded directly in the book-entry
record-keeping system in lieu of having to hold certificates or other evidence
of ownership of the underlying U.S. Treasury securities.
When debt obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The principal
or corpus is sold at a deep discount because the buyer receives only the right
to receive a future fixed payment on the security and does not receive any
rights to periodic cash interest payments. Once stripped or separated, the
corpus and coupons may be sold separately. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold in
such bundled form. Purchasers of stripped obligations acquire, in effect,
discount obligations that are economically identical to the zero-coupon
securities issued directly by the obligor.
Foreign Investments. EVERGREEN STRATEGIC INCOME FUND, EVERGREEN HIGH YIELD BOND
FUND and EVERGREEN DIVERSIFIED BOND FUND may invest in foreign securities, which
may involve additional risks. Specifically, they may be affected by the strength
of foreign currencies relative to the U.S. dollar, or by political or economic
developments in foreign countries. Accounting procedures and government
supervision may be less stringent than those applicable to U.S. companies. There
may be less publicly available information about a foreign company than about a
U.S. company. Foreign markets may be less liquid or more volatile than U.S.
markets and may offer less protection to investors. It may also be more
difficult to enforce contractual obligations abroad than would be the case in
the United States because of differences in the legal systems. Foreign
securities may be subject to foreign taxes, which may reduce yield, and may be
less marketable than comparable U.S. securities. All these factors are
considered by each Fund's investment adviser before making any of these types of
investments.
Foreign Currency Transactions. As discussed above, the EVERGREEN STRATEGIC
INCOME FUND, EVERGREEN HIGH YIELD BOND FUND and EVERGREEN DIVERSIFIED BOND FUND
may invest in securities of foreign issuers. When a Fund invests in foreign
securities, they usually will be denominated in foreign currencies, and a Fund
temporarily may hold funds in foreign currencies. Thus, the value of Fund shares
may be affected by changes in exchange rates.
As one way of managing exchange rate risk, in addition to entering into
currency futures contracts, the Funds may enter into forward currency exchange
contracts (agreements to purchase or sell currencies at a specified price and
date). The exchange rate for the transaction (the amount of currency a Fund will
deliver or receive when the contract is completed) is fixed when a Fund enters
into the contract. A Fund usually will enter into these contracts to stabilize
the U.S. dollar value of a security it has agreed to buy or sell. Each Fund
intends to use these contracts to hedge the U.S. dollar value of a security it
already owns, particularly if a Fund expects a decrease in the value of the
currency in which the foreign security is denominated. Although a Fund will
attempt to benefit from using forward contracts, the success of its hedging
strategy will depend on the investment adviser's ability to predict accurately
the future exchange rates between foreign currencies and the U.S. dollar. The
value of a Fund's investments denominated in foreign currencies will depend on
the relative strength of those currencies and the U.S. dollar, and a Fund may be
affected favorably or unfavorably by changes in the exchange rates or exchange
control regulations between foreign currencies and the U.S. dollar. Changes in
foreign currency exchange rates also may affect the value of dividends and
interest earned, gains and losses realized on the sale of securities and net
investment income and gains, if any, to be distributed to shareholders by a
Fund. Although the Funds do not currently intend to do so, the Funds may also
purchase and sell options related to foreign currencies. The Funds do not intend
to enter into foreign currency transactions for speculation or leverage.
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Structured Securities. Structured securities represent interests in entities
organized and operated solely for the purpose of restructuring the investment
characteristics of sovereign debt obligations or foreign government securities.
This type of restructuring involves the deposit with or purchase by an entity,
such as a corporation or trust, of specified instruments (such as commercial
bank loans or Brady Bonds) and the issuance by that entity of one or more
classes of structured securities backed by, or representing interests in, the
underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued structured securities to create securities
with different investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to structured securities is dependent on the extent of the cash
flow on the underlying instruments. Because structured securities typically
involve no credit enhancement, their credit risk generally will be equivalent to
that of the underlying instruments. Structured securities of a given class may
be either subordinated or unsubordinated to the right of payment of another
class. Subordinated structured securities typically have higher yields and
present greater risks than unsubordinated structured securities.
Asset-Backed Securities. The Funds may invest in asset-backed securities.
Asset-backed securities are created by the grouping of certain governmental,
government-related and private loans, receivables and other lender assets into
pools. Interests in these pools are sold as individual securities. Payments from
the asset pools may be divided into several different tranches of debt
securities, with some tranches entitled to receive regular installments of
principal and interest, other tranches entitled to receive regular installments
of interest, with principal payable at maturity or upon specified call dates,
and other tranches only entitled to receive payments of principal and accrued
interest at maturity or upon specified call dates. Different tranches of
securities will bear different interest rates, which may be fixed or floating.
Because the loans held in the asset pool often may be prepaid without
penalty or premium, asset-backed securities and mortgage backed securities are
generally subject to higher prepayment risks than most other types of debt
instruments. Prepayment risks on mortgage securities tend to increase during
periods of declining mortgage interest rates, because many borrowers refinance
their mortgages to take advantage of the more favorable rates. Depending upon
market conditions, the yield that the Funds receive from the reinvestment of
such prepayments, or any scheduled principal payments, may be lower than the
yield on the original mortgage security. As a consequence, mortgage securities
may be a less effective means of "locking in" interest rates than other types of
debt securities having the same stated maturity and may also have less potential
for capital appreciation. For certain types of asset pools, such as CMOs,
prepayments may be allocated to one tranche of securities ahead of other
tranches, in order to reduce the risk of prepayment for the other tranches.
Prepayments may result in a capital loss to the Funds to the extent that
the prepaid mortgage securities were purchased at a market premium over their
stated amount. Conversely, the prepayment of mortgage securities purchased at a
market discount from their stated principal amount will accelerate the
recognition of interest income by the Funds which would be taxed as ordinary
income when distributed to the shareholders. The credit characteristics of
asset-backed securities also differ in a number of respects from those of
traditional debt securities. The credit quality of most asset-backed securities
depends primarily upon the credit quality of the assets underlying such
securities, how well the entity issuing the securities is insulated from the
credit risk of the originator or any other affiliated entities, and the amount
and quality of any credit enhancement to such securities.
Risk Characteristics of High Yield Bonds. EVERGREEN STRATEGIC INCOME FUND,
EVERGREEN HIGH YIELD BOND FUND and EVERGREEN DIVERSIFIED BOND FUND may invest in
high yield bonds. While investment in high yield bonds provides opportunities to
maximize return over time, investors should be aware of the following risks
associated with high yield bonds:
(1) High yield bonds are rated below investment grade, i.e., BB or lower
by S&P or Ba or lower by Moody's. Securities so rated are considered
predominantly speculative with respect to the ability of the issuer to meet
principal and interest payments.
(2) The lower ratings of these securities reflect a greater possibility
that adverse changes in the financial condition of the issuer or in general
economic conditions, or both, or an unanticipated rise in interest rates may
impair the ability of the issuer to make payments of interest and principal,
especially if the issuer is highly leveraged. Such issuer's ability to meet its
debt obligations may also be adversely affected by specific corporate
developments or the issuer's inability to meet specific projected business
forecasts or the unavailability of additional financing. Also, an economic
downturn or an increase in interest rates may increase the potential for default
by the issuers of these securities.
13
<PAGE>
(3) Their value may be more susceptible to real or perceived adverse
economic, company or industry conditions and publicity than is the case for
higher quality securities.
(4) Their value, like those of other fixed income securities, fluctuates
in response to changes in interest rates, generally rising when interest rates
decline and falling when interest rates rise. For example, if interest rates
increase after a fixed income security is purchased, the security, if sold prior
to maturity, may return less than its cost. The prices of below-investment grade
bonds, however, are generally less sensitive to interest rate changes than the
prices of higher-rated bonds, but are more sensitive to adverse or positive
economic changes or individual corporate developments.
(5) The secondary market for such securities may be less liquid at
certain times than the secondary market for higher quality debt securities,
which may adversely effect (1) the market price of the security, (2) a Fund's
ability to dispose of particular issues and (3) a Fund's ability to obtain
accurate market quotations for purposes of valuing its assets.
(6) Zero coupon bonds and PIKs involve additional risks. Zero coupon
bonds and PIKs do not require the periodic payment of interest. PIKs are debt
obligations that provide that the issuer may, at its option, pay interest on
such bonds in cash or in the form of additional debt obligations. Such
investments may experience greater fluctuation in value due to changes in
interest rates than debt obligations that pay interest currently. Even though
these investments do not pay current interest in cash, a Fund is, nonetheless,
required by tax laws to accrue interest income on such investments and to
distribute such amounts at least annually to shareholders. Thus, a Fund could be
required at times to liquidate investments in order to fulfill its intention to
distribute substantially all of its net income as dividends. A Fund will not be
able to purchase additional income producing securities with cash used to make
such distributions, and its current income ultimately may be reduced as a
result.
The generous income sought by a Fund is ordinarily associated with
securities in the lower rating categories of the recognized rating agencies or
with securities that are unrated. Such securities are generally rated BB or
lower by S&P or Ba or lower by Moody's. The Funds may invest in securites that
are rated as low as D by S&P or C- by Moody's. The Funds may also invest in
unrated securities that, in the investment adviser's judgment, offer comparable
yields and risks as securities that are rated. It is possible for securities
rated D or C-, respectively, to have defaulted on payments of principal and/or
interest at the time of investment. The Statement of Additional Information
describes these rating categories. The Funds intend to invest in D rated debt
only in cases when, in the investment adviser's judgment, there is a distinct
prospect of improvement in the issuer's financial position as a result of the
completion of reorganization or otherwise.
The investment adviser considers the ratings of S&P and Moody's assigned
to various securities, but does not rely solely on these ratings because (1) S&P
and Moody's assigned ratings are based largely on historical financial data and
may not accurately reflect the current financial outlook of companies; and (2)
there can be large differences among the current financial conditions of issuers
within the same category.
The following tables show the weighted average percentages of the
EVERGREEN STRATEGIC INCOME FUND, EVERGREEN HIGH YIELD BOND FUND and EVERGREEN
DIVERSIFIED BOND FUND assets invested at the end of each month during the fiscal
period set forth beside the Fund's name in securities assigned to the various
rating categories and in unrated securities determined by the investment adviser
to be of comparable quality. The rated asset percentages shown have received
equivalent ratings from S&P and Moody's except where ratings are "split," i.e.,
different between S&P and Moody's. In such instances, the higher of the two
ratings is shown and the lower rating is no more than one grade below the higher
one. For the purposes of the table, only the S&P rating system is used. Since
the percentages in this table are based on month-end averages throughout the
fiscal period, they do not reflect the Fund's holdings at any one point in time.
The percentages in each category may be higher or lower on any day than those
shown in the table below.
14
<PAGE>
EVERGREEN STRATEGIC INCOME FUND (APRIL 30, 1997)
<TABLE>
<CAPTION>
*UNRATED SECURITIES
OF COMPARABLE
RATED SECURITIES QUALITY AS
AS PERCENTAGE OF PERCENTAGE OF
RATING FUND'S ASSETS FUND'S ASSETS
- ------ ---------------- -------------------
<S> <C> <C>
AAA 24.93% 0.00%
AA 10.72% 0.00%
A 3.06% 0.00%
BBB 0.11% 0.00%
BBB split 0.45% N/A
BB 8.97% 0.39%
BB split 11.18% N/A
B 21.63% 5.82%
B split 0.36% N/A
CCC 0.00% 0.01%
D 0.00% 1.03%
Unrated* 7.25%
U.S. governments,
equities and others 11.34%
-------
TOTAL 100.00%
=======
</TABLE>

EVERGREEN HIGH YIELD BOND FUND (JULY 31, 1997)
<TABLE>
<CAPTION>
*UNRATED SECURITIES
OF COMPARABLE
RATED SECURITIES QUALITY AS
AS PERCENTAGE OF PERCENTAGE OF
RATING FUND'S ASSETS FUND'S ASSETS
- ------ ---------------- -------------------
<S> <C> <C>
AAA 0.00% 0.00%
AA 0.00% 0.00%
A 0.00% 0.00%
BBB 0.00% 0.00%
BBB split 1.68% 0.00%
BB 12.51% 0.00%
BB split 17.64% 0.00%
B 54.84% 4.01%
B split 2.04% 0.00%
CCC 0.35% 0.23%
D 0.00% 0.03%
Unrated* 4.27%
U.S. governments,
cash, equities
and others 6.67%
-------
TOTAL 100.00%
=======
</TABLE>

15
<PAGE>
EVERGREEN DIVERSIFIED BOND FUND (AUGUST 31, 1997)
<TABLE>
<CAPTION>
*UNRATED SECURITIES
OF COMPARABLE
RATED SECURITIES QUALITY AS
AS PERCENTAGE OF PERCENTAGE OF
RATING FUND'S ASSETS FUND'S ASSETS
- ------ ---------------- -------------------
<S> <C> <C>
AAA 23.49% 0.00%
AA 13.63% 0.00%
A 13.83% 0.00%
BBB 6.46% 0.00%
BBB split 0.20% 0.00%
BB 7.32% 0.17%
BB split 8.21% 0.00%
B 12.59% 0.00%
B split 0.40% 0.00%
CCC 0.00% 0.00%
D 0.00% 0.00%
Unrated* 0.17%
U.S. governments,
cash, equities
and others 13.70%
-------
TOTAL 100.00%
=======
</TABLE>

Since the Funds (excluding the EVERGREEN U.S. GOVERNMENT FUND) take an
aggressive approach to investing, the investment adviser attempts to maximize
the return by controlling risk through diversification, credit analysis, review
of sector and industry trends, interest rate forecasts and economic analysis.
The investment adviser's analysis of securities focuses on factors such as
interest or dividend coverage, asset values, earning prospects and the quality
of management of the company. In making investment recommendations, the
investment adviser also considers current income, potential for capital
appreciation, maturity structure, quality guidelines, coupon structure, average
yield, yield to maturity and the percentage of zero coupon bonds, PIKs and non-
accruing items in a Fund's portfolio.
Income and yields on high yield, high risk securities, as on all
securities, will fluctuate over time.
Borrowing. The Funds may not borrow money except as a temporary measure to
facilitate redemption requests or for extraordinary or emergency purposes. The
proceeds from borrowings may be used to facilitate redemption requests which
might otherwise require the untimely disposition of portfolio securities. The
specific limits applicable to borrowing by each Fund are set forth in the
Statement of Additional Information.
Illiquid Securities. The Funds may invest up to 15% of its net assets in
illiquid securities and other securities which are not readily marketable.
Repurchase agreements with maturities longer than seven days will be included
for the purpose of the foregoing 15% limit. The inability of a Fund to dispose
of illiquid or not readily marketable investments readily or at a reasonable
price could impair a Fund's ability to raise cash for redemptions or other
purposes.
Restricted Securities. The Funds may invest in restricted securities, including
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933 (the "1933 Act"). Generally, Rule 144A establishes a safe harbor from the
registration requirements of the 1933 Act for resale by large institutional
investors of securities not publicly traded in the United States. Each Fund's
investment adviser determines the liquidity of Rule 144A securities according to
guidelines and procedures adopted by the Fund's Board of Trustees. The Board of
Trustees monitors the investment advisers' application of those guidelines and
procedures. Securities eligible for resale pursuant to Rule 144A, which each
Fund's investment adviser has determined to be liquid or readily marketable are
not subject to the 15% limit on illiquid securities.
16
<PAGE>
ORGANIZATION AND SERVICE PROVIDERS
ORGANIZATION
Fund Structure. Each Fund is an investment pool, which invests shareholders'
money towards a specified goal. Each Fund is a diversified series of an
open-end, investment management company, called "Evergreen Fixed Income Trust"
(the "Trust"). The Trust is a Delaware business trust organized on September 17,
1997.
Board of Trustees. The Trust is supervised by a Board of Trustees that is
responsible for representing the interests of shareholders. The Trustees meet
periodically throughout the year to oversee a Fund's activities, reviewing,
among other things, a Fund's performance and its contractual arrangements with
various service providers.
Shareholder Rights. All shareholders of a given Class participate equally in
dividends and distributions from a Fund's assets and have equal liquidation and
other rights. Shareholders may exchange shares as described under "Exchanges,"
but will have no other preference, conversion, exchange or preemptive rights.
When issued and paid for, your shares will be fully paid and nonassessable.
Shares of a Fund are redeemable, transferable and freely assignable as
collateral. The Funds may establish additional classes or series of shares.
The Funds do not hold annual shareholder meetings; a Fund may, however,
hold special meetings for such purposes as electing or removing Trustees,
changing fundamental policies and approving investment advisory agreements or
12b-1 plans. In addition, a Fund is prepared to assist shareholders in
communicating with one another for the purpose of convening a meeting to elect
trustees. If any matters are to be voted on by shareholders, each share owned as
of the record date for the meeting would be entitled to one vote for each dollar
of net asset value applicable to each share.
SERVICE PROVIDERS
Investment Adviser. The investment advisor to EVERGREEN U.S. GOVERNMENT FUND is
the Capital Management Group of First Union National Bank ("FUNB"), a subsidiary
of First Union Corporation. First Union Corporation and FUNB are located at 201
South College Street, Charlotte, North Carolina 28288-0630. First Union
Corporation and its subsidiaries provide a broad range of financial services to
individuals and businesses throughout the United States.
The investment adviser to EVERGREEN STRATEGIC INCOME FUND, EVERGREEN HIGH
YIELD BOND FUND and EVERGREEN DIVERSIFIED BOND FUND is Keystone Investment
Management Company ("Keystone"). Keystone has provided investment advisory and
management services to investment companies and private accounts since it was
organized in 1932. Keystone is an indirect subsidiary of FUNB.
The EVERGREEN U.S. GOVERNMENT FUND pays FUNB an annual fee for its
services equal to 0.50 of 1% of the Fund's average daily net assets.
The EVERGREEN STRATEGIC INCOME FUND, EVERGREEN HIGH YIELD BOND FUND and
EVERGREEN DIVERSIFIED BOND FUND pay Keystone a fee, calculated on an annual
basis, equal to 2.0% of gross dividend and interest income of the Fund plus
0.50% of the first $100,000,000 of the aggregate net asset value of shares of
each Fund, plus 0.45% of the next $100,000,000, plus 0.40% of the next
$100,000,000, plus 0.35% of the next $100,000,000, plus 0.30% of the next
$100,000,000, plus 0.25% of amounts over $500,000,000, computed as of the close
of business each business day and paid monthly.
Portfolio Managers. Rollin C. Williams is the Portfolio Manager of the EVERGREEN
U.S. GOVERNMENT FUND. Mr. Williams has over 28 years of banking and investment
management experience. In addition to managing First Union's Diversified Bond
Group Trust, he is also responsible for the management of over $2.2 billion in
fixed income portfolios. Prior to joining First Union, Mr. Williams was the head
of fixed income investment at Dominion Trust Company in Roanoke, VA. Mr.
Williams has been with First Union since 1993 when Dominion was acquired by the
bank; he started with Dominion Trust Company in 1988. Since joining First Union,
Mr. Williams has been a Vice President and Senior Portfolio Manager.
The Portfolio Manager of EVERGREEN STRATEGIC INCOME FUND and EVERGREEN
HIGH YIELD BOND FUND is Prescott B. Crocker. Mr. Crocker is a Senior Vice
President, Senior Portfolio Manager and Head of the High Yield Bond Team at
Keystone. Mr. Crocker joined Keystone in 1997 and initially served as the
manager of the domestic
17
<PAGE>
high yield bond portion of the Fund's portfolio. From 1993 until he joined
Keystone, Mr. Crocker held various positions at Boston Security Counsellors,
including President and Chief Investment Officer, and was Managing Director and
Portfolio Manager at Northstar Investment Management. Mr. Crocker has 25 years
of experience in fixed income investment management.
The Portfolio Manager of the EVERGREEN DIVERSIFIED BOND FUND is
Christopher C. Conkey. Mr. Conkey has served as Chief Investment Officer of
Fixed Income for the past nine months and as Head of the High Grade Bond Team
for Keystone for the last three years. During the past five years at Keystone
Mr. Conkey has also served as portfolio manager of several high grade fixed
income funds, several high grade-high yield fixed income funds and several
off-shore closed-end fixed income funds.
Administrator. Evergreen Investment Services, Inc. ("EIS") serves as
administrator to EVERGREEN U.S. GOVERNMENT FUND, subject to the supervision and
control of the Trustees. EIS provides the Fund with facilities, equipment and
personnel. For its services as administrator, EIS is entitled to receive a fee
based on the aggregate average daily net assets of the Fund at a rate based on
the total assets of all the mutual funds advised by First Union subsidiaries.
The administration fee is calculated in accordance with the following schedule:
<TABLE>
<CAPTION>
Administration Fee
- ------------------
<S> <C>
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
0.010% on assets in excess of $30 billion
</TABLE>

EIS also provides facilities, equipment and personnel to EVERGREEN
STRATEGIC INCOME FUND, EVERGREEN HIGH YIELD BOND FUND and EVERGREEN DIVERSIFIED
BOND FUND on behalf of the Funds' investment adviser.
Transfer Agent and Dividend Disbursing Agent. Evergreen Service Company ("ESC"),
200 Berkeley Street, Boston, Massachusetts 02116 acts as each Fund's transfer
agent and dividend disbursing agent. ESC is an indirect, wholly-owned subsidiary
of First Union.
Custodian. State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827 acts as each Fund's custodian.
Principal Underwriter. Evergreen Distributor, Inc. ("EDI"), a subsidiary of The
BISYS Group, Inc. located at 125 West 55th Street, New York, New York 10019, is
the principal underwriter of each Fund.
PURCHASE AND REDEMPTION OF SHARES
HOW TO BUY SHARES
Class Y shares are offered at net asset value without a front-end sales
charge or a contingent deferred sales load. Class Y shares are only offered to
(1) persons who at or prior to December 31, 1994, owned shares in a mutual fund
advised by Evergreen Asset Management Corp. ("Evergreen Asset"), (2) certain
institutional investors and (3) investment advisory clients of FUNB, Evergreen
Asset, Keystone or their affiliates.
Eligible investors may purchase Class Y shares of any of the Funds
through broker-dealers, banks or other financial intermediaries, or directly
through EDI. In addition, you may purchase Class Y shares of any of the Funds by
mailing to that Fund, c/o Evergreen Service Company, P.O. Box 2121, Boston,
Massachusetts 02106-2121, a completed Application and a check payable to the
Fund. You may also telephone 1-800-343-2898 to obtain the number of an account
to which you can wire or electronically transfer funds and then send in a
completed Application. The minimum initial investment is $1,000, which may be
waived in certain situations. Subsequent investments in any amount may be made
by check, by wiring federal funds, by direct deposit or by an electronic funds
transfer.
There is no minimum amount for subsequent investments. Investments of $25
or more are allowed under the Systematic Investment Plan. See the Application
for more information. Only Class Y shares are offered through this Prospectus
(see "General Information" -- "Other Classes of Shares").
18
<PAGE>
How the Funds Value their Shares. The net asset value of each Class of shares of
a Fund is calculated by dividing the value of the amount of the Fund's net
assets attributable to that Class by the number of outstanding shares of that
Class. Shares are valued each day the New York Stock Exchange (the "Exchange")
is open as of the close of regular trading (currently 4:00 p.m. Eastern time).
The securities in a Fund are valued at their current market value determined on
the basis of market quotations or, if such quotations are not readily available,
such other methods as a Fund's Trustees believe would accurately reflect fair
value. Non-dollar denominated securities will be valued as of the close of the
Exchange at the closing price of such securities in their principal trading
markets.
Additional Purchase Information. As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor will be responsible for any loss a Fund or a Fund's investment adviser
incurs. If such investor is an existing shareholder, a Fund may redeem shares
from an investor's account to reimburse the Fund or its investment adviser for
any loss. In addition, such investors may be prohibited or restricted from
making further purchases in any of the Evergreen funds. The Funds will not
accept third party checks other than those payable directly to a shareholder
whose account has been in existence at least thirty days.
HOW TO REDEEM SHARES
You may "redeem" (i.e., sell) your Class Y shares in a Fund to the Fund
for cash at their net redemption value on any day the Exchange is open, either
directly by writing to the Fund, c/o ESC, or through your financial
intermediary. The amount you will receive is the net asset value adjusted for
fractions of a cent next calculated after a Fund receives your request in proper
form. Proceeds generally will be sent to you within seven days. However, for
shares recently purchased by check, a Fund will not send proceeds until it is
reasonably satisfied that the check has been collected (which may take up to 15
days). Once a redemption request has been telephoned or mailed, it is
irrevocable and may not be modified or canceled.
Redeeming Shares Through Your Financial Intermediary. A Fund must receive
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to a Fund and may charge
you for this service. Certain financial intermediaries may require that you give
instructions earlier than 4:00 p.m. (Eastern time).
Redeeming Shares Directly by Mail or Telephone. Send a signed letter of
instruction or stock power form to the Fund, c/o ESC; the registrar, transfer
agent and dividend-disbursing agent for each Fund. Stock power forms are
available from your financial intermediary, ESC, and many commercial banks.
Additional documentation is required for the sale of shares by corporations,
financial intermediaries, fiduciaries and surviving joint owners. Signature
guarantees are required for all redemption requests for shares with a value of
more than $50,000. Currently, the requirement for a signature guarantee has been
waived on redemptions of $50,000 or less when the account address of record has
been the same for a minimum period of 30 days. Each Fund and ESC reserve the
right to withdraw this waiver at any time. A signature guarantee must be
provided by a bank or trust company (not a Notary Public), a member firm of a
domestic stock exchange or by other financial institutions whose guarantees are
acceptable under the Securities Exchange Act of 1934 and ESC's policies.
Shareholders may redeem amounts of $1,000 or more (up to $50,000) from
their accounts by calling the telephone number on the front page of this
Prospectus between the hours of 8:00 a.m. and 6:00 p.m.(Eastern time) each
business day (i.e., any weekday exclusive of days on which the Exchange or ESCs
offices are closed). The Exchange is closed on New Years Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Redemption requests received
after 4:00 p.m. (Eastern time) will be processed using the net asset value
determined on the next business day. Such redemption requests must include the
shareholder's account name, as registered with a Fund, and the account number.
During periods of drastic economic or market changes, shareholders may
experience difficulty in effecting telephone redemptions. If you cannot reach a
Fund by telephone, you should follow the procedures for redeeming by mail or
through a broker-dealer as set forth herein. The telephone redemption service is
not made available to shareholders automatically. Shareholders wishing to use
the telephone redemption service must complete the appropriate sections on the
Application and choose how the redemption proceeds are to be paid. Redemption
proceeds will either (1) be mailed by check to the shareholder at the address in
which the account is registered or (2) be wired to an account with the same
registration as the shareholder's account in a Fund at a designated commercial
bank.
19
<PAGE>
In order to insure that instructions received by ESC are genuine when you
initiate a telephone transaction, you will be asked to verify certain criteria
specific to your account. At the conclusion of the transaction, you will be
given a transaction number confirming your request, and written confirmation of
your transaction will be mailed the next business day. Your telephone
instructions will be recorded. Redemptions by telephone are allowed only if the
address and bank account of record have been the same for a minimum period of 30
days. Each Fund reserves the right at any time to terminate, suspend, or change
the terms of any redemption method described in this Prospectus, except
redemption by mail, and to impose fees.
Except as otherwise noted, the Funds, ESC, and EDI will not assume
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over the Evergreen Express Line, or by telephone.
ESC will employ reasonable procedures to confirm that instructions received over
the Evergreen Express Line or by telephone are genuine. The Funds, ESC, and EDI
will not be liable when following instructions received over the Evergreen
Express Line or by telephone that ESC reasonably believes are genuine.
Evergreen Express Line. The Evergreen Express Line offers you specific fund
account information and price and yield quotations as well as the ability to do
account transactions, including investments, exchanges and redemptions. You may
access the Evergreen Express Line by dialing toll free 1-800-346-3858 on any
touch-tone telephone, 24 hours a day, seven days a week.
General. The sale of shares is a taxable transaction for federal income tax
purposes. The Funds may temporarily suspend the right to redeem their shares
when (1) the Exchange is closed, other than customary weekend and holiday
closings; (2) trading on the Exchange is restricted; (3) an emergency exists and
the Funds cannot dispose of their investments or fairly determine their value;
or (4) the Securities and Exchange Commission ("SEC") so orders. The Funds
reserve the right to close an account that through redemption has fallen below
$1,000 and has remained so for 30 days. Shareholders will receive 60 days'
written notice to increase the account value to at least $1,000 before the
account is closed. The Funds have elected to be governed by Rule 18f-1 under the
Investment Company Act of 1940 (the "1940 Act") pursuant to which each Fund is
obligated to redeem shares solely in cash, up to the lesser of $250,000 or 1% of
a Fund's total net assets, during any 90 day period for any one shareholder.
EXCHANGE PRIVILEGE
How to Exchange Shares. You may exchange some or all of your Class Y shares for
shares of the same Class in the other Evergreen funds through your financial
intermediary, by calling or writing to ESC or by using the Evergreen Express
Line as described above. Once an exchange request has been telephoned or mailed,
it is irrevocable and may not be modified or canceled. Exchanges will be made on
the basis of the relative net asset values of the shares exchanged next
determined after an exchange request is received. An exchange which represents
an initial investment in another Evergreen fund is subject to the minimum
investment and suitability requirements of each Fund.
Each of the Evergreen funds has different investment objectives and
policies. For complete information, a prospectus of the fund into which an
exchange will be made should be read prior to the exchange. An exchange order
must comply with the requirement for a redemption or repurchase order and must
specify the dollar value or number of shares to be exchanged. An exchange is
treated for federal income tax purposes as a redemption and purchase of shares
and may result in the realization of a capital gain or loss. Shareholders are
limited to five exchanges per calendar year, with a maximum of three per
calendar quarter. This exchange privilege may be modified or discontinued at any
time by the Fund upon 60 days' notice to shareholders and is only available in
states in which shares of the fund being acquired may lawfully be sold.
Exchanges Through Your Financial Intermediary. A Fund must receive exchange
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to a Fund and may charge
you for this service.
Exchanges By Telephone And Mail. Exchange requests received by a Fund after 4:00
p.m. (Eastern time) will be processed using the net asset value determined at
the close of the next business day. During periods of drastic economic or market
changes, shareholders may experience difficulty in effecting telephone
exchanges. You should follow the procedures outlined below for exchanges by mail
if you are unable to reach ESC by telephone. If you wish to use the telephone
exchange service you should indicate this on the Application. As noted above,
each Fund will employ reasonable procedures to confirm that instructions for the
redemption or exchange of shares communicated by telephone are genuine. A
telephone exchange may be refused by a Fund or ESC if it is believed
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advisable to do so. Procedures for exchanging Fund shares by telephone may be
modified or terminated at any time. Written requests for exchanges should follow
the same procedures outlined for written redemption requests in the section
entitled "How to Redeem Shares"; however, no signature guarantee is required.
SHAREHOLDER SERVICES
The Funds offer the following shareholder services. For more information
about these services or your account, contact your financial intermediary, ESC
or call the toll-free number on the front page of this Prospectus. Some services
are described in more detail in the Application.
Systematic Investment Plan. Under a Systematic Investment Plan, you may invest
as little as $25 per month to purchase shares of a Fund with no minimum initial
investment required.
Telephone Investment Plan. You may make investments into an existing account
electronically in amounts of not less than $100 or more than $10,000 per
investment. Telephone investment requests received by 4:00 p.m. (Eastern time)
will be credited to a shareholder's account the day the request is received.
Systematic Withdrawal Plan. When an account of $10,000 or more is opened or when
an existing account reaches that size, you may participate in the Systematic
Withdrawal Plan by filling out the appropriate part of the Application. Under
this Plan, you may receive (or designate a third party to receive) a monthly or
quarterly fixed-withdrawal payment in a stated amount of at least $75 and may be
as much as 1.0% per month or 3.0% per quarter of the total net asset value of
the Fund shares in your account when the Plan was opened. Fund shares will be
redeemed as necessary to meet withdrawal payments. All participants must elect
to have their dividends and capital gain distributions reinvested automatically.
Automatic Reinvestment Plan. For the convenience of investors, all dividends and
distributions are automatically reinvested in full and fractional shares of a
Fund at the net asset value per share at the close of business on the record
date, unless otherwise requested by a shareholder in writing. If the transfer
agent does not receive a written request for subsequent dividends and/or
distributions to be paid in cash at least three full business days prior to a
given record date, the dividends and/or distributions to be paid to a
shareholder will be reinvested.
Dollar Cost Averaging. Through dollar cost averaging you can invest a fixed
dollar amount each month or each quarter in any Evergreen fund. This results in
more shares being purchased when the selected fund's net asset value is
relatively low and fewer shares being purchased when the fund's net asset value
is relatively high and may result in a lower average cost per share than a less
systematic investment approach.
Prior to participating in dollar cost averaging, you must establish an
account in an Evergreen fund. You should designate on the Application (1) the
dollar amount of each monthly or quarterly investment you wish to make, and (2)
the fund in which the investment is to be made. Thereafter, on the first day of
the designated month, an amount equal to the specified monthly or quarterly
investment will automatically be redeemed from your initial account and invested
in shares of the designated fund.
Two Dimensional Investing. You may elect to have income and capital gains
distributions from any Class Y Evergreen fund shares you own automatically
invested to purchase the same class of shares of any other Evergreen fund. You
may select this service on your Application and indicate the Evergreen fund(s)
into which distributions are to be invested.
Tax Sheltered Retirement Plans. The Funds have various retirement plans
available to eligible investors, including Individual Retirement Accounts
(IRAs); Rollover IRAs; Simplified Employee Pension Plans (SEPs); Salary
Incentive Match Plan for Employees (SIMPLEs); Tax Sheltered Annuity Plans;
403(b)(7) Plans; 401(k) Plans; Keogh Plans; Profit-Sharing Plans; Medical
Savings Accounts; Pension and Target Benefit and Money Purchase Plans. For
details, including fees and application forms, call toll free 1-800-247-4075 or
write to ESC.
BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Funds. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment adviser, transfer agent or custodian to a registered open-end
investment company and may also act as
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agent in connection with the purchase of shares of such an investment company
upon the order of its customer. Keystone, since it is a subsidiary of FUNB and
FUNB are subject to and in compliance with the aforementioned laws and
regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in FUNB or Keystone being prevented from
continuing to perform the services required under the investment advisory
contract or from acting as agent in connection with the purchase of shares of a
Fund by its customers. If FUNB or Keystone were prevented from continuing to
provide the services called for under the investment advisory agreement, it is
expected that the Trustees would identify, and call upon each Fund's
shareholders to approve, a new investment adviser. If this were to occur, it is
not anticipated that the shareholders of any Fund would suffer any adverse
financial consequences.
OTHER INFORMATION
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund intends to declare dividends from net investment income daily
and distribute to its shareholders such dividends monthly. Each Fund intends to
declare and distribute all net realized capital gains at least annually.
Shareholders receive Fund distributions in the form of additional shares of that
class of shares upon which the distribution is based or, at the shareholder's
option, in cash. Shareholders of a Fund who have not opted to receive cash prior
to the payable date for any dividend from net investment income or the record
date for any capital gains distribution will have the number of such shares
determined on the basis of a Fund's net asset value per share computed at the
end of that day after adjustment for the distribution. Net asset value is used
in computing the number of shares in both capital gains and income distribution
investments.
Account statements and/or checks, as appropriate, will be mailed within
seven days after the Fund pays a distribution. Unless the Fund receives
instructions to the contrary before the record or payable date, as the case may
be, it will assume that a shareholder wishes to receive that distribution and
future capital gains and income distributions in shares. Instructions continue
in effect until changed in writing.
Each Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). While so qualified, it
is expected that each Fund will not be required to pay any federal income taxes
on that portion of its investment company taxable income and any net realized
capital gains it distributes to shareholders. The Code imposes a 4%
nondeductible excise tax on regulated investment companies, such as the Funds,
to the extent they do not meet certain distribution requirements by the end of
each calendar year. Each Fund anticipates meeting such distribution
requirements.
Any taxable dividend declared in October, November or December to
shareholders of record in such a month and paid by the following January 31 will
be includable in the taxable income of shareholders as if paid on December 31 of
the year in which the dividend was declared.
A Fund may be subject to foreign withholding taxes which would reduce the
yield on its investments. Tax treaties between certain countries and the United
States may reduce or eliminate such taxes. Shareholders of a Fund who are
subject to United States federal income tax may be entitled, subject to certain
rules and limitations, to claim a federal income tax credit or deduction for
foreign income taxes paid by a Fund. See the Statement of Additional Information
for additional details. A Fund's transactions in options, futures and forward
contracts may be subject to special tax rules. These rules can affect the
amount, timing and characteristics of distributions to shareholders.
Each Fund is required by federal law to withhold 31% of reportable
payments (which may include dividends, capital gain distributions (if any) and
redemptions) paid to certain shareholders. In order to avoid this backup
withholding requirement, each investor must certify on the Application, or on a
separate form supplied by the Fund's transfer agent, that the investor's social
security or taxpayer identification number is correct and that the investor is
not currently subject to backup withholding or is exempt from backup
withholding.
The Fund intends to distribute its net capital gains as capital gains
dividends. Shareholders should treat such dividends as long-term capital gains.
The Fund will designate capital gains distributions as such by a written notice
mailed to each shareholder no later than 60 days after the close of the Fund's
taxable year. If a shareholder
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receives a capital gain dividend and holds his shares for six months or less,
then any allowable loss on disposition of such shares will be treated as a
long-term capital loss to the extent of such capital gain dividend.
The foregoing discussion of federal income tax consequences is based on
tax laws and regulations in effect on the date of this Prospectus, and is
subject to change by legislative or administrative action. As the foregoing
discussion is for general information only, you should also review the
discussion of "Additional Tax Information" contained in the Statement of
Additional Information. In addition, you should consult your own tax adviser as
to the tax consequences of investments in the Funds, including the application
of state and local taxes which may be different from Federal income tax
consequences described above.
GENERAL INFORMATION
Portfolio Turnover. The estimated annual portfolio turnover rate for each Fund
is not expected to exceed 100%. A portfolio turnover rate of 100% would occur if
all of a Fund's portfolio securities were replaced in one year. The portfolio
turnover rate experienced by each Fund directly affects the transaction costs
relating to the purchase and sale of securities which each Fund bears directly.
A high rate of portfolio turnover will increase such costs. See the SAI for
further information regarding the practices of each Fund affecting portfolio
turnover.
Portfolio Transactions. Consistent with the Rules of Conduct of the National
Association of Securities Dealers, Inc., and subject to seeking best price and
execution, a Fund may consider sales of its shares as a factor in the selection
of dealers to enter into portfolio transactions with a Fund.
Other Classes of Shares. Each Fund currently offers four classes of shares,
Class A, Class B, Class C and Class Y, and may in the future offer additional
classes. Class Y shares are the only class of shares offered by this Prospectus
and are only available to (1) persons who at or prior to December 31, 1994 owned
shares in a mutual fund advised by Evergreen Asset, (2) certain institutional
investors and (3) investment advisory clients of FUNB, Evergreen Asset, Keystone
or their affiliates. The dividends payable with respect to Class A, Class B and
Class C shares will be less than those payable with respect to Class Y shares
due to the distribution and shareholder servicing-related expenses borne by
Class A, Class B and Class C shares and the fact that such expenses are not
borne by Class Y shares. Investors should telephone (800) 343-2898 to obtain
more information on other classes of shares.
Performance Information. From time to time, the Funds may quote their "total
return" or "yield" for a specified period in advertisements, reports or other
communications to shareholders. Total return and yield are computed separately
for each Class of shares. Performance data for one or more Classes may be
included in any advertisement or sales literature using performance data of a
Fund.
Yield is a way of showing the rate of income a Fund earns on its
investments as a percentage of the Fund's share price. The Fund's yield is
calculated according to accounting methods that are standardized by the SEC for
all stock and bond funds. Because yield accounting methods differ from the
method used for other accounting purposes, a Fund's yield may not equal its
distribution rate, the income paid to your account or the net investment income
reported in a Fund's financial statements. To calculate yield, a Fund takes the
interest and dividend income it earned from its portfolio of investments (as
defined by the SEC formula) for a 30-day period (net of expenses), divides it by
the average number of shares entitled to receive dividends, and expresses the
result as an annualized percentage rate based on a Fund's share price at the end
of the 30-day period. This yield does not reflect gains or losses from selling
securities.
Total returns are based on the overall dollar or percentage change in the
value of a hypothetical investment in a Fund. A Fund's total return shows its
overall change in value including changes in share prices and assumes all the
Fund's distributions are reinvested. A cumulative total return reflects a Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical annually compounded return that would have produced
the same cumulative total return if a Fund's performance had been constant over
the entire period. Because average annual total returns tend to smooth out
variations in the Fund's return, you should recognize that they are not the same
as actual year-by-year results. To illustrate the components of overall
performance, a Fund may separate its cumulative and average annual total returns
into income results and realized and unrealized gain or loss.
Performance may be included in any advertisement or sales literature of a
Fund. These advertisements may quote performance rankings or ratings of a Fund
by financial publications or independent organizations such as Lipper Analytical
Services, Inc. and Morningstar, Inc. or compare a Fund's performance to various
indices. A
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Fund may also advertise in items of sales literature an "actual distribution
rate" which is computed by dividing the total ordinary income distributed (which
may include the excess of short-term capital gains over losses) to shareholders
for the latest twelve-month period by the maximum public offering price per
share on the last day of the period. Investors should be aware that past
performance may not be indicative of future results.
In marketing a Fund's shares, information may be provided that is
designed to help individuals understand their investment goals and explore
various financial strategies. Such information may include publications
describing general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; a questionnaire designed to
help create a personal financial profile; and an action plan offering investment
alternatives. The information provided to investors may also include discussions
of other Evergreen funds, products, and services, which may include: retirement
investing; brokerage products and services; the effects of periodic investment
plans and dollar cost averaging; saving for college; and charitable giving. In
addition, the information provided to investors may quote financial or business
publications and periodicals, including model portfolios or allocations, as they
relate to fund management, investment philosophy, and investment techniques. The
materials may also reprint, and use as advertising and sales literature,
articles from EVERGREEN EVENTS, a quarterly magazine provided free of charge to
Evergreen fund shareholders.
Additional Information. This Prospectus and the Statement of Additional
Information, which has been incorporated by reference herein, do not contain all
the information set forth in the Registration Statements filed by the Trusts
with the SEC under the Securities Act of 1933, as amended. Copies of the
Registration Statements may be obtained at a reasonable charge from the SEC or
may be examined, without charge, at the offices of the SEC in Washington, D.C.
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INVESTMENT ADVISERS
Capital Management Group of First Union National Bank, 210 South College
Street, Charlotte, North Carolina, 28228
EVERGREEN U.S. GOVERNMENT FUND
Keystone Investment Management Company, 200 Berkeley Street, Boston,
Massachusetts 02116-5034
EVERGREEN STRATEGIC INCOME FUND
EVERGREEN HIGH YIELD BOND FUND
EVERGREEN DIVERSIFIED BOND FUND
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts
02205-9827
TRANSFER AGENT
Evergreen Service Company, P.O. Box 2121, Boston, Massachusetts 02106-2121
LEGAL COUNSEL
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W., Washington, D.C.
20036
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110
DISTRIBUTOR
Evergreen Distributor, Inc., 125 W. 55th Street, New York, New York 10019
541292

<PAGE>

EVERGREEN FIXED INCOME TRUST

PART B

STATEMENT OF ADDITIONAL INFORMATION
<PAGE>

EVERGREEN FIXED INCOME TRUST

200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116
(800) 633-2700

EVERGREEN LONG-TERM BOND FUNDS

STATEMENT OF ADDITIONAL INFORMATION

FEBRUARY 1, 1998

EVERGREEN U.S. GOVERNMENT FUND ("U.S. GOVERNMENT")
EVERGREEN STRATEGIC INCOME FUND ("STRATEGIC")
EVERGREEN HIGH YIELD BOND FUND ("HIGH YIELD")
EVERGREEN DIVERSIFIED BOND FUND ("DIVERSIFIED")
(EACH A "FUND"; TOGETHER, THE "FUNDS")

EACH FUND IS A SERIES OF AN OPEN-END MANAGEMENT
INVESTMENT COMPANY KNOWN AS EVERGREEN FIXED
INCOME TRUST (THE "TRUST").

This Statement of Additional Information ("SAI") pertains to all
classes of shares of the Funds listed above. It is not a prospectus and should
be read in conjunction with a prospectus dated February 1, 1998. The Funds are
offered through two separate prospectuses: one offering Class A, Class B and
Class C shares of each Fund and one offering Class Y shares of each Fund. You
may obtain either of these prospectuses from Evergreen Distributor, Inc.

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TABLE OF CONTENTS

FUND INVESTMENTS.................................................. 3
General Information.................................... 3
Fundamental Policies.....................................10
Investment Guidelines....................................11
MANAGEMENT OF THE TRUST...........................................12
PRINCIPAL HOLDERS OF FUND SHARES..................................15
INVESTMENT ADVISORY AND OTHER SERVICES............................16
Investment Adviser.......................................16
Investment Advisory Agreements...........................17
Distributor..............................................18
Distribution Plans and Agreements........................18
Additional Service Providers.............................19
BROKERAGE.........................................................20
Selection of Brokers....................................20
Brokerage Commissions....................................20
General Brokerage Policies...............................20
TRUST ORGANIZATION................................................21
Form of Organization.....................................21
Description of Shares....................................21
Voting Rights............................................21
Limitation of Trustees' Liability........................22
PURCHASE, REDEMPTION AND PRICING OF SHARES..................... 22
How the Funds Offer Shares to the Public.................22
Contingent Deferred Sales Charge.......................23
Sales Charge Waivers or Reductions.......................23
Exchanges................................................25
Calculation of Net Asset Value Per Share.................25
Valuation of Portfolio Securities........................26
Shareholder Services.....................................26
PRINCIPAL UNDERWRITER.............................................27
ADDITIONAL TAX INFORMATION........................................27
Requirements for Qualification as a Registered
Investment Company................................... 27
Taxes on Distributions..................................28
Taxes on the Sale or Exchange of Fund Shares............29
Other Tax Considerations................................29
FINANCIAL INFORMATION.............................................30
ADDITIONAL INFORMATION............................................33
APPENDIX A........................................................A-1

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FUND INVESTMENTS

GENERAL INFORMATION

The investment objective of each Fund and a description of the
securities in which each Fund may invest are set forth in each Fund's
prospectus. The following expands upon the discussion in the prospectuses
regarding certain investments of the Fund.

U.S. Government Securities

Each Fund may invest in securities issued or guaranteed by U.S.
Government agencies or instrumentalities.

These securities are backed by (1) the discretionary authority of the
U.S. Government to purchase certain obligations of agencies or instrumentalities
or (2) the credit of the agency or instrumentality issuing the obligations.

Some government agencies and instrumentalities may not receive
financial support from the U.S. Government. Examples of such agencies are:

(i) Farm Credit System, including the National Bank for
Cooperatives, Farm Credit Banks and Banks for Cooperatives;

(ii) Farmers Home Administration;

(iii) Federal Home Loan Banks;

(iv) Federal Home Loan Mortgage Corporation;

(v) Federal National Mortgage Association; and

(vi) Student Loan Marketing Association.

Securities Issued by the Government National Mortgage Association ("GNMA")

The Funds may invest in securities issued by the GNMA, a corporation
wholly-owned by the U.S. Government. GNMA securities or "certificates" represent
ownership in a pool of underlying mortgages. The timely payment of principal and
interest due on these securities is guaranteed.

Unlike conventional bonds, the principal on GNMA certificates is not
paid at maturity but over the life of the security in scheduled monthly
payments. While mortgages pooled in a GNMA certificate may have maturities of up
to 30 years, the certificate itself will have a shorter average maturity and
less principal volatility than a comparable 30-year bond.

The market value and interest yield of GNMA certificates can vary due
not only to market fluctuations, but also to early prepayments of mortgages
within the pool. Since prepayment rates vary widely, it is impossible to
accurately predict the average maturity of a GNMA pool. In addition to the
guaranteed principal payments, GNMA certificates may also make unscheduled
principal payments resulting from prepayments on the underlying mortgages.

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Although GNMA certificates may offer yields higher than those available
from other types of U.S. Government securities, they may be less effective as a
means of locking in attractive long-term rates because of the prepayment
feature. For instance, when interest rates decline, prepayments are likely to
increase as the holders of the underlying mortgages seek refinancing. As a
result, the value of a GNMA certificate is not likely to rise as much as the
value of a comparable debt security would in response to same decline. In
addition, these prepayments can cause the price of a GNMA certificate originally
purchased at a premium to decline in price compared to its par value, which may
result in a loss.

Limited Partnerships

Diversified may invest in limited and master limited partnerships. A
limited partnership is a partnership consisting of one or more general partners,
jointly and severally responsible as ordinary partners, and by whom the business
is conducted, and one or more limited partners who contribute cash as capital to
the partnership and who generally are not liable for the debts of the
partnership beyond the amounts contributed. Limited partners are not involved in
the day-to-day management of the partnership. They receive income, capital gains
and other tax benefits associated with the partnership project in accordance
with terms established in the partnership agreement. Typical limited
partnerships are in real estate, oil and gas and equipment leasing, but they
also finance movies, research and development, and other projects.

For an organization classified as a partnership under the Internal
Revenue Code, each item of income, gain, loss, deduction, and credit is not
taxed at the partnership level but flows through to the holder of the
partnership unit. This allows the partnership to avoid double taxation and to
pass through income to the holder of the partnership unit at lower individual
rates.

A master limited partnership is a publicly traded limited partnership.
The partnership units are registered with the Securities and Exchange Commission
("SEC") and are freely exchanged on a securities exchange or in the
over-the-counter market.

When-Issued, Delayed-Delivery and Forward Commitment Transactions

The Funds may purchase securities on a when-issued or delayed delivery
basis and may purchase or sell securities on a forward commitment basis.
Settlement of such transactions normally occurs within a month or more after the
purchase or sale commitment is made.

The Funds may purchase securities under such conditions only with the
intention of actually acquiring them, but may enter into a separate agreement to
sell the securities before the settlement date. Since the value of securities
purchased may fluctuate prior to settlement, a Fund may be required to pay more
at settlement than the security is worth. In addition, the purchaser is not
entitled to any of the interest earned prior to settlement.

Upon making a commitment to purchase a security on a when-issued,
delayed delivery or forward commitment basis, a Fund will hold liquid assets
worth at least the equivalent of the amount due. The liquid assets will be
monitored on a daily basis and adjusted as necessary to maintain the necessary
value.

Purchases made under such conditions are a form of leveraging and may
involve the risk that yields secured at the time of commitment may be lower than
otherwise available by the time settlement takes place, causing an unrealized
loss to the fund. In addition, when a Fund engages

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in such purchases, it relies on the other party to consummate the sale. If the
other party fails to perform its obligations, the Fund may miss the opportunity
to obtain a security at a favorable price or yield.

Loans of Securities

To generate income, each Fund may lend portfolio securities to
broker-dealers and other financial institutions. A Fund will require borrowers
to provide collateral in cash or government securities at least equal to the
value of the securities loaned. A Fund may invest such collateral in additional
portfolio securities, such as U.S. Treasury notes, certificates of deposit,
other high-grade, short-term obligations or interest-bearing cash equivalents.
While securities are on loan, the borrower will pay a Fund any income accruing
on the security.

Each Fund may make loans only to borrowers which meet credit standards
set by the Board of Trustees. Income to be earned from the loan must justify the
attendant risks. If a borrower fails financially, a Fund may have difficulty
recovering the securities lent or may lose its right to the collateral.

Each Fund has the right to call a loan and obtain the securities lent
upon giving notice of not more than five business days.

Repurchase Agreements

The Funds may enter into repurchase agreements with entities that are
registered as U.S. Government securities dealers, including member banks of the
Federal Reserve System having at least $1 billion in assets, primary dealers in
U.S. Government securities or other financial institutions believed by the
Adviser (as defined later) to be creditworthy. In a repurchase agreement, a Fund
obtains a security and simultaneously commits to return the security to the
seller at a set price (including principal and interest) within period of time
usually not exceeding seven days. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the coupon
rate or maturity of the underlying security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value of the underlying security.

A Fund or its custodian will take possession of the securities subject
to repurchase agreements, and these securities will be marked to market daily.
To the extent that the original seller does not repurchase the securities from a
Fund, a Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. Each Fund's Adviser believes that under the regular
procedures normally in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction would rule
in favor of the Fund and allow retention or disposition of such securities. The
Funds will only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker-dealers, which are deemed by the
investment adviser to be creditworthy pursuant to guidelines established by the
Board of Trustees.

Reverse Repurchase Agreements

As described herein, the Funds may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, a Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or

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dealer, in return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration plus interest at an
agreed upon rate.

The use of reverse repurchase agreements may enable a Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.

When effecting reverse repurchase agreements, liquid assets of a Fund,
in a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.

Options

The Funds may buy or sell (i.e., write) put and call options on
securities it holds or intends to acquire. The Funds may also buy and sell
options on financial futures contracts. The Funds will use options as a hedge
against decreases or increases in the value of securities it holds or intends to
acquire. The Funds may purchase put and call options for the purpose of
offsetting previously written put and call options of the same series.

The Funds may write only covered options. With regard to a call option,
this means that a Fund will own, for the life of the option, the securities
subject to the call option. Each Fund will cover put options by holding, in a
segregated account, liquid assets having a value equal to or greater than the
price of securities subject to the put option. If a Fund is unable to effect a
closing purchase transaction with respect to the covered options it has sold, it
will not be able to sell the underlying securities or dispose of assets held in
a segregated account until the options expire or are exercised.

Futures Transactions

Each Fund may enter into financial futures contracts and write options
on such contracts. Each Fund intends to enter into such contracts and related
options for hedging purposes. Each Fund will enter into futures on securities or
index-based futures contracts in order to hedge against changes in interest or
exchange rates or securities prices. A futures contract on securities is an
agreement to buy or sell securities at a specified price during a designated
month. A futures contract on a securities index does not involve the actual
delivery of securities, but merely requires the payment of a cash settlement
based on changes in the securities index. A Fund does not make payment or
deliver securities upon entering into a futures contract. Instead, it puts down
a margin deposit, which is adjusted to reflect changes in the value of the
contract and which continues until the contract is terminated.

Each Fund may sell or purchase futures contracts. When a futures
contract is sold by a Fund, the value of the contract will tend to rise when the
value of the underlying securities declines and to fall when the value of such
securities increases. Thus, each Fund sells futures contracts in order to offset
a possible decline in the value of its securities. If a futures contract is
purchased by a Fund, the value of the contract will tend to rise when the value
of the underlying securities increases and to fall when the value of such
securities declines. Each Fund intends to purchase futures contracts in order to
establish what is believed by the Adviser to be a favorable price and rate of
return for securities the Fund intends to purchase.

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Each Fund also intends to purchase put and call options on futures
contracts for hedging purposes. A put option purchased by a Fund would give it
the right to assume a position as the seller of a futures contract. A call
option purchased by a Fund would give it the right to assume a position as the
purchaser of a futures contract. The purchase of an option on a futures contract
requires a Fund to pay a premium. In exchange for the premium, a Fund becomes
entitled to exercise the benefits, if any, provided by the futures contract, but
is not required to take any action under the contract. If the option cannot be
exercised profitably before it expires, a Fund's loss will be limited to the
amount of the premium and any transaction costs.

Each Fund may enter into closing purchase and sale transactions in
order to terminate a futures contract and may sell put and call options for the
purpose of closing out its options positions. A Fund's ability to enter into
closing transactions depends on the development and maintenance of a liquid
secondary market. There is no assurance that a liquid secondary market will
exist for any particular contract or at any particular time. As a result, there
can be no assurance that a Fund will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If a
Fund is not able to enter into an offsetting transaction, the Fund will continue
to be required to maintain the margin deposits on the contract and to complete
the contract according to its terms, in which case it would continue to bear
market risk on the transaction.

Although futures and options transactions are intended to enable a Fund
to manage market, interest rate or exchange rate risk, unanticipated changes in
interest rates or market prices could result in poorer performance than if it
had not entered into these transactions. Even if the Adviser correctly predicts
interest rate movements, a hedge could be unsuccessful if changes in the value
of a Fund's futures position did not correspond to changes in the value of its
investments. This lack of correlation between a Fund's futures and securities
positions may be caused by differences between the futures and securities
markets or by differences between the securities underlying a Fund's futures
position and the securities held by or to be purchased for a Fund. Each Fund's
Adviser will attempt to minimize these risks through careful selection and
monitoring of the Fund's futures and options positions.

The Funds do not intend to use futures transactions for speculation or
leverage. Each Fund has the ability to write options on futures, but currently
intends to write such options only to close out options purchased by a Fund.
Each Fund will not change these policies without supplementing the information
in the prospectus and SAI.

The Funds will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the aggregate,
the value of the open positions (marked to market) exceeds the current market
value of its securities portfolio plus or minus the unrealized gain or loss on
those open positions, adjusted for the correlation of volatility between the
hedged securities and the futures contracts. If this limitation is exceeded at
any time, each Fund will take prompt action to close out a sufficient number of
open contracts to bring its open futures and options positions within this
limitation.

"Margin" in Futures Transactions

Unlike the purchase or sale of a security, the Funds do not pay or
receive money upon the purchase or sale of a futures contract. Rather, each Fund
is required to deposit an amount of "initial margin" in cash or U.S. Treasury
bills with its custodian (or the broker, if legally permitted). The nature of
initial margin in futures transactions is different from that of margin in
securities transactions in that futures contract initial margin does not involve
the borrowing of

23353
7

<PAGE>

funds by a Fund to finance the transactions. Initial margin is in the nature of
a performance bond or good faith deposit on the contract which is returned to a
Fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied.

A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day, a Fund pays or
receives cash, called "variation margin," equal to the daily change in value of
the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by a Fund but is instead
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing its daily net asset value, a Fund
will mark-to-market its open futures positions. The Funds are also required to
deposit and maintain margin when it writes call options on futures contracts.

Foreign Securities (Strategic, High Yield and Diversified)

Each Fund may invest in foreign securities or U.S. securities traded in
foreign markets. Permissible investments may consist of obligations of foreign
branches of U.S. banks and of foreign banks, including European certificates of
deposit, European time deposits, Canadian time deposits and Yankee certificates
of deposit, and investments in Canadian commercial paper, foreign securities and
Europaper. These instruments may subject a Fund to investment risks that differ
in some respects from those related to investments in obligations of U.S.
issuers. Such risks include future adverse political and economic developments;
the possible imposition of withholding taxes on interest or other income; the
possible seizure, nationalization, or expropriation of foreign deposits; the
possible establishment of exchange controls or taxation at the source; greater
fluctuations in value due to changes in exchange rates, or the adoption of other
foreign governmental restrictions which might adversely affect the payment of
principal and interest on such obligations. Such investments may also entail
higher custodial fees and sales commissions than domestic investments. Foreign
issuers of securities or obligations are often subject to accounting treatment
and engage in business practices different from those respecting domestic
issuers of similar securities or obligations. Foreign branches of U.S. banks and
foreign banks may be subject to less stringent reserve requirements than those
applicable to domestic branches of U.S. banks.

Foreign Currency Transactions (Strategic, High Yield and Diversified)

As one way of managing exchange rate risk, each Fund may enter into
forward currency exchange contracts (agreements to purchase or sell currencies
at a specified price and date). The exchange rate for the transaction (the
amount of currency a Fund will deliver and receive when the contract is
completed) is fixed when a Fund enters into the contract. A Fund usually will
enter into these contracts to stabilize the U.S. dollar value of a security it
has agreed to buy or sell. Each Fund intends to use these contracts to hedge the
U.S. dollar value of a security it already owns, particularly if a Fund expects
a decrease in the value of the currency in which the foreign security is
denominated. Although each Fund will attempt to benefit from using forward
contracts, the success of its hedging strategy will depend on the Adviser's
ability to predict accurately the future exchange rates between foreign
currencies and the U.S. dollar. The value of a Fund's investments denominated in
foreign currencies will depend on the relative strengths of those currencies and
the U.S. dollar, and a Fund may be affected favorably or unfavorably by changes
in the exchange rates or exchange control regulations between foreign currencies
and the U.S. dollar. Changes in foreign currency exchange rates also may affect
the value of dividends and interest earned, gains and losses realized on the
sale of securities and net investment income and gains, if any, to be
distributed to shareholders by each Fund. Each

23353
8

<PAGE>

Fund may also purchase and sell options related to foreign currencies in
connection with hedging strategies.

High Yield Bonds (Strategic, High Yield and Diversified)

Each Fund may invest in high yield, high risk bonds. While investment
in high yield bonds provides opportunities to maximize return over time,
investors should be aware of the following risks associated with high yield
bonds:

(1) High yield bonds are rated below investment grade, i.e., BB or
lower by Standard & Poor's Ratings Group ("S&P") or Ba or lower by Moody's
Investors Service ("Moody's"). Securities so rated are considered predominantly
speculative with respect to the ability of the issuer to meet principal and
interest payments.

(2) The lower ratings of these securities reflect a greater possibility
that adverse changes in the financial condition of the issuer or in general
economic conditions, or both, or an unanticipated rise in interest rates may
impair the ability of the issuer to make payments of interest and principal,
especially if the issuer is highly leveraged. Such issuer's ability to meet its
debt obligations may also be adversely affected by specific corporate
developments or the issuer's inability to meet specific projected business
forecasts or the unavailability of additional financing. Also, an economic
downturn or an increase in interest rates may increase the potential for default
by the issuers of these securities.

(3) Their value may be more susceptible to real or perceived adverse
economic, company or industry conditions and publicity than is the case for
higher quality securities.

(4) Their value, like those of other fixed income securities,
fluctuates in response to changes in interest rates, generally rising when
interest rates decline and falling when interest rates rise. For example, if
interest rates increase after a fixed income security is purchased, the
security, if sold prior to maturity, may return less than its cost. The prices
of below-investment grade bonds, however, are generally less sensitive to
interest rate changes than the prices of higher-rated bonds, but are more
sensitive to adverse or positive economic changes or individual corporate
developments.

(5) The secondary market for such securities may be less liquid at
certain times than the secondary market for higher quality debt securities,
which may adversely effect (1) the market price of the security, (2) the Fund's
ability to dispose of particular issues and (3) the Fund's ability to obtain
accurate market quotations for purposes of valuing its assets.

(6) Zero coupon bonds and PIKs involve additional special
considerations. For example, zero coupon bonds pay no interest to holders prior
to maturity of interest. PIKs are debt obligations that provide that the issuer
may, at its option, pay interest on such bonds in cash or in the form of
additional debt obligations. Such investments may experience greater fluctuation
in value due to changes in interest rates than debt obligations that pay
interest currently. Even though these investments do not pay current interest in
cash, the Fund is, nonetheless, required by tax laws to accrue interest income
on such investments and to distribute such amounts at least annually to
shareholders. Thus, the Fund could be required at times to liquidate investments
in order to fulfill its intention to distribute substantially all of its net
income as dividends. The Fund will not be able to purchase additional income
producing securities with cash used to make such distributions, and its current
income ultimately may be reduced as a result.

<PAGE>

Each Fund may invest in securities rated as low as D by S&P or C- by
Moody's. Such securities may have defaulted on payments of principal and/or
interest at the time of investment. (Rating categories are described in the
Appendix.) A Fund will invest in debt so rated only when the investment adviser
believes the issuer's financial condition will improve through reorganization or
other measures. Each Fund may also invest in high yield, high risk securities
which are unrated or rated under a different system if a Fund's investment
adviser believes they are comparable to high yield securities in which each Fund
may otherwise invest.

The investment adviser considers the ratings of S&P and Moody's
assigned to various securities, but does not rely solely on these ratings
because (1) S&P and Moody's assigned ratings are based largely on historical
financial data and may not accurately reflect the current financial outlook of
companies; and (2) there can be large differences among the current financial
conditions of issuers within the same category.

FUNDAMENTAL POLICIES

The Funds have adopted the fundamental investment restrictions set
forth below which may not be changed without the vote of a majority of each
Fund's outstanding shares, as defined in the Investment Company Act of 1940 (the
"1940 Act"). Unless otherwise stated, all references to the assets of a Fund are
in terms of current market value.

Diversification

Each Fund may not make any investment that is inconsistent with its
classification as a diversified investment company under the 1940 Act.

Concentration

Each Fund may not concentrate its investments in the securities of
issuers primarily engaged in a particular industry (other than securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities).

Issuing Senior Securities

Except as permitted under in the 1940 Act, each Fund may not issue
senior securities.

Borrowing

Each Fund may not borrow money, except to the extent permitted by
applicable law.

Underwriting

Each Fund may not underwrite securities of other issuers, except
insofar as each Fund may be deemed an underwriter in connection with the
disposition of its portfolio securities.

Real Estate

Each Fund may not purchase or sell real estate, except that, to the
extent permitted by applicable law, each Fund may invest in (a) securities that
are directly or indirectly secured by real estate, or (b) securities issued by
issuers that invest in real estate.

<PAGE>

Commodities

Each Fund may not purchase or sell commodities or contracts on
commodities except to the extent that each Fund may engage in financial futures
contacts and related options and currency contracts and related options and may
otherwise do so in accordance with applicable law, and without registering as a
commodity pool operator under the Commodity Exchange Act.

Loans to Other Persons

Each Fund may not make loans to other persons, except that the Fund may
lend its portfolio securities in accordance with applicable law. The acquisition
of investment securities or other investment instruments shall not be deemed to
be the making of a loan.

INVESTMENT GUIDELINES

Unlike the Fundamental Policies above, the following guidelines may be
changed by the Trust's Board of Trustees without shareholder approval. Unless
otherwise stated, all references to the assets of a Fund are in terms of current
market value.

Diversification

To remain classified as a diversified investment company under the 1940
Act, each Fund must conform with the following: With respect to the 75% of its
total assets, a diversified investment company may not invest more than 5% of
its total assets, determined at market or other fair value at the time of
purchase, in the securities of any one issuer, or invest in more than 10% of the
outstanding voting securities of any one issuer, determined at the time of
purchase. These limitations do not apply to investments in securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities.

Borrowings

Each Fund may borrow money from banks or enter into reverse repurchase
agreements in an amount up to one third of its total assets. Each Fund may also
borrow an additional 5% of its total assets from banks or others. Each Fund may
borrow only as a temporary measure for extraordinary or emergency purposes. Each
Fund will not purchase securities while borrowings are outstanding except to
exercise prior commitments and to exercise subscription rights. Each Fund may
obtain such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities. Each Fund may purchase securities on margin
to the extent permitted by applicable law.

Illiquid and Restricted Securities

Each Fund may not invest more than 15% of its net assets in securities
that are illiquid. A security is illiquid when a Fund cannot dispose of it in
the ordinary course of business within seven days at approximately the value at
which each Fund has the investment on its books.

Each Fund may invest in "restricted" securities, i.e., securities
subject to restrictions on resale under federal securities laws. Rule 144A under
the Securities Act of 1933 ("Rule 144A") allows certain restricted securities to
trade freely among qualified institutional investors. Since Rule 144A securities
may have limited markets, the Board of Trustees will determine whether such

<PAGE>

securities should be considered illiquid for the purpose of determining a Fund's
compliance with the limit on illiquid securities indicated above. In determine
the liquidity of Rule 144A securities, the Trustees will consider: (1) the
frequency of trades and quotes for the security; (2) the number of dealers
willing to purchase or sell the security and the number of other potential
buyers; (3) dealer undertakings to make a market in the security; and (4) the
nature of the security and the nature of the marketplace trades.

Investment in Other Investment Companies

Each Fund may purchase the shares of other investment companies to the
extent permitted under the 1940 Act. Currently, each Fund may not (1) own more
than 3% of the outstanding voting stock of another investment company, (2)
invest more than 5% of its assets in any single investment company, and (3)
invest more than 10% of its assets in investment companies. However, each Fund
may invest all of its investable assets in securities of a single open-end
management investment company with substantially the same fundamental investment
objectives, policies and limitations as each Fund.

Short Sales

Each Fund may not make short sales of securities or maintain a short
position unless, at all times when a short position is open, it owns an equal
amount of such securities or of securities which, without payment of any further
consideration, are convertible into or exchangeable for securities of the same
issue as, and equal in amount to, the securities sold short. Each Fund may
effect a short sale in connection with an underwriting in which a Fund is a
participant.

MANAGEMENT OF THE TRUST

Set forth below are the Trustees and officers of the Trust and their
principal occupations and some of their affiliations over the last five years.
Unless otherwise indicated, the address for each Trustee and officer is 200
Berkeley Street, Boston, Massachusetts 02116. Each Trustee is also a Trustee of
each of the other Trusts in the Evergreen Fund complex, other than Evergreen
Variable Trust of which Messrs. Howell, Salton and Scofield are the only
Trustees.
<TABLE>
<CAPTION>
NAME POSITION WITH TRUST PRINCIPAL OCCUPATIONS FOR LAST FIVE YEARS
- ------------------------------- -------------------------- -------------------------------------------------------------
<S> <C> <C>
Laurence B. Ashkin Trustee Real estate developer and construction consultant;
(DOB: 2/2/28) and President of Centrum Equities and Centrum
Properties, Inc.

Charles A. Austin III Trustee Investment Counselor to Appleton Partners, Inc.;
(DOB: 10/23/34) and former Managing Director, Seaward
Management Corporation (investment advice).

<PAGE>

NAME POSITION WITH TRUST PRINCIPAL OCCUPATIONS FOR LAST FIVE YEARS
- ------------------------------- -------------------------- -------------------------------------------------------------
K. Dun Gifford Trustee Trustee, Treasurer and Chairman of the Finance
(DOB: 10/12/38) Committee, Cambridge College; Chairman Emeritus and
Director, American Institute of Food and Wine;
Chairman and President, Oldways Preservation and
Exchange Trust (education); former Chairman of the
Board, Director, and Executive Vice President, The
London Harness Company; former Managing Partner,
Roscommon Capital Corp.; former Chief Executive
Officer, Gifford Gifts of Fine Foods; former
Chairman, Gifford, Drescher & Associates
(environmental consulting); and former Director,
Keystone Investments, Inc.

James S. Howell Chairman of the Former Chairman of the Distribution Foundation for
(DOB: 8/13/24) Board of Trustees the Carolinas; and former Vice President of Lance
Inc. (food manufacturing).

Leroy Keith, Jr. Trustee Chairman of the Board and Chief Executive Officer,
(DOB: 2/14/39) Carson Products Company; Director of Phoenix Total
Return Fund and Equifax, Inc.; Trustee of Phoenix
Series Fund, Phoenix Multi-Portfolio Fund, and The
Phoenix Big Edge Series Fund; and former President,
Morehouse College.

Gerald M. McDonnell Trustee Sales Representative with Nucor-Yamoto, Inc.
(DOB: 7/14/39) (steel producer).

Thomas L. McVerry Trustee Former Vice President and Director of Rexham
(DOB: 8/2/39) Corporation; and former Director of Carolina
Cooperative Federal Credit Union.

*William Walt Pettit Trustee Partner in the law firm of William Walt Pettit, P.A.
(DOB: 8/26/55)

David M. Richardson Trustee Vice Chair and former Executive Vice President,
(DOB: 9/14/41) DHR International, Inc. (executive recruitment);
former Senior Vice President, Boyden International
Inc. (executive recruitment); and Director,
Commerce and Industry Association of New
Jersey, 411 International, Inc., and J&M Cumming
Paper Co.

Russell A. Salton, III MD Trustee Medical Director, U.S. Health Care/Aetna Health
(DOB: 6/2/47) Services; former Managed Health Care Consultant;
and former President, Primary Physician Care.
Michael S. Scofield Trustee Attorney, Law Offices of Michael S. Scofield.
(DOB: 2/20/43)

<PAGE>

NAME POSITION WITH TRUST PRINCIPAL OCCUPATIONS FOR LAST FIVE YEARS
- ------------------------------- -------------------------- -------------------------------------------------------------
Richard J. Shima Trustee Former Chairman, Environmental Warranty, Inc.
(DOB: 8/11/39) (insurance agency); Executive Consultant, Drake
Beam Morin, Inc. (executive outplacement); Director
of Connecticut Natural Gas Corporation, Hartford
Hospital, Old State House Association, Middlesex
Mutual Assurance Company, and Enhance Financial
Services, Inc.; Chairman, Board of Trustees,
Hartford Graduate Center; Trustee, Greater Hartford
YMCA; former Director, Vice Chairman and Chief
Investment Officer, The Travelers Corporation;
former Trustee, Kingswood-Oxford School; and former
Managing Director and Consultant, Russell Miller,
Inc.

William J. Tomko** President and Senior Vice President and Operations Executive,
(DOB:8/30/58) Treasurer BYSIS Fund Services.

George O. Martinez** Secretary Senior Vice President and Director of
(DOB: 3/11/59) Administration and Regulatory Services, BISYS
Fund Services; Vice President/Assistant General
Counsel, Alliance Capital Management from 1988
to 1995.
</TABLE>

*This Trustee may be considered an interested trustee within the meaning
of the 1940 Act.
**Address: BISYS, 3435 Stelzer Road, Columbus, Ohio 43219-8001

The officers of the Trust are all officers and/or employees of BISYS
Fund Services.

Trustee Compensation

Listed below is the estimated Trustee compensation for the
twelve-month period ended February 28, 1998.

TRUSTEE COMPENSATION FROM COMPENSATION FROM
TRUST TRUST AND FUND
COMPLEX
Laurence B. Ashkin $6,896 $68,673
Charles A.Austin III $7,291 $43,312
K. Dun Gifford $6,509 $38,818
James S. Howell $9,585 $107,167
Leroy Keith Jr. $6,455 $39,218
Gerald M. McDonnell $9,552 $94,014
Thomas L. McVerry $9,303 $96,065

<PAGE>

TRUSTEE COMPENSATION FROM COMPENSATION FROM
TRUST TRUST AND FUND
COMPLEX
William Walt Pettit $9,090 $91,709
David M. Richardson $7,291 $43,312
Russell A. Salton,III $8,889 $93,651
Michael S. Scofield $9,046 $90,815
Richard J. Shima $7,659 $63,333

PRINCIPAL HOLDERS OF FUND SHARES

As of the date of this SAI, the officers and Trustees of the Trust
owned as a group less than 1% of the outstanding of any class of each Fund.

Set forth below is information with respect to each person who, to each
Fund's knowledge, owned beneficially or of record more than 5% of a class of a
Fund's outstanding shares as of December 30, 1997.

U.S. GOVERNMENT CLASS A

MLPF&S for the sole benefit 8.416%
of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Fl
Jacksonville, FL 32246-6484

U.S. GOVERNMENT CLASS B

None

U.S. GOVERNMENT CLASS C

MLPF&S for the sole benefit 21.313%
of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Fl
Jacksonville, FL 32246-6484

Geisinger Foundation 8.915%
c/o Marilyn Sierer
100 North Academy Ave.
Danville, PA 17821

<PAGE>

Patterson & Co. 8.419%
C/o Corestates Bank NA
P.O. Box 7829
Philadelphia, PA 19101-7829

U.S. GOVERNMENT CLASS Y

Wachovia Bank of Georgia 42.915%
Directed Ttee for First Union Corp
Non-qualified Retirement Plan
U/A DTD 8/31/94 Investment Act
301 N. Main St. MC-NC 31051
Winston Salem, NC 27101-3819

First Union National Bank 31.211%
Trust Accounts
Attn: Ginny Batten
11th Fl CMG-151
301 S. Tyron St.
Charlotte, NC 28288

First Union National Bank 13.474%
Trust Accounts
Attn: Ginny Batten
11th Fl CMG-151
301 S. Tyron St.
Charlotte, NC 28288

Wachovia Bank of Georgia Ttee 10.777%
First Union Corp Retirement Trust
For Non Employee Directors
10/24/94
301 N. Main St. MC-NC 31051
Winston Salem, NC 27101-3819

STRATEGIC CLASS A

MLPF&S for the sole benefit 13.276%
of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Fl
Jacksonville, FL 32246-6484

STRATEGIC CLASS B

MLPF&S for the sole benefit 13.046%
of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Fl
Jacksonville, FL 32246-6484

<PAGE>

STRATEGIC CLASS C

MLPF&S for the sole benefit 25.868%
of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Fl
Jacksonville, FL 32246-6484

STRATEGIC CLASS Y

First Union National Bank 65.670%
Re-Invest Account
Attn: Trust Operations Fund Group
401 South Tryon St. 3rd Fl
Charlotte, NC 28288-1151
First Union National Bank 23.586%

Cash Account
Attn: Trust Operations Fund Group
401 South Tryon St. 3rd Fl
Charlotte, NC 28288-1151

First Union Brokerage Services 10.742
William J. Grieco Sr
A/C 3877-5416
400 Fort Washington Ave.
Hawthorne, NY 10532

HIGH YIELD CLASS B

MLPF&S for the sole benefit 10.997%
of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Fl
Jacksonville, FL 32246-6484

DIVERSIFIED CLASS B

MLPF&S for the sole benefit 13.056%
of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Fl
Jacksonville, FL 32246-6484

INVESTMENT ADVISORY AND OTHER SERVICES

INVESTMENT ADVISER

The investment adviser to each Fund (the "Adviser") is a subsidiary of
First Union Corporation ("First Union"), a bank holding company headquartered at
201 South College Street, Charlotte, North Carolina 28288. First Union and its
subsidiaries provide a broad range of financial services to individuals and
businesses throughout the United States.

The Adviser to U.S. Government is the Capital Management Group ("CMG")
of First Union

<PAGE>

National Bank ("FUNB"), at the same address as First Union. The Adviser is
entitled to receive from the Fund an annual fee equal to 0.50% of the Fund's
average daily net assets.

The Adviser to Strategic, High Yield and Diversified is Keystone
Investment Management Company ("Keystone"). The Adviser is entitled to receive
from each Fund an annual fee equal to 2.0% of each Fund's gross dividend and
interest income plus 0.50% of the aggregate net asset value of each Fund's
shares, as follows: 0.50% of the first million dollars, plus 0.45% of the next
million, plus 0.40% of the next million, plus 0.35% of the next million, plus
0.30% of the next million, plus 0.25% of amounts over five million dollars, all
computed as of the close of business each day and payable monthly.

INVESTMENT ADVISORY AGREEMENTS

On behalf of each if its Funds, the Trust has entered into an
investment advisory agreement with the Adviser (the "Advisory Agreements") .
Under the Advisory Agreements, and subject to the supervision of the Trust's
Board of Trustees, the Adviser furnishes to the appropriate Fund investment
advisory, management and administrative services, office facilities, and
equipment in connection with its services for managing the investment and
reinvestment of the Fund's assets. The Adviser pays for all of the expenses
incurred in connection with the provision of its services. Each Fund pays for
all charges and expenses, other than those specifically referred to as being
borne by the Adviser, including, but not limited to, (1) custodian charges and
expenses; (2) bookkeeping and auditors' charges and expenses; (3) transfer agent
charges and expenses; (4) fees and expenses of Independent Trustees; (5)
brokerage commissions, brokers' fees and expenses; (6) issue and transfer taxes;
(7) costs and expenses under the Distribution Plan (as applicable) (8) taxes and
trust fees payable to governmental agencies; (9) the cost of share certificates;
(10) fees and expenses of the registration and qualification of such Fund and
its shares with the Securities and Exchange Commission or under state or other
securities laws; (11) expenses of preparing, printing and mailing prospectuses,
SAIs, notices, reports and proxy materials to shareholders of each Fund; (12)
expenses of shareholders' and Trustees' meetings; (13) charges and expenses of
legal counsel for each Fund and for the Independent Trustees of the Trust on
matters relating to such Fund; (14) charges and expenses of filing annual and
other reports with the Securities and Exchange Commission and other authorities;
and all extraordinary charges and expenses of such Fund. (See also the section
entitled "Financial Information.")

Each Advisory Agreement continues in effect for two years from its
effective date and, thereafter, from year to year only if approved at least
annually by the Board of Trustees of the Trust or by a vote of a majority of
each Fund's outstanding shares. In either case, the terms of the Advisory
Agreement and continuance thereof must be approved by the vote of a majority of
the Independent Trustees (Trustees who are not interested persons of a Fund, as
defined in the 1940 Act) cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreements may be terminated, without
penalty, on 60 days' written notice by the Trust's Board of Trustees or by a
vote of a majority of outstanding shares. Each Advisory Agreement will terminate
automatically upon its "assignment" as that term is defined in the 1940 Act.

Transactions Among Advisory Affiliates

The Trust has adopted procedures pursuant to Rule 17a-7 of the 1940 Act
("Rule 17a-7 Procedures"). The Rule 17a-7 Procedures permit a Fund to buy or
sell securities from another investment company for which a subsidiary of First
Union Corporation is an investment adviser. The

<PAGE>

Rule 17a-7 Procedures also allow the Funds to buy or sell securities from other
advisory clients for whom a subsidiary of First Union Corporation is an
investment adviser. The Funds may engage in such transaction if they are
equitable to each participant and consistent with each participant's investment
objective.

DISTRIBUTOR

Evergreen Distributor, Inc. (the "Distributor") markets the Funds
through broker-dealers and other financial representatives. Its address is 125
W. 55th Street, New York, NY 10019.

DISTRIBUTION PLANS AND AGREEMENTS

Distribution fees are accrued daily and paid monthly on Class A and
Class B shares and are charged as class expenses, as accrued. The distribution
fees attributable to the Class B shares are designed to permit an investor to
purchase such shares through broker-dealers without the assessment of a
front-end sales charge, while at the same time permitting the Distributor to
compensate broker-dealers in connection with the sale of such shares. In this
regard, the purpose and function of the combined contingent deferred sales
charge and distribution services fee on the Class B shares are the same as those
of the front-end sales charge and distribution fee with respect to the Class A
shares in that in each case the sales charge and/or distribution fee provide for
the financing of the distribution of the Fund's shares.

Under the Rule 12b-1 Distribution Plans that have been adopted by each
Fund with respect to each of its Class A and Class B shares (each a "Plan" and
collectively, the "Plans"), the Treasurer of each Fund reports the amounts
expended under the Plans and the purposes for which such expenditures were made
to the Trustees of the Trust for their review on a quarterly basis. Also, each
Plan provides that the selection and nomination of the disinterested Trustees
are committed to the discretion of such disinterested Trustees then in office.

The Adviser may from time to time from its own funds or such other
resources as may be permitted by rules of the SEC make payments for distribution
services to the Distributor; the latter may in turn pay part or all of such
compensation to brokers or other persons for their distribution assistance.

Each Plan and Distribution Agreement will continue in effect for
successive twelve-month periods provided, however, that such continuance is
specifically approved at least annually by the Trustees of the Trust or by vote
of the holders of a majority of the outstanding voting securities of that class
and, in either case, by a majority of the Independent Trustees of the Trust who
have no direct or indirect financial interest in the operation of the Plan or
any agreement related thereto.

The Plans permit the payment of fees to brokers and others for
distribution and shareholder-related administrative services and to
broker-dealers, depository institutions, financial intermediaries and
administrators for administrative services as to Class A and Class B shares. The
Plans are designed to (i) stimulate brokers to provide distribution and
administrative support services to each Fund and holders of Class A and Class B
shares and (ii) stimulate administrators to render administrative support
services to the Fund and holders of Class A and Class B shares. The
administrative services are provided by a representative who has knowledge of
the shareholder's particular circumstances and goals, and include, but are not
limited to providing office space, equipment, telephone facilities, and various
personnel including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client

<PAGE>

account cash balances; answering routine client inquiries regarding Class A and
Class B shares; assisting clients in changing dividend options, account
designations, and addresses; and providing such other services as the Fund
reasonably requests for its Class A and Class B shares.

FUNB or its affiliates may finance the payments made by the Distributor
to compensate broker-dealers or other persons for distributing shares of a Fund.

In the event that a Plan or Distribution Agreement is terminated or not
continued with respect to one or more Classes of a Fund, (i) no distribution
fees (other than current amounts accrued but not yet paid) would be owed by the
Fund to the Distributor with respect to that Class or Classes, and (ii) the Fund
would not be obligated to pay the Distributor for any amounts expended under the
Distribution Agreement not previously recovered by the Distributor from
distribution services fees in respect of shares of such Class or Classes through
deferred sales charges.

All material amendments to any Plan or Distribution Agreement must be
approved by a vote of the Trustees of the Trust or the holders of the Fund's
outstanding voting securities, voting separately by Class, and in either case,
by a majority of the disinterested Trustees, cast in person at a meeting called
for the purpose of voting on such approval; and any Plan or Distribution
Agreement may not be amended in order to increase materially the costs that a
particular Class of shares of a Fund may bear pursuant to the Plan or
Distribution Agreement without the approval of a majority of the holders of the
outstanding voting shares of the Class affected. Any Plan or Distribution
Agreement may be terminated (i) by a Fund without penalty at any time by a
majority vote of the holders of the outstanding voting securities of the Fund,
voting separately by Class or by a majority vote of the disinterested Trustees,
or (ii) by the Distributor. To terminate any Distribution Agreement, any party
must give the other parties 60 days' written notice; to terminate a Plan only,
the Fund need give no notice to the Distributor. Any Distribution Agreement will
terminate automatically in the event of its assignment. (See also the section
entitled "Financial Information.")

ADDITIONAL SERVICE PROVIDERS

Administrator

Evergreen Investment Services, Inc. ("EIS") serves as administrator to
the U.S. Government Fund, subject to the supervision and control of the Trust's
Board of Trustees. EIS provides the Funds with facilities, equipment and
personnel and is entitled to receive a fee from the Fund based on the total
assets of all mutual funds advised by First Union subsidiaries. The fee paid to
EIS is calculated in accordance with the following schedule: 0.050% on the first
$7 billion; 0.035% on the next $3 billion; 0.030% on the next $5 billion; 0.020%
on the next $10 billion; 0.015% on the next $5 billion and 0.010% on assets in
excess of $30 billion.

Transfer Agent

Evergreen Service Company ("ESC"), a subsidiary of First Union
Corporation, is the Funds' transfer agent. The transfer agent issues and redeems
shares, pays dividends and performs other duties in connection with the
maintenance of shareholder accounts. The transfer agent's address is Box 2121,
Boston, Massachusetts 02106-2121.

Independent Auditors

<PAGE>

KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110,
audits the annual financial statements of each Fund.

Custodian

State Street Bank and Trust Company is the Funds' custodian. The bank
keeps custody of each Fund's securities and cash and performs other related
duties. The custodian's address is 225 Franklin Street, Boston, Massachusetts
02110.

Legal Counsel

Sullivan & Worcester LLP provides legal advice to the Funds. Its
address is 1025 Connecticut Avenue, N.W., Washington, D.C. 20036.

BROKERAGE

SELECTION OF BROKERS

In effecting transactions in portfolio securities for each Fund, the
Adviser seeks the best execution of orders at the most favorable prices. The
Adviser determines whether a broker has provided each Fund with best execution
and price in the execution of a securities transaction by evaluating, among
other things, the broker's ability to execute large or potentially difficult
transactions, and the financial strength and stability of the broker.

BROKERAGE COMMISSIONS

Each Fund expects to buy and sell its fixed-income securities through
principal transactions, that is, directly from the issuer or from an underwriter
or market maker for the securities. Generally, a Fund will not pay brokerage
commissions for such purchases. Usually, when a Fund buys a security from an
underwriter, the purchase price will include underwriting commission or
concession. The purchase price for securities bought from dealers serving as
market makers will similarly include the dealer's mark up or reflect a dealer's
mark down. When a Fund executes transactions in the over-the-counter market, it
will deal with primary market makers unless more favorable prices are otherwise
obtainable.

GENERAL BROKERAGE POLICIES

The Adviser makes investment decisions for each Fund independently from
those of its other clients. It may frequently develop, however, that the Adviser
will make the same investment decision for more than one client. Simultaneous
transactions are inevitable when the same security is suitable for the
investment objective of more than one account. When two or more of its clients
are engaged in the purchase or sale of the same security, the Adviser will
allocate the transactions according to a formula that is equitable to each of
its clients. Although, in some cases, this system could have a detrimental
effect on the price or volume of a Fund's securities, each Fund believes that in
other cases its ability to participate in volume transactions will produce
better executions. In order to take advantage of the availability of lower
purchase prices, the Funds may occasionally participate in group bidding for the
direct purchase from an issuer of certain securities.

<PAGE>

The Board of Trustees periodically reviews each Fund's brokerage
policy. Because of the possibility of further regulatory developments affecting
the securities exchanges and brokerage practices generally, the Board of
Trustees may change, modify or eliminate any of the foregoing practices.

TRUST ORGANIZATION

FORM OF ORGANIZATION

Each Fund is a series of an open-end management investment company,
known as "Evergreen Fixed Income Trust" (the "Trust"). The Trust was formed as a
Delaware business trust on September 17, 1997 (the "Declaration of Trust"). A
copy of the Declaration of Trust is on file as an exhibit to the Trust's
Registration Statement, of which this SAI is a part. This summary is qualified
in its entirety by reference to the Declaration of Trust.

DESCRIPTION OF SHARES

The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of series and classes of shares. Each share of
each Fund represents an equal proportionate interest with each other share of
that series and/or class. Upon liquidation, shares are entitled to a pro rata
share of the Trust based on the relative net assets of each series and/or class.
Shareholders have no preemptive or conversion rights. Shares are redeemable and
transferable.

VOTING RIGHTS

Under the terms of the Declaration of Trust, the Trust is not required
to hold annual meetings. At meetings called for the initial election of Trustees
or to consider other matters, each share is entitled to one vote for each dollar
of net asset value applicable to such share. Shares generally vote together as
one class on all matters. Classes of shares of each Fund have equal voting
rights. No amendment may be made to the Declaration of Trust that adversely
affects any class of shares without the approval of a majority of the votes
applicable to the shares of that class. Shares have non-cumulative voting
rights, which means that the holders of more than 50% of the votes applicable to
shares voting for the election of Trustees can elect 100% of the Trustees to be
elected at a meeting and, in such event, the holders of the remaining 50% or
less of the shares voting will not be able to elect any Trustees.

After the initial meeting as described above, no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law, unless and until such time as less than a majority of the Trustees
holding office have been elected by shareholders, at which time, the Trustees
then in office will call a shareholders' meeting for the election of Trustees.

LIMITATION OF TRUSTEES' LIABILITY

The Declaration of Trust provides that a Trustee will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties involved in the conduct of his office.

<PAGE>

PURCHASE, REDEMPTION AND PRICING OF SHARES

HOW THE FUNDS OFFER SHARES TO THE PUBLIC

You may buy shares of a Fund through the Distributor, broker-dealers
that have entered into special agreements with the Distributor or certain other
financial institutions. Each Fund offers four classes of shares that differ
primarily with respect to sales charges and distribution fees. Depending upon
the class of shares, you will pay an initial sales charge when you buy a Fund's
shares, a contingent deferred sales charge (a "CDSC") when you redeem a Fund's
shares or no sales charges at all.

Class A Shares

With certain exceptions, when you purchase Class A shares you will pay
a maximum sales charge of 4.75%. (The prospectus contains a complete table of
applicable sales charges and a discussion of sales charge reductions or waivers
that may apply to purchases. See also the section in this SAI entitled
"Financial Information" for an example of the method of computing the offering
price of Class A shares.) If you purchase Class A shares in the amount of $1
million or more, without an initial sales charge, the Funds will charge a CDSC
of 1.00% if you redeem during the month of your purchase and the 12-month period
following the month of your purchase (see "Contingent Deferred Sales Charge",
below).

Class B Shares

The Funds offer Class B shares at net asset value without an initial
sales charge. With certain exceptions, however, the Funds will charge a CDSC on
shares you redeem within 72 months after the month of your purchase, in
accordance with the following schedule:

REDEMPTION TIMING CDSC RATE

Month of purchase and the first twelve-month
period following the month of purchase..................5.00%
Second twelve-month period following the month of purchase.......4.00%
Third twelve-month period following the month of purchase........3.00%
Fourth twelve-month period following the month of purchase.......3.00%
Fifth twelve-month period following the month of purchase........2.00%
Sixth twelve-month period following the month of purchase........1.00%
Thereafter.......................................................0.00%

If you redeem shares purchased after January 1, 1995, but before
January 9, 1998, you will pay a CDSC according to the schedule in effect during
that period.

Class B shares that have been outstanding for seven years after the
month of purchase will automatically convert to Class A shares without
imposition of a front-end sales charge or exchange fee. (Conversion of Class B
shares represented by stock certificates will require the return of the stock
certificate to ESC.)

Class C Shares

Class C shares are available only through broker-dealers who have
entered into special

<PAGE>

distribution agreements with the Distributor. The Funds offer Class C shares at
net asset value without an initial sales charge. With certain exceptions,
however, the Funds will charge a CDSC of 1.00% on shares you redeem within
12-months after the month of your purchase. See "Contingent Deferred Sales
Charge" below.

Class Y Shares

No CDSC is imposed on the redemption of Class Y shares. Class Y shares
are not offered to the general public and are available only to (1) persons who
at or prior to December 31, 1994 owned shares in a mutual fund advised by
Evergreen Asset Management Corp. ("Evergreen Asset"), (2) certain institutional
investors and (3) investment advisory clients of CMG, Evergreen Asset, Keystone
Investment Management Company, or their affiliates. Class Y shares are offered
at net asset value without a front-end or back-end sales charge and do not bear
any Rule 12b-1 distribution expenses.

CONTINGENT DEFERRED SALES CHARGE

The Funds charge a CDSC as reimbursement for certain expenses, such as
commissions or shareholder servicing fees, that it has incurred in connection
with the sale of its shares (see "Distribution Plans and Agreements," above). If
imposed, the Funds deduct the CDSC from the redemption proceeds you would
otherwise receive. The CDSC is a percentage of the lesser of (1) the net asset
value of the shares at the time of redemption or (2) the shareholder's original
net cost for such shares. Upon request for redemption, to keep the CDSC a
shareholder must pay as low as possible, a Fund will first seek to redeem shares
not subject to the CDSC and/or shares held the longest, in that order. The CDSC
on any redemption is, to the extent permitted by the National Association of
Securities Dealers, Inc. ("NASD"), paid to the Distributor or its predecessor.

SALES CHARGE WAIVERS OR REDUCTIONS

Reducing Class A Front-end Loads

With a larger purchase, there are several ways that you can combine
multiple purchases of Class A shares in Evergreen funds and take advantage of
lower sales charges.

Combined Purchases

You can reduce your sales charge by combining purchases of Class A
shares of multiple Evergreen funds. For example, if you invested $75,000 in each
of two different Evergreen funds, you would pay a sales charge based on a
$150,000 purchase (i.e., 3.75% of the offering price, rather than 4.75%).

Rights of Accumulation

You can reduce your sales charge by adding the value of Class A shares
of Evergreen funds you already own to the amount of your next Class A
investment. For example, if you hold Class A shares valued at $99,999 and
purchase an additional $5,000, the sales charge for the $5,000 purchase would be
at the next lower sales charge of 3.75%, rather than 4.75%.

<PAGE>

Letter of Intent

You can, by completing the "Letter of Intent" section of the
application, purchase Class A shares over a 13-month period and receive the same
sales charge as if you had invested all the money at once. All purchases of
Class A shares of an Evergreen fund during the period will qualify as Letter of
Intent purchases.

Waiver of Initial Sales Charges

The Funds may sell their shares at net asset value without an initial
sales charge to:

1. purchases of shares in the amount of $1 million or more;

2. a corporate or certain other qualified retirement plan or a
non-qualified deferred compensation plan or a Title 1 tax
sheltered annuity or TSA plan sponsored by an organization
having 100 or more eligible employees (a "Qualifying Plan") or
a TSA plan sponsored by a public educational entity having
5,000 or more eligible employees (an "Educational TSA Plan");

3. institutional investors, which may include bank trust
departments and registered investment advisers;

4. investment advisers, consultants or financial planners who
place trades for their own accounts or the accounts of their
clients and who charge such clients a management, consulting,
advisory or other fee;

5. clients of investment advisers or financial planners who place
trades for their own accounts if the accounts are linked to
master account of such investment advisers or financial
planners on the books of the broker-dealer through whom shares
are purchased;

6. institutional clients of broker-dealers, including retirement
and deferred compensation plans and the trusts used to fund
these plans, which place trades through an omnibus account
maintained with a Fund by the broker-dealer;

7. employees of FUNB, its affiliates, Evergreen Distributor,
Inc., any broker-dealer with whom Evergreen Distributor, Inc.,
has entered into an agreement to sell shares of the Funds, and
members of the immediate families of such employees;

8. certain Directors, Trustees, officers and employees of the
Evergreen Funds, the Distributor or their affiliates and to
the immediate families of such persons; or

9. a bank or trust company in a single account in the name of
such bank or trust company as trustee if the initial
investment in or any Evergreen fund made pursuant to this
waiver is at least $500,000 and any commission paid at the
time of such purchase is not more than 1% of the amount
invested.

With respect to items 8 and 9 above, each Fund will only sell shares to
these parties upon the purchasers written assurance that the purchase is for
their personal investment purposes only. Such purchasers may not resell the
securities except through redemption by the Fund. The Funds will not charge any
CDSC on redemptions by such purchasers.

<PAGE>

Waiver of CDSCS

The Funds do not impose a CDSC when the shares you are redeeming
represent:

1. an increase in the share value above the net cost of such
shares;

2. certain shares for which the Fund did not pay a commission on
issuance, including shares acquired through reinvestment of
dividend income and capital gains distributions;

3. shares that are in the accounts of a shareholder who has died
or become disabled;

4. a lump-sum distribution from a 401(k) plan or other benefit
plan qualified under the Employee Retirement Income Security
Act of 1974 ("ERISA");

5. an automatic withdrawal from the ERISA plan of a shareholder
who is a least 59 1/2 years old;

6. shares in an account that we have closed because the account
has an aggregate net asset value of less than $1,000;

7. an automatic withdrawal under an Systematic Income Plan of up
to 1.0% per month of your initial account balance;

8. a withdrawal consisting of loan proceeds to a retirement plan
participant;

9. a financial hardship withdrawals made by a retirement plan
participant;

10. a withdrawal consisting of returns of excess contributions or
excess deferral amounts made to a retirement plan; or

11. a redemption by an individual participant in a Qualifying Plan
that purchased Class C shares (this waiver is not available in
the event a Qualifying Plan, as a whole, redeems substantially
all of its assets).

EXCHANGES

Investors may exchange shares of a Fund for shares of the same class of
any other Evergreen fund, as described under the section entitled "Exchanges" in
a Fund's prospectus. Before you make an exchange, you should read the prospectus
of the Evergreen fund into which you want to exchange. The Trust's Board of
Trustees reserves the right to discontinue, alter or limit the exchange
privilege at any time.

CALCULATION OF NET ASSET VALUE PER SHARE ("NAV")

Each Fund computes its NAV once daily on Monday through Friday, as
described in the Prospectus. A Fund will not compute its NAV on the day the
following legal holidays are observed: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.

The NAV of each Fund is calculated by dividing the value of a Fund's
net assets attributable

<PAGE>

to that class by all of the shares issued for that class.

VALUATION OF PORTFOLIO SECURITIES

Current values for a Fund's portfolio securities are determined as
follows:

(1) Securities that are traded on a national securities exchange or the
over-the-counter National Market System ("NMS") are valued on the basis of the
last sales price on the exchange where primarily traded or on the NMS prior to
the time of the valuation, provided that a sale has occurred.

(2) Securities traded in the over-the-counter market, other than on
NMS, are valued at the mean of the bid and asked prices at the time of
valuation.

(3) Short-term investments maturing in more than sixty days for which
market quotations are readily available, are valued at current market value.

(4) Short-term investments maturing in sixty days or less (including
all master demand notes) are valued at amortized cost (original purchase cost as
adjusted for amortization of premium or accretion of discount), which, when
combined with accrued interest, approximates market.

(5) Short-term investments maturing in more than sixty days when
purchased that are held on the sixtieth day prior to maturity are valued at
amortized cost (market value on the sixtieth day adjusted for amortization of
premium or accretion of discount), which, when combined with accrued interest,
approximates market.

(6) Securities, including restricted securities, for which complete
quotations are not readily available; listed securities or those on NMS if, in
the Fund's opinion, the last sales price does not reflect a current market value
or if no sale occurred; and other assets are valued at prices deemed in good
faith to be fair under procedures established by the Board of Trustees.

SHAREHOLDER SERVICES

As described in the prospectus, a shareholder may elect to receive
their dividends and capital grains distributions in cash instead of shares.
However, ESC will automatically convert a shareholder's distribution option so
that the shareholder reinvests all dividends and distributions in additional
shares when it learns that the postal or other delivery service is unable to
deliver checks or transaction confirmations to the shareholder's address of
record. The Funds will hold the returned distribution or redemption proceeds in
a non interest-bearing account in the shareholder's name until the shareholder
updates their address. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.

PRINCIPAL UNDERWRITER

The Distributor is the principal underwriter for the Trust and with
respect to each class of each Fund. The Trust has entered into a Principal
Underwriting Agreement ( "Underwriting Agreement") with the Distributor with
respect to each class of each Fund. The Distributor is a subsidiary of The BISYS
Group, Inc.

<PAGE>

The Distributor, as agent, has agreed to use its best efforts to find
purchasers for the shares. The Distributor may retain and employ representatives
to promote distribution of the shares and may obtain orders from broker-dealers,
and others, acting as principals, for sales of shares to them. The Underwriting
Agreement provides that the Distributor will bear the expense of preparing,
printing, and distributing advertising and sales literature and prospectuses
used by it.

All subscriptions and sales of shares by the Distributor are at the
public offering price of the shares, which is determined in accordance with the
provisions of the Trust's Declaration of Trust, By-Laws, current prospectuses
and SAI. All orders are subject to acceptance by the Trust and the Trust
reserves the right, in its sole discretion, to reject any order received. Under
the Underwriting Agreement, the Trust is not liable to anyone for failure to
accept any order.

The Distributor has agreed that it will, in all respects, duly conform
with all state and federal laws applicable to the sale of the shares. The
Distributor has also agreed that it will indemnify and hold harmless the Trust
and each person who has been, is, or may be a Trustee or officer of the Trust
against expenses reasonably incurred by any of them in connection with any
claim, action, suit, or proceeding to which any of them may be a party that
arises out of or is alleged to arise out of any misrepresentation or omission to
state a material fact on the part of the Distributor or any other person for
whose acts the Distributor is responsible or is alleged to be responsible,
unless such misrepresentation or omission was made in reliance upon written
information furnished by the Trust.

The Underwriting Agreement provides that it will remain in effect as
long as its terms and continuance are approved annually (i) by a vote of a
majority of the Trust's Independent Trustees, and (ii) by vote of a majority of
the Trust's Trustees, in each case, cast in person at a meeting called for that
purpose.

The Underwriting Agreement may be terminated, without penalty, on 60
days' written notice by the Board of Trustees or by a vote of a majority of
outstanding shares subject to such agreement. The Underwriting Agreement will
terminate automatically upon its "assignment," as that term is defined in the
1940 Act.

From time to time, if, in the Distributor's judgment, it could benefit
the sales of shares, the Distributor may provide to selected broker-dealers
promotional materials and selling aids, including, but not limited to, personal
computers, related software, and data files.

ADDITIONAL TAX INFORMATION

REQUIREMENTS FOR QUALIFICATION AS A REGISTERED INVESTMENT COMPANY

Each Fund intends to qualify for and elect the tax treatment
applicable to regulated investment companies ("RIC") under Subchapter M of the
Code. (Such qualification does not involve supervision of management or
investment practices or policies by the Internal Revenue Service.) In order to
qualify as a RIC, a Fund must, among other things, (i) derive at least 90% of
its gross income from dividends, interest, payments with respect to proceeds
from securities loans, gains from the sale or other disposition of securities or
foreign currencies and other income (including gains from options, futures or
forward contracts) derived with respect to its business of investing in such
securities; (ii) derive less than 30% of its gross income from the sale or other
disposition of securities, options, futures or forward contracts (other than
those on

<PAGE>

foreign currencies), or foreign currencies (or options, futures or forward
contracts thereon) that are not directly related to the RIC's principal business
of investing in securities (or options and futures with respect thereto) held
for less than three months (this requirement is repealed for Fund fiscal years
beginning after August 5, 1997); and (iii) diversify its holdings so that, at
the end of each quarter of its taxable year, (a) at least 50% of the market
value of the Fund's total assets is represented by cash, U.S. Government
securities and other securities limited in respect of any one issuer, to an
amount not greater than 5% of the Fund's total assets and 10% of the outstanding
voting securities of such issuer, and (b) not more than 25% of the value of its
total assets is invested in the securities of any one issuer (other than U.S.
Government securities and securities of other regulated investment companies).
By so qualifying, a Fund is not subject to federal income tax if it timely
distributes its investment company taxable income and any net realized capital
gains. A 4% nondeductible excise tax will be imposed on a Fund to the extent it
does not meet certain distribution requirements by the end of each calendar
year. Each Fund anticipates meeting such distribution requirements.

TAXES ON DISTRIBUTIONS

Distributions will be taxable to shareholders whether made in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share of a Fund on the
reinvestment date.

To calculate ordinary income for federal income tax purposes,
shareholders must generally include dividends paid by the Fund from its
investment company taxable income (net investment income plus net realized
short-term capital gains, if any). Each Fund will include dividends it receives
from domestic corporations when the Fund calculates its gross investment income.
Each Fund anticipates that some of such dividends will qualify for the 70%
dividends-received deduction for corporations. Each Fund will inform
shareholders of the amounts that so qualify. Short-term capital gains are not
eligible for the dividends-received deduction.

From time to time, the Fund will distribute the excess of its net
long-term capital gains over its short-term capital loss to shareholders. For
federal tax purposes, shareholders must include such distributions when
calculating their long-term capital gains. Distributions of long-term capital
gains are taxable as such to a shareholder, no matter how long the shareholder
has held the shares.

Distributions by a Fund reduce its NAV. A distribution that reduces the
Fund's NAV below a shareholder's cost basis is taxable as described above,
although from an investment standpoint, it is a return of capital. In
particular, if a shareholder buys Fund shares just before the Fund makes a
distribution, when the Fund makes the distribution the shareholder will receive
what is in effect a return of capital. Nevertheless, the shareholder must pay
taxes on the distribution. Therefore, shareholders should carefully consider the
tax consequences of buying Fund shares just before a distribution.

All distributions, whether received in shares or cash, must be reported
by each shareholder on his or her federal income tax return. Each shareholder
should consult his or her own tax adviser to determine the state and local tax
implications of Fund distributions.

If more than 50% of the value of a Fund's total assets at the end of a
fiscal year is represented by securities of foreign corporations and a Fund
elects to make foreign tax credits available to its shareholders, a shareholder
will be required to include in his gross income both cash

<PAGE>

dividends and the amount the Fund advises him is his pro rata portion of income
taxes withheld by foreign governments from interest and dividends paid on a
Fund's investments. The shareholder will be entitled, however, to take the
amount of such foreign taxes withheld as a credit against his U.S. income tax,
or to treat the foreign tax withheld as an itemized deduction from his gross
income, if that should be to his advantage. In substance, this policy enables
the shareholder to benefit from the same foreign tax credit or deduction that he
would have received if he had been the individual owner of foreign securities
and had paid foreign income tax on the income therefrom. As in the case of
individuals receiving income directly from foreign sources, the credit or
deduction is subject to a number of limitations.

TAXES ON THE SALE OR EXCHANGE OF FUND SHARES

Upon a sale or exchange of Fund shares, a shareholder will realize a
taxable gain or loss depending on his or her basis in the shares. A shareholder
must treat such gains or losses as a capital gain or loss if the shareholder
held the shares as capital assets. Capital gain on assets held for more than
eighteen months is generally subject to a maximum federal income tax rate of 20%
for an individual. The maximum capital gains tax rate for capital assets held by
an individual for more than twelve months but not more than eighteen months is
generally 28%. Also, a shareholder must treat as long-term capital gains or
losses any capital gains or losses on Fund shares held for more than one year.
Generally, the Code will not allow a shareholder to realize a loss on shares he
or she has sold or exchanged and replaced within a sixty-one-day period
beginning thirty days before and ending thirty days after he or she sold or
exchanged the shares. The Code will not allow a shareholder to realize a loss on
the sale of Fund shares held by the shareholder for six months or less to the
extent the shareholder received exempt interest dividends on such shares.
Moreover, the Code will treat a shareholder's loss on shares held for six months
or less as a long-term capital loss to the extent the shareholder received
distributions of net capital gains on such shares.

Shareholders who fail to furnish their taxpayer identification numbers
to a Fund and to certify as to its correctness and certain other shareholders
may be subject to a 31% federal income tax backup withholding requirement on
dividends, distributions of capital gains and redemption proceeds paid to them
by the Fund. If the withholding provisions are applicable, any such dividends or
capital gain distributions to these shareholders, whether taken in cash or
reinvested in additional shares, and any redemption proceeds will be reduced by
the amounts required to be withheld. Investors may wish to consult their own tax
advisers about the applicability of the backup withholding provisions.

OTHER TAX CONSIDERATIONS

The foregoing discussion relates solely to U.S. federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
domestic corporations, partnerships, trusts and estates). It does not reflect
the special tax consequences to certain taxpayers (e.g., banks, insurance
companies, tax exempt organizations and foreign persons). Shareholders are
encouraged to consult their own tax advisers regarding specific questions
relating to federal, state and local tax consequences of investing in shares of
a Fund. Each shareholder who is not a U.S. person should consult his or her tax
adviser regarding the U.S. and foreign tax consequences of ownership of shares
of a Fund, including the possibility that such a shareholder may be subject to a
U.S. withholding tax at a rate of 30% (or at a lower rate under a tax treaty) on
amounts treated as income from U.S. sources under the Code.

23375
30

<PAGE>

FINANCIAL INFORMATION

Expenses

The table below shows the total dollar amounts paid by each Fund for
services rendered during the fiscal years or periods specified. For more
information on specific expenses, see "Investment Advisory and Other Services,"
"Distribution Plans and Agreements," "Principal Underwriter" and "Purchase,
Redemption and Pricing of Shares."

1997 FUND EXPENSES
<TABLE>
<CAPTION>
Total Underwriting
Class A Class B Class C Underwriting Commissions
FUND Advisory Fees 12b-1 Fees 12b-1 Fees 12b-1 Fees Commissions Retained
======================== =================== ============== ================ ================ ================ ================
<S> <C> <C> <C> <C> <C> <C>
U.S. Government (1) $1,258,319 $39,780 $975,522 $4,490 $32,391 $3,999
Strategic (2) $1,017,082 $112,916 $663,982 $161,499 $133,622 $9,140
High Yield (3) $3,259,222 -- $5,686,181* -- $4,909,107 $4,122,547
- ------------------------ ------------------- -------------- --------------- --------------- ---------------- ----------------
Diversified (4) $2,835,152 -- $5,106,010* -- $612,244 $3,159
======================== =================== ============== ================ ================ ================ ================
</TABLE>

(1) Ten months ended 4/30/97 (2) Nine months ended 4/30/97 (3) Year ended
7/31/97 (4) Year ended 8/31/97
*Not multiple class during this period; amount reflects all 12b-1 fees.

1996 FUND EXPENSES
<TABLE>
<CAPTION>
Total Underwriting
Class A Class B Class C Underwriting Commissions
FUND Advisory Fees 12b-1 Fees 12b-1 Fees 12b-1 Fees Commissions Retained
======================== ================== =============== ================ ================ ================ ================
<S> <C> <C> <C> <C> <C> <C>
U.S. Government (1) $1,507,281 $53,238 $1,374,856 $3,646 $159,666 $16,558
Strategic (2) $1,663,669 $181,536 $1,399,711 $390,758 $123,058 $10,574
High Yield (2) $3,788,171 -- $6,747,276* -- $6,747,276 $3,208,491
Diversified (3) $3,481,728 -- $6,610,025* -- $5,596,658 $4,615,371
======================== ================== =============== ================ ================ ================ ================
</TABLE>

(1) Year ended 6/30/96 (2) Year ended 7/31/96 (3) Year ended 8/31/96
*Not multiple class during this period; amount reflects all 12b-1 fees.

1995 FUND EXPENSES
Total Underwriting
Underwriting Commissions
FUND Advisory Fees Commissions Retained
========================= ================= =============== ===============
U.S. Government (1) $575,771 $104,303* $3,599*
Strategic (2) $1,954,412 $2,484,230 $1,345,124

23375
31

<PAGE>

1995 FUND EXPENSES
Total Underwriting
Underwriting Commissions
FUND Advisory Fees Commissions Retained
========================= ================= =============== ===============
High Yield (2) $3,788,171 $7,116,706 $4,444,407
Diversified (3) $3,982,976 $6,676,954 $5,231,567
========================= ================= =============== ===============

(1) Six months ended 6/30/95 (2) Year ended 7/31/95 (3) Year ended 8/31/95 *
1/1/95 to 7/7/95

Brokerage Commissions Paid

Below are brokerage commissions paid by each Fund for the last three fiscal
years or periods.

FUND 1997 1996 1995
====================== =================== ================ ==============
U.S. Government $6,838(1) 0 (2) $10(3)
Strategic $2,864(4) $35,599 (5) $30,894 (5)
High Yield $3,488(5) $275,207 (5) $9,302 (5)
====================== =================== ================ ==============
Diversified 0 (6) 0 (6) 0 (6)
====================== =================== ================ ==============

(1) Ten months ended 4/30/97 (2) Year ended 6/30/96 (3) Six months ended 6/30/95
(4) Nine months ended 4/30/97 (5) Year ended 7/31 of each year (6) Year ended
8/31 of each year

Performance

Total Return

Total return quotations for a class of shares of a Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment all dividends and distributions are added, and all recurring fees
charged to all shareholder accounts are deducted. The ending redeemable value
assumes a complete redemption at the end of the relevant periods.

The annual total returns for each Fund (including applicable sales
charges) as of April 30, 1997 for U.S. Government and Strategic, July 31, 1997
for High Yield and August 31, 1997 for Diversified are as follows:

23375
32

<PAGE>

TEN YEARS OR
SINCE INCEPTION
ONE YEAR FIVE YEARS INCEPTION DATE
U.S. GOVERNMENT
Class A 1.32% -- 4.30% 1/11/93
Class B 0.60% -- 4.42% 1/11/93
Class C 4.58% -- 6.18% 9/2/94
Class Y 6.63% -- 4.75% 9/2/93
STRATEGIC
Class A 4.08% 8.44% 6.87% 4/14/87
Class B 3.48% -- 7.11% 2/1/93
Class C 7.49% -- -- --
Class Y -- -- -- 1/13/97
HIGH YIELD
Class B 12.32% 8.15% 6.36% 7/15/35
DIVERSIFIED 9.25% 6.55% 7.16% 9/11/35
Class B
================== ============= ============= ================ =============

Yield

From time to time, a Fund may quote its yield in advertisements or in
reports or other communications to shareholders. Yield quotations are expressed
in annualized terms and may be quoted on a compounded basis. Yields are computed
by dividing the Fund's interest income (as defined in the Securities & Exchange
Commission yield formula) for a given 30-day or one month period, net of
expenses, by the average number of shares entitled to receive distributions
during the period, dividing this figure by the Fund's net asset value per share
at the end of the period and annualizing the result (assuming compounding of
income) in order to arrive at an annual percentage rate. The formula for
calculating yield is as follows:

YIELD = 2[(A-B+1)6-1]
cd

Where a = Dividends and interest earned during the period
b = Expenses accrued for the period (net of reimbursements)
c = The average daily number of shares outstanding during the period
that were entitled to receive dividends
d = The maximum offering price per share on the last day of the period

Below are each Fund's yields for the thirty-day period ended April 30,
1997 for U.S. Government and Strategic and July 31, 1997 for High Yield and
August 31, 1997 for Diversified:

23375
33

<PAGE>

FUND Class A Class B Class C Class Y
=================== ============== =============== ============= ============
U.S.Government 6.13% 5.37% 5.36% 6.38%
Strategic 7.02% 6.66% 6.61% --
High Yield -- 7.40%* -- --
Diversified -- 5.60%* -- --
=================== ============== =============== ============= ============

*Not multiple class during this period

Income is calculated for purposes of yield quotations in accordance with
standardized methods applicable to all stock and bond funds. Gains and losses
generally are excluded from the calculation. Income calculated for purposes of
determining a Fund's yield differs from income as determined for other
accounting purposes. Because of the different accounting methods used, and
because of the compounding assumed in yield calculations, the yields quoted for
a Fund may differ from the rate of distributions a Fund paid over the same
period, or the net investment income reported in a Fund's financial statements.

Yield information is useful in reviewing a Fund's performance, but
because yields fluctuate, such information cannot necessarily be used to compare
an investment in a Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is a function of the kind and quality of the instruments in a Fund's investment
portfolio, portfolio maturity, operating expenses and market conditions.

It should be recognized that in periods of declining interest rates the
yields will tend to be somewhat higher than prevailing market rates, and in
periods of rising interest rates the yields will tend to be somewhat lower.
Also, when interest rates are falling, the inflow of net new money to a Fund
from the continuous sale of its shares will likely be invested in instruments
producing lower yields than the balance of the Fund's investments, thereby
reducing the current yield of the Fund. In periods of rising interest rates, the
opposite can be expected to occur.

Non-Standardized Performance

In addition to the performance information described above, a Fund may
provide total return information for designated periods, such as for the most
recent six months or most recent twelve months. This total return information is
computed as described under "Total Return" above except that no annualization is
made.

Financial Statements

The audited financial statements and the reports thereon are hereby
incorporated by reference ot each Fund's Annual Report, a copy of which may by
obtained without charge from ESC. P.O.
Box 2121, Boston, Massachusetts 02106-2121.

23375
34

<PAGE>

ADDITIONAL INFORMATION

Except as otherwise stated in its prospectus or required by law, each
Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.

No dealer, salesperson or other person is authorized to give any
information or to make any representation not contained in a Fund's prospectus,
SAI or in supplemental sales literature issued by such Fund or the Distributor,
and no person is entitled to rely on any information or representation not
contained therein.

Each Fund's prospectus and SAI omit certain information contained in
the Trust's registration statement, which you may obtain for a fee from the SEC
in Washington, D.C.

22987
35

<PAGE>

APPENDIX A

S&P AND MOODY'S BOND RATINGS

S&P Corporate Bond Ratings

An S&P bond rating is a current assessment of the creditworthiness of an
obligor, including obligors outside the U.S., with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers or lessees. Ratings of foreign obligors do not take into
account currency exchange and related uncertainties. The ratings are based on
current information furnished by the issuer or obtained by S&P from other
sources it considers reliable.

The ratings are based, in varying degrees, on the following
considerations:

a. Likelihood of default and capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in accordance with
the terms of the obligation;

b. Nature of and provisions of the obligation; and

c. Protection afforded by and relative position of the obligation in
the event of bankruptcy reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.

PLUS (+) OR MINUS (-): To provide more detailed indications of credit
quality, ratings from "AA" to "BBB" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.

A provisional rating is sometimes used by S&P. It assumes the
successful completion of the project being financed by the debt being rated and
indicates that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default upon
failure of, such completion.

S&P bond ratings are as follows:

a. AAA - Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.

b. AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in small degree.

3. A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.

4. BBB - Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse

22987
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<PAGE>

economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories.

5. BB, B, CCC, CC and C - Debt rated BB, B, CCC, CC and C is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

Moody's Bond Ratings

Moody's ratings are as follows:

1. Aaa - Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.

2. Aa - Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in Aaa
securities.

3. A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.

4. Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

5. Ba - Bonds which are rated Ba are judged to have speculative
elements. Their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.

6. B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.

7. Caa - Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with respect to
principal or interest.

8. Ca - Bonds which are rated Ca represent obligations which are
speculative in a high

22987
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<PAGE>

degree. Such issues are often in defauolt or have other market shortcomings.

9. C - Bonds which are rated as C are the lowest rated class of bonds
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through Baa in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.

Those municipal bonds in the Aa, A, and Baa groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa 1, A 1, and Baa 1.

MONEY MARKET INSTRUMENTS

Money market securities are instruments with remaining maturities of
one year or less such as bank certificates of deposit, bankers' acceptances,
commercial paper (including variable rate master demand notes), and obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities,
some of which may be subject to repurchase agreements.

Commercial Paper

Commercial paper will consist of issues rated at the time of purchase
A-1, by S&P, or Prime-1 by Moody's or F-1 by Fitch; or, if not rated, will be
issued by companies which have an outstanding debt issue rated at the time of
purchase Aaa, Aa or A by Moody's, or AAA, AA or A by S&P or Fitch, or will be
determined by a Fund's investment adviser to be of comparable quality.

A. S&P Ratings

An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest.
The top category is as follows:

1. A: Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2 and 3 to indicate the relative degree of safety.

2. A-1: This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.

B. Moody's Ratings

The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of nine months. Moody's
commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following designation, judged to be investment
grade, to indicate the relative repayment capacity of rated issuers.

22987
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<PAGE>

1. The rating Prime-1 is the highest commercial paper rating assigned
by Moody's. Issuers rated Prime-1 (or related supporting institutions) are
deemed to have a superior capacity for repayment of short term promissory
obligations. Repayment capacity of Prime-1 issuers is normally evidenced by the
following characteristics:

1) leading market positions in well-established industries;

2) high rates of return on funds employed;

3) conservative capitalization structures with moderate reliance
on debt and ample asset protection;

4) broad margins in earnings coverage of fixed financial charges
and high internal cash generation; and

5) well established access to a range of financial markets and
assured sources of alternate liquidity.

In assigning ratings to issuers whose commercial paper obligations are
supported by the credit of another entity or entities, Moody's evaluates the
financial strength of the affiliated corporations, commercial banks, insurance
companies, foreign governments or other entities, but only as one factor in the
total rating assessment.

22987
A-4
<PAGE>

EVERGREEN FIXED INCOME TRUST

PART C

OTHER INFORMATION

Item 24. Financial Statements and Exhibits

Item 24(a). Financial Statements

The financial statements listed below are included in Part A of this
Amendment to the Registration Statement:

Financial Highlights for:
<TABLE>
<S> <C>
EVERGREEN STRATEGIC INCOME FUND - For the six-month period ended October 31, 1997 (unaudited); for the nine-month period ended
Class A April 30, 1997; for each of the years in the nine-year period ended July 31, 1996; and for
the period from February 13, 1987 (Commencement of Operations) to July 31, 1987.

EVERGREEN STRATEGIC INCOME FUND - For the six-month period ended October 31, 1997 (unaudited); for the nine-month period ended
Class B April 30, 1997; for each of the years in the three-year period ended July 31, 1996; and for
the period from February 1, 1993 (Commencement of Operations) to July 31, 1987.

EVERGREEN STRATEGIC INCOME FUND - For the six-month period ended October 31, 1997 (unaudited); for the nine-month period ended
Class C April 30, 1997; for each of the years in the three-year period ended July 31, 1996; and for
the period from February 1, 1993 (Commencement of Operations) to July 31, 1987.

EVERGREEN STRATEGIC INCOME FUND - For the six-month period ended October 31, 1997 (unadudited); and for the period from
Class Y February 1, 1993 Commencement of Operations) to July 31, 1987.

EVERGREEN U.S. GOVERNMENT FUND - For the six-month period ended October 31, 1997 (unaudited); for the ten-month period ended
Class A April 30, 1997; for the one-year period ended June 30,1996; for the six-month period ended
June 30, 1995; for the year ended December 31, 1994; and for the period from
January 11, 1993 (Commencement of Operations) to December 31, 1993.

EVERGREEN U.S. GOVERNMENT FUND - For the six-month period ended October 31, 1997 (unaudited); for the ten-month period ended
Class B April 30, 1997; for the one-year period ended June 30,1996; for the six-month period ended
June 30, 1995; for the year ended December 31, 1994; and for the period from
January 11, 1993 (Commencement of Operations) to December 31, 1993.

EVERGREEN U.S. GOVERNMENT FUND - For the six-month period ended October 31, 1997 (unaudited); for the ten-month period ended
Class C April 30, 1997; for the one-year period ended June 30,1996; for the six-month period ended
June 30, 1995; and for the period from September 2, 1994 (Commencement of Operations) to
December 31, 1994.

EVERGREEN U.S. GOVERNMENT FUND - For the six-month period ended October 31, 1997 (unaudited); for the ten-month period ended
Class Y April 30, 1997; for the one-year period ended June 30,1996; for the six-month period ended
June 30, 1995; for the year ended December 31, 1994; and for the period from
September 2, 1994 (Commencement of Operations) to December 31, 1993.

EVERGREEN DIVERSIFIED BOND FUND For each of the years in the ten-year period ended August 31, 1997.

EVERGREEN HIGH YIELD BOND FUND For each of the years in the ten-year period ended July 31, 1997.
</TABLE>

The financial statements listed below are incorporated by reference
into Part B of this Amendment to the Registration Statement:

Schedule of Investments of Evergreen U.S. Government Fund and
Evergreen Strategic Income Fund as of April 30, 1997

Schedule of Investments of Evergreen Diversified Bond Fund as of
August 31, 1997.

Schedule of Investments of Evergreen High Yield Bond Fund as of
July 31, 1997.

Statement of Assets and Liabilities of Evergreen U.S. Government
Fund and Evergreen Strategic Income Fund as of April 30, 1997.

Statement of Assets and Liabilities of Evergreen Diversified
Bond Fund as of August 31, 1997.

Statement of Assets and Liabilities of Evergreen High Yield Bond
Fund as of July 31, 1997.

Statement of Operations of Evergreen U.S. Government Fund
and Evergreen Strategic Income Fund as of April 30, 1997.

Statement of Operations of Evergreen Diversified Bond Fund as of
August 31, 1997.

Statement of Operations of Evergreen High Yield Bond Fund as of
July 31, 1997.

Statement of Changes in Net Assets of Evergreen U.S. Governnment
Fund for the year ended June 30, 1996 and the six months ended
June 30, 1995 and Statement of Changes in Net Assets of Evergreen
Strategic Income Fund for each of the years in the two-year period
ended July 31, 1996.

Statement of Changes in Net Assets of Evergreen Diversified Bond
Fund for each of the years in the two-year period ended August 31, 1997.

Statement of Changes in Net Assets of Evergreen High Yield Bond Fund
for each of the years in the two-year period ended July 31, 1997.

Notes to Financial Statements of Evergreen U.S. Government Fund,
Evergreen Strategic Income Fund, Evergreen Diversified Bond Fund,
and Evergreen High Yield Bond Fund.

Independent Auditors' Report of Evergreen U.S. Government Fund
and Evergreen Strategic Income Fund dated May 30, 1997.

Independent Auditors' Report of Evergreen Diversified Bond Fund dated
October 10, 1997.

Independent Auditors' Report of Evergreen High Yield Bond Fund dated
September 5, 1997.

The information required by this item for Evergreen Captial
Preservation and Income Fund, Evergreen Intermediate-Term Government Securities
Fund, and Evergreen Short-Intermediate Bond Fund is contained in Registration
Statement No. 333-37433/811-7246 filed on December 12, 1997.

The information required by this item for Evergreen Intermediate Term
Bond Fund are contained in Registration Statement No. 333-37433/811-7246 filed
on November 10, 1997.

Item 24(b). Exhibits

<TABLE>
<CAPTION>
Exhibit
Number Description Location
- ------- ----------- -----------
<S> <C> <C>
1 Declaration of Trust Incorporated by reference to
Registrant's Registration Statement
Filed on October 8, 1997

2 By-laws Incorporated by reference to
Registrant's Registration Statement
Filed on October 8, 1997

3 Not applicable

4 Provisions of instruments defining the rights
of holders of the securities being registered
are contained in the Declaration of Trust
Articles II, III.(6)(c), VI.(3), IV.(8), V, VI,
VII, VIII and By-laws Articles II, III and VIII
included as part of Exhibits 1 and 2 of this
Registration Statement

5(a) Form of Investment Advisory and Management Incorporated by reference to
Agreement between the Registrant and First Registrant's Post-Effective Amendment No. 2
Union National Bank Filed on December 12, 1997

5(b) Form of Investment Advisory and Management Incorporated by reference to
Agreement between the Registrant and Evergreen Registrant's Post-Effective Amendment No. 2
Asset Management Corp. Filed on December 12, 1997

5(c) Form of Investment Advisory and Management Incorporated by reference to
Agreement between the Registrant and Keystone Registrant's Post-Effective Amendment No. 2
Investment Management Company Filed on December 12, 1997

6(a) Form of Class A and Class C Principal Underwriting Incorporated by reference to
Agreement between the Registrant and Evergreen Registrant's Pre-Effective Amendment No. 1
Distributor, Inc. Filed on November 10, 1997

6(b) Form of Class B Principal Underwriting Agreement Incorporated by reference to
between the Registrant and Evergreen Investment Registrant's Pre-Effective Amendment No. 1
Services, Inc. (B-1) Filed on November 10, 1997

6(c) Form of Class B Principal Underwriting Agreement Incorporated by reference to
between the Registrant and Evergreen Distributor, Registrant's Pre-Effective Amendment No. 1
Inc. (B-2) Filed on November 10, 1997

6(d) Form of Class B Principal Underwriting Agreement Incorporated by reference to
between the Registrant and Evergreen Distributor, Registrant's Pre-Effective Amendment No. 1
Inc. (Evergreen/KCF) Filed on November 10, 1997

6(e) Form of Class Y Principal Underwriting Agreement Incorporated by reference to
between the Registrant and Evergreen Distributor, Registrant's Pre-Effective Amendment No. 1
Inc. Filed on November 10, 1997

6(f) Form of Principal Underwriting Agreement between Incorporated by reference to
the Registrant and Kokusai Securities Company Registrant's Pre-Effective Amendment No. 1
Limited Filed on November 10, 1997

6(g) Form of Dealer Agreement used by Evergreen Incorporated by reference to
Distributor, Inc. Registrant's Pre-Effective Amendment No. 1
Filed on November 10, 1997

7 Form of Deferred Compensation Plan Incorporated by reference to
Registrant's Pre-Effective Amendment No. 1
Filed on November 10, 1997

8 Form of Custodian Agreement between the Registrant Incorporated by reference to
and State Street Bank and Trust Company Registrant's Pre-Effective Amendment No. 1
Filed on November 10, 1997

9(a) Form of Administration Agreement between Evergreen Incorporated by reference to
Investment Services, Inc. and the Registrant Registrant's Post-Effective Amendment No. 2
Filed on December 12, 1997

9(b) Form of Transfer Agent Agreement between the Incorporated by reference to
Registrant and Evergreen Service Company Registrant's Pre-Effective Amendment No. 1
Filed on November 10, 1997

10 Opinion and Consent of Sullivan & Worcester LLP Incorporated by reference to
Registrant's Post-Effective Amendment No. 1
Filed on December 12, 1997
11 Consent of KPMG Peat Marwick LLP

12 Not applicable

13 Not applicable

15(a) Form of 12b-1 Distribution Plan for Class A Incorporated by reference to
Registrant's Pre-Effective Amendment No. 1
Filed on November 10, 1997

15(b) Form of 12b-1 Distribution Plan for Class B Incorporated by reference to
(KAF B-1) Registrant's Pre-Effective Amendment No. 1
Filed on November 10, 1997

15(c) Form of 12b-1 Distribution Plan for Class B Incorporated by reference to
(KAF B-2) Registrant's Pre-Effective Amendment No. 1
Filed on November 10, 1997

15(d) Form of 12b-1 Distribution Plan for Class B Incorporated by reference to
(KCF/Evergreen) Registrant's Pre-Effective Amendment No. 1
Filed on November 10, 1997

15(e) Form of 12b-1 Distribution Plan for Class C Incorporated by reference to
Registrant's Pre-Effective Amendment No. 1
Filed on November 10, 1997

16 Not applicable

17 Not applicable

18 Multiple Class Plan Incorporated by reference to
Registrant's Pre-Effective Amendment No. 1
Filed on November 10, 1997

19 Powers of Attorney Incorporated by reference to
Registrant's Pre-Effective Amendment No. 1
Filed on November 10, 1997
</TABLE>

Item 25. Persons Controlled by or Under Common Control with Registrant.

None

Item 26. Number of Holders of Securities (as of November 30, 1997)

None

Item 27. Indemnification.

Provisions for the indemnification of the Registrant's Trustees and
officers are contained the Registrant's Declaration of Trust.

Provisions for the indemnification of the Registrant's Investment Advisor
are contained in their respective Investment Advisory and Management Agreements.

Provisions for the indemnification of Evergreen Distributor, Inc., the
Registrant's principal underwriter, are contained in each Principal Underwriting
Agreement between Evergreen Distributor, Inc. and the Registrant.

Item 28. Business or Other Connections of Investment Adviser.

The Directors and principal executive officers of First Union National Bank
are:

Edward E. Crutchfield, Jr. Chairman and Chief Executive Officer,
First Union Corporation; Chief Executive
Officer and Chairman, First Union National
Bank

Anthony P. Terracciano President, First Union Corporation; President
First Union National Bank

John R. Georgius Vice Chairman, First Union Corporation;
Vice Chairman, First Union National Bank

Marion A. Cowell, Jr. Executive Vice President, Secretary &
General Counsel, First Union Corporation;
Secretary and Executive Vice President,
First Union National Bank

Robert T. Atwood Executive Vice President and Chief Financial
Officer, First Union Corporation; Chief
Financial Officer and Executive Vice
President

All of the above persons are located at the following address: First Union
National Bank, One First Union Center, Charlotte, NC 28288.

The information required by this item with respect to Evergreen Asset
Management Corp. is incorporated by reference to the Form ADV (File No.
801-46522) of Evergreen Asset Management Corp.

The information required by this item with respect to Keystone Investment
Management Company is incorporated by reference to the Form ADV (File No.
801-8327) of Keystone Investment Management Company.

Item 29. Principal Underwriters.

The Directors and principal executive officers of Evergreen Distributor,
Inc. are:

Lynn C. Mangum Director, Chairman and Chief Executive
Officer

Robert J. McMullan Director, Executive Vice President and
Treasurer

J. David Huber President

Kevin J. Dell Vice President, General Counsel and Secretary

All of the above persons are located at the following address: Evergreen
Distributor, Inc., 125 West 55th Street, New York, New York 10019.

Evergreen Distributor, Inc. acts as principal underwriter for each
registered investment company or series thereof that is a part of the Evergreen
Keystone "fund complex" as such term is defined in Item 22(a) of Schedule 14A
under the Securities Exchange Act of 1934.

Item 30. Location of Accounts and Records.

All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:

Evergreen Investment Services, Inc., Evergreen Service Company and Keystone
Investment Management Company, all located at 200 Berkeley Street, Boston,
Massachusetts 02110

First Union National Bank, One First Union Center, 301 S. College Street,
Charlotte, North Carolina 28288

Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase,
New York 10577

Iron Mountain, 3431 Sharp Slot Road, Swansea, Massachusetts 02777

State Street Bank and Trust Company, 2 Heritage Drive, North Quincy,
Massachusetts 02171

Item 31. Management Services.

Not Applicable

Item 32. Undertakings.

The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.

<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities A-ct of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Columbus, and State of Ohio, on the 30th day of
January, 1998.

EVERGREEN FIXED INCOME TRUST

By: /s/ William J. Tomko
-----------------------------
Name: William J. Tomko
Title: President

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 30th day of January, 1998.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/William J. Tomko /s/ Laurence B. Ashkin /s/ Charles A. Austin, III
- ------------------------- ----------------------------- --------------------------------
William J. Tomko Laurence B. Ashkin* Charles A. Austin III*
President amd Treasurer (Principal Trustee Trustee
Financial and Accounting Officer)

/s/ K. Dun Gifford /s/ James S. Howell /s/ William Walt Pettit
- ---------------------------- ---------------------------- --------------------------------
K. Dun Gifford* James S. Howell* William Walt Pettit*
Trustee Trustee Trustee

/s/Gerald M. McDonnell /s/ Thomas L. McVerry /s/ Michael S. Scofield
- ------------------------------- ----------------------------- --------------------------------
Gerald M. McDonell* Thomas L. McVerry* Michael S. Scofield*
Trustee Trustee Trustee

/s/ David M. Richardson /s/ Russell A. Salton, III MD
- ------------------------------ -------------------------------
David M. Richardson* Russell A. Salton, III MD*
Trustee Trustee

/s/ Richard J. Shima
- ------------------------------
Richard J. Shima*
Trustee
</TABLE>

*By: /s/ Martin J. Wolin
- -------------------------------
Martin J. Wolin
Attorney-in-Fact

*Martin J. Wolin, by signing his name hereto, does hereby sign this
document on behalf of each of the above-named individuals pursuant to powers of
attorney duly executed by such persons.

<PAGE>

INDEX TO EXHIBITS

Exhibit
Number Exhibit
- ------- -------

11 Consent of KPMG Peat Marwick LLP

CONSENT OF INDEPENDENT AUDITORS

The Trustees and Shareholders
Evergreen Fixed Income Trust

We consent to:

* the use of our report May 30, 1997 for Evergreen Strategic Income Fund
(formerly Keystone Strategic Income Fund) incorporate by reference herein;

* the use of our report May 30, 1997 for Evergreen U.S. Government Securities
Fund incorporate by reference herein;

* the use of our report dated September 5, 1997 for Evergreen High Yield
Bond Fund (formerly Keystone High Income Bond Fund (B-4)) incoporated by
reference herein;

* the use of our report dated October 10, 1997 for Evergreen Diversified
Bond Fund (formerly Keystone Diversified Bond Fund (B-2)) incorporated by
reference herein; and

* the referenced to our firm under the caption "Financial Highlights" in
the prospectuses.

/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP

Boston, Massachusetts
January 30, 1998