1933 Act Registration No. 333-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-14AE
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
[ ] Pre-Effective [ ] Post-Effective
Amendment No. Amendment No.
EVERGREEN FIXED INCOME TRUST
(Evergreen U.S. Government Fund)
[Exact Name of Registrant as Specified in Charter]
Area Code and Telephone Number: (617) 210-3200
200 Berkeley Street
Boston, Massachusetts 02116
- -----------------------------------
(Address of Principal Executive Offices)
Michael H. Koonce, Esq.
Evergreen Investment Management Company
200 Berkeley Street
Boston, Massachusetts 02116
- -----------------------------------------
(Name and Address of Agent for Service)
Copies of All Correspondence to:
Robert N. Hickey, Esq.
Sullivan & Worcester LLP
1025 Connecticut Avenue, N.W.
Washington, D.C. 20036
Approximate date of proposed public offering: As soon as
possible after the effective date of this Registration Statement.
The Registrant has registered an indefinite amount of
securities under the Securities Act of 1933 pursuant to Section
24(f) under the Investment Company Act of 1940 (File No. 333-37433);
accordingly, no fee is payable herewith. Pursuant to Rule 429, this
Registration Statement relates to the aforementioned registration on
Form N-1A. A Rule 24f-2 Notice for the Registrant's fiscal year ended
April 30, 1998 was filed with the Commission on or about July 29, 1998.
It is proposed that this filing will become effective on May 14,
1999 pursuant to Rule 488 of the Securities Act of 1933.
EVERGREEN FIXED INCOME TRUST
CROSS REFERENCE SHEET
Pursuant to Rule 481(a) under the Securities Act of 1933
Item of Part A of Form N-14
Location in Prospectus/Proxy
Statement
1. Beginning of Registration Statement Cross Reference Sheet; Cover
and Outside Front Cover Page of Page
Prospectus
2. Beginning and Outside Table of Contents
Back Cover Page of
Prospectus
3. Fee Table, Synopsis and Comparison of Fees and
Risk Factors Expenses; Summary; Comparison
of Investment Objectives and
Policies; Risks
4. Information About the Summary; Reasons for the
Transaction Reorganization; Comparative
Information on Shareholders'
Rights; Exhibit A (Agreement
and Plan of Reorganization)
5. Information about the Cover Page; Summary; Risks;
Registrant Comparison of Investment
Objectives and Policies;
Comparative Information on
Shareholders' Rights;
Additional Information
6. Information about the Cover Page; Summary; Risks;
Company Being Acquired Comparison of Investment
Objective and Policies;
Comparative Information on
Shareholders' Rights;
Additional Information
7. Voting Information Cover Page; Summary; Voting
Information Concerning the
Meeting
8. Interest of Certain Financial Statements and
Persons and Experts Experts; Legal Matters
9. Additional Information Inapplicable
Required for Reoffering
by Persons Deemed to be
Underwriters
Item of Part B of Form N-14
10. Cover Page Cover Page
11. Table of Contents Omitted
12. Additional Information Statement of Additional
About the Registrant Information of Evergreen
U.S. Government Fund dated
September 1, 1998
13. Additional Information Statement of Additional
about the Company Being Information of Evergreen
Acquired Intermediate Term Government
Securities Fund dated
November 1, 1998
14. Financial Statements Financial Statements dated
April 30, 1998 and October 31
1998 (unaudited) of Evergreen
U.S. Government Fund; Financial
Statements of Evergreen
Intermediate Term Government
securities Fund dated June 30,
1998 and December 31, 1998
(unaudited); Pro Forma Financial
Statements for the 12 months ended
October 31, 1998 (unaudited)
Item of Part C of Form N-14
15. Indemnification Incorporated by Reference to
Part A Caption - "Comparative
Information on Shareholders'
Rights - Liability and
Indemnification of Trustees"
16. Exhibits Item 16. Exhibits
17. Undertakings Item 17. Undertakings
<PAGE>
PART A PROSPECTUS/PROXY STATEMENT
<PAGE>
[Buckslip Insert: E-Mail & Telephone Voting Instructions]
Two New Low-Cost Ways
to Vote Your Proxy
Save [Money Symbol]! It's Fast And Convenient.
The accompanying Proxy Statement outlines important issues affecting
your Evergreen fund. Help us save time and postage costs - savings we pass along
to you - by voting through the Internet or by telephone. Each method is
generally available 24 hours a day and will ensure that your vote is confirmed
and posted immediately.
Do not mail the Proxy Card if you are voting by Internet or telephone.
Save [Time Symbol]!
To Vote By Internet:
1. Read the Proxy Statement and have your Proxy Card at hand.
2. Go to website www.proxyvote.com or to the "Proxy Voting" link on
www.evergreen-funds.com.
3. Enter the 12-digit Control Number found on your Proxy Card.
4. Follow the simple instructions.
To Vote By Telephone:
1. Read the Proxy Statement and have your Proxy Card at hand.
2. Call toll-free 1-800-343-2898.
3. Enter the 12-digit Control Number found on your Proxy Card.
4. Follow the simple recorded instructions
<PAGE>
Your proxy vote
is important! [Logo]
LOGO
June 2, 1999
Dear Shareholder,
As a shareholder of Evergreen Intermediate Term Government Securities Fund
("Intermediate Term Fund"), you are invited to vote on an important matter
affecting your Fund. Specifically, you are invited to vote on a proposal to
merge Intermediate Term Fund into Evergreen U.S. Government Fund ("U.S.
Government Fund"). U.S. Government Fund is another mutual fund managed by
Evergreen Investment Management that invests primarily in U.S. government
securities.
If the merger is approved you will receive shares of U.S. Government
Fund having the same total value as the shares of Intermediate Term Fund you
currently own. Details about U.S. Government Fund's investment objective,
portfolio management team, performance, etc., along with additional information
about the proposed merger, are contained in the attached Prospectus/Proxy
Statement. You will not incur any Federal income taxes as a result of the
merger.
The Board of Trustees of Evergreen Fixed Income Trust has approved the
merger and recommends that you vote FOR this proposal.
I realize that the attached Prospectus/Proxy Statement will take time to
review, but your vote is very important. Please take the time to familiarize
yourself with this information. Votes on the proposal will be cast at a special
meeting of Intermediate Term Fund shareholders to be held on July 23, 1999.
Although you are welcome to attend the meeting in person, you do not need to do
so in order to vote your shares. If you do not expect to attend the meeting,
please complete, date, sign and return the enclosed proxy card in the enclosed
postage paid envelope. Instructions on how to complete the proxy card are
included immediately after the Notice of Special Meeting.
If you have any questions about the proposal or the proxy card, please
call Evergreen Service Company at 800-343-2898. You may also FAX your completed
and signed proxy card to Alamo Direct, our proxy tabulator, at 800-796-9932.
Thank you for taking this matter seriously and participating in this
important process.
Sincerely,
[signature]
William M. Ennis
Managing Director
Evergreen Funds
[SUBJECT TO COMPLETION, APRIL 12, 1999 - PRELIMINARY COPY]
EVERGREEN INTERMEDIATE TERM GOVERNMENT SECURITIES FUND
200 Berkeley Street
Boston, Massachusetts 02116
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 23, 1999
Notice is hereby given that a Special Meeting (the "Meeting") of
Shareholders of Evergreen Intermediate Term Government Securities Fund
("Intermediate Term Fund"), a series of Evergreen Fixed Income Trust, will be
held at the offices of the Evergreen funds, 26th Floor, 200 Berkeley Street,
Boston, Massachusetts 02116, on July 23, 1999 at 2:00 p.m. for the following
purposes:
1. To consider and act upon the Agreement and Plan of Reorganization
(the "Plan") dated as of April 30, 1999, providing for the acquisition of all of
the assets of Intermediate Term Fund by Evergreen U.S. Government Fund ("U.S.
Government Fund"), a series of Evergreen Fixed Income Trust, in exchange for
shares of U.S. Government Fund and the assumption by U.S. Government Fund of the
identified liabilities of Intermediate Term Fund. The Plan also provides for
distribution of these shares of U.S. Government Fund to shareholders of
Intermediate Term Fund in liquidation and subsequent termination of Intermediate
Term Fund. A vote in favor of the Plan is a vote in favor of the liquidation and
dissolution of Intermediate Term Fund.
2. To transact any other business which may properly come before the
Meeting or any adjournment or adjournments thereof.
On behalf of Intermediate Term Fund, the Trustees of Evergreen Fixed
Income Trust have fixed the close of business on May 5, 1999 as the record date
for the determination of shareholders of the Fund entitled to notice of and to
vote at the Meeting or any adjournment thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO
NOT EXPECT TO ATTEND IN PERSON ARE URGED TO SIGN WITHOUT DELAY AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE, SO THAT
THEIR SHARES MAY BE REPRESENTED AT THE MEETING. YOUR PROMPT ATTENTION TO THE
ENCLOSED PROXY WILL HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION.
By Order of the Board of Trustees
Michael H. Koonce
Secretary
[June 2, 1999]
INSTRUCTIONS FOR EXECUTING PROXY CARDS
The following general rules for signing proxy cards may be of assistance
to you and may help to avoid the time and expense involved in validating your
vote if you fail to sign your proxy card properly.
1. INDIVIDUAL ACCOUNTS: Sign your name exactly as it appears in the
Registration on the proxy card.
2. JOINT ACCOUNTS: Either party may sign, but the name of the party
signing should conform exactly to a name shown in the Registration on the proxy
card.
3. ALL OTHER ACCOUNTS: The capacity of the individual signing the proxy
card should be indicated unless it is reflected in the form of Registration. For
example:
REGISTRATION VALID SIGNATURE
CORPORATE ACCOUNTS
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer John Doe, Treasurer
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
TRUST ACCOUNTS
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe,
Trustee u/t/d 12/28/78 Jane B. Doe
CUSTODIAL OR ESTATE ACCOUNTS
(1) John B. Smith, Cust.
f/b/o John B. Smith, Jr. UGMA John B. Smith
(2) John B. Smith John B. Smith, Jr., Executor
PROSPECTUS/PROXY STATEMENT DATED JUNE 2, 1999
Acquisition of Assets of
EVERGREEN INTERMEDIATE TERM GOVERNMENT SECURITIES FUND
a series of
Evergreen Fixed Income Trust
200 Berkeley Street
Boston, Massachusetts 02116
By and in Exchange for Shares of
EVERGREEN U.S. GOVERNMENT FUND
a series of
Evergreen Fixed Income Trust
200 Berkeley Street
Boston, Massachusetts 02116
This Prospectus/Proxy Statement is being sent to shareholders of
Evergreen Intermediate Term Government Securities Fund ("Intermediate Term
Fund") to ask them to approve the Agreement and Plan of Reorganization (the
"Plan") at a Special Meeting of Shareholders to be held on July 23, 1999 at 2:00
p.m. at the offices of the Evergreen funds, 200 Berkeley Street, 26th Floor,
Boston, Massachusetts 02116, and any adjournments thereof (the "Meeting").
Under the Plan, Intermediate Term Fund will be merged into Evergreen
U.S. Government Fund ("U.S. Government Fund"). This will be accomplished by U.S.
Government Fund acquiring all of the assets of Intermediate Term Fund in
exchange for shares of U.S. Government Fund. Along with acquiring the assets of
Intermediate Term Fund, U.S. Government Fund will also assume the identified
liabilities of Intermediate Term Fund. This transaction will be referred to as
the "Merger" for the rest of this Prospectus/Proxy Statement. Intermediate Term
Fund and U.S. Government Fund are sometimes referred to each as the "Fund" or
together as the "Funds" in this Prospectus/Proxy Statement. After the Merger,
Intermediate Term Fund shareholders will receive shares of U.S. Government Fund
and Intermediate Term Fund will be terminated. Intermediate Term Fund
shareholders will receive U.S. Government Fund shares that have the same letter
description (i.e. Class A, Class B, Class C or Class Y), and the same
distribution- related fees, shareholder servicing-related fees and contingent
deferred sales charges ("CDSCs"), if any, as the shares they currently hold
("Corresponding Shares"). Intermediate Term Fund shareholders will incur no fees
in connection with receiving the Corresponding Shares. Intermediate Term Fund
shareholders will receive Corresponding Shares that have the same aggregate net
asset value as the shares they hold. The Merger is being structured as a
tax-free reorganization for federal income tax purposes.
Intermediate Term Fund and U.S. Government Fund are each a separate
series of Evergreen Fixed Income Trust, an open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"). The investment objective of U.S. Government Fund is to seek high
current income consistent with stability of principal. The investment objective
of Intermediate Term Fund is similar-to seek to preserve principal value and
maintain a high degree of liquidity while providing current income.
This Prospectus/Proxy Statement, which should be kept for future
reference, sets forth concisely the information about U.S. Government Fund that
Intermediate Term Fund shareholders should know before voting on the Merger.
Certain relevant documents listed below, which have been filed with the
Securities and Exchange Commission ("SEC"), are incorporated in whole or in part
by reference to (which means, legally considered to be part of) this
Prospectus/Proxy Statement. A Statement of Additional Information dated June 2,
1999 relating to this Prospectus/Proxy Statement and the Merger, which includes
the most recent annual and semi-annual financial statements of U.S. Government
Fund and Intermediate Term Fund, has been filed with the SEC and is legally
considered to be part of this Prospectus/Proxy Statement. A copy of such
Statement of Additional Information is available upon request and without charge
by writing to U.S. Government Fund at 200 Berkeley Street, Boston, Massachusetts
02116 or by calling toll-free 1-800-343-2898.
The two Prospectuses of U.S. Government Fund, one offering Class A,
Class B and Class C shares and the other offering Class Y shares, dated
September 1, 1998, its Annual Report for the fiscal year ended April 30, 1998
and its Semi-Annual Report for the six month period ended October 31, 1998 are
legally considered to be part of this Prospectus/Proxy Statement insofar as they
relate to U.S. Government Fund only and not to any other fund discussed therein.
Along with this Prospectus/Proxy Statement, shareholders of Intermediate Term
Fund will receive copies of the Prospectus pertaining to the class of shares of
U.S. Government Fund that they will receive as a result of the Merger.
Additional information about U.S. Government Fund is contained in its Statement
of Additional Information dated September 1, 1998, which has been filed with the
SEC and which is available upon request and without charge by writing to or
calling U.S. Government Fund at the address or telephone number listed in the
paragraph above.
The two Prospectuses of Intermediate Term Fund, one offering Class A,
Class B and Class C shares and the other offering Class Y shares, dated November
1, 1998, are legally considered to be part of this Prospectus/Proxy Statement
insofar as they relate to Intermediate Term Fund only and not to any other fund
discussed therein. Copies of the Prospectuses, related Statement of Additional
Information, the Annual Report for the fiscal year ended June 30, 1998 and the
Semi-Annual Report for the six month period ended December 31, 1998 are
available upon request and without charge by writing to Intermediate Term Fund
at the address listed on the cover page of this Prospectus/Proxy Statement or by
calling toll-free 1-800-343-2898.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The shares offered by this Prospectus/Proxy Statement are not deposits
or obligations of 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 investment risk, including
possible loss of capital.
TABLE OF CONTENTS
Page
COMPARISON OF FEES AND EXPENSES .
SUMMARY .
Proposed Plan of Reorganization .
Tax Consequences .
Investment Objectives and Policies of the Funds .
Comparative Performance Information for each Fund .
Management of the Funds .
Investment Advisor .
Administrator .
Portfolio Management .
Distribution of Shares .
Purchase and Redemption Procedures .
Exchange Privileges .
Dividend Policy .
Risks .
REASONS FOR THE MERGER .
Agreement and Plan of Reorganization .
Federal Income Tax Consequences .
Pro-forma Capitalization .
Shareholder Information .
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES .
INFORMATION ON SHAREHOLDERS' RIGHTS .
Form of Organization .
Capitalization .
Shareholder Liability .
Shareholder Meetings and Voting Rights .
Liquidation or Dissolution .
Liability and Indemnification of Trustees .
ADDITIONAL INFORMATION .
VOTING INFORMATION CONCERNING THE MEETING .
FINANCIAL STATEMENTS AND EXPERTS .
LEGAL MATTERS .
OTHER BUSINESS .
EXHIBIT A A-1
EXHIBIT B . B-1
COMPARISON OF FEES AND EXPENSES
The amounts of fees and expenses for Class A, Class B, Class C and Class
Y shares of U.S. Government Fund and Intermediate Term Fund are set forth in the
following tables and in the examples. The amounts given are based on the
estimated expenses of Intermediate Term Fund for the fiscal year ending June 30,
1999 and the actual expenses of U.S. Government Fund for the fiscal year ended
April 30, 1998. The pro forma amounts for Class A, Class B, Class C and Class
Y shares of U.S. Government Fund are based on what the estimated combined
expenses of U.S. Government Fund would be for the fiscal year ended October 31,
1998. All amounts are adjusted for voluntary expense waivers.
The following tables show:
? the shareholder transaction expenses and annual fund operating expenses
associated with an investment in the Class A, Class B, Class C and Class Y
shares of each Intermediate Term Fund and U.S. Government Fund, and the
shareholder transaction expenses and annual fund operating expenses associated
with an investment in the Class A, Class B, Class C and Class Y shares of U.S.
Government Fund assuming the Merger takes place ("U.S. Government Fund Pro
Forma").
Comparison of
Class A, Class B, Class C and Class Y Shares of U.S. Government Fund
With
Class A, Class B, Class C and Class Y Shares of Intermediate Term Fund
<TABLE>
<CAPTION>
U.S. Government Fund Intermediate Term Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Class B Class C Class Y Class A Class B Class C Class Y
Shareholder
Transaction
Expenses
Maximum Sales
Load Imposed
on Purchases
(as a
percentage of
offering price).. 4.75% None None None 3.25% None None None
Contingent Deferred
Sales Charge
(as a percentage
of original
purchase price
or redemption
proceeds,
whichever
is lower)........None(1) 5.00% in the 1.00% in None None(1) 5.00% in the 1.00% in None
first year the first first year the first
declining to year and declining to year and
1.00% in the 0.00% 1.00% in the 0.00%
sixth year and thereafter sixth year and thereafter
0.00% thereafter 0.00% thereafter
</TABLE>
<TABLE>
<CAPTION>
U.S. Government Fund Intermediate Term Fund
Class A Class B Class C Class Y Class A Class B Class C Class Y
Annual Fund
Operating Expenses
(as a Percentage
of average daily
net assets)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fee 0.50% 0.50% 0.50% 0.50% 0.60% 0.60% 0.60% 0.60%
12b-1 Fees
(After Waiver)(2) 0.25% 1.00% 1.00% None 0.06% (3) 1.00% 1.00% None
Other Expenses 0.28% 0.28% 0.28% 0.28% 0.22% 0.22% 0.22% 0.22%
Annual Fund
Operating Expenses
(After Waiver) 1.03% 1.78% 1.78% 0.78% 0.88% (3) 1.82% 1.82% 0.82%
</TABLE>
U.S. Government Fund Pro Forma
Class A Class B Class C Class Y
Shareholder
Transaction
Expenses
Maximum Sales
Load Imposed
on Purchases
(as a
percentage of
offering price).. 4.75% None None None
Contingent Deferred
Sales Charge
(as a percentage
of original
purchase price
or redemption
proceeds,
whichever
is lower)........None(1) 5.00% in the 1.00% in None
first year the first
declining to year and
1.00% in the 0.00%
sixth year and thereafter
0.00% thereafter
U.S. Government Fund
Class A Class B Class C Class Y
Annual Fund
Operating Expenses
(as a Percentage
of average daily
net assets)
Management Fee 0.50% 0.50% 0.50% 0.50%
12b-1 Fees
(After Waiver)(2) 0.25% 1.00% 1.00% None
Other Expenses 0.24% 0.24% 0.24% 0.24%
Annual Fund
Operating Expenses 0.99% 1.74% 1.74% 0.74%
(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 of 1.00% upon
redemption within one year after the month of purchase.
(2) Class A shares can pay up to 0.75% of average daily net assets as a 12b-1
fee. For the foreseeable future, the Class A 12b-1 fees will be limited to 0.25%
of average daily net assets.
(3) Absent 12b-1 waivers, Annual Fund Operating
Expenses for the Class A shares of Intermediate Term Fund are estimated to be
1.07% for the fiscal year ending June 30, 1999.
Examples. The following tables show for U.S. Government Fund and
Intermediate Term Fund, and for U.S. Government Fund pro forma, assuming the
Merger takes place, examples of the cumulative effect of shareholder transaction
expenses and annual fund operating expenses indicated above on a $1,000
investment in each class of shares for the periods specified, assuming (i) a 5%
annual return, and (ii) redemption at the end of such period. For Class B and
Class C shares, the tables also show the effect of shareholder expenses assuming
the shares are not redeemed. In the case of U.S. Government Fund pro forma, the
examples do not reflect the imposition of the 4.75% maximum sales load on
purchases since Intermediate Term Fund shareholders who receive Class A shares
of U.S. Government Fund in the Merger will not incur any sales load.
U.S. Government Fund
One Three Five Ten
Year Years Years Years
Class A $58 $79 $102 $167
Class B (assuming redemption
at the end of the period) $68 $86 $116 $180
Class B (assuming no
redemption at the end
of the period) $18 $56 $96 $180
Class C (assuming redemption
at the end of the period) $28 $56 $96 $209
Class C (assuming no
redemption at the end
of the period) $18 $56 $96 $209
Class Y $8 $25 $43 $97
Intermediate Term Fund
One Three Five Ten
Year Years Years Years
Class A $41 $60 $80 $137
Class B (assuming redemption
at the end of the period) $68 $87 $119 $177
Class B (assuming no
redemption at the end
of the period) $18 $57 $99 $177
Class C (assuming redemption
at the end of the period) $28 $57 $99 $214
Class C (assuming no
redemption at the end
of the period) $18 $57 $99 $214
Class Y $8 $26 $46 $101
U.S. Government Fund Pro Forma
One Three Five Ten
Year Years Years Years
Class A $10 $32 $55 $121
Class B (assuming redemption
at the end of the period) $68 $85 $114 $176
Class B (assuming no
redemption at the end
of the period) $18 $55 $94 $176
Class C (assuming redemption
at the end of the period) $28 $57 $99 $214
Class C (assuming no
redemption at the end
of the period) $28 $55 $94 $205
Class Y $8 $24 $41 $92
The purpose of the foregoing examples is to assist Intermediate Term
Fund shareholders in understanding the various costs and expenses that an
investor in U.S. Government Fund as a result of the Merger would bear directly
and indirectly, as compared with the various direct and indirect expenses
currently borne by a shareholder in Intermediate Term Fund. These examples
should not be considered a representation of past or future expenses or annual
return. Actual expenses may be greater or less than those shown.
SUMMARY
This summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Prospectus/Proxy Statement, the
Prospectuses of U.S. Government Fund dated September 1, 1998 and Intermediate
Term Fund dated November 1, 1998 (which are legally considered to be a part of
this Prospectus/Proxy Statement) and the Plan, the form of which is attached to
this Prospectus/Proxy Statement as Exhibit A.
Proposed Plan of Reorganization
The Plan generally provides for the following:
the transfer of all of the assets of Intermediate Term Fund in
exchange for shares of U.S. Government Fund, and
the assumption by U.S. Government Fund of the identified liabilities
of Intermediate Term Fund. (The identified liabilities consist only
of those liabilities reflected on Intermediate Term Fund's statement
of assets and liabilities determined immediately preceding the
Merger.)
The Plan also calls for the distribution of shares of U.S. Government
Fund to Intermediate Term Fund's shareholders in liquidation of Intermediate
Term Fund as part of the Merger. After the Merger, the shareholders of
Intermediate Term Fund will own Corresponding Shares of U.S. Government Fund
having the same aggregate net asset value as that of the shareholders' shares of
Intermediate Term Fund, as of the close of business immediately prior to the
date that Intermediate Term Fund's assets are exchanged for shares of U.S.
Government Fund. See "Reasons for the Merger-Agreement and Plan of
Reorganization."
The Trustees of Evergreen Fixed Income Trust, including the Trustees who
are not "interested persons," as such term is defined in the 1940 Act (the
"Independent Trustees"), have concluded that the Merger would be in the best
interests of Intermediate Term Fund shareholders, and that their interests will
not be diluted as a result of the Merger. Accordingly, the Trustees have
submitted the Plan for the approval of Intermediate Term Fund's shareholders.
THE BOARD OF TRUSTEES OF EVERGREEN FIXED INCOME TRUST
RECOMMENDS APPROVAL BY SHAREHOLDERS OF INTERMEDIATE TERM FUND
OF THE PLAN EFFECTING THE MERGER.
The Trustees of Evergreen Fixed Income Trust have also approved the Plan on
behalf of U.S. Government Fund.
Approval of the Merger will require the following:
? In order to have the Meeting, at least 25% (a "quorum") of the outstanding
shares of Intermediate Term Fund entitled to vote must be represented at the
Meeting in person or by shareholders sending in a proxy cards. ? All classes of
Intermediate Term Fund will vote together as if they were a single class. ? A
majority (greater than 50%) of Intermediate Term shares voted must vote FOR the
Merger.
See "Voting Information Concerning the Meeting."
The Merger is scheduled to take place on or about July 30, 1999. If
Intermediate Term Fund shareholders do not vote to approve the Merger, the
Trustees will consider other possible courses of action in the best interests of
shareholders.
Tax Consequences
Prior to or at the completion of the Merger, Intermediate Term Fund will
have received an opinion of Sullivan & Worcester LLP that the Merger has been
structured so that no gain or loss will be realized by the Fund or its
shareholders for federal income tax purposes as a result of receiving U.S.
Government Fund shares in connection with the Merger. The holding period and
aggregate tax basis of shares of U.S. Government Fund that are received by
Intermediate Term Fund's shareholders will be the same as the holding period and
aggregate tax basis of shares of the Fund previously held by such shareholders,
provided that shares of the Fund are held as capital assets. In addition, the
holding period and tax basis of the assets of Intermediate Term Fund in the
hands of U.S. Government Fund as a result of the Merger will be the same as in
the hands of the Fund immediately prior to the Merger, and no gain or loss will
be recognized by U.S. Government Fund upon the receipt of the assets of the Fund
in exchange for shares of U.S. Government Fund and the assumption by U.S.
Government Fund of Intermediate Term Fund's identified liabilities.
Investment Objectives and Policies of the Funds
The investment objectives of U.S. Government Fund and Intermediate Term
Fund are substantially similar.
U.S. Government Fund seeks to achieve a high level of current income
consistent with stability of principal.
The Fund invests principally in debt instruments issued or guaranteed by
the U.S. government, its agencies or instrumentalities. In addition, the Fund
may also invest in mortgage-backed securities or other securities collateralized
by or representing an interest in a pool of mortgages and are issued or
guaranteed by the U.S. government, its agencies or instrumentalities, including
collateralized mortgage obligations ("CMOs"). Up to 20% of the Fund's total
assets may be invested in CMOs, high quality commercial paper which matures in
270 days or less and investment grade bonds and other debt securities.
Intermediate Term Fund seeks to preserve principal value and maintain a
high degree of liquidity while providing current income.
The Fund invests exclusively in U.S. Treasury obligations, obligations
issued or guaranteed as to principal and interest by agencies and
instrumentalities of the U.S. government, such as mortgage-backed securities and
obligations of supranational entities and repurchase agreements involving any
such obligations. The Fund will maintain an average weighted remaining maturity
of approximately three to ten years, although under normal conditions the
investment advisor expects to maintain an average maturity of three to six
years. No remaining maturity will exceed ten years.
Comparative Performance Information for each Fund
Discussions of the manner of calculation of total return are contained
in the Prospectuses and Statement of Additional Information of the Funds. The
following tables set forth, as applicable, the total return of the Class A,
Class B, Class C and Class Y shares of U.S. Government Fund and of Intermediate
Term Fund for the periods of time specified below. The calculations of total
return assume the reinvestment of all dividends and capital gains distributions
on the reinvestment date and the deduction of all recurring expenses (including
sales charges) that were charged to shareholders' accounts.
Average Annual Total Return (1)
1 Year Ended 5 Years Ended From Inception Inception
10/31/98 10/31/98 To 10/31/98 Date
U.S. Government Fund (2)
Class A shares 3.75% 5.20% 5.80% 1/11/93
Class B shares 3.12% 5.16% 5.84% 1/11/93
Class C shares 7.12% 5.56% 6.12% 9/2/94
Class Y shares 9.20% 6.49% 6.94% 9/2/93
Intermediate Term Fund (3)
Class A shares 3.93% 4.56% 5.76% 5/2/95
Class B shares 1.40% 4.39% 5.87% 2/9/96
Class C shares 5.40% 4.75% 5.90% 4/10/96
Class Y shares 7.47% 5.29% 6.29% 11/1/91
(1) Reflects waiver of advisory fees and reimbursements and/or waivers of
expenses. Without such reimbursements and/or waivers, the average annual total
returns during the periods would have been lower.
(2) Historical performance shown for Classes C and Y prior to their
inception is based on the performance of Class A, one of the original classes
offered along with Class B. These historical returns for Classes C and Y have
not been adjusted to reflect the effect of each Class' 12b-1 fees. These fees
for Classes A, B, and C are .25%, 1.00%, and 1.00%, respectively. Class Y does
not pay a 12b-1 fee. If these fees had been reflected, returns for Class C would
have been lower while returns for Class Y would have been higher.
(3) Historical performance shown for Classes A, B, and C prior to their
inception is based on the performance of Class Y, the original class offered.
These historical returns for Classes A, B, and C have not been adjusted to
reflect the effect of each Class' 12b-1 fees. These fees for Classes A, B, and C
are .25%, 1.00%, and 1.00%, respectively. Class Y does not pay a 12b-1 fee. If
these fees had been reflected, returns would have been lower.
Important information about U.S. Government Fund is also contained in
management's discussion of U.S. Government Fund's performance, attached hereto
as Exhibit B. This information also appears in U.S.
Government Fund's most recent Annual Report.
Management of the Funds
The overall management of U.S. Government Fund and of Intermediate Term
Fund is the responsibility of, and is supervised by, the Board of Trustees of
Evergreen Fixed Income Trust.
Investment Advisor
The investment advisor to U.S. Government Fund and Intermediate Term
Fund is Evergreen Investment Management ("EIM") (formerly known as Capital
Management Group or CMG). EIM is a division of First Union National Bank
("FUNB"). FUNB is a subsidiary of First Union Corporation ("First Union"), the
6th largest bank holding company in the United States based on total assets as
of March 31, 1999. EIM has been managing money for over 50 years and currently
manages $28.8 billion in assets for 44 of the Evergreen funds. EIM is located at
201 South College Street, Charlotte, North Carolina 28288-0630. For further
information regarding EIM, FUNB and First Union, see "Organization and Service
Providers - Service Providers" in the Prospectuses of U.S. Government Fund and
Intermediate Term Fund.
EIM manages investments and supervises the daily business affairs of
U.S. Government Fund and Intermediate Term Fund subject to the authority of the
Trustees. EIM is entitled to receive from each of U.S. Government Fund and
Intermediate Term Fund an annual fee equal to 0.50% and 0.60%, respectively, of
the Fund's average daily net assets.
EIM may, at its discretion, reduce or waive its fee or reimburse a Fund
for certain of its other expenses in order to reduce its expense ratios. EIM may
also reduce or cease these voluntary waivers and reimbursements at any time.
Year 2000 Risks. Like other investment companies, financial and business
organizations and individuals around the world, U.S. Government Fund could be
adversely affected if the computer systems used by EIM and the Fund's other
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." EIM is taking steps to address the Year 2000 Problem with respect
to the computer systems that it uses and to obtain assurances that comparable
steps are being taken by the Fund's other major service providers. At this time,
however, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the Fund.
Administrator
Evergreen Investment Services, Inc. ("EIS") serves as administrator to
U.S. Government Fund and Intermediate Term Fund, subject to the supervision and
control of the Trustees. EIS provides the Funds 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 administered by EIS for which any
affiliate of FUNB serves as investment advisor. The administration fee 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.
Portfolio Management
Rollin C. Williams is the portfolio manager of U.S. Government Fund. Mr.
Williams, CFA, and Sr. Vice President of EIM, has over 29 years of investment
and banking management experience. In addition to managing EIM's Diversified
Bond Group Trust, Stable Portfolio Group Trust, Evergreen Select Total Return
Bond Fund and bond management for the Evergreen Select Balanced Fund, he is also
responsible for the management of over $2.2 billion in fixed income portfolios.
Mr. Williams was the head of fixed income investment at Dominion Trust Company
in Roanoke, VA, from 1988 until 1993, at which time Dominion was acquired by
FUNB and Mr. Williams was named Vice President and senior portfolio manager.
Distribution of Shares
Evergreen Distributor, Inc. ("EDI"), an affiliate of BISYS Fund Services
("BISYS"), acts as underwriter of shares of U.S. Government Fund and
Intermediate Term Fund. EDI distributes each Fund's services directly or through
broker-dealers, banks (including FUNB), or other financial intermediaries. Each
Fund offers four classes of shares: Class A, Class B, Class C and Class Y. Each
class has separate distribution arrangements and bears its own distribution
expenses. (See "Distribution-Related and Shareholder Servicing-Related Expenses"
below.)
In the proposed Merger, Intermediate Term Fund shareholders will receive
the Corresponding Shares of U.S. Government Fund. The Corresponding Shares of
U.S. Government Fund that Intermediate Term Fund shareholders will receive have
identical arrangements with respect to the imposition of Rule 12b-1 distribution
and service fees as the shares they currently hold. Because the Merger will be
effected at net asset value without the imposition of a sales charge,
Intermediate Term Fund shareholders will receive U.S. Government Fund shares
without paying any initial sales charge or CDSC as a result of the Merger. U.S.
Government Fund Class B and Class C shares received by Intermediate Term Fund
shareholders as a result of the Merger will continue to be subject to a CDSC
upon subsequent redemption, but the CDSC will be based on the date of the
original purchase of Intermediate Term Fund shares.
The following is a summary description of charges and fees for the Class
A, Class B, Class C and Class Y shares of U.S. Government Fund which will be
received by Intermediate Term Fund shareholders in the Merger. More detailed
descriptions of the distribution arrangements applicable to the classes of
shares are contained in U.S. Government Fund and Intermediate Term Fund
Prospectuses and in the Funds' Statement of Additional Information.
Class A Shares. Class A shares are sold at net asset value plus an
initial sales charge and, as indicated below, are subject to
distribution-related fees. For a description of the initial sales charges
applicable to purchases of Class A shares, see "Purchase and Redemption of
Shares - How to Buy Shares" in the Prospectus of U.S. Government Fund offering
Class A shares. No initial sales charge will be imposed on Class A shares of
U.S. Government Fund received by Intermediate Term Fund's shareholders in the
Merger.
Class B Shares. Class B shares are sold without an initial sales charge
but are subject to a CDSC, which ranges from 5% to 1%, if shares are redeemed
during the first 6 years after the month of purchase. In addition, Class B
shares are subject to distribution-related fees and shareholder
servicing-related fees as described below. For purposes of determining when
Class B shares issued in the Merger to shareholders of Intermediate Term Fund
will convert to Class A shares, such shares will be deemed to have been
purchased as of the date Class B shares of Intermediate Term Fund were
originally purchased.
Class B shares are subject to higher distribution-related fees than the
corresponding Class A shares on which a front-end sales charge is imposed (until
they convert to Class A shares). 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 of the Fund.
Class C Shares. Class C shares are sold without initial sales charges
but, as indicated below, are subject to distribution and shareholder
servicing-related fees. Class C shares are subject to a 1% CDSC if such shares
are redeemed within 13 months of purchase. No CDSC is imposed on amounts
redeemed thereafter. Class C shares incur higher distribution-related and
shareholder servicing-related fees than Class A shares, but unlike Class B
shares, do not convert to any other class of shares.
Class Y Shares. Class Y shares are sold at net asset value without any
initial or deferred sales charge and are not subject to distribution-related or
shareholder servicing-related fees. Class Y shares are only available to certain
classes of investors as is more fully described in the Class Y Prospectus for
U.S.
Government Fund.
Additional information regarding the classes of shares of each Fund is
included in its Prospectuses and Statement of Additional Information.
Distribution-Related and Shareholder Servicing-Related Expenses. Each
Fund has adopted a Rule 12b-1 plan with respect to its Class A shares under
which the Class may pay for distribution-related expenses at an annual rate
which may not exceed 0.75% of average daily net assets attributable to the
Class. Payments with respect to Class A shares are currently limited to 0.25% of
average daily net assets attributable to the Class. This amount may be increased
to the full plan rate for each Fund by the Trustees without shareholder
approval.
Each Fund has also adopted a 12b-1 plan with respect to its Class B and
Class C shares under which the Class may pay for distribution-related expenses
at an annual rate which may not exceed 1.00%. Of the total 1.00% 12b-1 fees, up
to 0.25% may be for payment in respect of "shareholder services." Consistent
with the requirements of Rule 12b-1 and the applicable rules of the National
Association of Securities Dealers, Inc., following the Merger U.S. Government
Fund may make distribution-related and shareholder servicing-related payments
with respect to Intermediate Term Fund shares sold prior to the Merger.
Additional information regarding the Rule 12b-1 plans adopted by each
Fund is included in its Prospectuses and Statement of Additional Information.
No 12b-1 plan has been adopted for the Class Y shares of either Fund.
Purchase and Redemption Procedures
Information concerning applicable sales charges and distribution-related
and shareholder servicing- related fees is provided above. Investments in the
Funds are not insured. The minimum initial purchase requirement for each Fund is
$1,000. There is no minimum for subsequent purchases of shares of either Fund.
Each Fund provides for telephone, mail or wire redemption of shares at net asset
value, less any CDSC, as next determined after receipt of a redemption request
on each day the New York Stock Exchange ("NYSE") is open for trading. Additional
information concerning purchases and redemptions of shares, including how each
Fund's net asset value is determined, is contained in the Funds' Prospectuses.
Each Fund may involuntarily redeem shareholders' accounts that have less than
$1,000 of invested funds. All funds invested in each Fund are invested in full
and fractional shares. The Funds reserve the right to reject any purchase order.
Exchange Privileges
Holders of shares of a class of each Fund may exchange their shares for
shares of the same class of any other Evergreen fund. Each Fund limits exchanges
to 5 per calendar year and 3 per calendar quarter. No sales charge is imposed on
an exchange. An exchange which represents an initial investment in another
Evergreen fund must amount to at least $1,000. The current exchange privileges,
and the requirements and limitations attendant thereto, are described in the
Funds' Prospectuses and Statement of Additional Information.
Dividend Policy
Each Fund distributes its investment company taxable income monthly and
its net realized gains at least annually. Shareholders begin to earn dividends
on the first business day after shares are purchased unless shares were not paid
for, in which case dividends are not earned until the next business day after
payment is received. Dividends and distributions are reinvested in additional
shares of the same class of the respective Fund, or paid in cash, as a
shareholder has elected. See the Funds' Prospectuses for further information
concerning dividends and distributions.
After the Merger, shareholders of Intermediate Term Fund who have
elected to have their dividends and/or distributions reinvested will have
dividends and/or distributions received from U.S. Government Fund reinvested in
shares of U.S. Government Fund. Shareholders of Intermediate Term Fund who have
elected to receive dividends and/or distributions in cash will receive dividends
and/or distributions from U.S. Government Fund in cash after the Merger,
although they may, after the Merger, elect to have such dividends and/or
distributions reinvested in additional shares of U.S. Government Fund.
Each of U.S. Government Fund and Intermediate Term Fund has qualified
and intends to continue to qualify to be treated as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code"). While
so qualified, so long as each Fund distributes all of its net investment company
taxable income and any net realized gains to shareholders, it is expected that a
Fund will not be required to pay any federal income taxes on the amounts so
distributed. A 4% nondeductible excise tax will be imposed on amounts not
distributed if a Fund does not meet certain distribution requirements by the end
of each calendar year. Each Fund anticipates meeting such distribution
requirements.
Risks
Many of the risks involved in investing in each Fund's shares are
similar. There is no assurance that investment performances will be positive and
that the Funds will meet their investment objectives. For a discussion of each
Fund's objectives and policies, see "Comparison of Investment Objectives and
Policies."
When interest rates go up, the value of debt securities tends to fall. Since the
Funds invest a significant portion of their portfolio in debt securities if
interest rates rise, then the value of and total return earned on your
investment may decline. When interest rates go down, interest earned by the
Funds on their debt securities may also decline, which could cause the Funds to
reduce the dividends they pay. The longer the maturity of a debt security, the
greater the exposure to market price fluctuations. U.S. Government Fund may be
more sensitive to this risk because it does not have maturity restrictions.
The value of a debt security is directly affected by the issuer's ability to
repay principal and pay interest on time. Since the Funds invest in debt
securities, then the value of and total return earned on a shareholder's
investment may decline if an issuer fails to pay an obligation on a timely
basis.
Like other debt securities, changes in interest rates generally affect the value
of a mortgage-backed security. Additionally, some mortgage-backed securities may
be structured so that they may be particularly sensitive to interest rates.
Early repayment of mortgages underlying these securities may expose a Fund to a
lower rate of return when it reinvests the principal.
U.S. Government Fund may invest in bonds rated Baa by Moody's Investors Service
("Moody's") or BBB by Standard & Poor's Rating Services ("S&P"), which 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.
In addition, the Funds may invest in a variety of derivative instruments to
protect against interest rate changes. Derivatives are financial contracts whose
value is based on an underlying asset, such as a stock or a bond, or an
underlying economic factor, such as an index or an interest rate. Small price
movements in the underlying asset can result in immediate and substantial gains
or losses in the value of derivatives.
REASONS FOR THE MERGER
At a regular meeting held on March 12, 1999, all of the Trustees of
Evergreen Fixed Income Trust, including the Independent Trustees, considered and
approved the Merger as in the best interests of shareholders of Intermediate
Term Fund and determined that the interests of existing shareholders of
Intermediate Term Fund will not be diluted as a result of the transactions
contemplated by the Merger.
Before approving the Plan, the Trustees reviewed various factors about
the Funds and the proposed Merger. The Trustees considered among other things:
- the terms and conditions of the Merger;
- whether the Merger would result in the dilution of shareholders' interests;
- expense ratios, fees and expenses of U.S. Government Fund and Intermediate
Term Fund;
- the comparative performance records of each of the Funds;
- compatibility of their investment objectives and policies;
- the investment experience, expertise and resources of EIM;
- the service and distribution resources available to the Evergreen funds and
the broad array of investment alternatives available to shareholders of the
Evergreen funds;
- the personnel and financial resources of First Union and its affiliates;
- the fact that FUNB will bear the expenses incurred by Intermediate Term
Fund in connection with the Merger;
- the fact that U.S. Government Fund will assume the identified liabilities of
Intermediate Term Fund;
- the expected federal income tax consequences of the Merger; and
- alternatives available to shareholders of Intermediate Term Fund, including
the ability to redeem their shares.
In approving the Merger, the Trustees reviewed various factors about the
Funds and the proposed Merger. The factors include similarity in product
offerings and declining customer demand and sales.
The Trustees considered the substantial similarities of the Funds'
investment objectives, investment parameters and security selection process. The
Trustees considered the fact that the Funds are both government bond funds in
the Evergreen fund family with the primary difference between them being
duration and maturity. The duration and maturity is limited for the Intermediate
Term Fund whereas U.S. Government Fund is not restricted and is therefore able
to take advantage of additional opportunities due to changes in yield and to
invest in a wider selection of investments to the benefit of the Fund's
shareholders. The Funds have similar portfolio characteristics and their
portfolio holdings share an average quality of AAA.
During their consideration of the Merger the Trustees met with Fund
counsel and counsel to the Independent Trustees regarding the legal issues
involved. The Trustees also concluded at the meeting that the proposed Merger
would be in the best interests of shareholders of Intermediate Term Fund and
that the interests of shareholders of Intermediate Term Fund would not be
diluted as a result of the transactions contemplated by the Merger.
The Trustees also evaluated the potential economies of scale associated
with larger mutual funds and concluded that operational efficiencies may be
achieved by the combination of U.S. Government Fund and Intermediate Term Fund.
As of December 31, 1998, U.S. Government Fund's net assets were approximately
$370.5 million and Intermediate Term Fund's net assets were approximately $170.3
million.
THE TRUSTEES OF EVERGREEN FIXED INCOME TRUST RECOMMEND
THAT THE SHAREHOLDERS OF INTERMEDIATE TERM FUND APPROVE
THE PROPOSED MERGER.
Agreement and Plan of Reorganization
The following summary is qualified in its entirety by reference to the
Plan (Exhibit A hereto).
The Plan provides that U.S. Government Fund will acquire all of the
assets of Intermediate Term Fund in exchange for shares of U.S. Government Fund
and the assumption by U.S. Government Fund of the identified liabilities of
Intermediate Term Fund on or about July 30, 1999 or such other date as may be
agreed upon by the parties (the "Closing Date"). Prior to the Closing Date,
Intermediate Term Fund will endeavor to discharge all of its known liabilities
and obligations. U.S. Government Fund will not assume any liabilities or
obligations of Intermediate Term Fund other than those reflected in an unaudited
statement of assets and liabilities of Intermediate Term Fund prepared as of the
close of regular trading on the NYSE, currently 4:00 p.m. Eastern time, on the
business day immediately prior to the Closing Date. The number of full and
fractional shares of each class of U.S. Government Fund to be received by the
shareholders of Intermediate Term Fund will be determined by multiplying the
respective outstanding class of shares of Intermediate Term Fund by a factor
which shall be computed by dividing the net asset value per share of the
respective class of shares of Intermediate Term Fund by the net asset value per
share of the respective class of shares of U.S. Government Fund. Such
computations will take place as of the close of regular trading on the NYSE on
the business day immediately prior to the Closing Date. The net asset value per
share of each class will be determined by dividing assets, less liabilities, in
each case attributable to the respective class, by the total number of
outstanding shares.
State Street Bank and Trust Company, the custodian for the Funds, will
compute the value of each Fund's respective portfolio securities. The method of
valuation employed will be consistent with the procedures set forth in the
Prospectuses and Statement of Additional Information of U.S. Government Fund,
Rule 22c-1 under the 1940 Act, and with the interpretations of such Rule by the
SEC's Division of Investment Management.
At or prior to the Closing Date, Intermediate Term Fund will have
declared a dividend or dividends and distribution or distributions which,
together with all previous dividends and distributions, shall have the effect of
distributing to the Fund's shareholders (in shares of the Fund, or in cash, as
the shareholder has previously elected) all of the Fund's net investment company
taxable income for the taxable period ending on the Closing Date (computed
without regard to any deduction for dividends paid) and all of its net capital
gains realized in all taxable periods ending on the Closing Date (after
reductions for any capital loss carryforward).
As soon after the Closing Date as conveniently practicable, Intermediate
Term Fund will liquidate and distribute pro rata to shareholders of record as of
the close of business on the Closing Date the full and fractional shares of U.S.
Government Fund received by Intermediate Term Fund. Such liquidation and
distribution will be accomplished by the establishment of accounts in the names
of the Intermediate Term Fund's shareholders on U.S. Government Fund's share
records of its transfer agent. Each account will represent the respective pro
rata number of full and fractional shares of U.S. Government Fund due to the
Fund's shareholders. All issued and outstanding shares of Intermediate Term
Fund, including those represented by certificates, will be canceled. The shares
of U.S. Government Fund to be issued will have no preemptive or conversion
rights. After these distributions and the winding up of its affairs,
Intermediate Term Fund will be terminated.
The consummation of the Merger is subject to the conditions set forth in
the Plan, including approval by Intermediate Term Fund's shareholders, accuracy
of various representations and warranties and receipt of opinions of counsel,
including opinions with respect to those matters referred to in "Federal Income
Tax Consequences" below. Notwithstanding approval of Intermediate Term Fund's
shareholders, the Plan may be terminated (a) by the mutual agreement of
Intermediate Term Fund and U.S. Government Fund; or (b) at or prior to the
Closing Date by either party (i) because of a breach by the other party of any
representation, warranty, or agreement contained therein to be performed at or
prior to the Closing Date if not cured within 30 days, or (ii) because a
condition to the obligation of the terminating party has not been met and it
reasonably appears that it cannot be met.
Whether or not the Merger is consummated FUNB will pay the expenses
incurred by Intermediate Term Fund in connection with the Merger (including the
cost of any proxy soliciting agent). No portion of the expenses will be borne
directly or indirectly by Intermediate Term Fund or its shareholders.
If Intermediate Term Fund shareholders do not approve the Merger, the
Trustees will consider other possible courses of action which may be in the best
interests of shareholders.
Federal Income Tax Consequences
The Merger is intended to qualify for federal income tax purposes as a
tax-free reorganization under section 368(a) of the Code. As a condition to the
closing of the Merger, Intermediate Term Fund will receive an opinion of
Sullivan & Worcester LLP to the effect that, on the basis of the existing
provisions of the Code, U.S. Treasury regulations issued thereunder, current
administrative rules, pronouncements and court decisions, for federal income tax
purposes, upon consummation of the Merger:
(1) The transfer of all of the assets of Intermediate Term Fund solely
in exchange for shares of U.S. Government Fund and the assumption by U.S.
Government Fund of the identified liabilities, followed by the distribution of
U.S. Government Fund's shares by Intermediate Term Fund in dissolution and
liquidation of Intermediate Term Fund, will constitute a "reorganization" within
the meaning of section 368(a)(1)(C) of the Code, and U.S. Government Fund and
Intermediate Term Fund will each be a "party to a reorganization" within the
meaning of section 368(b) of the Code;
(2) No gain or loss will be recognized by Intermediate Term Fund on the
transfer of all of its assets to U.S. Government Fund solely in exchange for
U.S. Government Fund's shares and the assumption by U.S. Government Fund of the
identified liabilities of Intermediate Term Fund or upon the distribution of
U.S. Government Fund's shares to Intermediate Term Fund's shareholders in
exchange for their shares of Intermediate Term Fund;
(3) The tax basis of the assets transferred will be the same to U.S.
Government Fund as the tax basis of such assets to Intermediate Term Fund
immediately prior to the Merger, and the holding period of such assets in the
hands of U.S. Government Fund will include the period during which the assets
were held by Intermediate Term Fund;
(4) No gain or loss will be recognized by U.S. Government Fund upon the
receipt of the assets from Intermediate Term Fund solely in exchange for the
shares of U.S. Government Fund and the assumption by U.S. Government Fund of the
identified liabilities of Intermediate Term Fund;
(5) No gain or loss will be recognized by Intermediate Term Fund's
shareholders upon the issuance of the shares of U.S. Government Fund to them,
provided they receive solely such shares (including fractional shares) in
exchange for their shares of Intermediate Term Fund; and
(6) The aggregate tax basis of the shares of U.S. Government Fund,
including any fractional shares, received by each of the shareholders of
Intermediate Term Fund pursuant to the Merger will be the same as the aggregate
tax basis of the shares of Intermediate Term Fund held by such shareholder
immediately prior to the Merger, and the holding period of the shares of U.S.
Government Fund, including fractional shares, received by each such shareholder
will include the period during which the shares of Intermediate Term Fund
exchanged therefor were held by such shareholder (provided that the shares of
Intermediate Term Fund were held as a capital asset on the date of the Merger).
Opinions of counsel are not binding upon the Internal Revenue Service or
the courts. If the Merger is consummated but does not qualify as a tax-free
reorganization under the Code, a shareholder of Intermediate Term Fund would
recognize a taxable gain or loss equal to the difference between his or her tax
basis in his or her Fund shares and the fair market value of U.S. Government
Fund shares he or she received. Shareholders of Intermediate Term Fund should
consult their tax adviser regarding the effect, if any, of the proposed Merger
in light of their individual circumstances. It is not anticipated that the
securities of the combined portfolio will be sold in significant amounts in
order to comply with the policies and investment practices of U.S. Government
Fund. Since the foregoing discussion relates only to the federal income tax
consequences of the Merger, shareholders of Intermediate Term Fund should also
consult their tax advisers as to the state and local tax consequences, if any,
of the Merger.
Capital loss carryforwards of Intermediate Term Fund will be available
to U.S. Government Fund to offset capital gains recognized after the Merger,
subject to limitations imposed by the Code. These limitations provide generally
that the amount of loss carryforward which may be used in any year following the
closing is an amount equal to the value of all of the outstanding stock of
Intermediate Term Fund immediately prior to the Merger, multiplied by a
long-term tax-exempt bond rate determined monthly by the Internal Revenue
Service. The rate for April, 1999 was 4.78%. A capital loss carryforward may
generally be used without any limit to offset gains recognized on sale of assets
transferred by Intermediate Term Fund to U.S. Government Fund pursuant to the
Merger, to the extent of the excess of the value of any such asset on the
Closing Date over its tax basis.
Pro-forma Capitalization
The following table sets forth the capitalizations of U.S. Government
Fund and Intermediate Term Fund as of October 31, 1998, and the capitalization
of U.S. Government Fund on a pro forma basis as of that date, giving effect to
the proposed acquisition of assets at net asset value. The pro forma data
reflects an exchange ratio of approximately 1.045409 for each of the Class A,
Class B, Class C and Class Y shares, of U.S. Government Fund issued for each
Class A, Class B, Class C and Class Y share, respectively, of Intermediate Term
Fund.
Capitalization of Intermediate Term Fund,
U.S. Government Fund and U.S. Government Fund (Pro Forma)
Intermediate Term U.S. Government U.S. Government Fund
Fund Fund (After Merger)
Net Assets
Class A $78,073,326 $48,945,226 $127,018,552
Class B $2,512,701 $132,259,387 $134,772,088
Class C $234,946 $5,832,818 $6,067,764
Class Y $94,046,412 $186,414,206 $280,460,618
Total Net Assets $174,867,385 $373,451,637 $548,319,022
Net Asset Value Per Share
Class A $10.36 $9.91 $9.91
Class B $10.36 $9.91 $9.91
Class C $10.36 $9.91 $9.91
Class Y $10.36 $9.91 $9.91
Shares Outstanding
Class A 7,535,594 4,937,457 12,815,235
Class B 242,518 13,341,442 13,594,972
Class C 22,678 588,378 612,086
Class Y 9,077,310 18,804,647 28,294,149
All Classes 16,878,100 37,671,924 55,316,442
The table set forth above should not be relied upon to reflect the
number of shares to be received in the Merger; the actual number of shares to be
received will depend upon the net asset value and number of shares outstanding
of each Fund at the time of the Merger.
Shareholder Information
As of May 5, 1999 (the "Record Date"), the following number of each
Class of shares of beneficial interest of Intermediate Term Fund was
outstanding:
Class of Shares
Class A
Class B
Class C
Class Y
All Classes
As of the Record Date, the officers and Trustees of Evergreen Fixed
Income Trust beneficially owned as a group less than 1% of the outstanding
shares of Intermediate Term Fund. To Evergreen Fixed Income Trust's knowledge,
the following persons owned beneficially or of record more than 5% of
Intermediate Term Fund's total outstanding shares as of the Record Date:
Percentage of Percentage of
Shares of Class Shares of Class
Name and Address Class No. of Shares Before Merger After Merger
[to be supplied]
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion is based upon and qualified in its entirety by
the descriptions of the respective investment objectives, policies and
restrictions set forth in the respective Prospectuses and Statement of
Additional Information of the Funds. The investment objectives, policies and
restrictions of each Fund can be found in the Prospectus of U.S. Government Fund
and Intermediate Term Fund under the caption "Description of the Funds -
Investment Objective and Policies." The Prospectuses for U.S. Government Fund
and Intermediate Term Fund also offer additional funds advised by EIM or its
affiliates. These additional funds are not involved in the Merger and their
shares are not offered hereby.
The investment objective of U.S. Government Fund is to achieve a high
level of current income consistent with stability of principal. The Fund invests
primarily in U.S. government obligations. In addition, the Fund may invest in
mortgage- and asset-backed securities and collateralized mortgage obligations
("CMOs").
The Fund will only invest in CMOs which are rated AAA by an nationally
recognized statistical rating organization ("NRSRO") and which may be: (i)
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: (ii) 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 (iii) 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. Up to 20% of the Fund's total assets may
be invested in (i) CMOs and commercial paper which mature in 270 days or less so
long as at least two of its ratings are high quality ratings by an NRSRO; 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.
The investment objective of Intermediate Term Government Securities Fund
is to preserve principal value and maintain a high degree of liquidity while
providing current income. Unlike U.S. Government Fund, Intermediate Term
Government Securities Fund invests exclusively in U.S. government obligations.
Up to 35% of total assets may be invested in receipts evidencing separately
traded principal and interest components of U.S. government obligations,
obligations of supranational entities and repurchase agreements involving any
such obligations. While Intermediate Term Government Fund also invests in
mortgage- and asset-backed securities, but it does not invest in CMOs.
Intermediate Term Government Fund maintains an average weighted remaining
maturity of approximately three to ten years. U.S. Government Fund does not have
maturity restrictions.
If either Fund invests in a security that loses its rating or has its
rating reduced after the Fund has purchased it, the Fund is not required to sell
or otherwise dispose of the security, but may consider doing so.
The U.S. Government Fund may invest in structured securities, such as
commercial bank loans or Brady Bonds. The Intermediate Term Government
Securities Fund cannot invest in this type of securities.
The characteristics of each investment policy and the associated risks
are described in the Funds' Prospectuses and Statement of Additional
Information. The Funds have other investment policies and restrictions which are
also set forth in the Statement of Additional Information.
INFORMATION ON SHAREHOLDERS' RIGHTS
Form of Organization
Evergreen Fixed Income Trust is an open-end management investment
company registered with the SEC under the 1940 Act, which continuously offers
shares to the public. Evergreen Fixed Income Trust is organized as a Delaware
business trust and is governed by its Declaration of Trust, By-Laws, a Board of
Trustees and by applicable Delaware and federal law. U.S. Government Fund and
Intermediate Term Fund are series of Evergreen Fixed Income Trust.
Capitalization
The beneficial interests in U.S. Government Fund and Intermediate Term
Fund are represented by an unlimited number of transferable shares of beneficial
interest, $.001 par value per share. Evergreen Fixed Income Trust's Declaration
of Trust permits the Trustees to allocate shares into an unlimited number of
series, and classes thereof, with rights determined by the Trustees, all without
shareholder approval. Fractional shares may be issued by either Fund. Each
Fund's shares represent equal proportionate interests in the assets belonging to
the Funds. Shareholders of each Fund are entitled to receive dividends and other
amounts as determined by the Trustees. Shareholders of each Fund vote
separately, by class, as to matters, such as approval of or amendments to Rule
12b-1 distribution plans, that affect only their particular class and by Fund as
to matters, such as approval of or amendments to investment advisory agreements
or proposed mergers, that affect only their particular Fund.
Shareholder Liability
Under Delaware law, shareholders of a Delaware business trust are
entitled to the same limitation of personal liability extended to stockholders
of Delaware corporations. No similar statutory or other authority limiting
business trust shareholder liability exists in any other state. As a result, to
the extent that Evergreen Fixed Income Trust or a shareholder is subject to the
jurisdiction of courts in those states, it is possible that a court may not
apply Delaware law, and may thereby subject shareholders of Evergreen Fixed
Income Trust to liability. To guard against this risk, the Declaration of Trust
of Evergreen Fixed Income Trust (a) provides that any written obligation of the
Trust may contain a statement that such obligation may only be enforced against
the assets of the Trust or the particular series in question and the obligation
is not binding upon the shareholders of the Trust; however, the omission of such
a disclaimer will not operate to create personal liability for any shareholder;
and (b) provides for indemnification out of Trust property of any shareholder
held personally liable for the obligations of the Trust. Accordingly, the risk
of a shareholder of Evergreen Fixed Income Trust incurring financial loss beyond
that shareholder's investment because of shareholder liability is limited to
circumstances in which: (i) the court refuses to apply Delaware law; (ii) no
contractual limitation of liability was in effect; and (iii) the Trust itself is
unable to meet its obligations. In light of Delaware law, the nature of the
Trust's business, and the nature of its assets, the risk of personal liability
to a shareholder of Evergreen Fixed Income Trust is remote.
Shareholder Meetings and Voting Rights
Evergreen Fixed Income Trust on behalf of U.S. Government Fund and
Intermediate Term Fund is not required to hold annual meetings of shareholders.
However, a meeting of shareholders for the purpose of voting upon the question
of removal of a Trustee must be called when requested in writing by the holders
of at least 10% of the outstanding shares of Evergreen Fixed Income Trust. In
addition Evergreen Fixed Income Trust is required to call a meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of the Trustees then holding office were elected by shareholders.
Evergreen Fixed Income Trust does not currently intend to hold regular
shareholder meetings. Cumulative voting is not permitted. Except when a larger
quorum is required by applicable law, with respect to both Funds, 25% of the
outstanding shares entitled to vote constitutes a quorum for consideration of
such matter. For each Fund, a majority (greater than 50%) of the votes cast and
entitled to vote is sufficient to act on a matter (unless otherwise specifically
required by the applicable governing documents or other law, including the 1940
Act).
Under the Declaration of Trust of Evergreen Fixed Income Trust, each
share of U.S. Government Fund and Intermediate Term Fund will be entitled to one
vote for each dollar of net asset value applicable to such share.
Liquidation or Dissolution
In the event of the liquidation of U.S. Government Fund or Intermediate
Term Fund, the shareholders are entitled to receive, when and as declared by the
Trustees, the excess of the assets belonging to such Fund or attributable to the
class over the liabilities belonging to the Fund or attributable to the class.
In either case, the assets so distributable to shareholders of the Fund will be
distributed among the shareholders in proportion to the number of shares of a
class of the Fund held by them and recorded on the books of the Fund.
Liability and Indemnification of Trustees
Under the Declaration of Trust of Evergreen Fixed Income Trust, a
Trustee is liable to the Trust and its shareholders only for such Trustee's own
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of the office of Trustee or the discharge of such
Trustee's functions. As provided in the Declaration of Trust, each Trustee of
the Trust is entitled to be indemnified against all liabilities against him or
her, including the costs of litigation, unless it is determined that the Trustee
(i) did not act in good faith in the reasonable belief that such Trustee's
action was in or not opposed to the best interests of the Trust; (ii) had acted
with willful misfeasance, bad faith, gross negligence or reckless disregard of
such Trustee's duties; and (iii) in a criminal proceeding, had reasonable cause
to believe that such Trustee's conduct was unlawful (collectively, "disabling
conduct"). A determination that the Trustee did not engage in disabling conduct
and is, therefore, entitled to indemnification may be based upon the outcome of
a court action or administrative proceeding or by (a) a vote of a majority of
those Trustees who are neither "interested persons" within the meaning of the
1940 Act nor parties to the proceeding or (b) an independent legal counsel in a
written opinion. The Trust may also advance money for such litigation expenses
provided that the Trustee undertakes to repay the Trust if his or her conduct is
later determined to preclude indemnification and certain other conditions are
met.
The foregoing is only a summary of certain characteristics of the
operations of the Declaration of Trust of Evergreen Fixed Income Trust, its
By-Laws and Delaware law and is not a complete description of those documents or
law. Shareholders should refer to the provisions of such Declaration of Trust,
By-Laws and Delaware law directly for more complete information.
ADDITIONAL INFORMATION
U.S. Government Fund. Information concerning the operation and
management of U.S. Government Fund is incorporated herein by reference from the
Prospectuses dated September 1, 1998, copies of which are enclosed, and
Statement of Additional Information of the same date. A copy of such Statement
of Additional Information is available upon request and without charge by
writing to U.S. Government Fund at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-343-2898.
Intermediate Term Fund. Information about the Fund is included in its
current Prospectuses dated November 1, 1998 and in the Statement of Additional
Information of the same date, that have been filed with the SEC, all of which
are incorporated herein by reference. Copies of the Prospectuses and Statement
of Additional Information are available upon request and without charge by
writing to Intermediate Term Fund at the address listed on the cover page of
this Prospectus/Proxy Statement or by calling toll-free 1-800-343-2898.
U.S. Government Fund and Intermediate Term Fund are each subject to the
informational requirements of the Securities Exchange Act of 1934 and the 1940
Act, and in accordance therewith file reports and other information including
proxy material, and charter documents with the SEC. These items can be inspected
and copies obtained at the Public Reference Facilities maintained by the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional
Offices located at Northwest Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661-2511 and Seven World Trade Center, Suite 1300, New York, New York
10048.
The SEC maintains a Web site (http://www.sec.gov) that contains the
Funds' Statement of Additional Information and other material incorporated by
reference herein together with other information regarding U.S. Government Fund
and Intermediate Term Fund.
VOTING INFORMATION CONCERNING THE MEETING
This Prospectus/Proxy Statement is being sent to shareholders of
Intermediate Term Fund in connection with a solicitation of proxies by the
Trustees of Evergreen Fixed Income Trust, to be used at the Special Meeting of
Shareholders to be held at 2:00 p.m., July 23, 1999, at the offices of the
Evergreen funds, 200 Berkeley Street, 26th Floor, Boston, Massachusetts 02116,
and at any adjournments thereof. This Prospectus/Proxy Statement, along with a
Notice of the Meeting and a proxy card, is first being mailed to shareholders of
Intermediate Term Fund on or about June 2, 1999. Only shareholders of record as
of the close of business on the Record Date will be entitled to notice of, and
to vote at, the Meeting or any adjournment thereof. The holders of 25% of the
outstanding shares entitled to vote at the close of business on the Record Date
present in person or represented by proxy will constitute a quorum for the
Meeting. If the enclosed form of proxy is properly executed and returned in time
to be voted at the Meeting, the proxies named therein will vote the shares
represented by the proxy in accordance with the instructions marked thereon.
Unmarked proxies will be voted FOR the proposed Merger and FOR any other matters
deemed appropriate. Proxies that reflect abstentions and "broker non-votes"
(i.e., shares held by brokers or nominees as to which (i) instructions have not
been received from the beneficial owners or the persons entitled to vote or (ii)
the broker or nominee does not have discretionary voting power on a particular
matter) will be counted as shares that are present and entitled to vote for
purposes of determining the presence of a quorum, but will not have the effect
of being counted as votes against the Plan, which must be approved by a majority
of the votes cast and entitled to vote. A proxy may be revoked at any time on or
before the Meeting by written notice to the Secretary of Evergreen Fixed Income
Trust at the address set forth on the cover of this Prospectus/Proxy Statement.
Unless revoked, all valid proxies will be voted in accordance with the
specifications thereon or, in the absence of such specifications, FOR approval
of the Plan and the Merger contemplated thereby.
Approval of the Plan will require the affirmative vote of a majority of
the votes cast and entitled to vote, with all classes voting together as a
single class at the Meeting at which a quorum of the Fund's shares is present.
Each share outstanding is entitled to one vote for each dollar of net asset
value applicable to such share.
Proxy solicitations will be made primarily by mail, but proxy
solicitations may also be made by telephone, email or personal solicitations
conducted by officers and employees of FUNB, its affiliates or other
representatives of Intermediate Term Fund (who will not be paid for their
soliciting activities). If you wish to participate in the Meeting, you may
submit the proxy card included with this Prospectus/Proxy Statement, vote by fax
or attend in person. Any proxy given by you is revocable.
In the event that sufficient votes to approve the Merger are not
received by July 23, 1999, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of proxies. In
determining whether to adjourn the Meeting, the following factors may be
considered: the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further solicitation and the information
to be provided to shareholders with respect to the reasons for the solicitation.
Any such adjournment will require an affirmative vote by the holders of a
majority of the shares present in person or by proxy at the Meeting. The persons
named as proxies will vote upon such adjournment after consideration of all
circumstances which may bear upon a decision to adjourn the Meeting.
A shareholder who objects to the proposed Merger will not be entitled
under either Delaware law or the Declaration of Trust of Evergreen Fixed Income
Trust to demand payment for, or an appraisal of, his or her shares. However,
shareholders should be aware that the Merger as proposed is not expected to
result in recognition of gain or loss to shareholders for federal income tax
purposes and that, if the Merger is consummated, shareholders will be free to
redeem the shares of U.S. Government Fund which they receive in the transaction
at their then-current net asset value. Shares of Intermediate Term Fund may be
redeemed at any time prior to the consummation of the Merger. Shareholders of
Intermediate Term Fund may wish to consult their tax advisers as to any
differing consequences of redeeming Fund shares prior to the Merger or
exchanging such shares in the Merger.
Intermediate Term Fund does not hold annual shareholder meetings. If the
Merger is not approved, shareholders wishing to submit proposals to be
considered for inclusion in a proxy statement for a subsequent shareholder
meeting should send their written proposals to the Secretary of Evergreen Fixed
Income Trust at the address set forth on the cover of this Prospectus/Proxy
Statement so that they will be received by the Fund in a reasonable period of
time prior to the meeting.
The votes of the shareholders of U.S. Government Fund are not being
solicited by this Prospectus/Proxy Statement and are not required to carry out
the Merger.
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR
NOMINEES. Please advise Intermediate Term Fund whether other persons are
beneficial owners of shares for which proxies are being solicited and, if so,
the number of copies of this Prospectus/Proxy Statement needed to supply copies
to the beneficial owners of the respective shares.
FINANCIAL STATEMENTS AND EXPERTS
The Annual Report of U.S. Government Fund as of April 30, 1998, and the
financial statements and financial highlights for the periods indicated therein,
have been incorporated by reference herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The Annual Report of Intermediate Term Fund as of June 30, 1998, and the
financial highlights and financial statements for the periods indicated therein,
have been incorporated by reference herein and in the Registration Statement in
reliance upon the report of incorporated by reference herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein and
upon the authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of U.S.
Government Fund will be passed upon by Sullivan & Worcester LLP, Washington,
D.C.
OTHER BUSINESS
The Trustees of Evergreen Fixed Income Trust do not intend to present
any other business at the Meeting. If, however, any other matters are properly
brought before the Meeting, the persons named in the accompanying form of proxy
will vote thereon in accordance with their judgment.
THE TRUSTEES OF EVERGREEN FIXED INCOME TRUST RECOMMEND APPROVAL OF THE
PLAN AND ANY UNMARKED PROXIES WITHOUT INSTRUCTIONS TO THE CONTRARY WILL BE VOTED
IN FAVOR OF APPROVAL OF THE PLAN.
June 2, 1999
EXHIBIT A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this 30th day of April, 1999, by and between Evergreen Fixed Income Trust (the
"Trust"), a Delaware business trust, with its principal place of business at 200
Berkeley Street, Boston, Massachusetts 02116, with respect to its Evergreen U.S.
Government Fund series (the "Acquiring Fund"), and the Trust, with respect to
its Evergreen Intermediate Term Fund series (the "Selling Fund").
This Agreement is intended to be, and is adopted as, a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of (i) the transfer of all of
the assets of the Selling Fund in exchange solely for Class A, Class B, Class C
and Class Y shares of beneficial interest, $.001 par value per share, of the
Acquiring Fund (the "Acquiring Fund Shares"); (ii) the assumption by the
Acquiring Fund of the identified liabilities of the Selling Fund; and (iii) the
distribution, after the Closing Date hereinafter referred to, of the Acquiring
Fund Shares to the shareholders of the Selling Fund in liquidation of the
Selling Fund as provided herein, all upon the terms and conditions hereinafter
set forth in this Agreement.
WHEREAS, the Selling Fund and the Acquiring Fund are each a separate
investment series of an open-end, registered investment company of the
management type and the Selling Fund owns securities that generally are assets
of the character in which the Acquiring Fund is permitted to invest;
WHEREAS, both Funds are authorized to issue their shares of beneficial
interest;
WHEREAS, the Trustees of the Trust have determined that the exchange of
all of the assets of the Selling Fund for Acquiring Fund Shares and the
assumption of the identified liabilities of the Selling Fund by the Acquiring
Fund on the terms and conditions hereinafter set forth are in the best interests
of the Acquiring Fund's shareholders;
WHEREAS, the Trustees of the Trust have determined that the Selling Fund
should exchange all of its assets and the identified liabilities for Acquiring
Fund Shares and that the interests of the existing shareholders of the Selling
Fund will not be diluted as a result of the transactions contemplated herein;
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR THE ACQUIRING FUND
SHARES AND ASSUMPTION OF SELLING FUND LIABILITIES AND LIQUIDATION OF THE SELLING
FUND
1.1 The Exchange. Subject to the terms and conditions herein set forth
and on the basis of the representations and warranties contained herein, the
Selling Fund agrees to transfer all of the Selling Fund's assets as set forth in
paragraph 1.2 to the Acquiring Fund. The Acquiring Fund agrees in exchange
therefor (i) to deliver to the Selling Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined by multiplying the shares
outstanding of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of each such class of the Selling Fund by the net
asset value per share of the corresponding class of Acquiring Fund Shares
computed in the manner and as of the time and date set forth in paragraph 2.2;
and (ii) to assume the identified liabilities of the Selling Fund, as set forth
in paragraph 1.3. Such transactions shall take place at the closing provided for
in paragraph 3.1 (the "Closing Date").
1.2 Assets to be Acquired. The assets of the Selling Fund to be acquired
by the Acquiring Fund shall consist of all property, including, without
limitation, all cash, securities, commodities, interests in futures and
dividends or interest receivables, that is owned by the Selling Fund and any
deferred or prepaid expenses shown as an asset on the books of the Selling Fund
on the Closing Date.
The Selling Fund has provided the Acquiring Fund with its most recent
audited financial statements, which contain a list of all of Selling Fund's
assets as of the date thereof. The Selling Fund hereby represents that as of the
date of the execution of this Agreement there have been no changes in its
financial position as reflected in said financial statements other than those
occurring in the ordinary course of its business in connection with the purchase
and sale of securities and the payment of its normal operating expenses. The
Selling Fund reserves the right to sell any of such securities, but will not,
without the prior written approval of the Acquiring Fund, acquire any additional
securities other than securities of the type in which the Acquiring Fund is
permitted to invest.
The Acquiring Fund will, within a reasonable time prior to the Closing
Date, furnish the Selling Fund with a list of the securities, if any, on the
Selling Fund's list referred to in the second sentence of this paragraph that do
not conform to the Acquiring Fund's investment objectives, policies, and
restrictions. The Selling Fund will, within a reasonable period of time prior to
the Closing Date, furnish the Acquiring Fund with a list of its portfolio
securities and other investments. In the event that the Selling Fund holds any
investments that the Acquiring Fund may not hold, the Selling Fund, if requested
by the Acquiring Fund, will dispose of such securities prior to the Closing
Date. In addition, if it is determined that the Selling Fund and the Acquiring
Fund portfolios, when aggregated, would contain investments exceeding certain
percentage limitations imposed upon the Acquiring Fund with respect to such
investments, the Selling Fund if requested by the Acquiring Fund will dispose of
a sufficient amount of such investments as may be necessary to avoid violating
such limitations as of the Closing Date. Notwithstanding the foregoing, nothing
herein will require the Selling Fund to dispose of any investments or securities
if, in the reasonable judgment of the Selling Fund, such disposition would
adversely affect the tax-free nature of the Reorganization or would violate the
Selling Fund's fiduciary duty to its shareholders.
1.3 Liabilities to be Assumed. The Selling Fund will endeavor to
discharge all of its known liabilities and obligations prior to the Closing
Date. The Acquiring Fund shall assume only those liabilities, expenses, costs,
charges and reserves reflected on a Statement of Assets and Liabilities of the
Selling Fund prepared on behalf of the Selling Fund, as of the Valuation Date
(as defined in paragraph 2.1), in accordance with generally accepted accounting
principles consistently applied from the prior audited period. The Acquiring
Fund shall assume only those liabilities of the Selling Fund reflected in such
Statement of Assets and Liabilities and shall not assume any other liabilities,
whether absolute or contingent, known or unknown, accrued or unaccrued, all of
which shall remain the obligation of the Selling Fund.
In addition, upon completion of the Reorganization, for purposes of
calculating the maximum amount of sales charges (including asset based sales
charges) permitted to be imposed by the Acquiring Fund under the National
Association of Securities Dealers, Inc. Conduct Rule 2830 ("Aggregate NASD
Cap"), the Acquiring Fund will add to its Aggregate NASD Cap immediately prior
to the Reorganization the Aggregate NASD Cap of the Selling Fund immediately
prior to the Reorganization, in each case calculated in accordance with such
Rule 2830.
1.4 Liquidation and Distribution. On or as soon after the Closing Date
as is conveniently practicable (the "Liquidation Date"), (a) the Selling Fund
will liquidate and distribute pro rata to the Selling Fund's shareholders of
record, determined as of the close of business on the Valuation Date (the
"Selling Fund Shareholders"), the Acquiring Fund Shares received by the Selling
Fund pursuant to paragraph 1.1; and (b) the Selling Fund will thereupon proceed
to dissolve as set forth in paragraph 1.8 below. Such liquidation and
distribution will be accomplished by the transfer of the Acquiring Fund Shares
then credited to the account of the Selling Fund on the books of the Acquiring
Fund to open accounts on the share records of the Acquiring Fund in the names of
the Selling Fund Shareholders and representing the respective pro rata number of
the Acquiring Fund Shares due such shareholders. All issued and outstanding
shares of the Selling Fund will simultaneously be canceled on the books of the
Selling Fund. The Acquiring Fund shall not issue certificates representing the
Acquiring Fund Shares in connection with such exchange.
1.5 Ownership of Shares. Ownership of Acquiring Fund Shares will be
shown on the books of the Acquiring Fund's transfer agent. Shares of the
Acquiring Fund will be issued in the manner described in the combined Prospectus
and Proxy Statement on Form N-14 to be distributed to shareholders of the
Selling Fund as described in paragraph 5.7.
1.6 Transfer Taxes. Any transfer taxes payable upon issuance of the
Acquiring Fund Shares in a name other than the registered holder of the Selling
Fund shares on the books of the Selling Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.7 Reporting Responsibility. Any reporting responsibility of the
Selling Fund is and shall remain the responsibility of the Selling Fund up to
and including the Closing Date and such later date on which the Selling Fund is
terminated.
1.8 Termination. The Selling Fund shall be terminated promptly following
the Closing Date and the making of all distributions pursuant to paragraph 1.4.
ARTICLE II
VALUATION
2.1 Valuation of Assets. The value of the Selling Fund's assets to be
acquired by the Acquiring Fund hereunder shall be the value of such assets
computed as of the close of business on the New York Stock Exchange on the
business day next preceding the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures set
forth in the Trust's Declaration of Trust and the Acquiring Fund's then current
prospectuses and statement of additional information or such other valuation
procedures as shall be mutually agreed upon by the parties.
2.2 Valuation of Shares. The net asset value per share of the Acquiring
Fund Shares shall be the net asset value per share computed as of the close of
business on the New York Stock Exchange on the Valuation Date, using the
valuation procedures set forth in the Trust's Declaration of Trust and the
Acquiring Fund's then current prospectuses and statement of additional
information.
2.3 Shares to be Issued. The number of the Acquiring Fund Shares of each
class to be issued (including fractional shares, if any) in exchange for the
Selling Fund's assets shall be determined by multiplying the shares outstanding
of each class of the Selling Fund by the ratio computed by dividing the net
asset value per share of the Selling Fund attributable to each of its classes by
the net asset value per share of the respective classes of the Acquiring Fund
determined in accordance with paragraph 2.2. Holders of Class A, Class B, Class
C and Class Y shares of the Selling Fund will receive Class A, Class B, Class C
and Class Y shares, respectively, of the Acquiring Fund.
2.4 Determination of Value. All computations of value shall be made by
State Street Bank and Trust Company in accordance with its regular practice in
pricing the shares and assets of the Acquiring Fund.
ARTICLE III
CLOSING AND CLOSING DATE
3.1 Closing Date. The Closing (the "Closing") shall take place on or
about July 30, 1999 or such other date as the parties may agree to in writing
(the "Closing Date"). All acts taking place at the Closing shall be deemed to
take place simultaneously immediately prior to the opening of business on the
Closing Date unless otherwise provided. The Closing shall be held as of 9:00
a.m. at the offices of the Evergreen funds, 200 Berkeley Street, Boston, MA
02116, or at such other time and/or place as the parties may agree.
3.2 Custodian's Certificate. State Street Bank and Trust Company, as
custodian for the Selling Fund (the "Custodian"), shall deliver at the Closing a
certificate of an authorized officer stating that (a) the Selling Fund's
portfolio securities, cash, and any other assets shall have been delivered in
proper form to the Acquiring Fund on the Closing Date; and (b) all necessary
taxes including all applicable federal and state stock transfer stamps, if any,
shall have been paid, or provision for payment shall have been made, in
conjunction with the delivery of portfolio securities by the Selling Fund.
3.3 Effect of Suspension in Trading. In the event that on the Valuation
Date (a) the New York Stock Exchange or another primary trading market for
portfolio securities of the Acquiring Fund or the Selling Fund shall be closed
to trading or trading thereon shall be restricted; or (b) trading or the
reporting of trading on said Exchange or elsewhere shall be disrupted so that
accurate appraisal of the value of the net assets of the Acquiring Fund or the
Selling Fund is impracticable, the Valuation Date shall be postponed until the
first business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
3.4 Transfer Agent's Certificate. Evergreen Service Company, as transfer
agent for the Selling Fund, shall deliver at the Closing a certificate of an
authorized officer stating that its records contain the names and addresses of
the Selling Fund Shareholders and the number and percentage ownership of
outstanding shares owned by each such shareholder immediately prior to the
Closing. The Acquiring Fund shall issue and deliver or cause Evergreen Service
Company, its transfer agent, to issue and deliver a confirmation evidencing the
Acquiring Fund Shares to be credited on the Closing Date to the Secretary of the
Trust or provide evidence satisfactory to the Selling Fund that such Acquiring
Fund Shares have been credited to the Selling Fund's account on the books of the
Acquiring Fund. At the Closing, each party shall deliver to the other such bills
of sale, checks, assignments, share certificates, if any, receipts and other
documents as such other party or its counsel may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations of the Selling Fund. The Selling Fund represents and
warrants to the Acquiring Fund as follows:
(a) The Selling Fund is a separate investment series of a Delaware
business trust duly organized, validly existing, and in good standing under the
laws of the State of Delaware.
(b) The Selling Fund is a separate investment series of a Delaware
business trust that is registered as an investment company classified as a
management company of the open-end type, and its registration with the
Securities and Exchange Commission (the "Commission") as an investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"), is in
full force and effect.
(c) The current prospectuses and statement of additional information of
the Selling Fund conform in all material respects to the applicable requirements
of the Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act and
the rules and regulations of the Commission thereunder and do not include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(d) The Selling Fund is not, and the execution, delivery, and
performance of this Agreement (subject to shareholder approval) will not result,
in violation of any provision of the Trust's Declaration of Trust or By-Laws or
of any material agreement, indenture, instrument, contract, lease, or other
undertaking to which the Selling Fund is a party or by which it is bound.
(e) The Selling Fund has no material contracts or other commitments
(other than this Agreement) that will be terminated with liability to it prior
to the Closing Date, except for liabilities, if any, to be discharged or
reflected in the Statement of Assets and Liabilities as provided in paragraph
1.3 hereof.
(f) Except as otherwise disclosed in writing to and accepted by the
Acquiring Fund, no litigation, administrative proceeding, or investigation of or
before any court or governmental body is presently pending or to its knowledge
threatened against the Selling Fund or any of its properties or assets, which,
if adversely determined, would materially and adversely affect its financial
condition, the conduct of its business, or the ability of the Selling Fund to
carry out the transactions contemplated by this Agreement. The Selling Fund
knows of no facts that might form the basis for the institution of such
proceedings and is not a party to or subject to the provisions of any order,
decree, or judgment of any court or governmental body that materially and
adversely affects its business or its ability to consummate the transactions
herein contemplated.
(g) The financial statements of the Selling Fund at December 31, 1998
are in accordance with generally accepted accounting principles consistently
applied, and such statements (copies of which have been furnished to the
Acquiring Fund) fairly reflect the financial condition of the Selling Fund as of
such date, and there are no known contingent liabilities of the Selling Fund as
of such date not disclosed therein.
(h) Since December 31, 1998 there has not been any material adverse
change in the Selling Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of business, or any
incurrence by the Selling Fund of indebtedness maturing more than one year from
the date such indebtedness was incurred, except as otherwise disclosed to and
accepted by the Acquiring Fund. For the purposes of this subparagraph (h), a
decline in the net asset value of the Selling Fund shall not constitute a
material adverse change.
(i) At the Closing Date, all federal and other tax returns and reports
of the Selling Fund required by law to have been filed by such dates shall have
been filed, and all federal and other taxes shown due on said returns and
reports shall have been paid, or provision shall have been made for the payment
thereof. To the best of the Selling Fund's knowledge, no such return is
currently under audit, and no assessment has been asserted with respect to such
returns.
(j) For each fiscal year of its operation, the Selling Fund has met the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company and has distributed in each such year all net
investment income and realized capital gains.
(k) All issued and outstanding shares of the Selling Fund are, and at
the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable by the Selling Fund. All of the issued and outstanding shares
of the Selling Fund will, at the time of the Closing Date, be held by the
persons and in the amounts set forth in the records of the transfer agent as
provided in paragraph 3.4. The Selling Fund does not have outstanding any
options, warrants, or other rights to subscribe for or purchase any of the
Selling Fund shares, nor is there outstanding any security convertible into any
of the Selling Fund shares.
(l) At the Closing Date, the Selling Fund will have good and marketable
title to the Selling Fund's assets to be transferred to the Acquiring Fund
pursuant to paragraph 1.2 and full right, power, and authority to sell, assign,
transfer, and deliver such assets hereunder, and, upon delivery and payment for
such assets, the Acquiring Fund will acquire good and marketable title thereto,
subject to no restrictions on the full transfer thereof, including such
restrictions as might arise under the 1933 Act, other than as disclosed to the
Acquiring Fund and accepted by the Acquiring Fund.
(m) The execution, delivery, and performance of this Agreement have been
duly authorized by all necessary action on the part of the Selling Fund and,
subject to approval by the Selling Fund Shareholders, this Agreement constitutes
a valid and binding obligation of the Selling Fund, enforceable in accordance
with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights and to general equity principles.
(n) The information to be furnished by the Selling Fund for use in
no-action letters, applications for orders, registration statements, proxy
materials, and other documents that may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete in all material
respects and shall comply in all material respects with federal securities and
other laws and regulations thereunder applicable thereto.
(o) The Prospectus and Proxy Statement of the Selling Fund to be
included in the Registration Statement (as defined in paragraph 5.7) (other than
information therein that relates to the Acquiring Fund) will, on the effective
date of the Registration Statement and on the Closing Date, not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
4.2 Representations of the Acquiring Fund. The Acquiring Fund represents
and warrants to the Selling Fund as follows:
(a) The Acquiring Fund is a separate investment series of a Delaware
business trust duly organized, validly existing and in good standing under the
laws of the State of Delaware.
(b) The Acquiring Fund is a separate investment series of a Delaware
business trust that is registered as an investment company classified as a
management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect.
(c) The current prospectuses and statement of additional information of
the Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations of
the Commission thereunder and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of the Trust's
Declaration of Trust or By-Laws or of any material agreement, indenture,
instrument, contract, lease, or other undertaking to which the Acquiring Fund is
a party or by which it is bound.
(e) Except as otherwise disclosed in writing to the Selling Fund and
accepted by the Selling Fund, no litigation, administrative proceeding or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against the Acquiring Fund or any of its
properties or assets, which, if adversely determined, would materially and
adversely affect its financial condition and the conduct of its business or the
ability of the Acquiring Fund to carry out the transactions contemplated by this
Agreement. The Acquiring Fund knows of no facts that might form the basis for
the institution of such proceedings and is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental body
that materially and adversely affects its business or its ability to consummate
the transactions contemplated herein.
(f) The financial statements of the Acquiring Fund at October 31, 1998
are in accordance with generally accepted accounting principles consistently
applied, and such statements (copies of which have been furnished to the Selling
Fund) fairly reflect the financial condition of the Acquiring Fund as of such
date, and there are no known contingent liabilities of the Acquiring Fund as of
such date not disclosed therein.
(g) Since October 31, 1998 there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of business, or any
incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Selling Fund. For the purposes of this subparagraph (g), a
decline in the net asset value of the Acquiring Fund shall not constitute a
material adverse change.
(h) At the Closing Date, all federal and other tax returns and reports
of the Acquiring Fund required by law then to be filed by such dates shall have
been filed, and all federal and other taxes shown due on said returns and
reports shall have been paid or provision shall have been made for the payment
thereof. To the best of the Acquiring Fund's knowledge, no such return is
currently under audit, and no assessment has been asserted with respect to such
returns.
(i) For each fiscal year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification and treatment as
a regulated investment company and has distributed in each such year all net
investment income and realized capital gains.
(j) All issued and outstanding Acquiring Fund Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable. The Acquiring Fund does not have outstanding any options,
warrants, or other rights to subscribe for or purchase any Acquiring Fund
Shares, nor is there outstanding any security convertible into any Acquiring
Fund Shares.
(k) The execution, delivery, and performance of this Agreement have been
duly authorized by all necessary action on the part of the Acquiring Fund, and
this Agreement constitutes a valid and binding obligation of the Acquiring Fund
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium, and other laws relating to
or affecting creditors' rights and to general equity principles.
(l) The Acquiring Fund Shares to be issued and delivered to the Selling
Fund, for the account of the Selling Fund Shareholders, pursuant to the terms of
this Agreement will, at the Closing Date, have been duly authorized and, when so
issued and delivered, will be duly and validly issued Acquiring Fund Shares, and
will be fully paid and non-assessable.
(m) The information to be furnished by the Acquiring Fund for use in
no-action letters, applications for orders, registration statements, proxy
materials, and other documents that may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete in all material
respects and shall comply in all material respects with federal securities and
other laws and regulations applicable thereto.
(n) The Prospectus and Proxy Statement (as defined in paragraph 5.7) to
be included in the Registration Statement (only insofar as it relates to the
Acquiring Fund) will, on the effective date of the Registration Statement and on
the Closing Date, not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such statements
were made, not misleading.
(o) The Acquiring Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act, and
such of the state Blue Sky or securities laws as it may deem appropriate in
order to continue its operations after the Closing Date.
ARTICLE V
COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND
5.1 Operation in Ordinary Course. The Acquiring Fund and the Selling
Fund each will operate its business in the ordinary course between the date
hereof and the Closing Date, it being understood that such ordinary course of
business will include customary dividends and distributions.
5.2 Approval of Shareholders. The Trust will call a meeting of the
Selling Fund Shareholders to consider and act upon this Agreement and to take
all other action necessary to obtain approval of the transactions contemplated
herein.
5.3 Investment Representation. The Selling Fund covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof other than in accordance with the
terms of this Agreement.
5.4 Additional Information. The Selling Fund will assist the Acquiring
Fund in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Selling Fund shares.
5.5 Further Action. Subject to the provisions of this Agreement, the
Acquiring Fund and the Selling Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, including any actions required to be taken after the Closing Date.
5.6 Statement of Earnings and Profits. As promptly as practicable, but
in any case within sixty days after the Closing Date, the Selling Fund shall
furnish the Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the Selling Fund for
federal income tax purposes that will be carried over by the Acquiring Fund as a
result of Section 381 of the Code, and which will be reviewed by KPMG Peat
Marwick LLP and certified by the Trust's President and Treasurer.
5.7 Preparation of Form N-14 Registration Statement. The Selling Fund
will provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, which will include the proxy statement, referred to
in paragraph 4.1(o) (the "Prospectus and Proxy Statement"), all to be included
in a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act in
connection with the meeting of the Selling Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein.
5.8 Capital Loss Carryforwards. As promptly as practicable, but in any
case within sixty days after the Closing Date, the Acquiring Fund and the
Selling Fund shall cause KPMG Peat Marwick LLP to issue a letter addressed to
the Acquiring Fund and the Selling Fund, in form and substance satisfactory to
the Funds, setting forth the federal income tax implications relating to capital
loss carry forwards (if any) of the Selling Fund and the related impact, if any,
of the proposed transfer of all of the assets of the Selling Fund to the
Acquiring Fund and the ultimate dissolution of the Selling Fund, upon the
shareholders of the Selling Fund.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND
The obligations of the Selling Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations, covenants, and warranties of the Acquiring Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Acquiring Fund shall have delivered to the Selling
Fund a certificate executed in its name by the Trust's Secretary or Assistant
Secretary, in form and substance reasonably satisfactory to the Selling Fund and
dated as of the Closing Date, to such effect and as to such other matters as the
Selling Fund shall reasonably request.
6.2 The Selling Fund shall have received on the Closing Date an opinion
from Sullivan & Worcester LLP, counsel to the Acquiring Fund, dated as of the
Closing Date, in a form reasonably satisfactory to the Selling Fund, covering
the following points:
(a) The Acquiring Fund is a separate investment series of a Delaware
business trust duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the power to own all of its properties and
assets and to carry on its business as presently conducted.
(b) The Acquiring Fund is a separate investment series of a Delaware
business trust registered as an investment company under the 1940 Act, and, to
such counsel's knowledge, such registration with the Commission as an investment
company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed, and delivered by
the Acquiring Fund and, assuming due authorization, execution and delivery of
this Agreement by the Selling Fund, is a valid and binding obligation of the
Acquiring Fund enforceable against the Acquiring Fund in accordance with its
terms, subject as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium, and other laws relating to or affecting creditors' rights generally
and to general equity principles.
(d) Assuming that a consideration therefor not less than the net asset
value thereof has been paid, the Acquiring Fund Shares to be issued and
delivered to the Selling Fund on behalf of the Selling Fund Shareholders as
provided by this Agreement are duly authorized and upon such delivery will be
legally issued and outstanding and fully paid and non-assessable, and no
shareholder of the Acquiring Fund has any preemptive rights in respect thereof.
(e) The Registration Statement, to such counsel's knowledge, has been
declared effective by the Commission and no stop order under the 1933 Act
pertaining thereto has been issued, and to the knowledge of such counsel, no
consent, approval, authorization or order of any court or governmental authority
of the United States or the State of Delaware is required for consummation by
the Acquiring Fund of the transactions contemplated herein, except such as have
been obtained under the 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.
(f) The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, result in a
violation of the Trust's Declaration of Trust or By-Laws or any provision of any
material agreement, indenture, instrument, contract, lease or other undertaking
(in each case known to such counsel) to which the Acquiring Fund is a party or
by which it or any of its properties may be bound or to the knowledge of such
counsel, result in the acceleration of any obligation or the imposition of any
penalty, under any agreement, judgment, or decree to which the Acquiring Fund is
a party or by which it is bound.
(g) Only insofar as they relate to the Acquiring Fund, the descriptions
in the Prospectus and Proxy Statement of statutes, legal and governmental
proceedings and material contracts, if any, are accurate and fairly present the
information required to be shown.
(h) Such counsel does not know of any legal or governmental proceedings,
only insofar as they relate to the Acquiring Fund, existing on or before the
effective date of the Registration Statement or the Closing Date required to be
described in the Registration Statement or to be filed as exhibits to the
Registration Statement which are not described or filed as required.
(i) To the knowledge of such counsel, no litigation or administrative
proceeding or investigation of or before any court or governmental body is
presently pending or threatened as to the Acquiring Fund or any of its
properties or assets and the Acquiring Fund is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental body,
which materially and adversely affects its business, other than as previously
disclosed in the Registration Statement.
Such opinion shall contain such assumptions and limitations as shall be in the
opinion of Sullivan & Worcester LLP appropriate to render the opinions expressed
therein.
In this paragraph 6.2, references to the Prospectus and Proxy Statement
include and relate to only the text of such Prospectus and Proxy Statement and
not to any exhibits or attachments thereto or to any documents incorporated by
reference therein.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance by the
Selling Fund of all the obligations to be performed by it hereunder on or before
the Closing Date and, in addition thereto, the following conditions:
7.1 All representations, covenants, and warranties of the Selling Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Selling Fund shall have delivered to the Acquiring
Fund on the Closing Date a certificate executed in its name by the Trust's
Secretary or Assistant Secretary, in form and substance satisfactory to the
Acquiring Fund and dated as of the Closing Date, to such effect and as to such
other matters as the Acquiring Fund shall reasonably request.
7.2 The Selling Fund shall have delivered to the Acquiring Fund a
statement of the Selling Fund's assets and liabilities, together with a list of
the Selling Fund's portfolio securities showing the tax costs of such securities
by lot and the holding periods of such securities, as of the Closing Date,
certified by the Treasurer of the Trust.
7.3 The Acquiring Fund shall have received on the Closing Date an
opinion of Sullivan & Worcester LLP, counsel to the Selling Fund, in a form
satisfactory to the Acquiring Fund covering the following points:
(a) The Selling Fund is a separate investment series of a Delaware
business trust duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the power to own all of its properties and
assets and to carry on its business as presently conducted.
(b) The Selling Fund is a separate investment series of a Delaware
business trust registered as an investment company under the 1940 Act, and, to
such counsel's knowledge, such registration with the Commission as an investment
company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed and delivered by
the Selling Fund and, assuming due authorization, execution, and delivery of
this Agreement by the Acquiring Fund, is a valid and binding obligation of the
Selling Fund enforceable against the Selling Fund in accordance with its terms,
subject as to enforcement, to bankruptcy, insolvency, reorganization, moratorium
and other laws relating to or affecting creditors' rights generally and to
general equity principles.
(d) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the United
States or the State of Delaware is required for consummation by the Selling Fund
of the transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act, and as may be required under state
securities laws.
(e) The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, result in a
violation of the Trust's Declaration of Trust or By-laws, or any provision of
any material agreement, indenture, instrument, contract, lease or other
undertaking (in each case known to such counsel) to which the Selling Fund is a
party or by which it or any of its properties may be bound or, to the knowledge
of such counsel, result in the acceleration of any obligation or the imposition
of any penalty, under any agreement, judgment, or decree to which the Selling
Fund is a party or by which it is bound.
(f) Only insofar as they relate to the Selling Fund, the descriptions in
the Prospectus and Proxy Statement of statutes, legal and government proceedings
and material contracts, if any, are accurate and fairly present the information
required to be shown.
(g) Such counsel does not know of any legal or governmental proceedings,
insofar as they relate to the Selling Fund existing on or before the date of
mailing of the Prospectus and Proxy Statement and the Closing Date, required to
be described in the Prospectus and Proxy Statement or to be filed as an exhibit
to the Registration Statement which are not described or filed as required.
(h) To the knowledge of such counsel, no litigation or administrative
proceeding or investigation of or before any court or governmental body is
presently pending or threatened as to the Selling Fund or any of its respective
properties or assets and the Selling Fund is neither a party to nor subject to
the provisions of any order, decree or judgment of any court or governmental
body, which materially and adversely affects its business other than as
previously disclosed in the Prospectus and Proxy Statement.
(i) Assuming that a consideration therefor of not less than the net
asset value thereof has been paid, and assuming that such shares were issued in
accordance with the terms of the Selling Fund's registration statement, or any
amendment thereto, in effect at the time of such issuance, all issued and
outstanding shares of the Selling Fund are legally issued and fully paid and
non-assessable.
Such opinion shall contain such other assumptions and limitations as shall be in
the opinion of Sullivan & Worcester LLP appropriate to render the opinions
expressed therein.
In this paragraph 7.3, references to the Prospectus and Proxy Statement
include and relate to only the text of such Prospectus and Proxy Statement and
not to any exhibits or attachments thereto or to any documents incorporated by
reference therein.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Selling Fund in accordance with the provisions of the Trust's Declaration of
Trust and By-Laws and certified copies of the resolutions evidencing such
approval shall have been delivered to the Acquiring Fund. Notwithstanding
anything herein to the contrary, neither the Acquiring Fund nor the Selling Fund
may waive the conditions set forth in this paragraph 8.1.
8.2 On the Closing Date, the Commission shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, nor instituted any
proceeding seeking to enjoin the consummation of the transactions contemplated
by this Agreement under Section 25(c) of the 1940 Act and no action, suit or
other proceeding shall be threatened or pending before any court or governmental
agency in which it is sought to restrain or prohibit, or obtain damages or other
relief in connection with, this Agreement or the transactions contemplated
herein.
8.3 All required consents of other parties and all other consents,
orders, and permits of federal, state and local regulatory authorities
(including those of the Commission and of state Blue Sky securities authorities,
including any necessary "no-action" positions of and exemptive orders from such
federal and state authorities) to permit consummation of the transactions
contemplated hereby shall have been obtained, except where failure to obtain any
such consent, order, or permit would not involve a risk of a material adverse
effect on the assets or properties of the Acquiring Fund or the Selling Fund,
provided that either party hereto may for itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under the
1933 Act, and no stop orders suspending the effectiveness thereof shall have
been issued and, to the best knowledge of the parties hereto, no investigation
or proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act.
8.5 The Selling Fund shall have declared a dividend or dividends which,
together with all previous such dividends, shall have the effect of distributing
to the Selling Fund Shareholders all of the Selling Fund's net investment
company taxable income for all taxable periods ending on or prior to the Closing
Date (computed without regard to any deduction for dividends paid) and all of
its net capital gains realized in all taxable periods ending on or prior to the
Closing Date (after reduction for any capital loss carryforward).
8.6 The parties shall have received a favorable opinion of Sullivan &
Worcester LLP addressed to the Acquiring Fund and the Selling Fund substantially
to the effect that for federal income tax purposes:
(a) The transfer of all of the Selling Fund assets in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of the identified
liabilities of the Selling Fund followed by the distribution of the Acquiring
Fund Shares to the Selling Fund in dissolution and liquidation of the Selling
Fund will constitute a "reorganization" within the meaning of Section
368(a)(1)(C) of the Code and the Acquiring Fund and the Selling Fund will each
be a "party to a reorganization" within the meaning of Section 368(b) of the
Code.
(b) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Selling Fund solely in exchange for the Acquiring
Fund Shares and the assumption by the Acquiring Fund of the identified
liabilities of the Selling Fund.
(c) No gain or loss will be recognized by the Selling Fund upon the
transfer of the Selling Fund assets to the Acquiring Fund in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of the identified
liabilities of the Selling Fund or upon the distribution (whether actual or
constructive) of the Acquiring Fund Shares to Selling Fund Shareholders in
exchange for their shares of the Selling Fund.
(d) No gain or loss will be recognized by the Selling Fund Shareholders
upon the exchange of their Selling Fund shares for the Acquiring Fund Shares in
liquidation of the Selling Fund.
(e) The aggregate tax basis for the Acquiring Fund Shares received by
each Selling Fund Shareholder pursuant to the Reorganization will be the same as
the aggregate tax basis of the Selling Fund shares held by such shareholder
immediately prior to the Reorganization, and the holding period of the Acquiring
Fund Shares to be received by each Selling Fund Shareholder will include the
period during which the Selling Fund shares exchanged therefor were held by such
shareholder (provided the Selling Fund shares were held as capital assets on the
date of the Reorganization).
(f) The tax basis of the Selling Fund assets acquired by the Acquiring
Fund will be the same as the tax basis of such assets to the Selling Fund
immediately prior to the Reorganization, and the holding period of the assets of
the Selling Fund in the hands of the Acquiring Fund will include the period
during which those assets were held by the Selling Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring
Fund nor the Selling Fund may waive the conditions set forth in this paragraph
8.6.
8.7 The Acquiring Fund shall have received from KPMG Peat Marwick LLP a
letter addressed to the Acquiring Fund, in form and substance satisfactory to
the Acquiring Fund, to the effect that:
(a) they are independent certified public accountants with respect to
the Selling Fund within the meaning of the 1933 Act and the applicable published
rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the Acquiring Fund
and described in such letter (but not an examination in accordance with
generally accepted auditing standards), the Capitalization Table appearing in
the Registration Statement and Prospectus and Proxy Statement has been obtained
from and is consistent with the accounting records of the Selling Fund; and
(c) on the basis of limited procedures agreed upon by the Acquiring Fund
and described in such letter (but not an examination in accordance with
generally accepted auditing standards), the pro forma financial statements that
are included in the Registration Statement and Prospectus and Proxy Statement
were prepared based on the valuation of the Selling Fund's assets in accordance
with the Trust's Declaration of Trust and the Acquiring Fund's then current
prospectuses and statement of additional information pursuant to procedures
customarily utilized by the Acquiring Fund in valuing its own assets;
(d) on the basis of limited procedures agreed upon by the Acquiring Fund
and described in such letter (but not an examination in accordance with
generally accepted auditing standards), the data utilized in the calculations of
the projected expense ratios appearing in the Registration Statement and
Prospectus and Proxy Statement agree with underlying accounting records of the
Selling Fund or with written estimates by Selling Fund's management and were
found to be mathematically correct.
In addition, unless waived by the Acquiring Fund, the Acquiring Fund
shall have received from KPMG Peat Marwick LLP a letter addressed to the
Acquiring Fund dated on the Closing Date, in form and substance satisfactory to
the Acquiring Fund, to the effect that on the basis of limited procedures agreed
upon by the Acquiring Fund (but not an examination in accordance with generally
accepted auditing standards), the calculation of net asset value per share of
the Selling Fund as of the Valuation Date was determined in accordance with
generally accepted accounting principles and the portfolio valuation practices
of the Acquiring Fund.
8.8 The Selling Fund shall have received from KPMG Peat Marwick LLP a
letter addressed to the Selling Fund, in form and substance satisfactory to the
Selling Fund, to the effect that:
(a) they are independent certified public accountants with respect to
the Acquiring Fund within the meaning of the 1933 Act and the applicable
published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the Selling Fund
and described in such letter (but not an examination in accordance with
generally accepted auditing standards) consisting of a reading of any unaudited
pro forma financial statements included in the Registration Statement and
Prospectus and Proxy Statement, and inquiries of appropriate officials of the
Trust responsible for financial and accounting matters, nothing came to their
attention that caused them to believe that such unaudited pro forma financial
statements do not comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act and the published rules and regulations
thereunder;
(c) on the basis of limited procedures agreed upon by the Selling Fund
and described in such letter (but not an examination in accordance with
generally accepted auditing standards), the Capitalization Table appearing in
the Registration Statement and Prospectus and Proxy Statement has been obtained
from and is consistent with the accounting records of the Acquiring Fund; and
(d) on the basis of limited procedures agreed upon by the Selling Fund
(but not an examination in accordance with generally accepted auditing
standards), the data utilized in the calculations of the projected expense ratio
appearing in the Registration Statement and Prospectus and Proxy Statement agree
with written estimates by each Fund's management and were found to be
mathematically correct.
ARTICLE IX
EXPENSES
9.1 Except as otherwise provided for herein, all expenses of the
transactions contemplated by this Agreement incurred by the Selling Fund and the
Acquiring Fund will be borne by First Union National Bank ("FUNB"). Such
expenses include, without limitation, (a) expenses incurred in connection with
the entering into and the carrying out of the provisions of this Agreement; (b)
expenses associated with the preparation and filing of the Registration
Statement under the 1933 Act covering the Acquiring Fund Shares to be issued
pursuant to the provisions of this Agreement; (c) registration or qualification
fees and expenses of preparing and filing such forms as are necessary under
applicable state securities laws to qualify the Acquiring Fund Shares to be
issued in connection herewith in each state in which the Selling Fund
Shareholders are resident as of the date of the mailing of the Prospectus and
Proxy Statement to such shareholders; (d) postage; (e) printing; (f) accounting
fees; (g) legal fees; and (h) solicitation costs of the transaction.
Notwithstanding the foregoing, the Acquiring Fund shall pay its own federal and
state registration fees.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Selling Fund agree that neither party
has made any representation, warranty or covenant not set forth herein and that
this Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties, and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall not survive the consummation of the transactions contemplated hereunder.
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Fund and the Selling Fund. In addition, either the Acquiring Fund or
the Selling Fund may at its option terminate this Agreement at or prior to the
Closing Date because:
(a) of a breach by the other of any representation, warranty, or
agreement contained herein to be performed at or prior to the Closing Date, if
not cured within 30 days; or
(b) a condition herein expressed to be precedent to the obligations of
the terminating party has not been met and it reasonably appears that it will
not or cannot be met.
11.2 In the event of any such termination, in the absence of willful
default, there shall be no liability for damages on the part of either the
Acquiring Fund, the Selling Fund, the Trust, the respective Trustees or
officers, to the other party or its Trustees or officers, but each shall bear
the expenses incurred by it incidental to the preparation and carrying out of
this Agreement as provided in paragraph 9.1.
ARTICLE XII
AMENDMENTS
12.1 This Agreement may be amended, modified, or supplemented in such
manner as may be mutually agreed upon in writing by the authorized officers of
the Selling Fund and the Acquiring Fund; provided, however, that following the
meeting of the Selling Fund Shareholders called by the Selling Fund pursuant to
paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund Shares
to be issued to the Selling Fund Shareholders under this Agreement to the
detriment of such shareholders without their further approval.
ARTICLE XIII
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY
13.1 The Article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to the conflicts
of laws provisions thereof.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but, except as provided in
this paragraph, no assignment or transfer hereof or of any rights or obligations
hereunder shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be construed to
confer upon or give any person, firm, or corporation, other than the parties
hereto and their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.
13.5 It is expressly agreed that the obligations of the Acquiring Fund
and the Selling Fund hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents, or employees of the Trust personally,
but shall bind only the trust property of the Acquiring Fund and of the Selling
Fund, as provided in the Declaration of Trust of the Trust. The execution and
delivery of this Agreement have been authorized by the Trustees of the Trust on
behalf of the Acquiring Fund and the Selling Fund and signed by authorized
officers of the Trust, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officers shall be deemed to
have been made by any of them individually or to impose any liability on any of
them personally, but shall bind only the trust property of the Acquiring Fund
and of the Selling Fund as provided in the Declaration of Trust of the Trust.
IN WITNESS WHEREOF, the parties have duly executed this Agreement, all as of the
date first written above.
EVERGREEN FIXED INCOME TRUST
On behalf of Evergreen U.S. Government Fund
By:_____________________________
Name:
Title:
EVERGREEN FIXED INCOME TRUST On behalf of Evergreen Intermediate Term
Government Securities Fund
By:______________________________
Name:
Title:
<PAGE>
EVERGREEN
U.S. Government Fund
Fund at a Glance as of April 30, 1998
We will continue to monitor emerging data and will respond to any changes in
the economy by adjusting the Fund's duration and sector allocations
accordingly.
Portfolio
Management
- ----------------------------------------
(Photo appears below of
Rollin C. Williams, CFA)
Rollin C. Williams, CFA
Tenure: January 1993
-------------------------------------------------------
CURRENT INVESTMENT STYLE
(Table with cube-shaped blocks appears below illustrating high quality and
intermediate duration.)
Duration Quality
Short High
Int Med
Long Low
Morningstar's Style Box is based on a
portfolio date as of 3/31/98.
The Fixed-Income Style Box placement is
based on a fund's average effective maturity
or duration and the average credit rating of
the bonds within the portfolio.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
<S> <C> <C> <C> <C>
Inception Date 1/11/93 1/11/93 9/2/94 9/2/93
........................................................................
Average Annual Returns
........................................................................
1 year with sales charge 4.56% 3.96% 7.96% n/a
........................................................................
1 year w/o sales charge 9.78% 8.96% 8.96% 10.05%
........................................................................
3 years 6.11% 6.17% 7.05% 8.12%
........................................................................
5 years 4.91% 4.91% -- --
........................................................................
Since Inception 5.31% 5.43% 6.94% 5.89%
........................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
.......................................................................
30-day SEC yield 5.01% 4.51% 4.51% 5.52%
........................................................................
12-month dividends per share $0.61 $ 0.53 $ 0.53 $ 0.63
........................................................................
</TABLE>
*Adjusted for maximum sales charge
- --------------------------------------------------------------------------------
LONG TERM GROWTH
(Plot points appear below for Long Term Growth chart)
1/93 4/93 4/94 4/95 4/96 4/97 4/98
Class A Shares 9,525 9,748 9,737 10,368 11,137 11,847 13,154
LBITGBI 10,000 10,280 10,383 11,059 11,927 12,693 13,818
CPI 10,000 10,098 10,337 10,652 10,952 11,234 11,396
Comparison of a $10,000 investment in Evergreen U.S. Government Fund, Class A
shares, versus a similar investment in the Lehman Brothers Intermediate Term
Government Bond Index (LBITGBI) and the Consumer Price Index (CPI).
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The Lehman Brothers Intermediate Term Government Bond
Index is an unmanaged index and does not include transaction costs associated
with buying and selling securities nor any management fees. The Consumer Price
Index, a measure of inflation, is through April 30, 1998.
13
<PAGE>
EVERGREEN
U.S. Government Fund
Portfolio Manager Interview
- --------------------------------------------------------------------------------
How did the Fund perform during the
fiscal year?
The Evergreen U.S. Government Fund's Class A shares posted a 9.78% total
return, unadjusted for any sales charge, for the twelve months ended April
30, 1998. This performance compares favorably to the 8.68% total return
for its benchmark, the Lehman Brothers Intermediate Term Government Bond
Index.
Portfolio Characteristics
- -------------------------
Total Net Assets $332,245,277
Average Credit Quality AAA
Average Maturity 8.8 years
Average Duration 4.4 years
- --------------------------------------------------------------------------------
What was the economic environment like
during the past twelve months?
The past year has been very positive for fixed income investors. The
period was marked by healthy domestic economic growth that showed few
signs of inflation. As a result, interest rates declined steadily which,
in turn, boosted bond prices.
The most noteworthy event for investors during the period was the
financial crisis that struck the economies and financial markets of
Southeast Asia. Although the "Asian flu" filtered back to the United
States in the form of volatility, the effects to the financial markets
were generally positive.
Prices of imports to the U.S. declined while domestic export growth slowed
due to reduced demand from overseas economies. The combination of these
two factors calmed investors' inflationary fears and prompted domestic
interest rates to trend lower. The yield on the bellwether 30-year
Treasury Bond declined by nearly one percentage point -- from 6.96% to
5.95% -- during the fiscal year.
--------------------------------------------------------------------
MATURITY BREAKDOWN
(as a percentage of portfolio assets)
(Pie chart appears below illustrating the following amounts:)
20+ years - 55.0%
1 - 10 years - 25.1%
10 - 20 years - 13.3%
0 - 1 years - 6.6%
- --------------------------------------------------------------------------------
How did your investment strategies
affect the portfolio?
Our primary strategy to lengthen the Fund's duration was in response to
our expectation of declining interest rates. Duration was increased from
4.27 years to 4.40 years during the twelve months. Consistent with our
forecast, economic data indicated benign inflation and moderating economic
growth, prompting interest rates to trend lower throughout the fiscal
year. Consequently, the portfolio's duration stance -- nearly 50% longer
than the benchmark Lehman Brothers Intermediate Term Government Bond Index
-- enhanced the Fund's total return and contributed to outperformance of
1.1%.
In addition, the portfolio's weighting of mortgage-backed securities was
reduced. As interest rates fall, this sector is especially vulnerable to
underperformance as homeowners refinance their mortgages to take
14
<PAGE>
EVERGREEN
U.S. Government Fund
Portfolio Manager Interview
advantage of lower rates. Our declining-rate forecast prompted us to cut
our mortgage exposure from 48% to 42% during the final six months of the
fiscal period. This reduced weighting enhanced performance while
mitigating the portfolio's exposure to pre-payment risk.
--------------------------------------------------------------------
PORTFOLIO COMPOSITION
(as a percentage of net assets)
(Pie chart appears below illustrating the following amounts:)
U.S. Treasury Olibgations - 55.4%
Mortgage-Backed Securities - 42.4%
Other Assets and Liabilities (net) - 2.0%
Repurchase Agreement - 0.2%
- --------------------------------------------------------------------------------
Were there any other noteworthy events during the fiscal period relating
to the Fund?
In August of 1997, the Evergreen U.S. Government Fund merged with the
Keystone Government Securities Fund. Net assets in the Fund increased over
$40 million as a result of the merger. This combination was undertaken
because the funds' respective objectives were virtually identical,
allowing us to merge and manage the combined fund more efficiently and
cost-effectively. Following the merger, a number of smaller mortgage-backed
securities were liquidated to reduce the number of holdings in the
combined fund.
- --------------------------------------------------------------------------------
What is your outlook going forward?
The overriding question now facing the market is whether the U.S. economy
will continue its expansion or will it finally begin to slow? Will low
unemployment and rising wages ignite inflation or will the slowdown in the
Asian markets slow the U.S. economy and calm inflationary pressure?
Although the answers to these questions are still unknown, the Federal
Reserve Board recently suggested that an increase in interest rates may be
necessary as a preventative measure to tackle inflation.
Our view is that underlying market fundamentals support low interest rates
over the long term. Short term we expect a bit of volatility, but feel
that the Fed will hold off on increasing rates until the effects of the
Asian crisis becomes more clear. A pre-emptive rate ease in the latter
part of the year is even possible should the U.S. economy slow more than
is currently expected. We will continue to monitor emerging data and will
respond to any changes in the economy by adjusting the Fund's duration and
sector allocations accordingly.
15
<PAGE>
PART B STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Acquisition of Assets of
EVERGREEN INTERMEDIATE TERM GOVERNMENT SECURITIES FUND
A Series of
EVERGREEN FIXED INCOME TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 343-2898
By and In Exchange For Shares of
EVERGREEN U.S. GOVERNMENT FUND
A Series of
EVERGREEN FIXED INCOME TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 343-2898
This Statement of Additional Information, relating specifically to the proposed
transfer of the assets and liabilities of Evergreen Intermediate Term Government
Securities Fund ("Intermediate Term Fund"), a series of Evergreen Fixed Income
Trust, to Evergreen U.S. Government Fund ("U.S. Government Fund"), also a series
of Evergreen Fixed Income Trust, in exchange for Class A, Class B, Class C and
Class Y shares (to be issued to holders of Class A, Class B, Class C and Class Y
shares, respectively, of U.S. Government Fund), of beneficial interest, $0.001
par value per share, of U.S. Government Fund, consists of this cover page and
the following described documents, each of which is attached hereto and
incorporated by reference herein:
(1) The Statement of Additional Information of U.S. Government Fund dated
September 1, 1998;
(2) The Statement of Additional Information of Intermediate Term Fund dated
November 1, 1998;
(3) Annual Report of U.S. Government Fund for the year ended April 30, 1998;
(4) Semi-Annual Report of U.S. Government Fund for the six-month period ended
October 31, 1998.
(5) Annual Report of Intermediate Term Fund for the year ended June 30, 1998;
and
(6) Semi-Annual Report of Intermediate Term Fund for the six-month period ended
December 31, 1998;
(7) Pro-forma Financial Statements for the 12 months ended October 31, 1998
(unaudited).
This Statement of Additional Information, is not a prospectus or
supplement, and should be read in conjunction with, the Prospectus/Proxy
Statement of Intermediate Term Fund and U.S. Government Fund dated June 2, 1999.
A copy of the Prospectus/Proxy Statement may be obtained without charge by
calling or writing to Evergreen Fixed Income Trust at the telephone numbers or
addresses set forth above.
The date of this Statement of Additional Information is June 2, 1999.
EVERGREEN FIXED INCOME TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 633-2700
EVERGREEN LONG-TERM BOND FUNDS
STATEMENT OF ADDITIONAL INFORMATION
September 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 but should
be read in conjunction with a prospectus dated September 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.
24488
<PAGE>
TABLE OF CONTENTS
INVESTMENT POLICIES................................................ ...........3
Fundamental Investment Policies.......................................3
Additional Information on Securities and Investment Practices.........5
MANAGEMENT OF THE TRUST.......................................................12
PRINCIPAL HOLDERS OF FUND SHARES..............................................15
INVESTMENT ADVISORY AND OTHER SERVICES........................................19
Investment Advisors..................................................19
Investment Advisory Agreements.......................................19
Distributor..........................................................20
Distribution Plans and Agreements....................................20
Additional Service Providers ........................................22
BROKERAGE.....................................................................23
Selection of Brokers ..............................................23
Brokerage Commissions................................................23
General Brokerage Policies...........................................23
TRUST ORGANIZATION............................................................23
Form of Organization.................................................23
Description of Shares ...............................................24
Voting Rights........................................................24
Limitation of Trustees' Liability....................................24
PURCHASE, REDEMPTION AND PRICING OF SHARES....................................24
How the Funds Offer Shares to the Public.............................24
Contingent Deferred Sales Charge...................................25
Sales Charge Waivers or Reductions...................................26
Exchanges............................................................28
Calculation of Net Asset Value Per Share ("NAV").....................28
Valuation of Portfolio Securities....................................28
Shareholder Services.................................................29
PRINCIPAL UNDERWRITER.........................................................29
ADDITIONAL TAX INFORMATION....................................................30
Requirements for Qualification as a Regulated Investment Company....30
Taxes on Distributions..............................................30
Taxes on the Sale or Exchange of Fund Shares........................31
Other Tax Considerations............................................33
FINANCIAL INFORMATION.........................................................33
ADDITIONAL INFORMATION........................................................36
APPENDIX A...................................................................A-1
24488
2
<PAGE>
INVESTMENT POLICIES
FUNDAMENTAL INVESTMENT POLICIES
Each Fund has adopted the fundamental investment restrictions set forth
below which may not be changed without the vote of a majority of the Fund's
outstanding shares, as defined in the Investment Company Act of 1940, as amended
(the"1940 Act"). Where necessary, an explanation beneath a fundamental policy
describes a Fund's practices with respect to that policy, as allowed by current
law. If the law governing the a policy changes, the Fund's practices may change
accordingly without a shareholder vote. Unless otherwise stated, all references
to the assets of the Fund are in terms of current market value.
1. Diversification
Each Fund may not make any investment that is inconsistent with its
classification as a diversified investment company under the 1940 Act.
Further Explanation of Diversification Policy:
To remain classified as a diversified investment company under the 1940
Act, each Fund must conform with the following: With respect to 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 United States ("U.S.") government or its agencies or
instrumentalities.
2. Concentration
Each Fund may not concentrate its investments in the securities of
issuers primarily engaged in any particular industry (other than securities that
are issued or guaranteed by the U.S.
government or its agencies or instrumentalities).
Further Explanation of Concentration Policy:
Each Fund may not invest more than 25% of its total assets, taken at
market value, in the securities of issuers primarily engaged in any particular
industry (other than securities issued or guaranteed by the U.S. government or
its agencies or instrumentalities).
3. Issuing Senior Securities
Except as permitted under the 1940 Act, each Fund may not issue senior
securities.
4. Borrowing
Each Fund may not borrow money, except to the extent permitted by
applicable law.
24488
3
<PAGE>
Further Explanation of Borrowing Policy:
Each Fund may borrow from banks in an amount up to 33 1/3% of its total
assets, taken at market value. Each Fund may also borrow up to 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 such as the redemption
of Fund shares. Each Fund may not purchase securities while borrowings are
outstanding except to exercise prior commitments and to exercise subscription
rights (as defined in the 1940 Act) or enter into reverse repurchase agreements,
in amounts up to 33 1/3 % of its total assets (including the amount borrowed).
Each Fund may obtain such short-term credit as may be necessary for the
clarification of purchases and sales of portfolio securities. Each Fund may
purchase securities on margin and engage in short sales to the extent permitted
by applicable law.
5. Underwriting
Each Fund may not underwrite securities of other issuers, except
insofar as each Fund may be deemed to be an underwriter in connection with the
disposition of its portfolio securities.
6. 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.
7. 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
contracts 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.
8. Lending
Each Fund may not make loans to other persons, except that each 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.
Further Explanation of Lending Policy:
To generate income and offset expenses, each Fund may lend portfolio
securities to broker-dealers and or financial institutions in an amount up to 33
1/3% of its total assets, taken at market value. While securities are on loan,
the borrower will pay a Fund any income accruing on the security. Each Fund may
invest any collateral it receives in additional portfolio securities, such as
U.S. Treasury notes, certificates of deposit, other high-grade, short-term
obligations or interest bearing cash equivalents. Gains or losses in the market
value of a security lent will affect a Fund and its shareholders.
When a Fund lends its securities, it will require the borrower to give
the Fund collateral in cash or government securities. The Fund will require
collateral in an amount equal to at least 100% of the current market value of
the securities lent, including accrued interest. A Fund has the right to call a
loan and obtain the securities lent any time on notice of not more than five
business days.
A Fund may pay reasonable fees in connection with such loans.
24304
4
<PAGE>
Although voting rights attendant to securities lent pass to the
borrower, a Fund may call such loans at any time and may vote the securities if
it believes a material event affecting the investment is to occur. A Fund may
experience a delay in receiving additional collateral or in recovering the
securities lent or may even suffer a loss of rights in the collateral should the
borrower of the securities fail financially. Each Fund may only make loans to
borrowers deemed to be of good standing, under standards approved by the Board
of Trustees, when the income to be earned from the loan justifies the attendant
risks.
ADDITIONAL INFORMATION ON SECURITIES AND INVESTMENT PRACTICES
The investment objective of each Fund and a description of the
securities in which each Fund may invest are set forth in the Funds'
prospectuses. The following expands upon the discussion in the prospectuses
regarding certain investments of the Funds.
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 Cooper-
atives, 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
24304
5
<PAGE>
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.
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 (Strategic, High Yield and Diversified)
Each Fund 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 of 1986, as amended (the "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
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<PAGE>
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 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.
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
investment advisor 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's custodian or a third party 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, the 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 investment advisor 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 advisor to be creditworthy pursuant to guidelines
established by the 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 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.
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<PAGE>
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 investment advisor to be a favorable price and
rate of return for securities the Fund intends to purchase.
Each Fund may 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
24304
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<PAGE>
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 investment advisor
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 investment advisor 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 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.
24304
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<PAGE>
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 investment
advisor'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 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 Rating Services ("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.
10
<PAGE>
(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.
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 advisor
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
advisor believes they are comparable to high-yield securities in which each Fund
may otherwise invest.
The investment advisor 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.
11
<PAGE>
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
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 the Fund is a
participant.
<TABLE>
<CAPTION>
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.
<S> <C> <C>
Name Position with Trust Principal Occupations for Last Five Years
- ------------------ --------------------- --------------------------------------
Laurence B. Ashkin Trustee Real estate developer and construction consultant;
(DOB: 2/2/28) and President of Centrum Equities and Centrum
Properties, Inc.
12
<PAGE>
Name Position with Trust Principal Occupations for Last Five Years
- --------------------- ------------------- -------------------------------------------------------------
Charles A. Austin III Trustee Investment Counselor to Appleton
(DOB: 10/23/34) Partners, Inc.; former Director, Executive
Treasurer, State Street Research
Vice President and Management Company (investment
advice); Director, The Andover
Companies (Insurance); and Trustee,
Arthritis Foundation of New England.
K. Dun Gifford Trustee Trustee, Treasurer and Chairman of
(DOB: 10/12/38) the Finance 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; and former Chair man,
Gifford, Drescher & Associates (environmental
consulting)
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. (steel
(DOB: 7/14/39) 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, DHR
(DOB: 9/14/41) 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.
13
<PAGE>
Name Position with Trust Principal Occupations for Last Five Years
- ------------------------ ------------------------- -----------------------------------------------------------------
Michael S. Scofield Trustee Attorney, Law Offices of Michael S. Scofield.
(DOB: 2/20/43)
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 Insurance 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 BISYS Fund Services.
Nimish S. Bhatt* Vice President and Vice President, Tax, BISYS Fund Services; former
(DOB: 6/6/63) Assistant Treasurer Assistant Vice President, Evergreen Asset
Management Corp./First Union National Bank; former
Senior Tax Consulting/Acting Manager, Investment
Companies Group, Price Waterhouse LLP,
New York.
Bryan Haft* Vice President Team Leader, Fund Administration, BISYS Fund
(DOB: 1/23/65) Services.
D'Ray Moore* Secretary Vice President, Client Services, BISYS Fund Services.
(DOB: 3/30/59)
*Address: BISYS, 3435 Stelzer Road, Columbus, Ohio 43219-8001
</TABLE>
Trustee Compensation
Listed below is the estimated Trustee compensation for the
twelve-month period ended April 30, 1998.
<TABLE>
<CAPTION>
COMPENSATION TABLE
Pension Or
Retirement
Aggregate Benefits Total Compensation
Compensation Accrued As Part Estimated Annual From Registrant And
From Of Fund Benefits Upon Fund Complex Paid To
Name Of Person Registrant Expenses Retirement Directors
<S> <C> <C> <C> <C>
Laurence B. Ashkin $5,624 $0 $0 $69.535
Charles A. Austin $5,808 $0 $0 $50,009(a)
14
<PAGE>
COMPENSATION TABLE
Foster Bam* $4,327 $0 $0 $51,611
K. Dun Gifford $5,450 $0 $0 $47,105
James S. Howell $7,652 $0 $0 $103,376(c)
Robert J. Jeffries* $620 $0 $0 $19,576
Leroy Keith Jr. $5,675 $0 $0 $48,586
Gerald M. McDonnell $7,228 $0 $0 $87,564(f)
Thomas L. McVerry $7,007 $0 $0 $90,660(b)
William Walt Pettit $6,494 $0 $0 $79,468(e)
David M. Richardson $5,755 $0 $0 $48,970
Russell A. Salton, III $6,660 $0 $0 $88,126(d)
Michael S. Scofield $7,120 $0 $0 $90,889(g)
Richard J. Shima $5,957 $0 $0 $65,174
(a) $4,950 of this amount payable in later years as deferred compensation.
(b) $102,325 of this amount payable in later years as deferred compensation.
(c) $84,019 of this amount payable in later years as deferred compensation.
(d) $97,425 of this amount payable in later years as deferred compensation.
(e) $88,750 of this amount payable in later years as deferred compensation.
(f) $97,400 of this amount payable in later years as deferred compensation.
(g) $34,900 of this amount payable in later years as deferred compensation.
* Former Trustee, retired as of December 31, 1997.
</TABLE>
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 August 1, 1998.
U.S. Government - Class A
MLPF&S For the Sole Benefit of Its 8.196%
Customers
Attn: Fund Administration #97H24
4800 Deer Lake Dr E 2nd Fl
Jacksonville, FL 32246-6484
U.S. Government - Class B
15
<PAGE>
None
U.S. Government - Class C
MLPF&S For the Sole Benefit of Its 26.517%
Customers
Attn: Fund Administration #97H43
4800 Deer Lake Dr E 2nd Fl
Jacksonville, FL 32246-6484
Patterson & Co 10.406%
C/O Corestates Bank NA
P.O. Box 7829
Philadelphia, PA 19101-7829
FUBS & Co FEBO 5.255%
Local 1804 1 ILA Federal
Credit Union
5080 McLester Street
Elizabeth, NJ 07207
U.S. Government - Class Y
First Union National Bank 36.798%
Trust Accounts
Attn Ginny Batten
11th Fl CMG-151
301 S Tryon St
Charlotte, NC 28288
Wachovia Bank of Georgia 26.371%
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 13.031%
Trust Accounts
Attn Ginny Batten
11th Fl CMG-151
301 S Tryon St
Charlotte, NC 28288
Wachovia Bank of Georgia TTEE 9.839%
First Union Corp Retirement Trust
For Non Employee Directors
10/24/94
301 N Main St MC-NC 31051
Winston-Salem, NC 27101-3819
Patterson & Co 7.456%
PNB Personal Trust Acctg
P.O. Box 7829
Philadelphia, PA 19101-7829
Strategic - Class A
None
16
<PAGE>
Strategic - Class B
MLPF&S For the Sole Benefit of Its 10.910%
Customers
Attn: Fund Administration #97A19
4800 Deer Lake Dr E 2nd Fl
Jacksonville, FL 32246-6484
Strategic - Class C
MLPF&S For the Sole Benefit of Its 26.013%
Customers
Attn: Fund Administration #97A20
4800 Deer Lake Dr E 2nd Fl
Jacksonville, FL 32246-6484
Strategic - Class Y
First Union National Bank 50.168%
Cash Account
Attn Trust Operation Fund Group
401 South Tryon St 3rd Fl
Charlotte, NC 28202-1911
First Union National Bank 47.553%
Re-invest Account
Attn Trust Operations Fund Group
401 South Tryon St 3rd Fl
Charlotte, NC 28202-1911
High Yield - Class A
MLPF&S For the Sole Benefit of Its 7.538%
Customers
Attn: Fund Administration #97TW1
4800 Deer Lake Dr E 2nd Fl
Jacksonville, FL 32246-6484
High Yield - Class B
MLPF&S For the Sole Benefit of Its 24.485%
Customers
Attn: Fund Administration #98296
4800 Deer Lake Dr E 2nd Fl
Jacksonville, FL 32246-6484
High Yield - Class C
MLPF&S For the Sole Benefit of Its 38.238%
Customers
Attn: Fund Administration #97TW2
4800 Deer Lake Dr E 2nd Fl
Jacksonville, FL 32246-6484
State Street Bk and Tr Co Cust Ira 12.880%
FBO
Eric J. Falken
P.O. Box 1090
Clinton, WA 98236-1090
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<PAGE>
Emily V. Maddux Tr 6.439%
FBO Phyllis L Monesmith et al
U/D/T DTD 5/30/90
6785 Old Easton Rd
Pipersville, PA 18947-9762
Susan T Fox TTE 6.194%
Susan T Fox Trust
U/A DTD 11/2/95
10 F Street
San Rafael, CA 94901-2719
High Yield - Class Y
First Union National Bank/EB/INT 73.295%
Reinvest Account
Att Trust Operations Fund Group
401 S Tryon St 3rd Fl CMG 1151
Charlotte, NC 28202-1911
First Union National Bank/EB/INT 26.455%
Cash Account
Att Trust Operations Fund Group
401 S Tryon St 3rd Fl CMG 1151
Charlotte, NC 28202-1911
Diversified - Class A
MLPF&S For the Sole Benefit of Its 10.563%
Customers
Attn: Fund Administration #97TU7
4800 Deer Lake Dr E 2nd Fl
Jacksonville, FL 32246-6484
Diversified - Class B
MLPF&S For the Sole Benefit of Its 19.413%
Customers
Attn: Fund Administration #98295
4800 Deer Lake Dr E 2nd Fl
Jacksonville, FL 32246-6484
Diversified - Class C
NFSC FEBO # OKA-068993 36.439%
Edwin D Fortini TTEE
Edwin D Fortini Rev Living Tr
U/A 1/6/93
85 Elm St
Stoneham, MA 02180
First Union Brokerage Services 16.405%
Richard B Yules MD And
Lila S Yules JTWROS
A/C 8944-5409
120 S E 5th Ave #223
Boca Raton, FL 33432
18
<PAGE>
Donaldson Lufkin Jenrette 10.952%
Securities Corporation Inc
P.O. Box 2052
Jersey City, NJ 07303-9998
Donaldson Lufkin Jenrette 9.606%
Securities Corporation Inc
P.O. Box 2052
Jersey City, NJ 07303-9998
MLPF&S For the Sole Benefit of Its 8.039%
Customers
Attn: Fund Administration #97TU8
4800 Deer Lake Dr E 2nd Fl
Jacksonville, FL 32246-6484
Donaldson Lufkin Jenrette 7.631%
Securities Corporation Inc
P.O. Box 2052
Jersey City, NJ 07303-9998
Diversified - Class Y
None
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORS
The investment advisor to each Fund is a subsidiary of First Union
Corporation ("First Union"), a bank holding company headquartered at 301 South
College Street, Charlotte, North Carolina 28288-0630. First Union and its
subsidiaries provide a broad range of financial services to individuals and
businesses throughout the United States.
The investment advisor to U.S. Government is the Capital Management
Group of First Union National Bank ("FUNB"), located at 201 South College
Street, Charlotte, North Carolina 28288- 0630. The investment advisor is
entitled to receive from the Fund an annual fee equal to 0.50% of the Fund's
average daily net assets.
The investment advisor to Strategic, High Yield and Diversified is
Keystone Investment Management Company ("Keystone"). The investment advisor 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 investment advisor (the "Advisory Agreements").
Under the Advisory Agreements, and subject to the supervision of the Trust's
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Board of Trustees, the investment advisor 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 investment advisor 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 investment advisor, 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 of the Trust (Trustees who are not interested persons of
a Fund, as defined in the 1940 Act); (5) brokerage commissions, brokers' fees
and expenses; (6) issue and transfer taxes; (7) costs and expenses under the
Distribution Plan (defined below) (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 SEC 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 SEC and other
authorities; and (15) 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 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 is an investment advisor. The Rule 17a-7 Procedures also allow the Funds
to buy or sell securities from other advisory clients for whom a subsidiary of
First Union is an investment advisor. 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
20
<PAGE>
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 , Class B and Class C 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 Independent
Trustees are committed to the discretion of such disinterested Trustees then in
office.
Each investment advisor 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 12-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, Class B and Class C
shares. The Plans are designed to (i) stimulate brokers to provide distribution
and administrative support services to each Fund and holders of Class A, Class B
and Class C shares and (ii) stimulate administrators to render administrative
support services to the Fund and holders of Class A, Class B and Class C 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 account cash balances; answering routine client inquiries regarding Class
A, Class B and Class C 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, Class B and Class C shares, as
applicable.
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
21
<PAGE>
separately by class, and in either case, by a majority of the Independent
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
Independent 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
U.S. Government, subject to the supervision and control of the Trust's Board of
Trustees. EIS provides the Fund with facilities, equipment and personnel and is
entitled to receive a fee from the Fund based on the total assets of all mutual
funds administered by EIS for which any affiliate of FUNB serves as investment
advisor, as follows: 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, 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 200 Berkeley Street,
Boston, Massachusetts 02116-5034.
Independent Auditors
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 P.O.
Box 9021, 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.
22
<PAGE>
BROKERAGE
Due to regulatory developments affecting the securities exchanges and
brokerage practices, the Board of Trustees may modify or eliminate any of the
following policies.
BROKERAGE COMMISSIONS
Generally, each Fund expects to purchase and sell its equity securities
through brokerage transactions for which commissions are payable. Purchases from
underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include a dealer's mark-up
or reflect a dealer's mark-down.
Each Fund expects to buy and sell its fixed income securities directly
from the issuer or an underwriter or market maker for the securities. Generally,
each Fund will not pay brokerage commissions for such purchases. When a Fund
buys a security from an underwriter, the purchase price will usually include an
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.
SELECTION OF BROKERS
When buying and selling portfolio securities, each Advisor seeks
brokers who can provide the most benefit to the Fund or Funds for which a trade
is being made. When selecting a broker, an Advisor primarily will look for the
best price at the lowest commission, but in the context of the broker's:
1. ability to provide the best net financial result to the Fund;
2. efficiency in handling trades;
3. ability to trade large blocks of securities;
4. readiness to handle difficult trades;
5. financial strength and stability; and
6. provision of "research services," defined as (a) reports and
analyses concerning issuers, industries, securities and
economic factors and (b) other information useful in making
investment decisions.
Under each Advisory Agreement, each Fund may pay higher brokerage
commissions to a broker providing it with research services, as defined in item
6, above. Pursuant to Section 28(e) of the Securities Exchange Act of 1934, this
practice is permitted if the commission is reasonable in relation to the
brokerage and research services provided. Research services provided by a broker
to an Advisor do not replace, but supplement, the services an Advisor is
required to deliver to a Fund under the Advisory Agreement. It is impracticable
for an Advisor to allocate the cost, value and specific application of such
research services among its clients because research services intended for one
client may indirectly benefit another.
When selecting a broker for portfolio trades, an Advisor may also
consider the amount of Fund shares a broker has sold, subject to the other
requirements described above.
23
<PAGE>
Lieber & Company, an affiliate of Evergreen Asset, and a member of the
New York and American Stock Exchanges, will, to the extent practicable, effect
substantially all of the portfolio transactions for Evergreen and Micro effected
on those exchanges.
SIMULTANEOUS TRANSACTIONS
Each Advisor makes investment decisions for a Fund independently of
decisions made for its other clients. When a security is suitable for the
investment objective of more than one client, it may be prudent for an Advisor
to engage in a simultaneous transaction, that is, buy or sell the same security
for more than one client. Each Advisor strives for an equitable result in such
transactions by using an allocation formula. The high volume involved in some
simultaneous transactions can result in greater value to the Funds, but the
ideal price or trading volume may not always be achieved for an individual Fund.
In order to take advantage of the availablility of lower purchase prices, the
Funds may occasionally participate in group bidding for the direct purchase from
an issuer of certain securities.
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 18, 1997 pursuant to an Agreement and
Declaration of Trust (the "Declaration of Trust"). A copy of the Declaration of
Trust is on file at the SEC 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 shares
voting will not be able to elect any Trustees.
24
<PAGE>
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.
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%
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<PAGE>
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 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 FUNB, Evergreen Asset,
Keystone, Meridian Investment Company ("Meridian") 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 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%).
26
<PAGE>
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%.
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. purchasers 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 advisors;
4. investment advisors, 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 advisors or financial planners who place
trades for their own accounts if the accounts are linked to
master accounts of such investment advisors 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, the Distributor, any
broker-dealer with whom the Distributor 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
27
<PAGE>
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.
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 a 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 withdrawal 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.
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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 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 on a national securities exchange or in the
over-the-counter market for which there has been no sale and other securities
traded in the over-the-counter market are valued at the mean of the bid and
asked prices at the time of valuation.
(3) Short-term investments maturing in more than 60 days for which
market quotations are readily available, are valued at current market value.
(4) Short-term investments maturing in 60 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 60 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 prospectuses, a shareholder may elect to receive
his or her dividends and capital gains 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 his or her address. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
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<PAGE>
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.
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 comply
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 REGULATED INVESTMENT
COMPANY
Each Fund has qualified and intends to continue to qualify for and
elect the tax treatment applicable to regulated investment companies ("RICs")
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<PAGE>
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 securitie s 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; and (ii) 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 RICs). By so
qualifying, a Fund is not subject to federal income tax if it timely dis-
tributes 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 anticipates that its dividends will
not qualify for the 70% dividends-received deduction for corporations. Each Fund
will inform shareholders of any amounts that so qualify.
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.
Each shareholder should consult his or her own tax advisor 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 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
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<PAGE>
be entitled, however, to take the amount of such foreign taxes withheld as a
credit against his or her U.S. income tax, or to treat the foreign tax withheld
as an itemized deduction from his or her gross income, if that should be to his
or her advantage. In substance, this policy enables the shareholder to benefit
from the same foreign tax credit or deduction that he or she would have received
if he or she 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 12
months is generally subject to a maximum federal income tax rate of 20% for an
individual. 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 61-day period
beginning 30 days before and ending 30 days after he or she sold or exchanged
the shares. 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
advisors 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 advisors 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 advisor
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.
FINANCIAL INFORMATION
Expenses
The tables below show 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
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<PAGE>
Underwriter" and "Purchase, Redemption and Pricing of Shares."
<TABLE>
<CAPTION>
1998 Fund Expenses
Total Underwriting
Class A Class B Class C Underwriting Commissions
<S> <C> <C> <C> <C> <C> <C>
Fund Advisory Fees 12b-1 Fees 12b-1 Fees 12b-1 Fees Commissions Retained
======================== =================== ============== ================ ================ ================ ================
U.S. Government (1) $1,601,407 $81,637 $1,416,250 $47,584 $266,278 $5,752
Strategic (2) $1,406,494 $204,306 $1,158,148 $224,953 $970,715 $39,544
High Yield (3) $2,300,383 $297,165 $2,788,933 $1,649 $272,412 $4,722
- ------------------------ ------------------- -------------- ---------------- ----------------
Diversified (4) $1,847,478 $355,868 $1,934,807 $4 $243,811 $2,432
======================== =================== ============== ================ ================ ================ ================
(1) Year ended 4/30/98
(2) Year ended 4/30/98
(3) Nine months ended 4/30/98 (4) Eight months ended 4/30/98
1997 Fund Expenses
Total Underwriting
Class A Class B Class C Underwriting Commissions
Fund Advisory Fees 12b-1 Fees 12b-1 Fees 12b-1 Fees Commissions Retained
======================== =================== ============== ================ ================ ================ ================
U.S. Government (1) $1,258,319 $39,780 $1,300,696 $5,986 $32,391 $32,391
Strategic (2) $1,017,082 $112,916 $885,405 $215,351 $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
======================== =================== ============== ================ ================ ================ ================
(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
Total Underwriting
Class A Class B Class C Underwriting Commissions
Fund Advisory Fees 12b-1 Fees 12b-1 Fees 12b-1 Fees Commissions Retained
=================== ========== ======== =============== ================ ================ ================ ================
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
=================== ================== =============== ================ ================ ================ ================
(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.
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</TABLE>
<PAGE>
Brokerage Commissions Paid
Below are brokerage commissions paid by each Fund for the last three fiscal
years or periods.
Fund 1998 1997 1996
====================== =================== =================== ================
U.S. Government 0 (6) $6,838(1) 0 (2)
Strategic 0 (6) $2,864(3) $35,599 (4)
High Yield $1,046 (7) $3,488(4) $275,207 (4)
- ---------------------- ------------------- ------------------- ----------------
Diversified 0 (8) 0 (5) 0 (5)
====================== =================== =================== ================
(1) Ten months ended 4/30/97
(2) Year ended 6/30/96
(3) Nine months ended 4/30/97
(4) Year ended 7/31 of each year
(5) Year ended 8/31 of each year
(6) Year ended 4/30/98
(7) Nine months ended 4/30/98
(8) Eight months ended 4/30/98
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. All dividends and
distributions are added to the initial investment, 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, 1998 are as follows:
Ten Years or
Since Inception
One Year Five Years Inception Date
U.S. Government
Class A 4.56% 4.91% 5.31% 1/11/93
Class B 3.96% 4.91% 5.43% 1/11/93
Class C 7.96% -- 6.94% 9/2/94
Class Y 10.05% -- 5.89% 9/2/93
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Ten Years or
Since Inception
One Year Five Years Inception Date
Strategic
Class A 7.82% 6.97% 7.95% 4/14/87
Class B 7.47% 7.00% 8.27% 2/1/93
Class C 11.48% 7.28% 8.38% 2/1/93
Class Y 13.46% -- 7.80% 1/13/97
High Yield
Class A -- -- (2.30%)* 1/20/98
Class B 12.02% 7.42% 7.57% 9/11/35
Class C -- -- 1.35%* 1/22/98
Class Y -- -- (0.27%)* 4/14/98
- -------------------------------- ----------- ------------ --------- ------------
Diversified
- -------------------------------- ----------- ------------ --------- ------------
Class A -- -- 3.94%)* 1/20/98
- -------------------------------- ----------- ------------ --------- ------------
Class B 7.78% 6.34% 7.61% 9/11/35
- -------------------------------- ----------- ------------ --------- ------------
Class C -- -- (1.59%)* 4/7/98
- -------------------------------- ----------- ------------ --------- ------------
Class Y -- -- 0.80%* 2/11/98
================================ =========== ============ ========= ============
* Cumulative total return
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 SEC 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
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<PAGE>
Below are each Fund's yields for the 30-day period ended April 30,
1998:
Fund Class A Class B Class C Class Y
========================= ============= ============ ============= ===========
U.S.Government 5.01% 4.51% 4.51% 5.52%
Strategic 6.18% 5.42% 5.42% 6.45%
High Yield 6.83% 6.42% 6.41% --
Diversified 5.92% 5.46% -- 6.46%
========================= ============= ============ ============= ===========
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 n 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 12 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 Independent Auditor's Reports
thereon are hereby incorporated by reference to the Funds' Annual Report, a copy
of which may be obtained without charge from ESC, P.O. Box 2121, Boston,
Massachusetts 02106-2121.
ADDITIONAL INFORMATION
Except as otherwise stated in its prospectuses or required by law, each
Fund reserves the right to change the terms of the offer stated in its
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<PAGE>
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
prospectuses, 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 prospectuses 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.
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<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.
c. 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.
d. 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 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.
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e. 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 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.
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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 IBCA, Inc., or
will be determined by a Fund's investment advisor 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.
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:
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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 as-
sured 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
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EVERGREEN FIXED INCOME TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 633-2700
EVERGREEN SHORT AND INTERMEDIATE TERM BOND FUNDS
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1998
Evergreen Short-Intermediate Bond Fund ("Short-Intermediate) Evergreen
Intermediate Term Government Securities Fund ("Intermediate Term Government")
Evergreen Capital Preservation and Income Fund ("Capital Preservation")
Evergreen Intermediate Term Bond Fund (" Intermediate Term Bond")
(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 the prospectuses of the Funds dated November 1, 1998 as
supplemented from time to time. 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 other than Capital Preservation. You
may obtain either of these prospectuses from Evergreen Distributor, Inc.
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TABLE OF CONTENTS
INVESTMENT POLICIES..................................................
Fundamental Investment Policies.................................
Additional Information on Securities and Investment Practices...
MANAGEMENT OF THE TRUST..................................................
PRINCIPAL HOLDERS OF FUND SHARES.........................................
INVESTMENT ADVISORY AND OTHER SERVICES.....................................
Investment Advisors...............................................
Investment Advisory Agreements....................................
Distributor.......................................................
Distribution Plans and Agreements.................................
Additional Service Providers......................................
BROKERAGE..................................................................
Brokerage Commissions.............................................
Selection of Brokers..............................................
Simultaneous Transactions.........................................
TRUST ORGANIZATION.........................................................
Form of Organization..............................................
Description of Shares.............................................
Voting Rights.....................................................
Limitation of Trustees' Liability.................................
PURCHASE, REDEMPTION AND PRICING OF SHARES.................................
How the Funds Offer Shares to the Public..........................
Contingent Deferred Sales Charge..................................
Sales Charge Waivers or Reductions................................
Exchanges.........................................................
Calculation of Net Asset Value per Share ("NAV")..................
Valuation of Portfolio Securities.................................
Shareholder Services..............................................
PRINCIPAL UNDERWRITER......................................................
ADDITIONAL TAX INFORMATION.................................................
Requirements for Qualification as a Regulated Investment Company..
Taxes on Distributions............................................
Taxes on the Sale or Exchange of Fund Shares......................
Other Tax Considerations..........................................
FINANCIAL INFORMATION......................................................
ADDITIONAL INFORMATION.....................................................
APPENDIX A.................................................................
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FUNDAMENTAL INVESTMENT POLICIES
Each Fund has adopted the fundamental investment restrictions set forth
below which may not be changed without the vote of a majority of the Fund's
outstanding shares, as defined in the Investment Company Act of 1940, as amended
(the"1940 Act"). Where necessary, an explanation beneath a fundamental policy
describes a Fund's practices with respect to that policy, as allowed by current
law. If the law governing the a policy changes, the Fund's practices may change
accordingly without a shareholder vote. Unless otherwise stated, all references
to the assets of a Fund are in terms of current market value.
1. Diversification
Each Fund may not make any investment that is inconsistent with its
classification as a diversified investment company under the 1940 Act.
Further Explanation of Diversification Policy:
To remain classified as a diversified investment company under the 1940
Act, each Fund must conform with the following: With respect to 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 United States ("U.S.") government or its agencies or
instrumentalities.
2. Concentration
Each Fund may not concentrate its investments in the securities of
issuers primarily engaged in any particular industry (other than securities that
are issued or guaranteed by the U.S.
government or its agencies or instrumentalities).
Further Explanation of Concentration Policy:
Each Fund may not invest more than 25% of its total assets, taken at
market value, in the securities of issuers primarily engaged in any particular
industry (other than securities issued or guaranteed by the U.S. government or
its agencies or instrumentalities).
3. Issuing Senior Securities
Except as permitted under the 1940 Act, each Fund may not issue senior
securities.
4. Borrowing
Each Fund may not borrow money, except to the extent permitted by
applicable law.
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Further Explanation of Borrowing Policy:
Each Fund may borrow from banks or enter into repurchase agreements in
an amount up to 33 1/3% of its total assets, taken at market value. Each Fund
may also borrow up to 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 such as the redemption of Fund shares. Each Fund may not purchase
securities while borrowings exceed 5% of its total assets. Each Fund may obtain
such short-term credit as may be necessary for the clarification of purchases
and sales of portfolio securities. Each Fund may purchase securities on margin
and engage in short sales to the extent permitted by applicable law.
5. Underwriting
Each Fund may not underwrite securities of other issuers, except
insofar as each Fund may be deemed to be an underwriter in connection with the
disposition of its portfolio securities.
6. 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.
7. 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
contracts 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.
8. Lending
Each Fund may not make loans to other persons, except that each 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.
Further Explanation of Lending Policy:
To generate income and offset expenses, each Fund may lend portfolio
securities to broker-dealers and or financial institutions in an amount up to 33
1/3% of its total assets, taken at market value. While securities are on loan,
the borrower will pay each Fund any income accruing on the security. Each Fund
may invest any collateral it receives in additional portfolio securities, such
as U.S. Treasury notes, certificates of deposit, other high-grade, short-term
obligations or interest bearing cash equivalents. Gains or losses in the market
value of a security lent will affect a Fund and its shareholders.
When a Fund lends its securities, it will require the borrower to give
the Fund collateral in cash or government securities. The Fund will require
collateral in an amount equal to at least 100% of the current market value of
the securities lent, including accrued interest. A Fund has the right to call a
loan and obtain the securities lent any time on notice of not more than five
business days.
A Fund may pay reasonable fees in connection with such loans.
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ADDITIONAL INFORMATION ON SECURITIES AND INVESTMENT PRACTICES
The investment objective of each Fund and a description of the
securities in which each Fund may invest are set forth in the Funds'
prospectuses. The following expands upon the discussion in the prospectuses
regarding certain investments of the Funds.
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.
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 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.
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
investment advisor 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's custodian or a third party 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, the Fund could receive less than the
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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
investment advisor 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 advisor to be
creditworthy pursuant to guidelines established by the 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 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
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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 investment advisor to be a favorable price and
rate of return for securities the Fund intends to purchase.
Each Fund may 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 investment advisor
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 investment advisor 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
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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 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 (Short-Intermediate and Intermediate Term Bond)
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 (Short-Intermediate and Intermediate Term Bond)
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
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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
investment advisor'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
Fund may also purchase and sell options related to foreign currencies in
connection with hedging strategies.
High-Yield Bonds (Short-Intermediate and Intermediate Term Bond)
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 Rating Services ("S&P") and Fitch IBCA, Inc.
("Fitch") 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. Short-Intermediate will not
invest in bonds rated below B by S&P or Moody's. Intermediate Term Bond may
invest in bonds rated CCC by S&P and Fitch and Caa by Moody's. 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 advisor believes they are comparable
to high-yield securities in which each Fund may otherwise invest.
(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.
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(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.
The investment advisor considers the ratings of S&P, Moody's and Fitch
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.
Zero-coupon Bonds and Payment-in-kind Securities ("PIKS") (All Funds except
Capital Preservation)
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.
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
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.
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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 the 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.
<TABLE>
<CAPTION>
<S> <C> <C>
Name Position with Trust Principal Occupations for Last Five Years
- ------------------------------- ------------------------- -----------------------------------------------------------------
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) former Director, Executive Vice President and
Treasurer, State Street Research & Management Company
(investment advice); Director, The Andover Companies
(Insurance); and Trustee, Arthritis Foundation of New England.
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; Gifford, Drescher & Associates
(environmental consulting)
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).
12
Name Position with Trust Principal Occupations for Last Five Years
- ------------------------------- ------------------------- -----------------------------------------------------------------
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. (steel
(DOB: 7/14/39) 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, DHR
(DOB: 9/14/41) 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)
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 BISYS Fund Services.
13
<PAGE>
Name Position with Trust Principal Occupations for Last Five Years
- ------------------------------- ------------------------- -----------------------------------------------------------------
Bryan Haft* Vice President Team Leader, Fund Administration, BISYS Fund
(DOB: 1/23/65) Services.
Michael H. Koonce Secretary Senior Vice President and Assistant General Counsel,
(DOB: 4/20/60) First Union Corporation; former Senior Vice President
and General Counsel, Colonial Management
Associates, Inc.
</TABLE>
*Address: BISYS, 3435 Stelzer Road, Columbus, Ohio 43219-8001
Trustee Compensation
Listed below is the estimated Trustee compensation for the
twelve-month period ended June 30, 1998. The Trustees do not receive retirement
benefits from the Trust.
COMPENSATION TABLE
Aggregate Total Compensation
Compensation From Registrant And
From Fund Complex Paid To
Name Of Person Registrant Directors
Laurence B. Ashkin $4,271 $66,144
Charles A. Austin $4,554 $52,517(a)
K. Dun Gifford $4,174 $49,196
James S. Howell $5,981 $96,969(b)
Leroy Keith Jr. $4,400 $50,676
Gerald M. McDonnell $5,413 $84,950(c)
Thomas L. McVerry $5,557 $90,700(d)
William Walt Pettit $4,937 $77,625(e)
David M. Richardson $4,458 $48,970
Russell A. Salton, III $5,127 $86,050(f)
Michael S. Scofield $5,308 $81,981(g)
Richard J. Shima $4,768 $63,234
(a) $5,700 of this amount payable in later years as deferred compensation.
(b) $74,044 of this amount payable in later years as deferred compensation.
(c) $84,950 of this amount payable in later years as deferred compensation.
(d) $90,700 of this amount payable in later years as deferred compensation.
(e) $77,625 of this amount payable in later years as deferred compensation.
(f) $86,050 of this amount payable in later years as deferred compensation.
(g) $23,320 of this amount payable in later years as deferred compensation.
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 September 30, 1998:
Short-Intermediate - Class A
None
Short-Intermediate - Class B
MLPF&S For the Sole Benefit of Its 5.474%
Customers
Attn: Fund Administration #97H43
4800 Deer Lake Dr E 2nd Fl
Jacksonville, FL 32246-6484
Short-Intermediate - Class C
MLPF&S For the Sole Benefit of Its 23.956%
Customers
Attn: Fund Administration #97H43
4800 Deer Lake Dr E 2nd Fl
Jacksonville, FL 32246-6484
Donaldson Lufkin & Jenrette 12.915%
Securities Corporation
P.O. Box 2052
Jersey City, NJ 07303-2052
FUBS & Co FEBO 5.296%
Rachel W. Fort
Edward C. Fort
2737 Stockton St.
Winston Salem, NC 27127
First Union Brokerage Services 7.488%
Rivero Gordimer & Co. PA
Ceasar Rivero & Richard Gordimer
2203 N. Lois Ave.
Tampa, FLA 33607
14
<PAGE>
Short-Intermediate - Class Y
First Union National Bank 44.437%
Trust Accounts
Attn Ginny Batten
11th Fl CMG-151 301 S Tryon St Charlotte, NC 28288
First Union National Bank 54.379%
Trust Accounts
Attn Ginny Batten
11th Fl CMG-151 301 S Tryon St Charlotte, NC 28288
Intermediate Term Government - Class A
Charles Schwab & Co., Inc. 16.817%
Speccial Custody Acct./FBO
Exclusive
Benefit of Customers/Reinvest Acct.
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
Intermediate Term Government - Class B
MLPF&S For the Sole Benefit of Its 23.708%
Customers
Attn: Fund Administration #97A19
4800 Deer Lake Dr E 2nd Fl
Jacksonville, FL 32246-6484
First Union Brokerage Services 8.614%
Eleanor Y. Lind
609 Four Bays Drive
Nokomis, FLA 34275-3009
Virginia E. Casper 5.333%
5871 Jeffries Ranch Road
Oceanside, CA 92057
FUBS & Co., FEBO 5.274%
Carmela N. Woodruff
1 College Lane
Brevard, NC 28712
First Union Brokerage Services 5.228%
Frances E. Clyma Rev. Trust
11381 Prosperity Farms Rd.
Palm Beach Gardens, FLA 33410-
3455
15
<PAGE>
Intermediate Term Government - Class C
Donaldson Lufkin & Jenrette 55.791%
Securities Corporation
P.O. Box 2052
Jersey City, NJ 07303-2052
MLPF&S For the Sole Benefit of Its 44.209%
Customers
Attn: Fund Administration #97A20
4800 Deer Lake Dr E 2nd Fl
Jacksonville, FL 32246-6484
Intermediate Term Government - Class Y
First Union National Bank 59.601%
Trust Accounts
Attn: Ginny Batten
301 South Tryon S.t
Charlotte, NC 28202-1910
First Union National Bank 37.449%
Trust Accounts
Attn: Ginny Batten
301 South Tryon S.t
Charlotte, NC 28202-1910
Capital Preservation - Class A
MLPF&S For the Sole Benefit of Its 34.332%
Customers
Attn: Fund Administration #97A20
4800 Deer Lake Dr E 2nd Fl
Jacksonville, FL 32246-6484
Raymond James & Asociates, Inc. 6.341%
For Elite Account
FAAO Ted Murray
Special Account 2 Service Account
2500 Tanglewilde Sst.
Houston, TX 77063
Smith Barney, Inc. 6.052%
388 Greenwich St.
New York, NY 10013
16
<PAGE>
Capital Preservation - Class B
MLPF&S For the Sole Benefit of Its 13.612%
Customers
Attn: Fund Administration #98296
4800 Deer Lake Dr E 2nd Fl
Jacksonville, FL 32246-6484
Capital Preservation - Class C
MLPF&S For the Sole Benefit of Its 14.834%
Customers
Attn: Fund Administration #97TW1
4800 Deer Lake Dr E 2nd Fl
Jacksonville, FL 32246-6484
ANECA Federal Credit Union 6.125%
c/o Rick Holland
P.O. Box 21734
Shreveport, LA 71151
St. Ann's Catholic Church 5.191%
Attn: Fr. Peter McKenna
P.O. Box 256
LaVernia, TX 78121-0256
Intermediate Term Bond- Class A
None
Intermediate Term Bond - Class B
MLPF&S For the Sole Benefit of Its 10.092%
Customers
Attn: Fund Administration #97TU7
4800 Deer Lake Dr E 2nd Fl
Jacksonville, FL 32246-6484
17
<PAGE>
Intermediate Term Bond - Class C
NFSC FEBO 6.56%
Center For the Advancement of HLT
Rena Convissor
2000 Florida Ave. NW
Washington, DC 20009-1231
MLPF&S For the Sole Benefit of Its 27.284%
Customers
Attn: Fund Administration #98295
4800 Deer Lake Dr E 2nd Fl
Jacksonville, FL 32246-6484
Intermediate Term Bond - Class Y
First Union National Bank 70.510%
Trust Accounts
Attn: Ginny Batten
301 South Tryon S.t
Charlotte, NC 28202-1910
First Union National Bank 28.959%
Trust Accounts
Attn: Ginny Batten
301 South Tryon S.t
Charlotte, NC 28202-1910
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORS
The investment advisor to each Fund is a subsidiary of First Union
Corporation ("First Union"), a bank holding company headquartered at 301 South
College Street, Charlotte, North Carolina 28288-0630. First Union and its
subsidiaries provide a broad range of financial services to individuals and
businesses throughout the United States.
The investment advisor to Short-Intermediate and Intermediate Term
Government is the Capital Management Group of First Union National Bank
("FUNB"), located at 201 South College Street, Charlotte, North Carolina
28288-0630. The investment advisor is entitled to receive from
Short-Intermediate and Intermediate Term Government an annual fee equal to 0.50%
and 0.60%, respectively, of the Fund's average daily net assets.
The investment advisor to Capital Preservation and Intermediate Term
Bond is Evergreen Investment Management Company ("EIMC"). The investment advisor
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 first $100 million of the
aggregate net asset value of each Fund's shares, plus 0.45% of the next $100
million, plus 0.40% of the next $100 million, plus 0.35% of the next $100
million, plus 0.30% of the next $100 million, plus 0.25% of amounts over $500
million.
Advisory fees are computed as of the close of business each business day and
payable monthly.
18
<PAGE>
INVESTMENT ADVISORY AGREEMENTS
On behalf of each if its Funds, the Trust has entered into an
investment advisory agreement with the investment advisor (the "Advisory
Agreements"). Under the Advisory Agreements, and subject to the supervision of
the Trust's Board of Trustees, the investment advisor 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 investment advisor
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 investment advisor, 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 of the Trust (Trustees who are not
interested persons of a Fund, as defined in the 1940 Act); (5) brokerage
commissions, brokers' fees and expenses; (6) issue and transfer taxes; (7) costs
and expenses under the Distribution Plan (defined below) (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 SEC 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 SEC and other authorities; and (15) 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 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 is an investment advisor. The Rule 17a-7 Procedures also allow the Funds
to buy or sell securities from other advisory clients for whom a subsidiary of
First Union is an investment advisor. 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.
19
<PAGE>
DISTRIBUTION PLANS AND AGREEMENTS
Distribution fees are accrued daily and paid at least monthly on Class
A, Class B and Class C shares and are charged as class expenses, as accrued. The
distribution fees attributable to the Class B and Class C 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.
The National Association of Securities Dealers, Inc. ("NASD") limits
the amount that a mutual fund may pay annually in distribution costs for sale of
its shares and shareholder service fees. The NASD limits annual expenditures to
1.00% of the aggregate average daily net asset value of its shares, of which
0.75% may be used to pay such distribution costs and 0.25% may be used to pay
shareholder services fees. The NASD also limits the aggregate amount that a Fund
may pay for such distribution costs to 6.25% of gross share sales since the
inception of the distribution plan, plus interest at the prime rate plus 1.00%
on such amounts remaining unpaid from time to time.
Under the Rule 12b-1 Distribution Plans that have been adopted by each
Fund with respect to each of its Class A, Class B shares, and Class C 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 Independent Trustees are committed to the discretion of such Independent
Trustees then in office.
Each Advisor 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 service and to
broker-dealers, depository institutions, financial intermediaries and
administrators for administrative services as to Class A, Class B and Class C
shares (as applicable). The Plans are designed to (I) stimulate brokers to
provide distribution and administrative support services to each Fund and
holders of such Class A, Class B and Class C shares and (ii) stimulate
administrators to render administrative support services to a Fund and holders
of such Class A, Class B and Class C 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
20
<PAGE>
investments of client account cash balances; answering routine client inquiries
regarding such Class A, Class B and Class C shares; assisting clients in
changing dividend options, account designations, and addresses; and providing
such other services as a Fund reasonably requests for its Class A, Class B and
Class C shares, as applicable.
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 a
Fund to the Distributor with respect to that class or classes, and (ii) a 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 service 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 a Fund's
outstanding voting securities, voting separately by class, and in either case,
by a majority of the Independent 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 Independent 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, a 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
Short-Intermediate and Intermediate Term Government, subject to the supervision
and control of the Trust's Board of Trustees. EIS provides the Fund with
facilities, equipment and personnel and is entitled to receive a fee from the
Fund based on the total assets of all mutual funds administered by EIS for which
any affiliate of FUNB serves as investment advisor, as follows: 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.
EIS also provides facilities, equipment and personnel to Capital Preservation
and Intermediate Term Bond on behalf of their advisor and is reimbursed by the
Funds for its services.
Transfer Agent
Evergreen Service Company ("ESC"), a subsidiary of First Union, is the
Funds' transfer agent. The transfer agent issues and redeems shares, pays
dividends and performs other duties in
21
<PAGE>
connection with the maintenance of shareholder accounts. The transfer agent's
address is 200 Berkeley Street, Boston, Massachusetts 02116-5034.
Independent Auditors
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 P.O.
Box 9021, 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
Due to regulatory developments affecting the securities exchanges and
brokerage practices, the Board of Trustees may modify or eliminate any of the
following policies.
BROKERAGE COMMISSIONS
Each Fund expects to buy and sell its fixed income securities directly
from the issuer or an underwriter or market maker for the securities. Generally,
each Fund will not pay brokerage commissions for such purchases. When a Fund
buys a security from an underwriter, the purchase price will usually include an
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.
SELECTION OF BROKERS
When buying and selling portfolio securities, each investment advisor
seeks brokers who can provide the most benefit to the Fund or Funds for which a
trade is being made. When selecting a broker, an investment advisor primarily
will look for the best price at the lowest commission, but in the context of the
broker's:
1. ability to provide the best net financial result to the Fund;
2. efficiency in handling trades;
3. ability to trade large blocks of securities;
4. readiness to handle difficult trades;
5. financial strength and stability; and
6. provision of "research services," defined as (a) reports and
analyses concerning issuers, industries, securities and
economic factors and (b) other information useful in making
investment decisions.
22
<PAGE>
Under each Advisory Agreement, each Fund may pay higher brokerage
commissions to a broker providing it with research services, as defined in item
6, above. Pursuant to Section 28(e) of the Securities Exchange Act of 1934, this
practice is permitted if the commission is reasonable in relation to the
brokerage and research services provided. Research services provided by a broker
to an investment advisor do not replace, but supplement, the services an
investment advisor is required to deliver to a Fund under the Advisory
Agreement. It is impracticable for an investment advisor to allocate the cost,
value and specific application of such research services among its clients
because research services intended for one client may indirectly benefit
another.
When selecting a broker for portfolio trades, an investment advisor may
also consider the amount of Fund shares a broker has sold, subject to the other
requirements described above.
SIMULTANEOUS TRANSACTIONS
Each investment advisor makes investment decisions for a Fund
independently of decisions made for its other clients. When a security is
suitable for the investment objective of more than one client, it may be prudent
for an investment advisor to engage in a simultaneous transaction, that is, buy
or sell the same security for more than one client. Each investment advisor
strives for an equitable result in such transactions by using an allocation
formula. The high volume involved in some simultaneous transactions can result
in greater value to the Funds, but the ideal price or trading volume may not
always be achieved for an individual Fund. 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.
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 was formed as a Delaware
business trust on September 18, 1997 pursuant to an Agreement and Declaration of
Trust (the "Declaration of Trust"). A copy of the Declaration of Trust is on
file at the SEC 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
23
<PAGE>
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 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.
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 three or 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:
24
<PAGE>
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%
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 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 FUNB, Evergreen Asset, EIMC,
Meridian Investment 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 NASD, paid to the Distributor
or its predecessor.
25
<PAGE>
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., 2.50% of the offering price, rather than 3.25%).
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%.
Your account, and therefore your rights of accumulation, can be linked
to immediate family members which include father and mother, sisters and
brothers, and sons and daughters. The same rule applies with respect to
individual retirement plans. Please note, however, that retirement plans
involving employees stand alone and do not pass on rights of accumulation.
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. purchasers 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 advisors;
4. investment advisors, 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;
26
<PAGE>
5. clients of investment advisors or financial planners who place
trades for their own accounts if the accounts are linked to
master accounts of such investment advisors 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, the Distributor, any
broker-dealer with whom the Distributor 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.
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 a 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;
27
<PAGE>
9. a financial hardship withdrawal 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 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 on a national securities exchange or in the
over-the-counter market for which there has been no sale and other securities
traded in the over-the-counter market are valued at the mean of the bid and
asked prices at the time of valuation.
(3) Short-term investments maturing in more than 60 days for which
market quotations are readily available, are valued at current market value.
(4) Short-term investments maturing in 60 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 60 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.
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<PAGE>
(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 prospectuses, a shareholder may elect to receive
his or her dividends and capital gains 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 his or her 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.
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 comply
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.
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<PAGE>
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 REGULATED INVESTMENT
COMPANY
Each Fund has qualified and intends to continue to qualify for and
elect the tax treatment applicable to regulated investment companies ("RICs")
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; and (ii) 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 RICs). 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 anticipates that its dividends will
not qualify for the 70% dividends-received deduction for corporations. Each Fund
will inform shareholders of any amounts that so qualify.
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.
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<PAGE>
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.
Each shareholder should consult his or her own tax advisor 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 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 or her U.S. income tax, or to treat the
foreign tax withheld as an itemized deduction from his or her gross income, if
that should be to his or her advantage. In substance, this policy enables the
shareholder to benefit from the same foreign tax credit or deduction that he or
she would have received if he or she 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 12
months is generally subject to a maximum federal income tax rate of 20% for an
individual. 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 61-day period
beginning 30 days before and ending 30 days after he or she sold or exchanged
the shares. 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
advisors about the applicability of the backup withholding provisions.
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<PAGE>
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 advisors 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 advisor
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.
FINANCIAL INFORMATION
Expenses
The tables below show 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."
1998 Fund Expenses
<TABLE>
<CAPTION>
Total Underwriting
Class A Class B Class C Underwriting Commissions
<S> <C> <C> <C> <C> <C> <C>
Fund Advisory Fees 12b-1 Fees 12b-1 Fees 12b-1 Fees Commissions Retained
======================== =================== ============== ================ ================ ================ ================
Short-Intermediate $1,976,366 $16,363 $212,701 $10,110 $22,935 $2,549
Intermediate Term
Government $668,939 $71,906 $7,899 $1,131 $1,930 $267
Capital Preservation $307,654(1) $33,973 $290,982 $40,971 $74,609 $0
- ------------------------ ------------------- -------------- ---------------- ----------------
Intermediate Term $574,715 (2) $120,529 $109,116 $66,780 $13,855 $0
Bond
======================== =================== ============== ================ ================ ================ ================
</TABLE>
(1) Of this amount, $212,054 was waived by the Advisor (2) Of this amount,
285,486 was waived by the Advisor
23375
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<PAGE>
1997 Fund Expenses
Total Underwriting
Underwriting Commissions
Fund Advisory Fees Commissions Retained
======================== =================== ================ ================
Short-Intermediate $1,998,063 $52,484 $6,833
Intermediate Term
Government $546,941(1) $522 $77
Capital Preservation $284,977(2) $305,542 $244,211
- ------------------------ ------------------- ---------------- ----------------
Intermediate Term $987,044(3) $3,201 $504
Bond
======================== =================== ================ ================
(1) Of this amount, $73,557 was waived by the Advisor (2) Of this amount,
$245,255 was waived by the Advisor (3) Of this amount, $5,480 was waived by the
Advisor
1996 Fund Expenses
Total Underwriting
Underwriting Commissions
Fund Advisory Fees Commissions Retained
======================== =================== ================ ================
Short-Intermediate $1,951,949 $74,999 $9,560
IntermediateTerm
Government $506,065(1)(2) $0 $0
Capital Preservation $493,147 (3)(4) $490,274(5) $397,085
- ------------------------ ------------------- ---------------- ----------------
Intermediate Term $ 600,081(6)(7) $0 $0
Bond
======================== =================== ================ ================
(1) Ten-month period ended 6/30/96 (2) Of this amount, $61,160 was waived by the
Advisor (3) Nine-month period ended 9/30/96 (4) Of this amount, $341,016 was
waived by the Advisor (5) Year ended 9/30/96 (6) Ten-month period ended 6/30/96
(7) Of this amount, $64,983 was waived by the Advisor
23375
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<PAGE>
Brokerage Commissions Paid
Below are brokerage commissions paid by each Fund for the last three fiscal
years or periods.
Fund 1998 1997 1996
====================== =================== =================== ===============
Short-Intermediate $10,667 $0 $0
Intermediate Term $0 $0 $0
Government
Capital Preservation $0 $0 $0
- ---------------------- ------------------- ------------------- ---------------
Intermediate Term $0 $0 $0
Bond
====================== =================== =================== ===============
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. All dividends and
distributions are added to the initial investment, 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 June 30 30, 1998 are as follows:
Ten Years
or Since Inception
One Year Five Years Inception Date
Short-Intermediate
Class A 3.60% 4.59% 7.14% 1/28/89
Class B 1.11% 4.09% 4.68% 1/25/93
Class C 5.11% N/A 5.83% 9/6/94
Class Y N/A 5.42% 7.04% 1/4/91
23375
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<PAGE>
Ten Years or
Since Inception
One Year Five Years Inception Date
Intermediate Term Government
Class A 4.05% N/A 5.37% 5/2/95
Class B 1.57% N/A 2.77% 2/9/96
Class C 5.57% N/A 5.62% 4/10/96
Class Y N/A 5.08% 6.09% 11/1/91
Capital Preservation
Class A 1.82% N/A 6.67% 12/30/94
Class B (0.54)% 4.09% 4.45% 7/1/91
Class C 5.67% 4.50% 4.55% 2/1/93
Intermediate Term Bond
- -----------------------------------------------------------------------------
Class A 5.28% 5.27% 6.43% 2/13/87
- -----------------------------------------------------------------------------
Class B 2.89% 4.84% 5.37% 2/1/93
- -----------------------------------------------------------------------------
Class C 7.01% 5.18% 5.52% 2/1/93
- -----------------------------------------------------------------------------
Class Y N/A N/A 2.58% 1/26/98
=============================================================================
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 SEC 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
23375
36
<PAGE>
Below are each Fund's yields for the 30-day period ended June 30, 1998:
Fund Class A Class B Class C Class Y
========================= ======== ======= ======== ========
Short-Intermediate 5.56% 4.83% 4.83% 5.85%
Intermediate Term 5.16% 4.39% 4.39% 5.39%
Government
Capital 5.13% 4.38% 4.37% N/A
Preservation
Intermediate Term 5.50% 4.94% 4.94% 5.94%
Bond
========================= ======= ======== ======= =========
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 n 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 12 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 Independent Auditor's Reports
thereon are hereby incorporated by reference to the Funds' Annual Report, a copy
of which may be obtained without charge from ESC, P.O. Box 2121, Boston,
Massachusetts 02106-2121.
24488
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<PAGE>
ADDITIONAL INFORMATION
Except as otherwise stated in its prospectuses 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
prospectuses, 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 prospectuses 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.
24488
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<PAGE>
APPENDIX A
S&P AND MOODY'S BOND RATINGS
S&P 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:
1. 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;
2. Nature of and provisions of the obligation; and
3. 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:
1. AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
2. 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.
A-1
<PAGE>
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 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.
A-2
<PAGE>
8. Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default 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.
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 advisor 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.
A-3
<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.
FITCH BOND RATINGS
Fitch's ratings are as follows:
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA". Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than debt securities with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these securities and,
therefore, impair timely payment. The likelihood that the ratings of these bonds
will fall below investment grade is higher than for securities with higher
ratings.
Plus (+) Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
NR: Indicates that Fitch does not rate the specific issue.
A-4
<PAGE>
Conditional: A conditional rating is premised on the successful completion
of a project or the occurrence of a specific event.
Suspended: A rating is suspended when Fitch deems the amount of information
available from the issuer to be inadequate for rating purposes.
Withdrawn: A rating will be withdrawn when an issue matures or is called or
refinanced, and, at Fitch's discretion, when an issuer fails to furnish proper
and timely information.
FitchAlert: Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the likely direction
of such change. These are designated as "Positive," indicating a potential
upgrade, "Negative," for potential downgrade, or "Evolving," where ratings may
be raise or lowered. FitchAlert is relatively short-term and should be resolved
within 12 months.
Rating Outlook: An outlook is used to describe the most likely direction of
any rating change over the intermediate term. It is described as "Positive" or
"Negative." The absence of a designation indicates a stable outlook.
Speculative Grade Bond Ratings BB: Bonds are considered speculative. The
obligor's ability to pay interest and repay principal may be affected over time
by adverse economic changes. However, business and financial alternatives can be
identified, which could assist the obligor in satisfying its debt service
requirements.
B: Bonds are considered highly speculative. While securities in this class
are currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.
CCC: Bonds have certain identifiable characteristics that, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D: Bonds are in default on interest and/or principal payments.
Such securities are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the obligor.
"DDD" represents the highest potential for recovery on these securities, and "D"
represents the lowest potential for recovery.
Plus (+) Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "DDD", "DD", or "D" categories.
A-5
<PAGE>
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+."
F-2: Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as great
as for issues assigned "F-1+" and "F-1" ratings.
F-3: Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate; however,
near-term adverse changes could cause these securities to be rated below
investment grade.
F-5: Weak Credit Quality. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are vulnerable
to near-term adverse changes in financial and economic conditions.
D: Default. Issues assigned this rating are in actual or imminent payment
default.
LOC: The symbol LOC indicates that the rating is based on a letter of
credit issued by a commercial bank.
24388
A-6
Evergreen
Long Term
Bond Funds
April 30, 1998
Annual Report
(Photo appears here of cars,
buildings, clocks)
(Evergreen Funds (SM) since 1932
logo appears here)
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Letter to Shareholders ................... 1
Evergreen Diversified Bond Fund
Fund at a Glance ...................... 2
Portfolio Manager Interview ........... 3
Evergreen High Yield Bond Fund
Fund at a Glance ...................... 6
Portfolio Manager Interview ........... 7
Evergreen Strategic Income Fund
Fund at a Glance ...................... 9
Portfolio Manager Interview ........... 10
Evergreen U.S. Government Fund
Fund at a Glance ...................... 13
Portfolio Manager Interview ........... 14
</TABLE>
<TABLE>
<S> <C>
Financial Highlights
Evergreen Diversified Bond Fund ....... 16
Evergreen High Yield Bond Fund ........ 19
Evergreen Strategic Income Fund ....... 22
Evergreen U.S. Government Fund ........ 25
Schedules of Investments
Evergreen Diversified Bond Fund ....... 27
Evergreen High Yield Bond Fund ........ 33
Evergreen Strategic Income Fund ....... 38
Evergreen U.S. Government Fund ........ 43
Statements of Assets and Liabilities ..... 44
Statements of Operations ................. 45
Statements of Changes in Net Assets ...... 47
Combined Notes to Financial
Statements .............................. 50
Independent Auditors' Report:
KPMG Peat Marwick LLP ................. 60
Additional Information (Unaudited) ....... 61
</TABLE>
Evergreen Funds
Evergreen Funds is one of the nation's fastest growing investment companies
with more than $47 billion in assets under management.
With over 80 mutual funds to choose among and acclaimed service and operations
capabilities, investors enjoy a broader range of quality investment products
and services designed to meet their needs.
The Evergreen Funds employ intensive, research-driven investment strategies
executed by over 90 research analysts and portfolio managers. The fund company
remains dedicated to meeting the needs of investors and their advisors in a
global economy. Look to the Evergreen Funds to provide a distinctive level of
service and excellence in investment management.
This annual report must be preceded or accompanied by a prospectus of an
Evergreen fund contained herein. The prospectus contains more complete
information, including fees and expenses, and should be read carefully before
investing or sending money.
<TABLE>
<S> <C>
Mutual Funds:
ARE NOT FDIC INSURED May lose value o Are not bank guaranteed
</TABLE>
Evergreen Distributor, Inc.
Evergreen(SM) is a Service Mark of Evergreen Investment Services, Inc. Copyright
1998.
<PAGE>
Letter to Shareholders
June 1998
Dear Shareholders:
(Photo of William M.Ennis It has been an extraordinarily unusual and
appears here) rewarding time to be invested in Evergreen Long
Term Bond Funds. The fiscal year that ended on
April 30, 1998 was truly remarkable, with
strong performance posted both by high
William M. Ennis grade, government-oriented bond funds
Managing Director and by corporate bond funds.
Ideal Conditions
During the year, the U.S. economy grew at a very healthy rate, with gross
domestic product increasing at an annualized rate of more than 3%. Normally,
that is very good for corporate bond funds, especially higher yielding funds
that invest in lower-rated securities. In fact, the Merrill Lynch High Yield
Index rose by 14.01% for the period.
Usually, when economic growth is strong, inflationary pressures rise and
interest rates tend to jump. This hurts the performance of higher grade fixed
income securities, especially government bonds, as their prices tend to decline
as interest rates rise. This didn't happen over the 12 months, however.
Inflation did not appear as a problem. In addition, the first federal budget
surplus in 29 years reduced the need for new federal borrowing, which lowered
the interest rates of new bonds and contributed to higher bond prices for older
bonds with higher "coupons." Interest rates fell significantly, with the
30-year Treasury Bond leading the decline, dropping from 6.96% to 5.95%. That
meant strong performance by government bonds, with the Lehman Brothers
Government Bond Index rising by 11.05%.
Despite inevitable periods of short-term market corrections, it has been a year
when even the bad news has often been good news for the U.S. bond market.
Uncertainty abroad -- particularly the Asian financial and currency crisis --
has tended to increase the relative attractiveness of the U.S. currency and the
relative safety of dollar-based bonds.
Looking Ahead
While our economic outlook does not foresee any immediate problems,
shareholders should be mindful that the investment environment is continually
changing. In particular, the economic and currency crisis in Asia could slow
down the growth of the U.S. economy and have an impact on corporate bonds. We
do not see this possibility as cause for alarm, particularly in light of the
economic health of Western Europe acting somewhat as a counter-force. We do
think it is important, however, to remind shareholders of these possibilities
and that the most successful investors are those who adhere to a consistent
long-term strategy through changing economic conditions.
At Evergreen Funds, we are committed to providing a strong array of funds with
complementary objectives and strategies to help investors and their financial
advisors assemble personal portfolios that make sense for their needs and risk
tolerances.
We can assist by providing the information you need about Evergreen mutual
funds. If you have any questions about the Evergreen Long Term Bond Funds or
other Evergreen Funds, we encourage you to consult your financial advisor or
call us at 800-343-2898.
Thank you for your continued investment in Evergreen Funds.
Sincerely,
(Signature of William M. Ennis appears here)
William M. Ennis
Managing Director
Evergreen Funds
1
<PAGE>
EVERGREEN
Diversified Bond Fund
Fund at a Glance as of April 30, 1998
We underweighted
government bonds and
tended to emphasize
corporate bonds, with some
international investments.
Portfolio
Management
- ----------------------------------------
(Photo of Christopher Conkey, CFA appears here)
Christopher Conkey,CFA
Tenure: January 1994
-------------------------------------------------------
CURRENT INVESTMENT STYLE
(Table with cube-shaped blocks appears below showing medium quality and
intermediate duration.)
Duration Quality
Short High
Int Med
Long Low
Morningstar's Style Box is based on a
portfolio date as of 3/31/98.
The Fixed-Income Style Box placement is
based on a fund's average effective maturity
or duration and the average credit rating of
the bonds within the portfolio.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
<TABLE>
<CAPTION>
Class B
<S> <C>
Inception Date 9/11/35
.......................................
Average Annual Returns
.......................................
1 year with sales charge 7.78%
.......................................
1 year w/o sales charge 12.78%
.......................................
3 years 8.22%
.......................................
5 years 6.34%
.......................................
10 years 7.61%
.......................................
Since Inception 6.99%
.......................................
Maximum Sales Charge 5.00%
CDSC
.......................................
30-day SEC Yield 5.46%
.......................................
12-month dividends per share $ 0.91
.......................................
</TABLE>
*Adjusted for maximum sales charge.
The Fund's Class A, C, and Y shares were introduced in 1998 and have no
historical performance to quote.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
(Plot Points appear below for Long Term Growth chart)
4/88 4/90 4/92 4/94 4/96 4/98
Class B Shares 10,000 10,721 13,289 15,490 16,938 20,828
LBABI 10,000 11,769 15,048 17,189 20,040 23,785
CPI 10,000 11,008 11,913 12,587 13,337 13,877
Comparison of a $10,000 investment in Evergreen Diversified Bond Fund, Class B
shares, versus a similar investment in the Lehman Brothers Aggregate Bond Index
(LBABI) and the Consumer Price Index (CPI).
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The Lehman Brothers Aggregate Bond Index is an
unmanaged index and does not include transaction costs associated with buying
and selling securities nor any management fees. The Consumer Price Index, a
measure of inflation, is through April 30, 1998.
2
<PAGE>
EVERGREEN
Diversified Bond Fund
Portfolio Manager Interview
- --------------------------------------------------------------------------------
How did the Fund perform for the fiscal
year?
The Fund did very well. The Evergreen Diversified Bond Fund's Class B
shares had a total return of 12.78% for the 12-month period ending April
30, 1998, unadjusted for any applicable sales charge. By comparison, the
Lehman Brothers Aggregate Bond Index had a return of
10.91% for the same period.
Portfolio Characteristics
- -------------------------
Total Net Assets $571,688,894
Average Credit Quality A
Average Maturity 12.7 years
Average Duration 5.8 years
- --------------------------------------------------------------------------------
What was the investment environment
like during the 12 months?
It was a great environment for bonds for two principal reasons: interest
rates fell and the economy continued to grow. The yield on the 30-year
Treasury Bond declined nearly 1%, from 6.96% to 5.95%. Short-term rates
also fell, but not by as much. The yield on one-year Treasury Bills dipped
from 5.89% to 5.38%. This meant it was a very positive environment for
bond prices, because when interest rates fall, bond prices generally rise.
We also had a healthy economic environment. Typically, interest rates
decline when an economy slows; however, this was an unusual period in
which interest rates fell despite a growing economy in which corporate
profits rose at a healthy pace.
Two key factors occurred to create this favorable backdrop for bond
investing. The first was that we had very low inflation in the face of
relatively strong growth. This low inflation was caused by the strength of
the U.S. dollar versus other currencies, very low commodity prices
worldwide and continued restraint in wage growth. The second factor was a
significant change in the federal budget. In 1998, we are expected to have
the first budget surplus since 1969. Several factors helped, including the
tax increases passed in the early 1990s and the large increases in capital
gains tax payments as investors took some of the significant gains from
stock market investments. As a result, the Treasury has had less reason to
borrow, which has meant lower interest rates on newer bonds and higher
prices on existing bonds.
It is unusual when both interest rate risk, as reflected in government
bonds, and credit risk, as reflected in corporate bonds, are rewarded at
the same time. This phenomenon occurred during the year; we had a healthy
economy and declining interest rates, so high grade, government bonds and
lower grade corporate bonds both did very well.
--------------------------------------------------------------------
PORTFOLIO COMPOSITION
(as a percentage of net assets)
(Pie chart appears below illustrating the following amounts:)
Corporate Bonds - 51.8%
Collateralized Mortgage Obligations - 17.8%
Foreign Corporate Bonds - 16.3%
U.S. Treasury Obligations - 7.5%
Other Investments and
Other Assets and Liabilities (net) - 6.6%
- --------------------------------------------------------------------------------
What contributed to the strong performance of the Fund relative to market
indexes?
We underweighted government bonds and tended to emphasize corporate bonds,
with some international investments. We maintained our weighting in U.S.
Treasuries at 10% or less. In fact, Treasuries accounted
3
<PAGE>
EVERGREEN
Diversified Bond Fund
Portfolio Manager Interview
for just 7.5% of net assets at the close of the fiscal year on April 30.
We had a higher sensitivity to changing credit conditions, with a majority
of assets in corporate bonds. Healthy corporate profits increased the
value of corporate bonds. In investment grade bonds, the highest
concentration was in the finance sector because of our outlook for lower
interest rates. Banks tend to do well as interest rates decline. In
addition, consolidation among banks improved the credit quality of
bank-issued debt. We also had significant investments in bonds from
securities firms. These companies were very profitable during a period
when the capital markets flourished.
At the close of the period, 23% of the Fund's net assets was invested in
high yield securities. We focused on the higher credit quality sector of
the high yield universe, with most holdings rated BB or B. Our investments
in industrial bonds, emphasized telecommunications, cable and media.
Companies in these non-cyclical industries tend to be relatively less
affected by changes in the business cycle, so the value of their bonds is
less volatile and more stable than the bonds from more cyclical
companies.
--------------------------------------------------------------------
PORTFOLIO CREDIT QUALITY
(as a percentage of portfolio assets)
(Pie chart illustrating the following amounts appears below:)
A - 25.1%
B - 19.2%
BBB - 16.2%
BB - 15.8%
AA - 14.8%
AAA - 6.2%
Not Rated - 2.7%
- --------------------------------------------------------------------------------
What were your primary strategies that
helped the strong performance?
In addition to emphasizing corporate bonds and de-emphasizing Treasuries,
we maintained overall credit quality at about the same level, with average
credit quality at A at the end of the period. As interest rates declined,
we decreased interest rate sensitivity somewhat. At the close of the
fiscal period, duration was 5.8 years and average weighted maturity was
12.7 years.
We decreased mortgage-backed securities somewhat, because mortgages
typically do not perform as well when interest rates decline. At the close
of the fiscal period, collateralized mortgage-backed securities were 18%
of net assets. Within the mortgage sector, we looked at structure, or the
extent to which securities can be called back by their issuers. We tended
to invest in mortgages with call protection, meaning that they could not
be recalled for specified periods of time. Specifically, we invested in
commercial, mortgage-backed securities that normally feature principal
pay-down, lock-out provisions.
We also increased our emphasis on foreign bonds, to about 16% of net
assets. Our largest commitment was to mortgage securities from Denmark, 6%
of net assets. We found these bonds very attractive on both a total return
and current yield basis. We also maintained positions in securities from
the Republic of Greece (2%), seeking to benefit from the tighter fiscal
and monetary policies being implemented to prepare that nation to join the
European Monetary Union in 2002. The Fund also had telecommunications
industry bonds from Latin America and Canada.
All the foreign investments were hedged to protect against currency risk,
with the exception of the Greek securities because that nation's currency
was recently devalued and has the potential to strengthen against other
currencies.
4
<PAGE>
EVERGREEN
Diversified Bond Fund
Portfolio Manager Interview
- --------------------------------------
The financial and currency crisis in Asia was a major event in the world
economy during the past year. What effect has that had on the bond market
in the United States?
The immediate impact, during the first half of 1998, has been positive in
the United States. The Asian financial crisis has caused lower interest
rates and pushed inflation down. This has been a boon to the American
consumer; however, I am not as sanguine for the rest of the year. I think
the Asian situation will cause a weakening of the manufacturing sector in
the United States and a slowdown in economic growth. Asian products will
become more competitive in international trade, but Asia will be importing
less from the United States.
This slowing effect will be offset, to a certain extent, by the effects of
the economic recovery in Europe, but, Asia will have an impact. Investors
should not be lulled into complacency by the positive things that have
happened, because there may be some longer-term negatives.
- --------------------------------------
What is your outlook?
We expect economic growth may slow during the second half of the year as a
result of the impact from Asia mentioned above. We don't expect recession,
however; rather, annualized growth in Gross Domestic Product in the United
States may decline from 4% to about 2%. Corporate profit margins may
narrow, and inflation should stay low. We also believe investors will
continue to be pleased by announcements from Washington about the size of
the Treasury surplus. Within this environment, it is possible for interest
rates to fall some more.
The slower economic growth and lower profit margins, however, have the
potential to increase the risk of investing in corporate bonds. Given this
scenario, the Fund may decrease its commitment to corporate bonds,
especially high yield bonds. The Fund's high yield bonds currently are
concentrated in non-cyclical industries, so they should not be as affected
by slowing economic growth as bonds from more cyclical industries. We
believe the Fund is well structured for this outlook of potentially
slowing economic growth.
Please note that we changed the fiscal year end of the Diversified Bond Fund
from August 31 to April 30. The next report for this Fund will be the
semiannual report as of October 31, 1998 which will mail by the end of
December 1998.
5
<PAGE>
EVERGREEN
High Yield Bond Fund
Fund at a Glance as of April 30, 1998
We selected top-performing companies primarily in the U.S., within industries
that we believed had the best growth prospects and would benefit from the stock
market's strength.
Portfolio
Management
- ----------------------------------------
(Photo of Prescott B. Crocker, CFA
appears below)
Prescott B. Crocker, CFA
Tenure: February 1997
-------------------------------------------------------
CURRENT INVESTMENT STYLE
(Table with cube-shaped blocks appears below showing low quality and
intermediate duration)
Duration Quality
Short High
Int Med
Long Low
Morningstar's Style Box is based on a
portfolio date as of 3/31/98.
The Fixed-Income Style Box placement is
based on a fund's average effective maturity
or duration and the average credit rating of
the bonds within the portfolio.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
<TABLE>
<CAPTION>
Class B
<S> <C>
Inception Date 9/11/35
.......................................
Average Annual Returns
.......................................
1 year with sales charge 12.02%
......................................
1 year w/o sales charge 17.02%
.......................................
3 years 9.83%
.......................................
5 years 7.42%
.......................................
10 years 7.57%
.......................................
Since Inception 8.52%
.......................................
Maximum Sales Charge 5.00%
CDSC
.......................................
30-day SEC Yield 6.42%
.......................................
12-month dividends per share $ 0.33
.......................................
</TABLE>
*Adjusted for maximum sales charge.
The Fund's Class A, C, and Y shares were introduced in 1998 and have no
historical performance to quote.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
(Plot points appear below for Long Term Growth chart)
4/88 4/90 4/92 4/94 4/96 4/98
Class B Shares 10,000 9,498 12,177 16,089 16,227 20,738
LBABI 10,000 11,769 15,048 17,189 20,040 23,785
MLHYMI 10,000 11,018 15,611 19,609 24,442 31,094
CPI 10,000 11,008 11,913 12,587 13,337 13,877
Comparison of a $10,000 investment in Evergreen High Yield Bond Fund, Class B
shares, versus a similar investment in the Lehman Brothers Aggregate Bond Index
(LBABI), the Merrill Lynch High Yield Master Index (MLHYMI) and the Consumer
Price Index (CPI).
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The Lehman Brothers Aggregate Bond Index and the
Merrill Lynch High Yield Master Index are unmanaged indices and do not include
transaction costs associated with buying and selling securities nor any
management fees. The Consumer Price Index, a measure of inflation, is through
April 30, 1998.
Although the Fund's yield may be significantly higher than that of other fixed
income funds that purchase higher rated securities, it is generally based upon
greater risk of share price decline.
6
<PAGE>
EVERGREEN
High Yield Bond Fund
Portfolio Manager Interview
- --------------------------------------------------------------------------------
How did the Fund perform during the
period?
The Fund's Class B shares produced a total return of 17.02%, unadjusted
for any sales charge, during the twelve months ended April 30, 1998. This
compares favorably with both the Chase High Yield Index at 14.81% and the
Lehman Brothers Aggregate Bond Index at 10.91%, for the same period. We
were particularly pleased with the Fund's performance versus these
indices, because unlike a mutual fund, an index incurs
no operating expenses.
Portfolio Characteristics
- -------------------------
Total Net Assets $518,488,574
Average Credit Quality B
Average Maturity 8.2 years
Average Duration 4.7 years
- --------------------------------------------------------------------------------
What was the environment like for high
yield bonds over the past twelve months?
The environment remained extremely positive. High yield bond prices rose
on news of a rising equity market, a favorable economy and interest rate
climate, along with positive events such as mergers and acquisitions, and
strong demand.
The sharp rise in stock prices was very favorable for high yield bonds
because of the strong correlation between the two markets. Much like
stocks, high yield bonds are more sensitive to credit developments within
the issuing company rather than interest rate movement, which drives the
performance of higher-rated bonds. The combination of steady economic
growth and low inflation provided an atmosphere that enabled companies to
improve from a credit standpoint, reducing the risk that accompanies
investing in lower-rated securities.
1 Source: Chase Securities, Inc. (CSI)
As a consequence, at 1.6%, the default rate is still very low by
historical standards. Healthy economic and stock market conditions also
facilitated refinancings and consolidation in industries such as
telecommunications, cable and gaming. These activities often presented
opportunities for investors to sell their bonds at prices higher than
market rates.
High yield bonds experienced unprecedented demand. With higher-quality
bonds achieving considerably lower returns, the performance of high yield
bonds captured the attention of income-oriented investors who sought
higher returns in this low interest rate environment. Further, investors
were willing to take on additional credit risk in light of the solid
economy. The market for buyers expanded and broadened. Based on mutual
fund cash flows, demand for high yield bonds was nearly ten times that of
its higher-rated counterparts in 1997. For the twelve months ended April
30, 1998, a record $23.87 billion of cash poured into high yield bond
mutual funds. Demand intensified in the early months of 1998 when cash
flowed in to high yield bond mutual funds at a pace of $2.5 billion per
month -- twice the pace of a year earlier.1
--------------------------------------------------------------------
PORTFOLIO COMPOSITION
(as a percentage of net assets)
(Pie chart appears below illustrating the following amounts:)
Corporate Bonds - 76.2%
Repurchase Agreement and
Other Assets and Liabilities (net) - 10.0%
Foreign Corporate Bonds - 7.9%
Preferred Stocks - 5.0%
Common Stocks & Warrants - 0.9%
7
<PAGE>
EVERGREEN
High Yield Bond Fund
Portfolio Manager Interview
- --------------------------------------
What strategies did you use in managing
the Fund?
We selected what we believe to be top-performing companies primarily in
the U.S., within industries that we believed had the best growth prospects
and would benefit from the stock market's strength. The gains in equities
improved the balance sheets of high yield bond issuers and because of the
close relationship of the two markets, good news in equities "spilled
over" into the high yield bond sector. We managed the Fund's inter-national
holdings very cautiously due to developments in Asia. Prior to the Asian
crisis, we reduced the Fund's investment in emerging markets from 15% to
2% and eliminated its 5% holding in Asia.
In the U.S., we focused on industries including telecommunications, cable
and wireless communications, food and tobacco, and energy. We limited the
Fund's investments in commodities such as steel, metal, and paper and
forest products. These sectors underperformed because investors assumed
demand and pricing for commodity products would slow due to the situation
in Asia.
--------------------------------
PORTFOLIO CREDIT QUALITY
(as a percentage of portfolio assets)
(Pie chart appears below illustrating the following amounts)
B - 68.3%
Not Rated - 20.0%
CCC - 7.7%
BB - 4.0%
We also emphasized bonds that were rated "B". B-rated bonds offered higher
yields and in our opinion, better potential for price appreciation -- a
combination which helped them generate strong performance relative to
other rating categories, during the past twelve months. Investor demand
for higher yields, as well as lower credit risk because of the favorable
economic environment, resulted in lower-rated securities outperforming
their higher-rated counterparts. As of April 30, 1998, the Fund's average
quality was "B" and its average maturity stood at 8.2 years.
- --------------------------------------
What is your outlook for high yield bonds
over the next six months?
We continue to have a favorable outlook for high yield
bonds. We expect economic growth to remain broad-based and strong, and for
inflation to stay low -- an environment which is extremely positive for
earnings. With that kind of backdrop, companies can thrive from a credit
standpoint.
However, we anticipate some interest rate risk associated with this
economic strength. With the economy in the eighth year of an expansion and
interest rates at historically low levels, the Federal Reserve Board is
clearly monitoring signs of inflation -- particularly in the area of
income and wage pressures. Unemployment is near a thirty-year low. We
would not be surprised to see interest rates move somewhat higher, which
could have a negative effect on stocks -- and because of their close
relationship, on high yield bonds.
In anticipation of this environment, we intend to emphasize U.S.
industries with established earnings records -- such as oil and gas,
metals and manufacturing -- which could benefit from the economy's
strength. We also believe these types of businesses would be better able
to stand on their own merits and be less dependent on the stock market's
performance. We expect to de-emphasize industries -- such as
telecommunications -- and companies whose limited earnings histories would
give them less demonstrated independence from the stock market.
Please note that we changed the fiscal year end of the High Yield Bond Fund
from July 31 to April 30. The next report for this Fund will be the semiannual
report as of October 31, 1998 which will mail at the end of December 1998.
8
<PAGE>
EVERGREEN
Strategic Income Fund
Fund at a Glance as of April 30, 1998
We look forward to the investment opportunities that change can present,
believing the Fund's flexible investment philosophy enables its investors to
participate to the fullest extent in the most attractive opportunities in the
international marketplace.
Portfolio
Management
- ----------------------------------------
(Photo appears below of Prescott B. Crocker, CFA)
Prescott B. Crocker, CFA
Tenure: February 1997
-------------------------------------------------------
CURRENT INVESTMENT STYLE
(Table with cube-shaped blocks appears below illustrating medium quality and
intermediate duration.)
Duration Quality
Short High
Int Med
Long Low
Morningstar's Style Box is based on a
portfolio date as of 3/31/98.
The Fixed-Income Style Box placement is
based on a fund's average effective maturity
or duration and the average credit rating of
the bonds within the portfolio.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
<S> <C> <C> <C> <C>
Inception Date 4/14/87 2/1/93 2/1/93 1/13/97
...............................................................................
Average Annual Returns
................................................................................
1 year with sales charge 7.82% 7.47% 11.48% n/a
................................................................................
1 year w/o sales charge 13.20% 12.47% 12.48% 13.46%
................................................................................
3 years 9.08% 9.24% 10.08% --
................................................................................
5 years 6.97% 7.00% 7.28% --
................................................................................
10 years 7.95% -- -- --
...............................................................................
Since Inception 7.43% 8.27% 8.38% 7.80%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
30-day SEC Yield 6.18% 5.42% 5.42% 6.45%
................................................................................
12-month dividends per share $ 0.49 $ 0.43 $ 0.43 $ 0.48
................................................................................
</TABLE>
*Adjusted for maximum sales charge.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
(Plot points appear below for Long Term Growth chart)
4/88 4/90 4/92 4/94 4/96 4/98
Class A Shares 9,525 9,473 12,055 16,363 17,368 21,483
LBABI 10,000 11,769 15,048 17,189 20,040 23,785
CPI 10,000 11,008 11,913 12,587 13,337 13,877
Comparison of a $10,000 investment in Evergreen Strategic Income Fund, Class A
shares, versus a similar investment in the Lehman Brothers Aggregate Bond Index
(LBABI) and the Consumer Price Index (CPI).
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The Lehman Brothers Aggregate Bond Index is an
unmanaged index and does not include transaction costs associated with buying
and selling securities nor any management fees. The Consumer Price Index, a
measure of inflation, is through April 30, 1998.
9
<PAGE>
EVERGREEN
Strategic Income Fund
Portfolio Manager Interview
- --------------------------------------------------------------------------------
How was the Fund's performance for the
12 months ended April 30, 1998?
We were pleased with the Fund's performance. The Fund's Class A shares
generated a total return of 13.20%, unadjusted for sales charges, during
the fiscal year versus the average return of 11.45% produced by the
multi-sector income funds followed by Lipper Analytical Services. The
Fund's Class A shares ranked number 13 out of the 82 multi-sector income
funds, or the top 16%, tracked by Lipper.1 The Fund's Class A shares also
outperformed its benchmark, the Lehman Brothers Aggregate Bond Index which
returned 10.91% for the 12 months ended April 30, 1998.
Portfolio Characteristics
- -------------------------
Total Net Assets $327,835,036
Average Credit Quality BBB
Average Maturity 8.9 years
Average Duration 6.3 years
- --------------------------------------------------------------------------------
How were the Fund's assets invested as
of the end of the reporting period?
The Fund was invested as follows: high yield corporate bonds - 32%; U.S.
Treasury obligations and agency securities - 25%; foreign bonds - 28%; and
other investments and other assets and liabilities (net) - 15%. Foreign
holdings included the governments of Germany and the United Kingdom, as
well as Danish mortgage-backed securities; and corporate bond investments
in Mexico, Brazil, Canada and Sweden.2
1Source: Lipper Analytical Services, Inc., an independent mutual fund
rating company. The rankings are based on total return and do not include
the effect of a sales charge. For the 5-year period ended April 30, 1998,
the Fund's Class A shares ranked 12 out of 20 funds in the category. For
the 10-year period ended April 30, 1998, the Fund's Class A shares ranked
number 5 out of 5 funds in the category. Past performance is no guarantee
of future results.
2International investing involves increased risk and volatility.
- --------------------------------------------------------------------------------
What strategies did you use in managing
the Fund?
We emphasized investments that we believed would benefit from the
favorable economic and interest rate environment in the U.S., and took
advantage of the potential for appreciation in the so-called "high yield"
European countries and limited risk in emerging markets. The Fund also was
active in currency transactions, capitalizing on the strength of the U.S.
dollar.
During the year, U.S. investments ranged from 65% - 80% of net assets. We
focused on the high yield bond market, which in our opinion, provided the
Fund with higher yields and greater potential for price appreciation than
higher-rated bonds. High yield bonds was the top-performing U.S.
fixed-income sector over the past twelve months, benefiting from a rising
stock market and economic conditions that enabled the underlying issuers
to improve from a credit standpoint.3 We selected industries such as
cable, radio and broadcasting, telecommunications and energy.
The Fund also maintained a substantial position in U.S. Treasury
securities. We invested in bonds with longer maturities, which maximized
price appreciation when interest rates fell. During the year, the yield on
the benchmark 30-year U.S. Treasury bond fell from 6.96% on April 30, 1997
to 5.95% on April 30, 1998. The Fund also held a core position of U.S.
government and agency securities with 5-10 year maturities. Like the high
yield bond sector, U.S. Treasuries benefited from the steady growth of the
domestic economy and low inflation. U.S. Treasuries were sought by
international investors when excess liquidity prompted them to seek the
higher yields and favorable investment climate available in the U.S. The
sector's value increased significantly further when international
investors selected U.S. Treasuries as a safe haven from turmoil in Asia.
3Source: Chase Securities, Inc. (CSI)
10
<PAGE>
EVERGREEN
Strategic Income Fund
Portfolio Manager Interview
--------------------------------------------------------------------
PORTFOLIO COMPOSITION
(as a percentage of net assets)
(Pie chart appears below illustrating the following amounts:)
Corporate Bonds - 31.7%
Foreign Corporate Bonds - 28.4%
U.S. Treasury Obligations - 24.8%
Mortgage-Backed Securities - 11.8%
Other Assets and Liabilities (net) - 1.9%
Asset-Backed Securities - 0.6%
Common Stocks and Warrants - 0.5%
Preferred Stock - 0.3%
The Fund's foreign investments concentrated on the "high yield" European
countries, particularly Italy and Spain. Bond yields in these countries
fell -- pushing their prices higher -- relative to the benchmark, Germany,
as these countries prepared for entry into the European Monetary Union
(EMU). As of January 1, 1999, the "Euro" will be the single common
currency for eleven countries, although for three years assets will be
priced in both the "Euro" and the countries' existing currencies. We also
maintained a substantial position in Danish mortgage-backed securities,
bonds that carried the implicit guarantee of the Danish government but
whose yield was 1% higher than Danish government bonds with comparable
maturities. The Fund was an active investor in foreign currency
transactions. We took advantage of the U.S. dollar's strength when its
value was rising relative to other currencies and implemented a hedging
strategy when the U.S. dollar weakened. We believe these foreign exchange
transactions contributed favorably to the Fund's total return.
We exercised caution in emerging market investments. Although providing
attractive returns in the first part of the Fund's fiscal period, prices
on emerging market debt fell sharply during the Asian crisis. We had
reduced the Fund's holdings in emerging markets by 50% prior to the Asian
situation, eliminating holdings in Indonesia and selling 80% of the
holdings in Brazil. As of the close of the Fund's fiscal period, the
investment climate in emerging markets had improved considerably, but
remained unsettled. As of April 30, 1998, less than 5% of the Fund was
invested in the debt of emerging market countries.
--------------------------------------------------------------------
PORTFOLIO CREDIT QUALITY
(as a percentage of portfolio assets)
(Pie chart appears below illustrating the following amounts:)
AAA - 42.0%
B - 27.4%
Not Rated - 15.6%
BB - 12.9%
CCC - 1.6%
BBB - 0.5%
- --------------------------------------------------------------------------------
What is your outlook for each of these
sectors over the next six months?
Our outlook is favorable, although we believe the dynamics within each
sector could change somewhat. In the U.S., we expect a continuation of
steady economic growth and low inflation -- an environment which is very
positive for high yield bonds. However, with the economy in the eighth
year of an expansion and unemployment near a thirty-year low, the Federal
Reserve Board is closely monitoring signs of inflation --
particularly in the areas of income and wages. If economic activity
remains strong, we would not be surprised to see interest rates rise from
their currently historically low levels.
In Europe, fiscal policies and lower interest rates have stimulated
economic activity from the slow pace that has prevailed for the past three
years. Long-term interest rates in the "high yield" countries have fallen
between 4% - 6% over the past three years, as countries implemented
stringent fiscal and monetary policies
11
<PAGE>
EVERGREEN
Strategic Income Fund
Portfolio Manager Interview
required for entry into EMU. The yield advantages provided by the
government bonds of the "high yield" countries, as well as their potential
for price appreciation has diminished, as the start of EMU has approached.
We expect the creation of the EMU to bring back strength to the European
currencies, relative to the U.S. dollar, as investors anticipate the
continuation of economic recovery in Europe and a coordinated effort to
create a strong single European currency. In light of these changes, we
have increased the potential for total return from European currencies by
keeping the Fund's position in them unhedged. Further, we expect to find
increased opportunity in the corporate sector of these markets rather than
in their government bonds and intend to shift assets accordingly.
We continue to monitor developments in the emerging markets. While the
investment environment in that sector remains unsettled, we recognize the
improvement that has taken place and believe some prices have fallen to
the point that they are beginning to represent attractive value. We intend
to exercise prudence, taking advantage of selected opportunities.
We look forward to the investment opportunities that change can present,
believing the Fund's flexible investment philosophy enables its investors
to participate to the fullest extent in the most attractive opportunities
in the international marketplace.
12
<PAGE>
EVERGREEN
U.S. Government Fund
Fund at a Glance as of April 30, 1998
We will continue to monitor emerging data and will respond to any changes in
the economy by adjusting the Fund's duration and sector allocations
accordingly.
Portfolio
Management
- ----------------------------------------
(Photo appears below of
Rollin C. Williams, CFA)
Rollin C. Williams, CFA
Tenure: January 1993
-------------------------------------------------------
CURRENT INVESTMENT STYLE
(Table with cube-shaped blocks appears below illustrating high quality and
intermediate duration.)
Duration Quality
Short High
Int Med
Long Low
Morningstar's Style Box is based on a
portfolio date as of 3/31/98.
The Fixed-Income Style Box placement is
based on a fund's average effective maturity
or duration and the average credit rating of
the bonds within the portfolio.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
<S> <C> <C> <C> <C>
Inception Date 1/11/93 1/11/93 9/2/94 9/2/93
........................................................................
Average Annual Returns
........................................................................
1 year with sales charge 4.56% 3.96% 7.96% n/a
........................................................................
1 year w/o sales charge 9.78% 8.96% 8.96% 10.05%
........................................................................
3 years 6.11% 6.17% 7.05% 8.12%
........................................................................
5 years 4.91% 4.91% -- --
........................................................................
Since Inception 5.31% 5.43% 6.94% 5.89%
........................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
.......................................................................
30-day SEC yield 5.01% 4.51% 4.51% 5.52%
........................................................................
12-month dividends per share $0.61 $ 0.53 $ 0.53 $ 0.63
........................................................................
</TABLE>
*Adjusted for maximum sales charge
- --------------------------------------------------------------------------------
LONG TERM GROWTH
(Plot points appear below for Long Term Growth chart)
1/93 4/93 4/94 4/95 4/96 4/97 4/98
Class A Shares 9,525 9,748 9,737 10,368 11,137 11,847 13,154
LBITGBI 10,000 10,280 10,383 11,059 11,927 12,693 13,818
CPI 10,000 10,098 10,337 10,652 10,952 11,234 11,396
Comparison of a $10,000 investment in Evergreen U.S. Government Fund, Class A
shares, versus a similar investment in the Lehman Brothers Intermediate Term
Government Bond Index (LBITGBI) and the Consumer Price Index (CPI).
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The Lehman Brothers Intermediate Term Government Bond
Index is an unmanaged index and does not include transaction costs associated
with buying and selling securities nor any management fees. The Consumer Price
Index, a measure of inflation, is through April 30, 1998.
13
<PAGE>
EVERGREEN
U.S. Government Fund
Portfolio Manager Interview
- --------------------------------------------------------------------------------
How did the Fund perform during the
fiscal year?
The Evergreen U.S. Government Fund's Class A shares posted a 9.78% total
return, unadjusted for any sales charge, for the twelve months ended April
30, 1998. This performance compares favorably to the 8.68% total return
for its benchmark, the Lehman Brothers Intermediate Term Government Bond
Index.
Portfolio Characteristics
- -------------------------
Total Net Assets $332,245,277
Average Credit Quality AAA
Average Maturity 8.8 years
Average Duration 4.4 years
- --------------------------------------------------------------------------------
What was the economic environment like
during the past twelve months?
The past year has been very positive for fixed income investors. The
period was marked by healthy domestic economic growth that showed few
signs of inflation. As a result, interest rates declined steadily which,
in turn, boosted bond prices.
The most noteworthy event for investors during the period was the
financial crisis that struck the economies and financial markets of
Southeast Asia. Although the "Asian flu" filtered back to the United
States in the form of volatility, the effects to the financial markets
were generally positive.
Prices of imports to the U.S. declined while domestic export growth slowed
due to reduced demand from overseas economies. The combination of these
two factors calmed investors' inflationary fears and prompted domestic
interest rates to trend lower. The yield on the bellwether 30-year
Treasury Bond declined by nearly one percentage point -- from 6.96% to
5.95% -- during the fiscal year.
--------------------------------------------------------------------
MATURITY BREAKDOWN
(as a percentage of portfolio assets)
(Pie chart appears below illustrating the following amounts:)
20+ years - 55.0%
1 - 10 years - 25.1%
10 - 20 years - 13.3%
0 - 1 years - 6.6%
- --------------------------------------------------------------------------------
How did your investment strategies
affect the portfolio?
Our primary strategy to lengthen the Fund's duration was in response to
our expectation of declining interest rates. Duration was increased from
4.27 years to 4.40 years during the twelve months. Consistent with our
forecast, economic data indicated benign inflation and moderating economic
growth, prompting interest rates to trend lower throughout the fiscal
year. Consequently, the portfolio's duration stance -- nearly 50% longer
than the benchmark Lehman Brothers Intermediate Term Government Bond Index
-- enhanced the Fund's total return and contributed to outperformance of
1.1%.
In addition, the portfolio's weighting of mortgage-backed securities was
reduced. As interest rates fall, this sector is especially vulnerable to
underperformance as homeowners refinance their mortgages to take
14
<PAGE>
EVERGREEN
U.S. Government Fund
Portfolio Manager Interview
advantage of lower rates. Our declining-rate forecast prompted us to cut
our mortgage exposure from 48% to 42% during the final six months of the
fiscal period. This reduced weighting enhanced performance while
mitigating the portfolio's exposure to pre-payment risk.
--------------------------------------------------------------------
PORTFOLIO COMPOSITION
(as a percentage of net assets)
(Pie chart appears below illustrating the following amounts:)
U.S. Treasury Olibgations - 55.4%
Mortgage-Backed Securities - 42.4%
Other Assets and Liabilities (net) - 2.0%
Repurchase Agreement - 0.2%
- --------------------------------------------------------------------------------
Were there any other noteworthy events during the fiscal period relating
to the Fund?
In August of 1997, the Evergreen U.S. Government Fund merged with the
Keystone Government Securities Fund. Net assets in the Fund increased over
$40 million as a result of the merger. This combination was undertaken
because the funds' respective objectives were virtually identical,
allowing us to merge and manage the combined fund more efficiently and
cost-effectively. Following the merger, a number of smaller mortgage-backed
securities were liquidated to reduce the number of holdings in the
combined fund.
- --------------------------------------------------------------------------------
What is your outlook going forward?
The overriding question now facing the market is whether the U.S. economy
will continue its expansion or will it finally begin to slow? Will low
unemployment and rising wages ignite inflation or will the slowdown in the
Asian markets slow the U.S. economy and calm inflationary pressure?
Although the answers to these questions are still unknown, the Federal
Reserve Board recently suggested that an increase in interest rates may be
necessary as a preventative measure to tackle inflation.
Our view is that underlying market fundamentals support low interest rates
over the long term. Short term we expect a bit of volatility, but feel
that the Fed will hold off on increasing rates until the effects of the
Asian crisis becomes more clear. A pre-emptive rate ease in the latter
part of the year is even possible should the U.S. economy slow more than
is currently expected. We will continue to monitor emerging data and will
respond to any changes in the economy by adjusting the Fund's duration and
sector allocations accordingly.
15
<PAGE>
EVERGREEN
Diversified Bond Fund
Financial Highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
January 20, 1998
(Commencement of
Class Operations)
to April 30, 1998
<S> <C>
CLASS A SHARES
Net asset value beginning of period $ 16.08
===========
............................................................................................................
Income from investment operations
Net investment income 0.30 (b)
...........................................................................................................
Net realized and unrealized loss on investments, futures contracts and foreign currency
related transactions (0.16)(d)
-----------
............................................................................................................
Total from investment operations 0.14
-----------
............................................................................................................
Less distributions from net investment income (0.30)
-----------
............................................................................................................
Net asset value end of period $ 15.92
===========
...........................................................................................................
Total return (a) 0.85%
............................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.08%(c)
............................................................................................................
Expenses excluding indirectly paid expenses 1.07%(c)
............................................................................................................
Net investment income 6.68%(c)
............................................................................................................
Portfolio turnover rate 109%
............................................................................................................
Net assets end of period (thousands) $ 501,547
...........................................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Calculation based on average shares outstanding.
(c) Annualized.
(d) The amount shown for a share outstanding throughout the period may not
accord with the change in the aggregate gains and losses in the portfolio
securities for the period because of the timing of sales and repurchases of
the Fund's shares in relation to the fluctuation of market value for the
portfolio.
See Combined Notes to Financial Statements.
16
<PAGE>
EVERGREEN
Diversified Bond Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Eight Months Ended
April 30, 1998 (d)
<S> <C>
CLASS B SHARES
Net asset value beginning of period $ 15.42
------------
...................................................................................
Income from investment operations
Net investment income 0.61 (b)
...................................................................................
Net realized and unrealized gain (loss) on investments, futures
contracts and foreign currency related transactions 0.50
------------
...................................................................................
Total from investment operations 1.11
------------
...................................................................................
Less distributions from
Net investment income (0.61)
...................................................................................
In excess of net investment income 0
..................................................................................
Net realized gain on investments 0
...................................................................................
Tax basis return of capital 0
------------
..................................................................................
Total distributions (0.61)
------------
...................................................................................
Net asset value end of period $ 15.92
------------
...................................................................................
Total return (a) 7.26%
...................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.93%(c)
...................................................................................
Expenses excluding indirectly paid expenses 1.92%(c)
...................................................................................
Net investment income 5.74%(c)
...................................................................................
Portfolio turnover rate 109%
..................................................................................
Net assets end of period (thousands) $ 70,113
...................................................................................
<CAPTION>
Year Ended August 31,
---------------------------------------------------
1997 1996 1995 1994
<S> <C> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of period $ 14.65 $ 15.09 $ 15.28 $ 17.06
-------- -------- -------- --------
.................................................................................................................
Income from investment operations
Net investment income 0.91 0.95 1.06 1.06
..................................................................................................................
Net realized and unrealized gain (loss) on investments, futures
contracts and foreign currency related transactions 0.84 (0.35) 0.11 (1.62)
-------- -------- -------- --------
..................................................................................................................
Total from investment operations 1.75 0.60 1.17 (0.56)
-------- -------- -------- --------
..................................................................................................................
Less distributions from
Net investment income (0.93) (0.96) (1.06) (1.22)
..................................................................................................................
In excess of net investment income (0.05) 0 (0.22) 0
..................................................................................................................
Net realized gain on investments 0 0 0 0
..................................................................................................................
Tax basis return of capital 0 (0.08) (0.08) 0
-------- -------- -------- --------
..................................................................................................................
Total distributions (0.98) (1.04) (1.36) (1.22)
-------- -------- -------- --------
..................................................................................................................
Net asset value end of period $ 15.42 $ 14.65 $ 15.09 $ 15.28
-------- -------- -------- --------
.................................................................................................................
Total return (a) 12.25% 4.03% 8.13% (3.53%)
..................................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.88% 1.84% 1.81% 1.75%
.................................................................................................................
Expenses excluding indirectly paid expenses 1.87% 1.83% -- --
..................................................................................................................
Net investment income 6.07% 6.42% 7.05% 6.48%
..................................................................................................................
Portfolio turnover rate 138% 246% 178% 200%
..................................................................................................................
Net assets end of period (thousands) $457,701 $559,792 $734,837 $814,245
.................................................................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended August 31,
---------------------------
1993 1992
<S> <C> <C>
CLASS B SHARES
Net asset value beginning of period $ 16.44 $ 15.37
--------- --------
..................................................................................
Income from investment operations
Net investment income 1.28 1.33
..................................................................................
Net realized and unrealized gain (loss) on investments,
futures contracts and foreign currency related
transactions 0.70 1.14
--------- --------
..................................................................................
Total from investment operations 1.98 2.47
--------- --------
.................................................................................
Less distributions from
Net investment income (1.28) (1.33)
..................................................................................
In excess of net investment income (0.08) (0.07)
.................................................................................
Net realized gain on investments 0 0
..................................................................................
Tax basis return of capital 0 0
---------- --------
..................................................................................
Total distributions (1.36) (1.40)
---------- --------
..................................................................................
Net asset value end of period $ 17.06 $ 16.44
---------- --------
..................................................................................
Total return (a) 12.73% 16.88%
..................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.89% 1.99%
..................................................................................
Expenses excluding indirectly paid expenses -- --
.................................................................................
Net investment income 7.73% 8.29%
..................................................................................
Portfolio turnover rate 133% 117%
..................................................................................
Net assets end of period (thousands) $1,004,393 $902,339
..................................................................................
<CAPTION>
Year Ended August 31,
-----------------------------------------------------
1991 1990 1989 1988
<S> <C> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of period $ 15.51 $ 17.74 $ 17.99 $ 18.91
-------- -------- --------- --------
............................................................................................................
Income from investment operations
Net investment income 1.33 1.53 1.71 1.78
............................................................................................................
Net realized and unrealized gain (loss) on investments,
futures contracts and foreign currency related
transactions 0.17 (1.94) (0.13) (0.81)
-------- -------- ---------- --------
............................................................................................................
Total from investment operations 1.50 (0.41) 1.58 0.97
-------- -------- ---------- --------
............................................................................................................
Less distributions from
Net investment income (1.63) (1.61) (1.83) (1.85)
............................................................................................................
In excess of net investment income (0.01) (0.21) 0 0
...........................................................................................................
Net realized gain on investments 0 0 0 (0.04)
............................................................................................................
Tax basis return of capital 0 0 0 0
-------- -------- ---------- --------
............................................................................................................
Total distributions (1.64) (1.82) (1.83) (1.89)
-------- -------- ---------- --------
............................................................................................................
Net asset value end of period $ 15.37 $ 15.51 $ 17.74 $ 17.99
-------- -------- ---------- --------
............................................................................................................
Total return (a) 10.58% (2.44%) 9.23% 5.61%
...........................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.94% 1.89% 1.84% 1.68%
............................................................................................................
Expenses excluding indirectly paid expenses -- -- -- --
............................................................................................................
Net investment income 8.74% 9.26% 9.52% 9.82%
............................................................................................................
Portfolio turnover rate 101% 43% 47% 46%
............................................................................................................
Net assets end of period (thousands) $814,528 $860,615 $1,000,305 $838,892
............................................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Calculations based on average shares outstanding.
(c) Annualized.
(d) The Fund changed its fiscal year end from August 31 to April 30 during the
period.
See Combined Notes to Financial Statements.
17
<PAGE>
EVERGREEN
Diversified Bond Fund
Financial Highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
April 7, 1998
(Commencement of
Class Operations)
to April 30, 1998
<S> <C>
CLASS C SHARES
Net asset value beginning of period $ 16.06
===========
............................................................................................................
Income from investment operations
Net investment income 0.04 (b)
...........................................................................................................
Net realized and unrealized loss on investments, futures contracts and foreign currency
related transactions (0.14)(d)
-----------
............................................................................................................
Total from investment operations (0.10)
-----------
............................................................................................................
Less distributions from net investment income (0.04)
-----------
............................................................................................................
Net asset value end of period $ 15.92
===========
...........................................................................................................
Total return (a) (0.60%)
............................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.88%(c)
............................................................................................................
Expenses excluding indirectly paid expenses 1.88%(c)
............................................................................................................
Net investment income 6.11%(c)
...........................................................................................................
Portfolio turnover rate 109%
............................................................................................................
Net assets end of period (thousands) $ 23
...........................................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Calculation based on average shares outstanding.
(c) Annualized.
(d) The amount shown for a share outstanding throughout the period may not
accord with the change in the aggregate gains and losses in the portfolio
securities for the period because of the timing of sales and repurchases of
the Fund's shares in relation to the fluctuation of market value for the
portfolio.
<TABLE>
<CAPTION>
February 11, 1998
(Commencement of
Class Operations)
to April 30, 1998
<S> <C>
CLASS Y SHARES
Net asset value beginning of period $ 16.03
===========
...........................................................................................................
Income from investment operations
Net investment income 0.24 (a)
............................................................................................................
Net realized and unrealized loss on investments, futures contracts and foreign currency
related transactions (0.11)(c)
-----------
............................................................................................................
Total from investment operations 0.13
-----------
...........................................................................................................
Less distributions from net investment income (0.24)
-----------
............................................................................................................
Net asset value end of period $ 15.92
===========
............................................................................................................
Total return 0.80%
............................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 0.83%(b)
............................................................................................................
Expenses excluding indirectly paid expenses 0.82%(b)
...........................................................................................................
Net investment income 6.89%(b)
............................................................................................................
Portfolio turnover rate 109%
...........................................................................................................
Net assets end of period (thousands) $ 7
............................................................................................................
</TABLE>
(a) Calculation based on average shares outstanding.
(b) Annualized.
(c) The amount shown for a share outstanding throughout the period may not
accord with the change in the aggregate gains and losses in the portfolio
securities for the period because of the timing of sales and repurchases of
the Fund's shares in relation to the fluctuation of market value for the
portfolio.
See Combined Notes to Financial Statements.
18
<PAGE>
EVERGREEN
High Yield Bond Fund
Financial Highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
January 20, 1998
(Commencement of
Class Operations)
to April 30, 1998
<S> <C>
CLASS A SHARES
Net asset value beginning of period $ 4.52
---------
...........................................................................................................
Income from investment operations
Net investment income 0.11 (b)
...........................................................................................................
Net realized and unrealized gain on investments and foreign currency related transactions 0.01
---------
..........................................................................................................
Total from investment operations 0.12
---------
...........................................................................................................
Less distributions from net investment income (0.11)
---------
...........................................................................................................
Net asset value end of period $ 4.53
---------
...........................................................................................................
Total return (a) 2.57%
...........................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.24%(c)
...........................................................................................................
Expenses excluding indirectly paid expenses 1.23%(c)
...........................................................................................................
Net investment income 8.48%(c)
...........................................................................................................
Portfolio turnover rate 155%
...........................................................................................................
Net assets end of period (thousands) $ 420,778
...........................................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Calculation based on average shares outstanding.
(c) Annualized.
See Combined Notes to Financial Statements.
19
<PAGE>
EVERGREEN
High Yield Bond Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Nine Months Ended
April 30, 1998 (d)
<S> <C>
CLASS B SHARES
Net asset value beginning of period $ 4.37
----------
.....................................................................................
Income from investment operations
Net investment income 0.25 (b)
.....................................................................................
Net realized and unrealized gain (loss) on investments and
foreign currency related transactions 0.16
----------
.....................................................................................
Total from investment operations 0.41
----------
.....................................................................................
Less distributions from
Net investment income (0.25)
.....................................................................................
In excess of net investment income 0
.....................................................................................
Tax basis return of capital 0
----------
.....................................................................................
Total distributions (0.25)
----------
.....................................................................................
Net asset value end of period $ 4.53
----------
.....................................................................................
Total return (a) 9.57%
.....................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.94%(c)
....................................................................................
Expenses excluding indirectly paid expenses 1.93%(c)
.....................................................................................
Net investment income 7.27%(c)
.....................................................................................
Portfolio turnover rate 155%
.....................................................................................
Net assets end of period (thousands) $ 96,535
.....................................................................................
<CAPTION>
Year Ended July 31,
-------------------------------------------------
1997 1996 1995 1994
<S> <C> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of period $ 4.10 $ 4.42 $ 4.68 $ 5.13
------- ------- ------- -------
...................................................................................................................
Income from investment operations
Net investment income 0.32 0.32 0.38 0.38
..................................................................................................................
Net realized and unrealized gain (loss) on investments and
foreign currency related transactions 0.28 (0.27) (0.15) (0.38)
------- -------- -------- -------
...................................................................................................................
Total from investment operations 0.60 0.05 0.23 0
------- -------- -------- -------
...................................................................................................................
Less distributions from
Net investment income (0.32) (0.31) (0.37) (0.38)
..................................................................................................................
In excess of net investment income (0.01) (0.06) (0.02) (0.07)
...................................................................................................................
Tax basis return of capital 0 0 (0.10) 0
-------- -------- -------- -------
...................................................................................................................
Total distributions (0.33) (0.37) (0.49) (0.45)
-------- -------- -------- -------
...................................................................................................................
Net asset value end of period $ 4.37 $ 4.10 $ 4.42 $ 4.68
-------- -------- -------- -------
...................................................................................................................
Total return (a) 15.32% 1.38% 5.66% (0.41%)
...................................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.96% 1.94% 2.03% 1.84%
...................................................................................................................
Expenses excluding indirectly paid expenses 1.95% 1.93% -- --
...................................................................................................................
Net investment income 7.63% 7.92% 8.64% 7.57%
...................................................................................................................
Portfolio turnover rate 138% 116% 82% 110%
...................................................................................................................
Net assets end of period (thousands) $547,390 $593,681 $764,965 $766,283
...................................................................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended July 31,
-----------------------------------
1993 1992 1991
<S> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of period $ 4.74 $ 4.19 $ 5.02
------- ------- -------
.....................................................................................................
Income from investment operations
Net investment income 0.45 0.49 0.61
.....................................................................................................
Net realized and unrealized gain (loss) on investments and
foreign currency related transactions 0.44 0.58 ( 0.72)
------- ------- --------
.....................................................................................................
Total from investment operations 0.89 1.07 ( 0.11)
------- ------- --------
.....................................................................................................
Less distributions from
Net investment income ( 0.45) ( 0.50) ( 0.72)
.....................................................................................................
In excess of net investment income ( 0.05) ( 0.02) 0
.....................................................................................................
Tax basis return of capital 0 0 0
-------- -------- --------
.....................................................................................................
Total distributions ( 0.50) ( 0.52) ( 0.72)
-------- -------- --------
.....................................................................................................
Net asset value end of period $ 5.13 $ 4.74 $ 4.19
-------- -------- --------
.....................................................................................................
Total return (a) 20.28% 27.25% 0.03%
.....................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 2.06% 2.17% 2.34%
.....................................................................................................
Expenses excluding indirectly paid expenses -- -- --
.....................................................................................................
Net investment income 9.30% 10.86% 14.64%
.....................................................................................................
Portfolio turnover rate 125% 94% 78%
.....................................................................................................
Net assets end of period (thousands) $972,164 $841,757 $710,590
.....................................................................................................
<CAPTION>
Year Ended July 31,
-------------------------------------------
1990 1989 1988
<S> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of period $ 6.38 $ 6.91 $ 7.66
-------- -------- --------
.....................................................................................................
Income from investment operations
Net investment income 0.68 0.83 0.80
.....................................................................................................
Net realized and unrealized gain (loss) on investments and
foreign currency related transactions ( 1.18) ( 0.51) ( 0.71)
-------- -------- --------
.....................................................................................................
Total from investment operations ( 0.50) 0.32 0.09
-------- -------- --------
.....................................................................................................
Less distributions from
Net investment income ( 0.78) ( 0.85) ( 0.84)
....................................................................................................
In excess of net investment income ( 0.08) 0 0
.....................................................................................................
Tax basis return of capital 0 0 0
-------- -------- --------
.....................................................................................................
Total distributions ( 0.86) ( 0.85) ( 0.84)
-------- -------- --------
.....................................................................................................
Net asset value end of period $ 5.02 $ 6.38 $ 6.91
======== ======== ========
.....................................................................................................
Total return (a) ( 7.84%) 4.95% 1.66%
....................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 2.06% 1.97% 1.82%
.....................................................................................................
Expenses excluding indirectly paid expenses -- -- --
.....................................................................................................
Net investment income 12.77% 12.36% 11.29%
.....................................................................................................
Portfolio turnover rate 45% 75% 81%
.....................................................................................................
Net assets end of period (thousands) $820,940 $1,188,660 $1,274,673
.....................................................................................................
</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 during the
period.
See Combined Notes to Financial Statements.
20
<PAGE>
EVERGREEN
High Yield Bond Fund
Financial Highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
January 22, 1998
(Commencement of
Class Operations)
to April 30, 1998
<S> <C>
CLASS C SHARES
Net asset value beginning of period $ 4.52
---------
...........................................................................................................
Income from investment operations
Net investment income 0.10 (b)
...........................................................................................................
Net realized and unrealized gain on investments and foreign currency related transactions 0.01
---------
...........................................................................................................
Total from investment operations 0.11
---------
..........................................................................................................
Less distributions from net investment income ( 0.10)
---------
...........................................................................................................
Net asset value end of period $ 4.53
---------
...........................................................................................................
Total return (a) 2.35%
...........................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 2.04%(c)
...........................................................................................................
Expenses excluding indirectly paid expenses 2.01%(c)
...........................................................................................................
Net investment income 7.51%(c)
...........................................................................................................
Portfolio turnover rate 155%
...........................................................................................................
Net assets end of period (thousands) $ 1,155
..........................................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Calculation based on average shares outstanding.
(c) Annualized.
<TABLE>
<CAPTION>
April 14, 1998
(Commencement of
Class Operations)
to April 30, 1998
<S> <C>
CLASS Y SHARES
Net asset value beginning of period $ 4.56
---------
...........................................................................................................
Income from investment operations
Net investment income 0.02 (a)
..........................................................................................................
Net realized and unrealized loss on investments and foreign currency related transactions ( 0.03)(c)
----------
...........................................................................................................
Total from investment operations ( 0.01)
----------
...........................................................................................................
Less distributions from net investment income ( 0.02)
----------
...........................................................................................................
Net asset value end of period $ 4.53
----------
...........................................................................................................
Total return ( 0.27%)
...........................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.09%(b)
..........................................................................................................
Expenses excluding indirectly paid expenses 1.09%(b)
...........................................................................................................
Net investment income 8.21%(b)
...........................................................................................................
Portfolio turnover rate 155%
...........................................................................................................
Net assets end of period (thousands) $ 20
...........................................................................................................
</TABLE>
(a) Calculation based on average shares outstanding.
(b) Annualized.
(c) The amount shown for a share outstanding throughout the period may not
accord with the change in the aggregate gains and losses in the portfolio
securities for the period because of the timing of sales and repurchases of
the Fund's shares in relation to the fluctuation of market value for the
portfolio.
See Combined Notes to Financial Statements.
21
<PAGE>
EVERGREEN
Strategic Income Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Nine Months
Ended Ended
April 30, 1998 April 30, 1997 (d)
<S> <C> <C>
CLASS A SHARES
Net asset value beginning of year $ 6.82 $ 6.77
---------- ----------
...............................................................................................
Income from investment operations
Net investment income 0.50 (b) 0.37
...............................................................................................
Net realized and unrealized gain (loss) on investments and
foreign currency related transactions 0.38 0.09
---------- ----------
..............................................................................................
Total from investment operations 0.88 0.46
---------- ----------
...............................................................................................
Less distributions from
Net investment income ( 0.49) ( 0.38)
...............................................................................................
In excess of investment income 0 ( 0.03)
...............................................................................................
Tax basis return of capital 0 0
...............................................................................................
Net realized gains on investments 0 0
---------- ----------
...............................................................................................
Total distributions ( 0.49) ( 0.41)
---------- ----------
...............................................................................................
Net asset value end of year $ 7.21 $ 6.82
---------- ----------
...............................................................................................
Total return (a) 13.20% 6.80%
...............................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.27% 1.28%(c)
...............................................................................................
Expenses excluding indirectly paid expenses 1.26% 1.26%(c)
..............................................................................................
Expenses excluding reimbursement 1.27% 1.28%(c)
...............................................................................................
Net investment income 6.80% 7.28%(c)
..............................................................................................
Portfolio turnover rate 237% 86%
...............................................................................................
Net assets end of year (thousands) $ 193,618 $ 58,725
...............................................................................................
<CAPTION>
Year Ended July 31,
----------------------------------------------------
1996 1995 1994 1993
<S> <C> <C> <C> <C>
CLASS A SHARES
Net asset value beginning of year $ 6.89 $ 7.35 $ 7.86 $ 7.02
------- ------- ------- -------
..............................................................................................................
Income from investment operations
Net investment income 0.54 0.64 0.61 (b) 0.69
.............................................................................................................
Net realized and unrealized gain (loss) on investments and
foreign currency related transactions ( 0.09) ( 0.45) ( 0.44) 0.89
------- ------- ------- ------
..............................................................................................................
Total from investment operations 0.45 0.19 0.17 1.58
------- ------- ------- ------
..............................................................................................................
Less distributions from
Net investment income ( 0.52) ( 0.60) ( 0.61) ( 0.72)
..............................................................................................................
In excess of investment income 0 ( 0.03) ( 0.03) ( 0.02)
..............................................................................................................
Tax basis return of capital ( 0.05) ( 0.02) ( 0.04) 0
..............................................................................................................
Net realized gains on investments 0 0 0 0
------- ------- ------- ------
..............................................................................................................
Total distributions ( 0.57) ( 0.65) ( 0.68) ( 0.74)
------- ------- ------- ------
..............................................................................................................
Net asset value end of year $ 6.77 $ 6.89 $ 7.35 $ 7.86
------- ------- ------- -------
..............................................................................................................
Total return (a) 6.84% 3.00% 1.86% 24.13%
..............................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.30% 1.33% 1.32% 1.80%
.............................................................................................................
Expenses excluding indirectly paid expenses 1.28% -- -- --
..............................................................................................................
Expenses excluding reimbursement 1.30% 1.33% 1.32% 1.80%
..............................................................................................................
Net investment income 8.05% 9.31% 7.79% 9.50%
..............................................................................................................
Portfolio turnover rate 101% 95% 92% 151%
..............................................................................................................
Net assets end of year (thousands) $68,118 $85,970 $ 105,181 $85,793
..............................................................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended July 31,
------------------------------------------------------------
1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
Net asset value beginning of year $ 6.10 $ 7.17 $ 9.02 $ 9.36 $ 10.04
------- ------- ------- ------- --------
......................................................................................................................
Income from investment operations
Net investment income 0.78 0.89 1.03 1.10 1.05
......................................................................................................................
Net realized and unrealized gain (loss) on investments and
foreign currency related transactions 0.89 ( 1.01) ( 1.79) ( 0.31) ( 0.65)
------- ------- ------- ------- --------
......................................................................................................................
Total from investment operations 1.67 ( 0.12) ( 0.76) 0.79 0.40
------- ------- ------- ------- --------
......................................................................................................................
Less distributions from
Net investment income ( 0.75) ( 0.89) ( 1.04) ( 1.11) ( 1.08)
......................................................................................................................
In excess of investment income 0 ( 0.06) ( 0.05) 0 0
......................................................................................................................
Tax basis return of capital 0 0 0 0 0
......................................................................................................................
Net realized gains on investments 0 0 0 ( 0.02) 0
------- ------- ------- ------- --------
......................................................................................................................
Total distributions ( 0.75) ( 0.95) ( 1.09) ( 1.13) ( 1.08)
------- ------- ------- ------- --------
......................................................................................................................
Net asset value end of year $ 7.02 $ 6.10 $ 7.17 $ 9.02 $ 9.36
------- ------- ------- ------- --------
......................................................................................................................
Total return (a) 28.73% 0.54% ( 8.55%) 9.00% 4.49%
......................................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 2.09% 2.00% 2.00% 1.81% 1.28%
......................................................................................................................
Expenses excluding indirectly paid expenses -- -- -- -- --
......................................................................................................................
Expenses excluding reimbursement 2.12% 2.25% 2.01% 1.90% 2.08%
......................................................................................................................
Net investment income 11.73% 15.23% 12.91% 12.06% 10.98%
......................................................................................................................
Portfolio turnover rate 95% 82% 36% 73% 46%
......................................................................................................................
Net assets end of year (thousands) $70,459 $70,246 $83,106 $138,499 $114,310
......................................................................................................................
</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 during the
period.
See Combined Notes to Financial Statements.
22
<PAGE>
EVERGREEN
Strategic Income Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Nine Months
Ended Ended
April 30, 1998 April 30, 1997 (d)
<S> <C> <C>
CLASS B SHARES
Net asset value beginning of year $ 6.85 $ 6.81
--------- ----------
............................................................................................
Income from investment operations
Net investment income 0.44 (b) 0.34
...........................................................................................
Net realized and unrealized gain (loss) on
investments and foreign currency related
transactions 0.39 0.07
--------- ----------
............................................................................................
Total from investment operations 0.83 0.41
--------- ----------
............................................................................................
Less distributions from
Net investment income ( 0.43) ( 0.34)
............................................................................................
In excess of net investment income 0 ( 0.03)
............................................................................................
Tax basis return of capital 0 0
--------- ----------
............................................................................................
Total distributions ( 0.43) ( 0.37)
--------- ----------
............................................................................................
Net asset value end of year $ 7.25 $ 6.85
--------- ----------
...........................................................................................
Total return (a) 12.47% 6.06%
............................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 2.05% 2.04%(c)
............................................................................................
Expenses excluding indirectly paid expenses 2.04% 2.02%(c)
............................................................................................
Net investment income 6.08% 6.52%(c)
............................................................................................
Portfolio turnover rate 237% 86%
...........................................................................................
Net assets end of year (thousands) $ 113,136 $ 110,082
............................................................................................
<CAPTION>
February 1, 1993
Year Ended July 31, (Commencement of
---------------------------------------- Class Operations)
1996 1995 1994 to July 31, 1993
<S> <C> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of year $ 6.92 $ 7.38 $ 7.89 $ 7.07
------- ------- --------- ----------
.......................................................................................................
Income from investment operations
Net investment income 0.50 0.60 0.55 (b) 0.24
.......................................................................................................
Net realized and unrealized gain (loss) on
investments and foreign currency related
transactions ( 0.09) ( 0.47) ( 0.44) 0.92
-------- -------- --------- ----------
.......................................................................................................
Total from investment operations 0.41 0.13 0.11 1.16
-------- -------- --------- ----------
.......................................................................................................
Less distributions from
Net investment income ( 0.47) ( 0.55) ( 0.55) ( 0.24)
.......................................................................................................
In excess of net investment income 0 ( 0.03) ( 0.03) ( 0.10)
.......................................................................................................
Tax basis return of capital ( 0.05) ( 0.01) ( 0.04) 0
-------- -------- --------- ----------
.......................................................................................................
Total distributions ( 0.52) ( 0.59) ( 0.62) ( 0.34)
-------- -------- --------- ----------
.......................................................................................................
Net asset value end of year $ 6.81 $ 6.92 $ 7.38 $ 7.89
-------- -------- --------- ----------
.......................................................................................................
Total return (a) 6.21% 2.12% 1.10% 16.75%
.......................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 2.07% 2.06% 2.07% 2.37%(c)
.......................................................................................................
Expenses excluding indirectly paid expenses 2.05% -- -- --
.......................................................................................................
Net investment income 7.28% 8.58% 7.11% 7.18%(c)
......................................................................................................
Portfolio turnover rate 101% 95% 92% 151%
.......................................................................................................
Net assets end of year (thousands) $123,389 $149,091 $ 162,866 $ 35,415
......................................................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Nine Months
Ended Ended
April 30, 1998 April 30, 1997 (d)
<S> <C> <C>
CLASS C SHARES
Net asset value beginning of year $ 6.84 $ 6.80
---------- ----------
............................................................................................
Income from investment operations
Net investment income 0.44 (b) 0.33
............................................................................................
Net realized and unrealized gain (loss) on
investments and foreign currency related
transactions 0.39 0.08
---------- ----------
............................................................................................
Total from investment operations 0.83 0.41
---------- ----------
............................................................................................
Less distributions from
Net investment income ( 0.43) ( 0.34)
............................................................................................
In excess of net investment income 0 ( 0.03)
............................................................................................
Tax basis return of capital 0 0
---------- ----------
............................................................................................
Total distributions ( 0.43) ( 0.37)
---------- ----------
............................................................................................
Net asset value end of year $ 7.24 $ 6.84
---------- ----------
...........................................................................................
Total return (a) 12.48% 6.07%
............................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 2.05% 2.04%(c)
............................................................................................
Expenses excluding indirectly paid expenses 2.05% 2.03%(c)
............................................................................................
Net investment income 6.10% 6.52%(c)
............................................................................................
Portfolio turnover rate 237% 86%
...........................................................................................
Net assets end of year (thousands) $ 19,639 $ 24,304
............................................................................................
<CAPTION>
February 1, 1993
Year Ended July 31, (Commencement of
---------------------------------------- Class Operations)
1996 1995 1994 to July 31, 1993
<S> <C> <C> <C> <C>
CLASS C SHARES
Net asset value beginning of year $ 6.92 $ 7.37 $ 7.88 $ 7.07
------- ------- --------- ----------
.......................................................................................................
Income from investment operations
Net investment income 0.49 0.59 0.55 (b) 0.24
.......................................................................................................
Net realized and unrealized gain (loss) on
investments and foreign currency related
transactions ( 0.09) ( 0.45) ( 0.44) 0.91
------- ------- --------- ----------
.......................................................................................................
Total from investment operations 0.40 0.14 0.11 1.15
------- ------- --------- ----------
.......................................................................................................
Less distributions from
Net investment income ( 0.47) ( 0.55) ( 0.55) ( 0.24)
.......................................................................................................
In excess of net investment income 0 ( 0.03) ( 0.03) ( 0.10)
.......................................................................................................
Tax basis return of capital ( 0.05) ( 0.01) ( 0.04) 0
------- ------- --------- ----------
.......................................................................................................
Total distributions ( 0.52) ( 0.59) ( 0.62) ( 0.34)
------- ------- --------- ----------
.......................................................................................................
Net asset value end of year $ 6.80 $ 6.92 $ 7.37 $ 7.88
------- ------- --------- ----------
.......................................................................................................
Total return (a) 6.07% 2.27% 1.09% 16.61%
.......................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 2.07% 2.08% 2.07% 2.25%(c)
.......................................................................................................
Expenses excluding indirectly paid expenses 2.05% -- -- --
.......................................................................................................
Net investment income 7.29% 8.56% 7.09% 7.35%(c)
......................................................................................................
Portfolio turnover rate 101% 95% 92% 151%
.......................................................................................................
Net assets end of year (thousands) $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 during the
period.
See Combined Notes to Financial Statements.
23
<PAGE>
EVERGREEN
Strategic Income Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
January 13, 1997
Year (Commencement of
Ended Class Operations)
April 30, 1998 to April 30, 1997
<S> <C> <C>
CLASS Y SHARES
Net asset value beginning of year $ 6.65 $ 7.03
--------- ----------
.............................................................................................................................
Income from investment operations
Net investment income 0.46 (b) 0
.............................................................................................................................
Net realized and unrealized gain (loss) on investments and 0.41 ( 0.20)
--------- ----------
foreign currency related transactions
.............................................................................................................................
Total from investment operations 0.87 ( 0.20)
--------- ----------
.............................................................................................................................
Less distributions from
Net investment income ( 0.48) ( 0.17)
.............................................................................................................................
In excess of net investment income 0 ( 0.01)
--------- ----------
.............................................................................................................................
Total distributions ( 0.48) ( 0.18)
--------- ----------
.............................................................................................................................
Net asset value end of year $ 7.04 $ 6.65
--------- ----------
.............................................................................................................................
Total return 13.46% ( 2.87)%
.............................................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.01% 0.00%(a)
.............................................................................................................................
Expenses excluding indirectly paid expenses 1.00% 0.00%(a)
.............................................................................................................................
Net investment income 6.83% 0.00%(a)
.............................................................................................................................
Portfolio turnover rate 237% 86%
.............................................................................................................................
Net assets end of period (thousands) $ 1,442 $ 0
............................................................................................................................
</TABLE>
(a) Annualized.
(b) Calculation based on average shares outstanding.
See Combined Notes to Financial Statements.
24
<PAGE>
EVERGREEN
U.S. Government Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ten Months Year
Ended Ended Ended
April 30, 1998 April 30, 1997 (d) June 30, 1996
<S> <C> <C> <C>
CLASS A SHARES
Net asset value
beginning of year $ 9.39 $ 9.42 $ 9.65
-------- ---------- --------
.................................................................................
Income from investment
operations
Net investment income 0.61 0.52 0.63
.................................................................................
Net realized and unrealized
gain (loss) on investments 0.29 ( 0.03) ( 0.23)
-------- ---------- --------
.................................................................................
Total from investment
operations 0.90 0.49 0.40
-------- ---------- --------
.................................................................................
Less distributions from net
investment income ( 0.61) ( 0.52) ( 0.63)
-------- ---------- --------
.................................................................................
Net asset value end of year $ 9.68 $ 9.39 $ 9.42
-------- ---------- --------
.................................................................................
Total return (a) 9.78% 5.30% 4.28%
.................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.03% 0.98%(b) 0.99%
.................................................................................
Expenses excluding
indirectly paid expenses 1.03% 0.98%(b) --
.................................................................................
Expenses excluding waivers
and/or reimbursements 1.03% 0.98%(b) 0.99%
.................................................................................
Net investment income 6.25% 6.60%(b) 6.61%
.................................................................................
Portfolio turnover rate 21% 12% 23%
.................................................................................
Net assets end of year
(thousands) $ 40,136 $ 17,913 $ 20,345
.................................................................................
<CAPTION>
January 11, 1993
Six Months Year (Commencement of
Ended Ended Class Operations) to
June 30, 1995 (c) December 31, 1994 December 31, 1993
<S> <C> <C> <C>
CLASS A SHARES
Net asset value
beginning of year $ 9.07 $ 10.05 $ 10.00
---------- ---------- -----------
.........................................................................................
Income from investment
operations
Net investment income 0.33 0.66 0.68
.........................................................................................
Net realized and unrealized
gain (loss) on investments 0.58 ( 0.98) 0.05
---------- ---------- -----------
.........................................................................................
Total from investment
operations 0.91 ( 0.32) 0.73
---------- ---------- -----------
.........................................................................................
Less distributions from net
investment income ( 0.33) ( 0.66) ( 0.68)
---------- ---------- -----------
.........................................................................................
Net asset value end of year $ 9.65 $ 9.07 $ 10.05
---------- ---------- -----------
........................................................................................
Total return (a) 10.17% ( 3.18)% 7.43%
.........................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.04%(b) 0.96% 0.68%(b)
.........................................................................................
Expenses excluding
indirectly paid expenses -- -- --
.........................................................................................
Expenses excluding waivers
and/or reimbursements 1.05%(b) 1.00% 0.99%(b)
.........................................................................................
Net investment income 7.07%(b) 6.97% 6.93%(b)
.........................................................................................
Portfolio turnover rate 0% 19% 39%
.........................................................................................
Net assets end of year
(thousands) $ 22,445 $ 23,706 $ 38,851
........................................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ten Months Year
Ended Ended Ended
April 30, 1998 April 30, 1997 (d) June 30, 1996
<S> <C> <C> <C>
CLASS B SHARES
Net asset value
beginning of year $ 9.39 $ 9.42 $ 9.65
-------- ---------- --------
.................................................................................
Income from investment
operations
Net investment income 0.53 0.46 0.56
.................................................................................
Net realized and unrealized
gain (loss) on investments 0.29 ( 0.03) ( 0.23)
-------- ---------- --------
.................................................................................
Total from investment
operations 0.82 0.43 0.33
-------- ---------- --------
................................................................................
Less distributions from net
investment income ( 0.53) ( 0.46) ( 0.56)
-------- ---------- --------
.................................................................................
Net asset value end of year $ 9.68 $ 9.39 $ 9.42
-------- ---------- --------
.................................................................................
Total return (a) 8.96% 4.65% 3.50%
.................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.78% 1.73%(b) 1.74%
.................................................................................
Expenses excluding
indirectly paid expenses 1.78% 1.73%(b) --
.................................................................................
Expenses excluding waivers
and/or reimbursements 1.78% 1.73%(b) 1.74%
.................................................................................
Net investment income 5.56% 5.85%(b) 5.85%
................................................................................
Portfolio turnover rate 21% 12% 23%
.................................................................................
Net assets end of year
(thousands) $130,576 $ 142,371 $165,988
.................................................................................
<CAPTION>
January 11, 1993
Six Months Year (Commencement of
Ended Ended Class Operations) to
June 30, 1995 (c) December 31, 1994 December 31, 1993
<S> <C> <C> <C>
CLASS B SHARES
Net asset value
beginning of year $ 9.07 $ 10.05 $ 10.00
---------- ---------- -----------
.........................................................................................
Income from investment
operations
Net investment income 0.29 0.61 0.63
.........................................................................................
Net realized and unrealized
gain (loss) on investments 0.58 ( 0.98) 0.05
---------- ---------- -----------
.........................................................................................
Total from investment
operations 0.87 ( 0.37) 0.68
---------- ---------- -----------
.........................................................................................
Less distributions from net
investment income ( 0.29) ( 0.61) ( 0.63)
---------- ---------- -----------
.........................................................................................
Net asset value end of year $ 9.65 $ 9.07 $ 10.05
---------- ---------- -----------
.........................................................................................
Total return (a) 9.76% ( 3.75)% 6.91%
.........................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.79%(b) 1.54% 1.19%(b)
.........................................................................................
Expenses excluding
indirectly paid expenses -- -- --
.........................................................................................
Expenses excluding waivers
and/or reimbursements 1.80%(b) 1.58% 1.50%(b)
.........................................................................................
Net investment income 6.32%(b) 6.42% 6.44%(b)
.........................................................................................
Portfolio turnover rate 0% 19% 39%
.........................................................................................
Net assets end of year
(thousands) $ 192,490 $ 195,571 $ 236,696
.........................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
(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.
See Combined Notes to Financial Statements.
25
<PAGE>
EVERGREEN
U.S. Government Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ten Months
Ended Ended
April 30, 1998 April 30, 1997 (d)
<S> <C> <C>
CLASS C SHARES
Net asset value beginning of year $ 9.39 $ 9.42
-------- ----------
...........................................................................................
Income from investmet operations
Net investment income 0.53 0.46
...........................................................................................
Net realized and unrealized gain (loss) on investments 0.29 ( 0.03)
-------- ----------
...........................................................................................
Total from investment operations 0.82 0.43
-------- ----------
...........................................................................................
Less distributions from net investment income ( 0.53) ( 0.46)
--------- ----------
...........................................................................................
Net asset value end of year $ 9.68 $ 9.39
--------- ----------
...........................................................................................
Total return (a) 8.96% 4.65%
...........................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.78% 1.73%(b)
...........................................................................................
Expenses excluding indirectly paid expenses 1.78% 1.73%(b)
...........................................................................................
Expenses excluding waivers and/or reimbursements 1.78% 1.73%(b)
...........................................................................................
Net investment income 5.49% 5.85%(b)
...........................................................................................
Portfolio turnover rate 21% 12%
...........................................................................................
Net assets end of year (thousands) $ 5,697 $ 455
...........................................................................................
<CAPTION>
September 2, 1994
Year Six Months (Commencement of
Ended Ended Class Operations) to
June 30, 1996 June 30, 1995 (c) December 31, 1994
<S> <C> <C> <C>
CLASS C SHARES
Net asset value beginning of year $ 9.65 $ 9.07 $ 9.39
-------- ---------- -----------
...............................................................................................................
Income from investmet operations
Net investment income 0.56 0.29 0.20
...............................................................................................................
Net realized and unrealized gain (loss) on investments ( 0.23) 0.58 ( 0.32)
--------- ---------- -----------
...............................................................................................................
Total from investment operations 0.33 0.87 ( 0.12)
--------- ---------- -----------
...............................................................................................................
Less distributions from net investment income ( 0.56) ( 0.29) ( 0.20)
--------- ---------- -----------
..............................................................................................................
Net asset value end of year $ 9.42 $ 9.65 $ 9.07
--------- ---------- -----------
...............................................................................................................
Total return (a) 3.50% 9.76% ( 1.30)%
...............................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.74% 1.79%(b) 1.71%(b)
...............................................................................................................
Expenses excluding indirectly paid expenses -- -- --
..............................................................................................................
Expenses excluding waivers and/or reimbursements 1.74% 1.80%(b) 1.75%(b)
...............................................................................................................
Net investment income 5.87% 6.36%(b) 6.70%(b)
...............................................................................................................
Portfolio turnover rate 23% 0% 19%
...............................................................................................................
Net assets end of year (thousands) $ 649 $ 350 $ 266
...............................................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
(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.
<TABLE>
<CAPTION>
Year Ten Months Year
Ended Ended Ended
April 30, 1998 April 30, 1997 (c) June 30, 1996
<S> <C> <C> <C>
CLASS Y SHARES
Net asset value
beginning of year $ 9.39 $ 9.42 $ 9.65
-------- ---------- --------
.................................................................................
Income from investment
operations
Net investment income 0.63 0.54 0.66
.................................................................................
Net realized and unrealized
gain (loss) on investments 0.29 ( 0.03) ( 0.23)
-------- ---------- --------
.................................................................................
Total from investment
operations 0.92 0.51 0.43
-------- ---------- --------
.................................................................................
Less distributions from net
investment income ( 0.63) ( 0.54) ( 0.66)
-------- ---------- --------
................................................................................
Net asset value end of year $ 9.68 $ 9.39 $ 9.42
-------- ---------- --------
.................................................................................
Total return 10.05% 5.52% 4.54%
.................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 0.78% 0.73%(a) 0.74%
.................................................................................
Expenses excluding
indirectly paid expenses 0.78% 0.73%(a) --
.................................................................................
Expenses excluding waivers
and/or reimbursements 0.78% 0.73%(a) 0.74%
.................................................................................
Net investment income 6.55% 6.85%(a) 6.86%
.................................................................................
Portfolio turnover rate 21% 12% 23%
.................................................................................
Net assets end of year
(thousands) $155,836 $ 127,099 $121,569
.................................................................................
<CAPTION>
September 2, 1993
Six Months Year (Commencement of
Ended Ended Class Operations) to
June 30, 1995 (b) December 31, 1994 December 31, 1993
<S> <C> <C> <C>
CLASS Y SHARES
Net asset value
beginning of year $ 9.07 $ 10.05 $ 10.25
---------- ---------- -----------
.........................................................................................
Income from investment
operations
Net investment income 0.34 0.69 0.25
.........................................................................................
Net realized and unrealized
gain (loss) on investments 0.58 ( 0.98) ( 0.20)
---------- ---------- -----------
.........................................................................................
Total from investment
operations 0.92 ( 0.29) 0.05
---------- ---------- -----------
.........................................................................................
Less distributions from net
investment income ( 0.34) ( 0.69) ( 0.25)
---------- ---------- -----------
.........................................................................................
Net asset value end of year $ 9.65 $ 9.07 $ 10.05
---------- ---------- -----------
.........................................................................................
Total return 10.30% ( 2.94)% 0.49%
.........................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 0.79%(a) 0.71% 0.48%(a)
.........................................................................................
Expenses excluding
indirectly paid expenses -- -- --
........................................................................................
Expenses excluding waivers
and/or reimbursements 0.80%(a) 0.75% 0.79%(a)
.........................................................................................
Net investment income 7.31%(a) 7.27% 7.20%(a)
........................................................................................
Portfolio turnover rate 0% 19% 39%
.........................................................................................
Net assets end of year
(thousands) $ 16,934 $ 15,595 $ 14,486
.........................................................................................
</TABLE>
(a) Annualized.
(b) The Fund changed its fiscal year end from December 31 to June 30.
(c) The Fund changed its fiscal year end from June 30 to April 30.
See Combined Notes to Financial Statements.
26
<PAGE>
EVERGREEN
Diversified Bond Fund
Schedule of Investments
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
ASSET-BACKED SECURITIES -- 6.5%
$3,500,000 Carco Auto Loan Master Trust,
Series 1997-1, Class A,
(Est. Maturity 2004) (a),
6.689%, 8/15/04 .... ..................... $ 3,514,770
3,100,000 Corestates Home Equity Trust,
Series 1996-1, Class A4,
(Est. Maturity 2003) (a),
7.00%, 6/15/12 ........................... 3,137,297
Merrill Lynch Mortgage Investors,
Incorporated:
156 Series 1991-D, Class A
(Est. Maturity 1998) (a),
9.00%, 7/15/11 ........................... 158
3,203,181 Series 1991-G, Class B
(Est. Maturity 2000) (a),
9.15%, 10/15/11 .......................... 3,257,218
1,639,411 Series 1992-B, Class B
(Est. Maturity 1999) (a),
8.50%, 4/15/12 ........................... 1,642,985
3,806,330 Series 1992-D, Class B
(Est. Maturity 2001) (a),
8.50%, 7/15/17 ........................... 4,031,627
5,000,000 Series 1996-C1, Class B
(Est. Maturity 2006) (a),
7.42%, 4/25/28 ........................... 5,240,625
3,300,000 Southern Pacific Secured Assets
Corporation,
Series 1996-3, Class A4,
(Est. Maturity 2002) (a),
7.60%, 10/25/27 .......................... 3,377,344
555,000 University Support Services,
Incorporated,
(Est. Maturity 1999) (a),
8.975%, 11/1/07 .......................... 553,266
5,000,000 Western Financial Owner Trust,
Series 1997-C, Class CTFS,
(Est. Maturity 2001) (a),
6.30%, 3/20/05 ........................... 4,990,937
2,100,000 World Omni Automobile Lease,
Securitization Trust,
Series 1997-A, Class A4,
(Est. Maturity 2001) (a),
6.90%, 6/25/03 ........................... 2,134,125
5,000,000 Zale Funding Trust,
Series 94-1, Class A2,
(Est. Maturity 1999) (a),
7.325%, 3/15/03 .......................... 5,070,312
----------
Total Asset-Backed Securities
(cost $36,167,469)........................ 36,950,664
----------
CORPORATE BONDS -- 51.8%
Advertising & Related
Services -- 1.3%
2,800,000 Hollinger International,
Sr. Notes (Subord.),
9.25%, 2/1/06 ............................ 2,912,000
3,000,000 K-III Communications Corporation,
Sr. Notes,
8.50%, 2/1/06 ............................ 3,045,000
1,250,000 Lamar Advertising Company,
Sr. Notes (Subord.),
9.625%, 12/1/06 .......................... 1,331,250
----------
7,288,250
----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Aerospace & Defense -- 1.6%
$5,000,000 Northrop Grumman Corporation,
Deb.,
9.375%, 10/15/24 ......................... $5,903,500
3,000,000 Raytheon Company,
Deb.,
6.75%, 3/15/18 ........................... 3,001,950
----------
8,905,450
----------
Automotive Equipment &
Manufacturing -- 0.3%
2,000,000 Walbro Corporation,
Sr. Notes,
10.125%, 12/15/07 (c) ...................... 2,015,000
----------
Building, Construction &
Furnishings -- 0.7%
3,000,000 Glenborough Realty Trust,
Sr. Notes,
7.625%, 3/15/05 (c) ...................... 2,987,344
750,000 MDC Holdings, Incorporated,
Sr. Notes,
8.375%, 2/1/08 ........................... 751,875
----------
3,739,219
----------
Cable / Other Video
Distribution -- 0.8%
2,000,000 Galaxy Telecom, LP,
Sr. Notes (Subord.),
12.375%, 10/1/05 ......................... 2,220,000
2,000,000 Pegasus Communications
Corporation,
Series B, Sr. Notes,
9.625%, 10/15/05 ......................... 2,090,000
----------
4,310,000
----------
Chemical & Agricultural
Products -- 2.0%
1,450,000 Huntsman Polymers Corporation,
Sr. Notes,
11.75%, 12/1/04 .......................... 1,595,000
3,850,000 Occidental Petroleum
Corporation,
Deb.,
9.25%, 8/1/19 ............................ 4,675,286
1,250,000 Polymer Group,
Incorporated,
Series B, Sr. Notes
(Subord.),
9.00%, 7/1/07 ............................ 1,284,375
3,500,000 Waste Management,
Incorporated,
Deb.,
7.65%, 3/15/11 ........................... 3,694,355
----------
11,249,016
----------
Communication Systems &
Services -- 0.2%
950,000 TCI Communications,
Incorporated,
Deb.,
8.75%, 8/1/15 ............................ 1,103,501
----------
Consumer Products &
Services -- 1.9%
1,000,000 Consumers International,
Incorporated,
Sr. Secd. Notes,
10.25%, 4/1/05 (c) ....................... 1,100,000
</TABLE>
27
<PAGE>
EVERGREEN
Diversified Bond Fund
Schedule of Investments (continued)
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Consumer Products &
Services -- continued
$ 2,500,000 Coty, Incorporated,
Sr. Notes (Subord.),
10.25%, 5/1/05 ........................... $ 2,650,000
1,975,000 Dryper's Corporation,
Series B, Sr. Notes,
10.25%, 6/15/07 .......................... 2,034,250
2,000,000 ISP Holdings,
Incorporated,
Series B, Sr. Notes,
9.75%, 2/15/02 ........................... 2,112,500
3,000,000 Scotts and Sons
Company,
Sr. Notes (Subord.),
9.875%, 8/1/04 ........................... 3,206,250
-----------
11,103,000
-----------
Diversified Companies -- 1.0%
5,000,000 Grand Metropolitan Investment
Corporation,
Guaranteed Sr. Notes,
7.45%, 4/15/35 ........................... 5,597,950
-----------
Finance &
Insurance -- 17.4%
4,750,000 Amsouth
Bancorporation,
Deb. (Subord.),
6.75%, 11/1/25 ........................... 4,881,242
5,000,000 Commercial Credit
Group,
Incorporated,
Notes,
10.00%, 5/15/09 .......................... 6,349,850
4,000,000 IBJ Preferred Capital
Corporation,
8.79%, 12/29/49 (c) ...................... 3,875,000
9,000,000 John Hancock Mutual
Life
Insurance Company,
Notes
7.375%, 2/15/24 (c) ...................... 9,529,470
4,000,000 Liberty Mutual
Insurance Company,
Notes,
7.697%, 10/15/2097 (c) ................... 4,230,800
10,500,000 MBIA, Incorporated,
Deb.,
9.375%, 2/15/11 .......................... 13,004,040
9,000,000 Mellon Bank Capital
II,
Series B, Deb.,
7.995%, 1/15/27 .......................... 9,523,440
1,500,000 National Westminster
Bancorp,
Deb.,
9.375%, 11/15/03 ......................... 1,708,305
10,000,000 Nationwide CSN Trust,
Sr. Notes, (c),
9.875%, 2/15/25 .......................... 11,510,500
Paine Webber Group,
Incorporated:
3,000,000 Notes,
8.25%, 5/1/02 ............................ 3,191,160
5,000,000 Notes (Subord.),
7.75%, 9/1/02 ............................ 5,233,700
6,300,000 Prudential Life
Insurance Corporation,
Notes,
7.125%, 7/1/07 (c) ....................... 6,533,919
3,250,000 Reliance Group
Holdings,
Incorporated,
Sr. Deb. (Subord.),
9.75%, 11/15/03 .......................... 3,391,960
5,250,000 Southtrust Bank,
Notes (Subord.),
6.565%, 12/15/27 ......................... 5,406,450
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Finance & Insurance -- continued
$ 10,000,000 SunLife Canada US
Capital Trust I,
Capital Securities,
8.526%, 5/29/49 (c) ...................... $11,125,500
-----------
99,495,336
-----------
Food & Beverage
Products -- 0.6%
Aurora Foods,
Incorporated:
2,000,000 Series B, Sr. Notes (Subord.),
9.875%, 2/15/07 .......................... 2,150,000
1,000,000 Series D, Sr. Notes
(Subord.),
9.875%, 2/15/07 .......................... 1,075,000
-----------
3,225,000
-----------
Gaming -- 1.4%
3,300,000 Boyd Gaming
Corporation,
Sr. Notes (Subord.),
9.50%, 7/15/07 ........................... 3,489,750
Horseshoe Gaming,
Series B, Sr. Notes
(Subord.):
1,250,000 9.375%, 6/15/07 ......................... 1,340,625
3,000,000 12.75%, 9/30/00 ......................... 3,315,000
-----------
8,145,375
-----------
Healthcare Products &
Services -- 2.9%
3,000,000 Bayer Corporation,
Notes,
7.125%, 10/1/15 (c) ...................... 3,130,260
3,000,000 Boston Scientific
Corporation,
Notes,
6.625%, 3/15/05 .......................... 3,009,600
2,800,000 Genesis Health
Ventures,
Incorporated,
Sr. Notes (Subord.),
9.25%, 10/1/06 ........................... 2,884,000
5,000,000 Medpartners,
Incorporated,
Sr. Notes (Subord.),
6.875%, 9/1/00 ........................... 4,768,900
2,550,000 Paragon Health
Network,
Incorporated,
Sr. Notes (Subord.),
9.50%, 11/1/07 ........................... 2,588,250
-----------
16,381,010
-----------
Industrial Specialty
Products &
Services -- 0.2%
1,000,000 Morris Materials
Handling,
Incorporated,
Sr. Notes,
9.50%, 4/1/08 (c) ........................ 995,000
-----------
Information Services &
Technology -- 1.4%
3,500,000 Comdisco,
Incorporated,
Notes,
6.125%, 1/15/03 .......................... 3,448,025
3,800,000 Unisys Corporation,
Sr. Notes,
11.75%, 10/15/04 ......................... 4,370,000
-----------
7,818,025
-----------
</TABLE>
28
<PAGE>
EVERGREEN
Diversified Bond Fund
Schedule of Investments (continued)
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Leisure & Tourism -- 0.4%
$ 2,250,000 Six Flags Theme Parks, Incorporated,
Series A, Sr. Disc. Notes,
Step Bond,
(Eff. Yield 9.61%) (b),
0.00%, 6/15/05 ..................... $ 2,528,438
-----------
Machinery -- Diversified -- 1.8%
800,000 Eagle Picher Industrial Incorporated,
Sr. Notes (Subord.),
9.375%, 3/1/08 (c) ................. 814,000
8,850,000 John Deere Capital Corporation,
Deb.,
8.625%, 8/1/19 ..................... 9,644,730
-----------
10,458,730
-----------
Metals & Mining -- 0.2%
1,500,000 WHX Corporation,
Sr. Notes,
10.50%, 4/15/05 (c) ................ 1,530,000
-----------
Metal Products & Services -- 0.5%
2,000,000 AK Steel Corporation,
Sr. Notes,
10.75%, 4/1/04 ..................... 2,137,500
1,000,000 Ameristeel Corporation,
Sr. Notes,
8.75%, 4/15/08 (c) ................. 1,007,500
-----------
3,145,000
-----------
Oil / Energy -- 4.0%
2,500,000 Atlantic Richfield Company,
Deb.,
9.875%, 3/1/16 ..................... 3,339,525
2,800,000 Benton Oil and Gas Company,
Sr. Notes,
9.375%, 11/1/07 .................... 2,800,000
2,250,000 Cross Timbers Oil Company,
Series B, Sr. Notes (Subord.),
8.75%, 11/1/09 ..................... 2,295,000
1,050,000 HS Resources, Incorporated,
Sr. Notes (Subord.),
9.25%, 11/15/06 (e) ................ 1,081,500
3,000,000 Petroleum Geo Services ASA,
Sr. Notes,
6.625%, 3/30/08 .................... 2,993,490
2,000,000 R & B Falcon Corporation,
Sr. Notes,
6.95%, 4/15/08 (c) ................. 1,981,600
1,500,000 Transamerican Energy Corporation,
Series B, Sr. Secd. Notes,
11.50%, 6/15/02 .................... 1,488,750
Transocean Offshore, Incorporated:
2,500,000 Deb.,
8.00%, 4/15/27 ..................... 2,833,750
4,000,000 Notes,
7.45%, 4/15/27 ..................... 4,302,320
-----------
23,115,935
-----------
Publishing, Broadcasting &
Entertainment -- 2.3%
1,800,000 American Lawyer Media,
Incorporated,
Sr. Notes,
9.75%, 12/15/07 (c) ................ 1,890,000
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Publishing, Broadcasting &
Entertainment -- continued
$ 2,000,000 SFX Broadcasting,
Incorporated,
Series B, Sr. Notes (Subord.),
10.75%, 5/15/06 .................... $ 2,200,000
3,300,000 Sinclair Broadcast Group,
Incorporated,
Sr. Notes (Subord.),
10.00%, 9/30/05 (e) ................ 3,531,000
Time Warner, Incorporated:
7,000,000 Deb. (Eff. Yield 5.74%) (b),
0.00%, 1/15/36 ..................... 2,326,170
1,750,000 Deb.,
6.95%, 1/15/28 ..................... 1,712,550
1,250,000 Deb.,
8.05%, 1/15/16 ..................... 1,347,150
-----------
13,006,870
-----------
Retailing & Wholesale -- 0.4%
1,800,000 Sears Roebuck and Company,
Notes,
10.00%, 2/3/12 ..................... 2,370,384
-----------
Telecommunication Services &
Equipment -- 4.2%
10,250,000 Bellsouth Capital Funding Corporation,
Deb.,
7.12%, 7/15/2097 ................... 10,753,582
1,800,000 Centennial Cellular Corporation,
Sr. Notes,
8.875%, 11/1/01 .................... 1,854,000
1,800,000 Century Communications Corporation,
Sr. Disc. Notes,
(Eff. Yield 9.05%) (b),
0.00%, 1/15/08 ..................... 787,500
2,500,000 General Electric Capital Corporation,
Deb.,
8.75%, 5/21/07 ..................... 2,924,925
2,500,000 GTE Florida, Incorporated,
Deb.,
6.86%, 2/1/28 ...................... 2,533,050
2,000,000 Pacific Bell,
Notes,
6.125%, 2/15/08 (e) ................ 1,977,800
2,000,000 Talton Holdings, Incorporated,
Series B, Sr. Notes,
11.00%, 6/30/07 .................... 2,180,000
1,150,000 Telewest PLC,
Sr. Disc. Deb., Step Bond,
(Eff. Yield 9.82%) (b),
0.00%, 10/1/07 ..................... 925,750
-----------
23,936,607
-----------
Textile & Apparel -- 0.5%
2,800,000 Delta Mills, Incorporated,
Series B, Sr. Notes,
9.625%, 9/1/07 ..................... 2,856,000
-----------
Transportation -- 3.8%
2,000,000 Airplanes Pass Through Trust,
Series 1, Class D,
10.875%, 3/15/19 ................... 2,253,160
2,000,000 Coach USA, Incorporated,
Series B, Sr. Notes (Subord.),
9.375%, 7/1/07 ..................... 2,080,000
</TABLE>
29
<PAGE>
EVERGREEN
Diversified Bond Fund
Schedule of Investments (continued)
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Transportation -- continued
$ 7,000,000 Golden State Petroleum
Transportation Corporation,
1st Mtge. Notes,
8.04%, 2/1/19 ....................... $ 7,319,375
2,000,000 Hayes Wheels International,
Series B, Sr. Notes (Subord.),
9.125%, 7/15/07 ..................... 2,110,000
2,700,000 Hvide Marine, Incorporated,
Sr. Notes,
8.375%, 2/15/08 (c) ................. 2,629,125
5,250,000 Norfolk Southern Corporation,
Notes,
7.05%, 5/1/37 ....................... 5,533,658
-----------
21,925,318
-----------
Total Corporate Bonds
(cost $287,934,003).................. 296,244,414
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 17.8%
5,000,000 Credit Suisse First Boston Mortgage,
Series 1997-C1, Class A1C,
(Est. Maturity 2006) (a),
7.24%, 4/20/07 ...................... 5,215,625
6,249,571 Criimi Mae Financial Corporation,
Series 1, Class A,
(Est. Maturity 2004) (a),
7.00%, 1/1/33 ....................... 6,241,759
1,000,000 FFCA Secured Lending Corporation,
Series 1997-1, Class B1,
(Est. Maturity 2009) (a),
7.74%, 6/18/13 ...................... 1,057,344
FHA Charles River Mortgage,
(Est. Maturity 2001) (a):
6,719,219 9.125%, 8/1/34 ..................... 7,235,591
4,987,979 10.25%, 8/1/34 ..................... 5,284,166
5,000,000 FHLMC,
Series 47, Class A,
(Est. Maturity 2004) (a),
5.00%, 2/25/22 ...................... 4,617,188
2,708,038 Financial Asset Securitization
Incorporated,
Series 1997-NAM2, Class B2,
(Est. Maturity 2005) (a),
7.88%, 7/25/27 ...................... 2,758,374
12,510,527 FNMA,
Series 1993-248, Class SA,
(Est. Maturity 2004) (a),
4.068%, 8/25/23 ..................... 10,507,216
3,745,000 GE Capital Mortgage Services
Incorporated,
Series 1994-27, Class A6,
(Est. Maturity 2014) (a),
6.50%, 7/25/24 ...................... 3,533,145
9,871,803 Independent National Mortgage
Corporation,
Series 1997-A, Class A,
(Est. Maturity 2004) (a),
7.79%, 12/26/26 (c) ................. 9,926,666
1,059,428 KS Mortgage Capital, LP,
Series 1995-1, Class A1,
(Est. Maturity 2001) (a),
7.24%, 4/20/02 (c) .................. 1,067,042
2,064,103 Marine Midland Bank,
Series 1991-3, Class B1,
(Est. Maturity 1998) (a),
8.00%, 12/25/22 ..................... 2,072,488
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -- continued
$ 3,000,000 Merrill Lynch Mortgage Investors,
Incorporated,
Series 1997-C2, Class B,
(Est. Maturity 2008) (a),
6.63%, 12/10/29 ..................... $ 3,037,969
2,700,000 Merrill Lynch Trust,
Series 35, Class G,
(Est. Maturity 2001) (a),
8.45%, 11/1/18 ...................... 2,816,424
923,825 Mid State Trust,
Series 6, Class A3,
(Est. Maturity 2005) (a),
7.54%, 7/1/35 ....................... 941,821
3,300,000 Morgan Stanley Capital I Incorporated,
Commercial Mtge. Certificate
Series 1997-C1, Class B,
(Est. Maturity 2007) (a),
7.69%, 2/15/20 ...................... 3,539,250
1,000,000 Nomura Asset Securities Corporation,
Series 1998-D6, Class A3,
(Est. Maturity 2013) (a),
6.98%, 3/17/28 (c) .................. 1,008,750
12,204,557 Nomura Depositor Trust,
Series 1998-STIA, Class A1,
(Est. Maturity 2003) (a),
5.91%, 1/15/03 ...................... 12,254,138
Paine Webber Mortgage Acceptance
Corporation IV:
2,808,487 Series 1993-4, Class M1
(Est. Maturity 2003) (a),
7.50%, 5/25/23 ...................... 2,833,939
95,987 Series 1993-5, Class A3
(Est. Maturity 1998) (a),
6.875%, 6/25/08 ..................... 95,689
PNC Mortgage Securities Corporation:
6,825,948 Series 1997-4, Class 2PP1,
(Est. Maturity 2000) (a),
7.50%, 7/25/27 ...................... 6,892,074
2,482,051 Series 1997-4, Class 2PP3,
(Est. Maturity 2008) (a),
7.25%, 7/25/27 ...................... 2,467,345
5,000,000 Residential Asset Securitization Trust,
Series 1996-A3, Class A9,
(Est. Maturity 2004) (a),
7.50%, 7/25/26 ...................... 5,089,062
1,500,000 Resolution Trust Corporation,
Series 1995-1, Class A2C,
(Est. Maturity 1999) (a),
7.50%, 10/25/28 ..................... 1,518,516
-----------
Total Collateralized Mortgage
Obligations (cost $99,014,033)....... 102,011,581
-----------
FOREIGN BONDS (U.S. DOLLARS) -- 7.2%
2,650,000 Aztec Holdings SA DE CV,
Sr. Secd. Notes,
11.00%, 6/15/02 ..................... 2,742,750
500,000 Eletson Holdings, Incorporated,
1st Preferred Mtge. Notes,
9.25%, 11/15/03 ..................... 512,500
1,175,000 Fundy Cable Ltd.,
Sr. Secd. 2nd Priority Notes,
11.00%, 11/15/05 .................... 1,298,375
3,000,000 Glencore Nickel Property,
Sr. Secd. Bonds,
9.00%, 12/1/14 (c) .................. 2,955,000
</TABLE>
30
<PAGE>
EVERGREEN
Diversified Bond Fund
Schedule of Investments (continued)
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
FOREIGN BONDS (U.S. DOLLARS) -- continued
$ 750,000 Globo Communicacoes,
10.625%, 12/5/08 (c) ............... $ 757,500
1,000,000 Great Central Mines Ltd.,
Sr. Notes,
8.875%, 4/1/08 (c) ................. 998,750
3,500,000 Grupo Televisa SA DE CV,
Sr. Notes,
11.875%, 5/15/06 (e) ............... 3,990,000
2,000,000 Microcell Telecommunications,
Series B, Sr. Disc. Notes,
Step Bond,
(Eff. Yield 9.68%) (b),
0.00%, 6/1/06 (e) .................. 1,500,000
7,000,000 Republic of Colombia,
8.625%, 4/1/08 ..................... 6,949,390
650,000 Rogers Cablesystems Limited,
Sr. Secd. 2nd Priority Notes,
10.00%, 3/15/05 .................... 715,000
1,800,000 Rogers Communications
Incorporated,
Sr. Notes,
8.875%, 7/15/07 .................... 1,809,000
750,000 Satelites Mexicanos SA DE CV,
Sr. Notes,
10.125%, 11/1/04 (c) ............... 763,125
5,000,000 South Africa Republic,
8.50%, 6/23/17 ..................... 4,843,000
2,750,000 Stena AB,
Sr. Notes,
10.50%, 12/15/05 ................... 3,011,250
1,500,000 TBS Shipping International
1st Mtge. Notes,
10.00%, 5/1/05 (c) ................. 1,393,860
2,000,000 Tevecap SA,
Sr. Notes,
12.625%, 11/26/04 .................. 2,010,000
5,000,000 YPF Sociedad Anonima,
Sr. Notes,
7.25%, 3/15/03 ..................... 4,959,450
----------
Total Foreign Bonds (U.S. Dollars)
(cost $40,802,663).................. 41,208,950
----------
FOREIGN BONDS (NON U.S. DOLLARS) -- 9.1%
Greece (Republic of):
7,200,000 Deb.,
DEM 6.75%, 11/13/06 ................... 4,323,089
1,840,000,000 Deb.,
GRD 8.60%, 3/26/08 .................... 6,130,602
154,402,000 Nykredit,
DKK 6.00%, 10/1/26 .................... 22,141,073
98,000,000 Realkredit Danmark,
DKK 6.00%, 10/1/26 .................... 14,091,756
60,000,000 Skandinaviska Enskilda,
SEK (Eff. Yield 7.14%) (b),
0.00%, 5/26/33 ..................... 5,214,000
----------
Total Foreign Bonds (Non U.S. Dollars)
(cost $50,906,663).................. 51,900,520
----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MUNICIPAL BONDS -- 0.8%
(cost $4,135,689)
$ 4,135,689 Los Angeles, California, Improvement
Bond Act,
Assessment District #1,
8.48%, 9/2/15 (c) .................. $4,483,345
----------
U.S. TREASURY OBLIGATIONS -- 7.5%
21,050,000 U.S. Treasury Bond STRIPS
(Eff.Yield 8.71%) (b),
0.00%, 11/15/21 (c) (e) ............ 5,058,526
U.S. Treasury Bonds:
19,250,000 6.125%, 11/15/27 ................. 19,695,060
10,700,000 6.375%, 8/15/27 .................. 11,258,433
U.S. Treasury Notes:
6,000,000 6.125%, 8/15/07 .................. 6,162,180
500,000 6.625%, 5/15/07 .................. 530,155
----------
Total U.S. Treasury Obligations
(cost $42,117,904).................. 42,704,354
----------
</TABLE>
<TABLE>
<CAPTION>
Shares
<S> <C> <C>
PREFERRED STOCKS -- 0.8%
16,000 Adelphia Communications
Corporation ................ 1,904,000
100,000 California Federal Preferred
Capital Corporation ........ 2,700,000
------------
Total Preferred Stocks
(cost $4,275,000)........... 4,604,000
------------
MUTUAL FUND SHARES -- 1.5% (cost $8,642,617)
8,642,617 Navigator Prime Portfolio (f) 8,642,617
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
<S> <C> <C> <C>
REPURCHASE AGREEMENT -- 0.5% (cost $2,705,000)
$ 2,705,000 Keystone Joint Repurchase
Agreement (Investments in
repurchase agreements, in a joint
trading account, dated 4/30/98,
maturity value $2,705,415) (d),
5.52%, 5/1/98 ........................... 2,705,000
---------
Total Investments --
(cost $576,701,041).......... 103.5% 591,455,445
Other Assets and
Liabilities -- net .......... ( 3.5) (19,766,551)
----- -----------
Net Assets .................. 100.0% $571,688,894
===== ============
</TABLE>
31
<PAGE>
EVERGREEN
Diversified Bond Fund
Schedule of Investments (continued)
April 30, 1998
(a) The estimated maturity of a Collateralized Mortgage Obligation ("CMO"), an
adjustable rate mortgage security or an asset-backed security is based on
current and projected prepayment rates. Changes in interest rates can cause
the estimated maturity to differ from the listed date.
(b) Effective yield (calculated at the date of purchase) is the yield at which
the bond accretes on an annual basis until maturity date.
(c) Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pursuant to Section 4(2) of the Securities
Act of 1933, as amended. These securities have been determined to be liquid
under guidelines established by the Board of Trustees.
(d) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at April 30, 1998.
(e) A portion of this security is currently on loan (see Note 4).
(f) Represents investment of cash collateral received for securities on loan.
Legend of Portfolio Abbreviations:
DEM Deutsche Mark
DKK Danish Krone
FFCA Federal Farm Credit Association
FHA Federal Housing Authority
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
GRD Greek Drachma
SEK Swedish Krona
STRIPS Separate Trading of Registered Interest and Principal of Securities
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Forward foreign currency exchange contracts to sell:
<TABLE>
<S> <C> <C> <C> <C> <C>
Exchange U.S. $ Value at In Exchange Net Unrealized
Date Contracts to Deliver April 30, 1998 for U.S. $ Depreciation
- ------- ------------------------------ ----------------- ------------- ---------
6/26/98 8,115,000 Deutsche Mark 4,536,497 4,460,580 $ (75,917)
7/16/98 251,844,000 Danish Krone 36,937,114 36,816,607 (120,507)
---------
$(196,424)
=========
</TABLE>
See Combined Notes to Financial Statements.
32
<PAGE>
EVERGREEN
High Yield Bond Fund
Schedule of Investments
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- 76.2%
Automotive Equipment &
Manufacturing -- 2.0%
$ 5,833,000 Exide Corporation,
Sr. Notes (Subord.),
2.90%, 12/15/05 (d) ...................... $3,616,460
7,000,000 Walbro Corporation,
Sr. Notes,
10.125%, 12/15/07 (d) .................... 7,052,500
----------
10,668,960
----------
Cable / Other Video
Distribution -- 10.2%
5,500,000 Acme Television LLC,
Series B, Sr. Disc.
Notes,
Step Bond,
(Eff. Yield 10.49%)
(c),
0.00%, 9/30/04 ........................... 4,510,000
Adelphia Communications
Corporation, Sr. Notes,
Series B:
5,710,000 9.875%, 3/1/07 .......................... 6,166,800
750,000 10.50%, 7/15/04 ......................... 813,750
7,000,000 Benedek Communications
Corporation,
Sr. Disc. Notes, Step
Bond,
(Eff. Yield 11.79%)
(c),
0.00%, 5/15/06 ........................... 5,547,500
5,000,000 Charter Communications,
LP,
Series B, Sr. Notes,
11.25%, 3/15/06 .......................... 5,512,500
5,250,000 Galaxy Telecom LP,
Sr. Notes (Subord.),
12.375%, 10/1/05 ......................... 5,827,500
6,000,000 Iridium Capital
Corporation,
Series B, Sr. Notes,
14.00%, 7/15/05 .......................... 6,750,000
5,500,000 Lodgenet Entertainment
Corporation,
Sr. Notes,
10.25%, 12/15/06 ......................... 5,706,250
5,000,000 Pegasus Communications
Corporation,
Series B, Sr. Notes,
9.625%, 10/15/05 ......................... 5,225,000
5,000,000 Star Choice
Communications,
Incorporated,
Sr. Notes,
13.00%, 12/15/05 (d) ..................... 5,075,000
3,000,000 United International
Holdings
Incorporated,
Series B, Sr. Disc.
Notes,
Step Bond,
(Eff. Yield 9.77%) (c),
0.00%, 2/15/08 ........................... 1,897,500
----------
53,031,800
----------
Chemical & Agricultural
Products -- 1.0%
3,100,000 Polymer Group,
Incorporated,
Series B, Sr. Notes
(Subord.),
9.00%, 7/1/07 ............................ 3,185,250
2,000,000 Texas Petrochemical
Corporation,
Series B, Sr. Notes
(Subord.),
11.125%, 7/1/06 .......................... 2,200,000
----------
5,385,250
----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Consumer Products &
Services -- 6.3%
Affinity Group,
Incorporated:
$ 4,000,000 Sr. Notes,
11.00%, 4/1/07 ........................... $4,360,000
1,000,000 Sr. Notes (Subord.),
11.50%, 10/15/03 ......................... 1,058,750
5,000,000 Apcoa Incorporated,
Sr. Notes (Subord.),
9.25%, 3/15/08 (d) ....................... 4,987,500
Dryper's Corporation,
Sr. Notes:
2,000,000 10.25%, 6/15/07 (d) ..................... 2,080,000
2,950,000 Series B,
10.25%, 6/15/07 .......................... 3,038,500
4,500,000 French Fragrances,
Incorporated,
Series B, Sr. Notes,
10.375%, 5/15/07 ......................... 4,747,500
4,000,000 Global Health Sciences,
Incorporated,
Sr. Notes,
11.00%, 5/1/08 (d) ....................... 3,920,000
10,935,000 Revlon Worldwide
Corporation,
Series B, Sr. Secd.
Disc. Notes,
Step Bond,
(Eff. Yield 9.82%) (c),
0.00%, 3/15/01 ........................... 8,365,275
----------
32,557,525
----------
Electrical Equipment &
Services -- 0.8%
4,000,000 Samsung Electronics,
Incorporated,
Sr. Notes,
9.75%, 5/1/03 (d) ........................ 4,000,000
----------
Environmental
Services -- 1.0%
7,000,000 Allied Waste
Industries,
Incorporated,
Sr. Disc. Notes, Step
Bond,
(Eff. Yield 9.85%) (c),
0.00%, 6/1/07 ............................ 5,162,500
----------
Finance &
Insurance -- 0.6%
3,000,000 Unicco Service Company,
Sr. Notes (Subord.),
9.875%, 10/15/07 (d) ..................... 3,067,500
----------
Food & Beverage Products -- 2.8%
5,000,000 Aurora Foods,
Incorporated,
Series D, Sr. Notes
(Subord.),
9.875%, 2/15/07 .......................... 5,375,000
3,500,000 RAB Enterprises,
Incorporated,
Sr. Notes,
10.50%, 5/1/05 (d) ....................... 3,500,000
5,000,000 Sun World
International,
Incorporated,
Series B, 1st Mtge.
Notes,
11.25%, 4/15/04 .......................... 5,450,000
----------
14,325,000
----------
</TABLE>
33
<PAGE>
EVERGREEN
High Yield Bond Fund
Schedule of Investments (continued)
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Gaming -- 2.8%
$ 2,000,000 Ameristar Casinos,
Incorporated,
Series B, Sr. Notes
(Subord.),
10.50%, 8/1/04 .......................... $2,120,000
5,750,000 Boyd Gaming
Corporation,
Sr. Notes (Subord.),
9.50%, 7/15/07 .......................... 6,080,625
5,750,000 Horseshoe Gaming,
Series B, Sr. Notes
(Subord.),
9.375%, 6/15/07 ......................... 6,166,875
----------
14,367,500
----------
Healthcare Products &
Services -- 0.8%
4,000,000 Genesis Health,
Sr. Notes (Subord.),
9.75%, 6/15/05 .......................... 4,180,000
----------
Industrial Specialty
Products &
Services -- 1.0%
5,000,000 Morris Material
Handling,
Incorporated,
Sr. Notes,
9.50%, 4/1/08 (d) ....................... 4,975,000
----------
Information Services &
Technology -- 1.1%
5,000,000 Unisys Corporation,
Sr. Notes,
11.75%, 10/15/04 ........................ 5,750,000
----------
Leisure &
Tourism -- 2.4%
5,000,000 Cinemark USA,
Incorporated,
Series B, Sr. Notes
(Subord.),
9.625%, 8/1/08 .......................... 5,225,000
5,000,000 Premier Cruise Ltd.,
Sr. Notes,
11.00%, 3/15/08 (d) ..................... 5,025,000
2,150,000 Six Flags Theme Parks,
Incorporated,
Series A, Sr. Notes
(Subord.),
Step Bond,
(Eff. Yield 10.70%)
(c),
12.25%, 6/15/05 ......................... 2,416,062
----------
12,666,062
----------
Machinery -- Diversifi
-- 1.6%
3,750,000 Eagle Picher
Industries,
Incorporated,
Sr. Notes (Subord.),
9.375%, 3/1/08 (d) ...................... 3,815,625
4,000,000 Motors and Gears,
Incorporated,
Series D, Sr. Notes,
10.75%, 11/15/06 ........................ 4,355,000
----------
8,170,625
----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Metals &
Mining -- 3.3%
$ 5,000,000 Acme Metals,
Incorporated,
Sr. Notes,
10.875%, 12/15/07 (d)..................... $4,962,500
5,050,000 Anker Coal Group,
Incorporated,
Series B, Sr. Notes,
9.75%, 10/1/07 ........................... 4,860,625
2,500,000 JTM Industries,
Incorporated,
Sr. Notes (Subord.),
10.00%, 4/15/08 (d) ...................... 2,525,000
5,000,000 NSM Steel, Incorporated,
Sr. Mtge. Notes,
12.00%, 2/1/06 (d) ....................... 4,737,500
----------
17,085,625
----------
Oil / Energy -- 9.8%
5,000,000 Benton Oil and Gas
Company,
Sr. Notes,
9.375%, 11/1/07 .......................... 5,000,000
4,000,000 Chiles Offshore LLC,
Sr. Notes,
10.00%, 5/1/08 (d) ....................... 4,030,000
4,700,000 Cross Timbers Oil
Company,
Series B, Sr. Notes
(Subord.),
8.75%, 11/1/09 ........................... 4,794,000
4,750,000 Energy Corporation of
America,
Series A, Sr. Notes
(Subord.),
9.50%, 5/15/07 ........................... 4,761,875
4,850,000 Giant Industries,
Incorporated,
Sr. Notes (Subord.),
9.00%, 9/1/07 ............................ 4,995,500
5,000,000 Gothic Production
Corporation,
Sr. Notes,
11.125%, 5/1/05 (d) ...................... 5,068,750
3,000,000 Houston Exploration
Company,
Sr. Notes (Subord.),
8.625%, 1/1/08 (d) ....................... 3,000,000
7,700,000 HS Resources,
Incorporated,
Sr. Notes (Subord.),
9.25%, 11/15/06 .......................... 7,931,000
4,940,000 Rutherford Moran Oil Corporation,
Sr. Notes (Subord.),
10.75%, 10/1/04 .......................... 5,261,100
5,500,000 Transamerican Refining
Corporation,
Sr. Notes (Subord.),
16.00%, 6/30/03 .......................... 5,912,500
----------
50,754,725
----------
Paper &
Packaging -- 1.9%
4,150,000 Printpack,
Incorporated,
Series B, Sr. Notes
(Subord.),
10.625%, 8/15/06 ......................... 4,482,000
5,000,000 Riverwood
International
Corporation,
Sr. Notes,
10.25%, 4/1/06 ........................... 5,175,000
----------
9,657,000
----------
</TABLE>
34
<PAGE>
EVERGREEN
High Yield Bond Fund
Schedule of Investments (continued)
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Publishing, Broadcasting &
Entertainment -- 3.7%
$ 5,000,000 American Lawyer Media,
Incorporated,
Sr. Notes,
9.75%, 12/15/07 (d) .............. $ 5,250,000
4,000,000 Big Flower Press Holdings,
Incorporated,
Sr. Notes (Subord.),
8.875%, 7/1/07 ................... 4,120,000
6,925,000 Capstar Broadcasting Partners,
Sr. Disc. Notes,
12.75%, 2/1/09 ................... 5,159,125
8,000,000 Nextel International, Incorporated,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 10.00%) (c),
0.00%, 4/15/08 (d) ............... 4,920,000
-----------
19,449,125
-----------
Retailing & Wholesale -- 5.4%
5,000,000 Advance Stores Company,
Sr. Notes (Subord.),
10.25%, 4/15/08 (d) .............. 5,075,000
4,350,000 AFC Enterprises, Incorporated,
Sr. Notes (Subord.),
10.25%, 5/15/07 .................. 4,567,500
3,500,000 FRD Acquisition Company,
Series B, Sr. Notes,
12.50%, 7/15/04 .................. 3,867,500
3,000,000 Friendly's Ice Cream Corporation,
Sr. Notes,
10.50%, 12/1/07 .................. 3,202,500
5,750,000 Pamida, Incorporated,
Sr. Notes (Subord.),
11.75%, 3/15/03 .................. 5,922,500
5,000,000 Perkins Family Restaurant,
Series B, Sr. Notes,
10.125%, 12/15/07 ................ 5,300,000
-----------
27,935,000
-----------
Telecommunication Services &
Equipment -- 11.6%
5,000,000 Centennial Cellular Corporation,
Sr. Notes,
8.875%, 11/1/01 .................. 5,150,000
4,000,000 Econophone, Incorporated,
Sr. Notes,
13.50%, 7/15/07 .................. 4,520,000
2,000,000 GST Telecommunications,
Incorporated,
Sr. Notes (Subord.),
12.75%, 11/15/07 ................. 2,380,000
2,000,000 Hyperion Telecommunications,
Incorporated,
Series B, Sr. Notes,
12.25%, 9/1/04 ................... 2,220,000
5,000,000 Intermedia Capital Partners,
Sr. Notes,
11.25%, 8/1/06 ................... 5,612,500
2,500,000 Jordan Telecommunication Products,
Series B, Sr. Notes,
9.875%, 8/1/07 ................... 2,631,250
750,000 Metronet Communications
Corporation,
Sr. Notes,
12.00%, 8/15/07 .................. 862,500
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Telecommunication Services &
Equipment -- continued
$ 4,500,000 Mobile Telecommunication
Technology,
Sr. Notes,
13.50%, 12/15/02 ................. $ 5,276,250
4,000,000 Paging Network Incorporated,
Sr. Notes (Subord.),
10.00%, 10/15/08 ................. 4,160,000
3,500,000 Price Communications Cellular,
Series B, Sr. Disc. Notes,
Step Bond,
(Eff. Yield 12.45%) (c),
0.00%, 8/1/07 .................... 2,445,625
5,750,000 Pricecellular Wireless Corporation,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 10.64%) (c),
0.00%, 10/1/03 ................... 6,210,000
3,500,000 RCN Corporation,
Sr. Notes,
10.00%, 10/15/07 ................. 3,701,250
6,025,000 Talton Holdings, Incorporated,
Series B, Sr. Notes,
11.00%, 6/30/07 .................. 6,567,250
5,000,000 USN Communications, Incorporated,
Series B, Sr. Disc. Notes,
Step Bond,
(Eff. Yield 10.23%) (c),
0.00%, 8/15/04 ................... 4,106,250
5,500,000 Winstar Communications,
Incorporated,
Sr. Disc. Notes,
Step Bond,
(Eff. Yield 9.78%) (c),
0.00%, 10/15/05 .................. 4,427,500
-----------
60,270,375
-----------
Textile & Apparel -- 1.1%
5,460,000 Delta Mills, Incorporated,
Series B, Sr. Notes,
9.625%, 9/1/07 ................... 5,569,200
-----------
Transportation -- 5.0%
5,500,000 Ermis Maritime Holdings Limited,
1st Mtge. Notes,
12.50%, 3/15/06 (d) .............. 5,445,000
4,000,000 Global Ocean Carriers Limited,
Sr. Notes,
10.25%, 7/15/07 .................. 3,740,000
4,500,000 Hvide Marine, Incorporated,
Sr. Notes,
8.375%, 2/15/08 (d) .............. 4,381,875
4,250,000 Pegasus Shipping Hellas Limited,
Sr. Notes,
11.875%, 11/15/04 (d) ............ 4,207,500
Trans World Airlines, Incorporated:
3,000,000 Notes,
11.375%, 3/1/06 (d) .............. 3,000,000
5,000,000 Sr. Notes,
11.50%, 12/15/04 ................. 5,237,500
-----------
26,011,875
-----------
Total Corporate Bonds
(cost $383,337,549)............... 395,040,647
-----------
</TABLE>
35
<PAGE>
EVERGREEN
High Yield Bond Fund
Schedule of Investments (continued)
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
FOREIGN BONDS (U.S. DOLLARS) -- 6.0%
$ 5,000,000 Algoma Steel, Incorporated,
1st Mtge. Notes,
12.375%, 7/15/05 .................... $5,875,000
1,675,000 Aztec Holdings SA DE CV,
Sr. Secd. Notes,
11.00%, 6/15/02 ..................... 1,733,625
2,000,000 Consorcio Ecuatoriano,
Series B, Notes,
14.00%, 5/1/02 ...................... 2,040,000
5,000,000 Glencore Nickel Property,
Sr. Secd. Bonds,
9.00%, 12/1/14 (d) .................. 4,925,000
5,000,000 Great Central Mines Ltd.,
Sr. Notes,
8.875%, 4/1/08 (d) .................. 4,993,750
3,000,000 Grupo Televisa SA DE CV,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 10.61%) (c),
0.00%, 5/15/08 ...................... 2,392,500
3,500,000 Microcell Telecommunications,
Series B, Sr. Disc. Notes,
Step Bond,
(Eff. Yield 9.68%) (c),
0.00%, 6/1/06 ....................... 2,625,000
2,900,000 Satelites Mexicanos SA DE CV,
Sr. Notes,
10.125%, 11/1/04 (d) ................ 2,950,750
3,500,000 TV Azteca SA DE CV,
Series B, Sr. Notes,
10.50%, 2/15/07 ..................... 3,675,000
----------
Total Foreign Bonds (U.S. Dollars)
(cost $30,539,269)................... 31,210,625
----------
FOREIGN BONDS (NON U.S. DOLLARS) -- 1.9%
3,500,000 Colt Telecom Group PLC,
DEM Sr. Notes,
8.875%, 11/30/07 .................... 2,106,378
9,500,000 Microcell Telecommunications,
CAD Series B, Sr. Disc. Notes,
Step Bond,
(Eff. Yield 10.23%) (c),
0.00%, 10/15/07 ..................... 4,301,724
5,000,000 Rogers Communications,
CAD Incorporated,
Sr. Notes,
8.75%, 7/15/07 ...................... 3,510,612
----------
Total Foreign Bonds (Non U.S. Dollars)
(cost $9,822,218).................... 9,918,714
----------
</TABLE>
<TABLE>
<CAPTION>
Shares
<S> <C> <C>
COMMON STOCKS AND WARRANTS -- 0.9%
Aerospace &
Defense -- 0.0%
76,000 CHC Helicopter
Corporation,
Warrants (a) .............................. 228,000
-------
Automotive Equipment &
Manufacturing -- 0.0%
9,500 Chatwins Group,
Incorporated,
Warrants (a) .............................. 9,500
-------
Cable / Other Video
Distribution -- 0.1%
115,800 Star Choice
Communications,
Warrants (a) .............................. 262,287
-------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS AND WARRANTS -- continued
Food & Beverage
Products -- 0.0%
131,250 Specialty Foods
Acquisition
Corporation,
Common Stock (a) ......................... $ 6,562
----------
Gaming -- 0.6%
Casino America,
Incorporated:
254,790 Common Stock (a) ........................ 895,746
47,778 Warrants (a) (b) ........................ 478
410,062 Colorado Gaming and
Entertainment
Company,
Common Stock (a) (f) ..................... 2,255,341
10,775,000 Gold River Hotel and
Casino
Corporation,
Common Stock (a) (b) ..................... 107,750
----------
3,259,315
----------
Telecommunication
Services &
Equipment -- 0.2%
4,000 Econophone,
Incorporated,
Warrants (a) (d) ......................... 96,000
750 Metronet
Communications
Corporation,
Warrants (a) (d) ......................... 3,000
Nextel
Communications,
Incorporated:
10,843 Common Stock, Class A (a) (d) ........... 310,720
9,510 Warrants (a) (d) ........................ 99,855
25,800 Price Communications
Cellular,
Warrants (a) ............................. 499,875
----------
1,009,450
----------
Total Common Stocks
and Warrants
(cost $5,955,782)......................... 4,775,114
----------
PREFERRED STOCKS -- 5.0%
Cable / Other Video
Distribution -- 0.6%
28,500 Adelphia
Communications
Corporation,
Series B ................................. 3,391,500
----------
Engineering -- 1.3%
57,351 CSC Holdings,
Incorporated,
Series M (a) ............................. 6,595,380
----------
Finance &
Insurance -- 2.7%
24,562 Ampex Incorporated (a) (b) ............... 12,452,934
12,800 Sinclair Capital ......................... 1,459,200
----------
13,912,134
----------
Publishing,
Broadcasting &
Entertainment -- 0.4%
20,000 Primedia,
Incorporated,
Series F (a) ............................. 2,040,000
----------
Total Preferred Stocks
(cost $34,820,332)........................ 25,939,014
----------
</TABLE>
36
<PAGE>
EVERGREEN
High Yield Bond Fund
Schedule of Investments (continued)
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
REPURCHASE AGREEMENT -- 3.4% (cost $17,343,000)
$ 17,343,000 Keystone Joint Repurchase
Agreement (Investments in
repurchase agreements, in a joint
trading account, dated 4/30/98,
maturity value $17,345,661) (e),
5.52%, 5/1/98 .................. $ 17,343,000
------------
Total Investments --
(cost $481,818,150).... 93.4% 484,227,114
Other Assets and
Liabilities -- net .... 6.6 34,261,460
----- ------------
Net Assets ............ 100.0% $518,488,574
===== ============
</TABLE>
(a) Non-income-producing security.
(b) All or a portion of these securities are either (1) restricted (i.e.,
securities which may not be publicly sold without registration under the
Federal Securities Act of 1933) or (2) illiquid securities, and are valued
using market quotations where readily available. In the absence of market
quotations, the securities are valued based upon their fair value
determined under procedures approved by the Board of Trustees. The Fund may
make investments in an amount up to 15% of the value of the Fund's net
assets in such securities. At April 30, 1998, the fair value of these
securities was $12,561,162 (2.42% of the Fund's net assets).
(c) Effective yield (calculated at date of purchase) is the yield at which the
bond accretes on an annual basis until maturity date.
(d) Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pursuant to Section 4(2) of the Securities
Act of 1933, as amended. These securities have been determined to be liquid
under guidelines established by the Board of Trustees.
(e) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at April 30, 1998.
(f) Affiliated issuers are those in which the Fund's holdings represents 5% or
more of the outstanding voting securities of the issuer. The Fund has never
owned enough of the outstanding voting securities of any issuer to have
control (as defined in the Investment Company Act of 1940) of that issuer.
At April 30, 1998, the fair value of these securities was $2,255,341 (0.43%
of the Fund's net assets).
Legend of Portfolio Abbreviations:
CAD Canadian Dollar
DEM Deutsche Mark
See Combined Notes to Financial Statements.
37
<PAGE>
EVERGREEN
Strategic Income Fund
Schedule of Investments
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
ASSET-BACKED SECURITIES -- 0.6% (cost $1,850,000)
$ 1,850,000 PNC Student Loan Trust, I
Series 97-2, Class A7,
6.728%, 1/25/07 ...................... $1,915,546
----------
CORPORATE BONDS -- 31.7%
Aerospace & Defense -- 0.5%
1,700,000 Sequa Corporation,
Sr. Notes,
8.75%, 12/15/01 ...................... 1,738,250
----------
Automotive Equipment &
Manufacturing -- 1.2%
1,000,000 Exide Corporation,
Sr. Notes (Subord.),
2.90%, 12/15/05 (d) .................. 620,000
1,000,000 Oxford Automotive, Incorporated,
Sr. Notes (Subord.),
10.125%, 6/15/07 ..................... 1,050,000
2,500,000 Walbro Corporation,
Sr. Notes,
10.125%, 12/15/07 (d) ................ 2,425,279
----------
4,095,279
----------
Cable / Other Video Distribution -- 2.9%
1,500,000 Acme Television LLC,
Series B, Sr. Disc. Notes,
Step Bond,
(Eff. Yield 10.39%) (c),
0.00%, 9/30/04 ....................... 1,230,000
Adelphia Communications
Corporation,
Series B, Sr. Notes:
1,550,000 9.875%, 3/1/07 ...................... 1,674,000
250,000 10.50%, 7/15/04 ..................... 271,250
1,500,000 Galaxy Telecom LP,
Sr. Notes (Subord.),
12.375%, 10/1/05 ..................... 1,665,000
Iridium Capital Corporation:
500,000 Series B, Sr. Notes,
14.00%, 7/15/05 ...................... 562,500
1,000,000 Sr. Notes,
11.25%, 7/15/05 (d) .................. 1,032,500
1,000,000 Lenfest Communications,
Incorporated,
Sr. Notes,
8.375%, 11/1/05 ...................... 1,035,000
1,000,000 Lodgenet Entertainment Corporation,
Sr. Notes,
10.25%, 12/15/06 ..................... 1,037,500
1,000,000 Pegasus Communications
Corporation,
Series B, Sr. Notes,
9.625%, 10/15/05 ..................... 1,045,000
----------
9,552,750
----------
Chemical & Agricultural Products -- 0.5%
1,000,000 Polymer Group, Incorporated,
Series B, Sr. Notes (Subord.),
9.00%, 7/1/07 ........................ 1,027,500
500,000 Texas Petrochemical Corporation,
Sr. Notes (Subord.),
11.125%, 7/1/06 ...................... 545,000
----------
1,572,500
----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Consumer Products & Services -- 1.4%
Dryper's Corporation:
$ 575,000 Series B, Sr. Notes,
10.25%, 6/15/07 ...................... $ 592,250
500,000 Sr. Notes,
10.25%, 6/15/07 (d) .................. 520,000
1,000,000 French Fragrances, Incorporated,
Sr. Notes,
10.375%, 5/15/07 (d) ................. 1,080,000
3,150,000 Revlon Worldwide Corporation,
Series B, Sr. Secd. Disc. Notes,
(Eff. Yield 10.75%) (c),
0.00%, 3/15/01 ....................... 2,409,750
----------
4,602,000
----------
Electrical Equipment & Services -- 0.7%
2,218,808 Tucson Electric,
Series B,
10.211%, 1/1/09 ...................... 2,318,655
----------
Finance & Insurance -- 1.3%
1,500,000 Americo Life, Incorporated,
Sr. Notes (Subord.),
9.25%, 6/1/05 ........................ 1,535,625
1,500,000 Presidential Life Corporation,
Sr. Notes,
9.50%, 12/15/00 ...................... 1,554,375
1,250,000 Reliance Group Holdings,
Incorporated,
Sr. Notes,
9.00%, 11/15/00 ...................... 1,306,525
----------
4,396,525
----------
Food & Beverage Products -- 0.5%
500,000 Chiquita Brands International,
Incorporated,
Sr. Notes,
9.625%, 1/15/04 ...................... 527,500
1,000,000 Sun World International, Incorporated,
Series B, 1st Mtge. Notes,
11.25%, 4/15/04 ...................... 1,090,000
----------
1,617,500
----------
Gaming -- 0.8%
1,500,000 Boyd Gaming Corporation,
Sr. Notes (Subord.),
9.50%, 7/15/07 ....................... 1,586,250
850,000 Horseshoe Gaming,
Series B, Sr. Notes (Subord.),
9.375%, 6/15/07 ...................... 911,625
----------
2,497,875
----------
Healthcare Products & Services -- 0.3%
1,000,000 Integrated Health Services,
Incorporated,
Series A, Sr. Notes (Subord.),
9.50%, 9/15/07 ....................... 1,045,000
----------
Information Services &
Technology -- 0.4%
1,000,000 Unisys Corporation,
Sr. Notes,
11.75%, 10/15/04 ..................... 1,150,000
----------
</TABLE>
38
<PAGE>
EVERGREEN
Strategic Income Fund
Schedule of Investments (continued)
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Leisure & Tourism -- 1.1%
$ 500,000 Cinemark USA, Incorporated,
Series B, Sr. Notes (Subord.),
9.625%, 8/1/08 ................ $ 522,500
1,000,000 Host Marriott Travel Plazas,
Incorporated,
Series B, Sr. Notes,
9.50%, 5/15/05 ................ 1,062,500
1,000,000 Premier Cruise Ltd.,
Sr. Notes,
11.00%, 3/15/08 (d) ........... 1,005,000
1,000,000 Prime Hospitality Corporation,
Series B, Sr. Notes (Subord.),
9.75%, 4/1/07 ................. 1,077,500
----------
3,667,500
----------
Metals & Mining -- 3.4%
2,000,000 Acme Metals, Incorporated,
Sr. Notes,
10.875%, 12/15/07 (d) ......... 1,985,000
500,000 Anker Coal Group, Incorporated,
Series B, Sr. Notes,
9.75%, 10/1/07 ................ 481,250
1,500,000 Armco, Incorporated,
Sr. Notes,
9.375%, 11/1/00 ............... 1,537,500
1,000,000 Bethlehem Steel Corporation,
Sr. Notes,
10.375%, 9/1/03 ............... 1,065,000
1,000,000 Envirosource, Incorporated,
Sr. Notes,
9.75%, 6/15/03 ................ 1,020,000
2,000,000 NSM Steel, Incorporated,
Sr. Mtge. Notes,
12.00%, 2/1/06 (d) ............ 1,895,000
3,000,000 WHX Corporation,
Sr. Notes,
10.50%, 4/15/05 (d) ........... 3,060,000
----------
11,043,750
----------
Oil / Energy -- 3.7%
1,500,000 Benton Oil and Gas Company,
Sr. Notes,
9.375%, 11/1/07 ............... 1,500,000
2,500,000 Chesapeake Energy Corporation,
Sr. Notes,
9.625%, 5/1/05 (d) ............ 2,518,750
1,000,000 Energy Corporation of America,
Series A, Sr. Notes (Subord.),
9.50%, 5/15/07 ................ 1,002,500
2,150,000 HS Resources, Incorporated,
Sr. Notes (Subord.),
9.25%, 11/15/06 ............... 2,214,500
2,250,000 PDV America, Incorporated,
Sr. Notes,
7.25%, 8/1/98 ................. 2,256,075
2,500,000 Petsec Energy, Incorporated,
Series B, Sr. Notes (Subord.),
9.50%, 6/15/07 ................ 2,531,250
----------
12,023,075
----------
Paper & Packaging -- 1.1%
1,000,000 Maxxam Group, Incorporated,
Sr. Notes,
11.25%, 8/1/03 ................ 1,050,000
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Paper & Packaging -- continued
$ 350,000 Printpack, Incorporated,
Series B, Sr. Notes (Subord.),
10.625%, 8/15/06 .............. $ 378,000
2,000,000 Stone Container Finance Company,
Sr. Notes,
11.50%, 8/15/06 (d) ........... 2,140,000
----------
3,568,000
----------
Publishing, Broadcasting &
Entertainment -- 2.2%
1,500,000 American Lawyer Media,
Incorporated,
Sr. Notes,
9.75%, 12/15/07 (d) ........... 1,575,000
1,000,000 Big Flower Press Holdings,
Incorporated,
Sr. Notes (Subord.),
8.875%, 7/1/07 ................ 1,030,000
1,625,000 Capstar Broadcasting Partners,
Sr. Disc. Notes,
12.75%, 2/1/09 ................ 1,210,625
1,450,000 Echostar Satellite Broadcast
Corporation,
Sr. Secd. Disc. Notes, Step Bond,
(Eff. Yield 10.05%) (c),
0.00%, 3/15/04 ................ 1,319,500
1,000,000 SFX Broadcasting, Incorporated,
Series B, Sr. Notes (Subord.),
10.75%, 5/15/06 ............... 1,100,000
1,000,000 Sinclair Broadcast Group,
Incorporated,
Sr. Notes (Subord.),
10.00%, 9/30/05 ............... 1,070,000
----------
7,305,125
----------
Retailing & Wholesale -- 2.7%
2,000,000 Advance Stores Company,
Sr. Notes (Subord.),
10.25%, 4/15/08 (d) ........... 2,030,000
825,000 AFC Enterprises, Incorporated,
Sr. Notes (Subord.),
10.25%, 5/15/07 ............... 866,250
1,500,000 FRD Acquisition Company,
Series B, Sr. Notes,
12.50%, 7/15/04 ............... 1,657,500
2,000,000 Friendly's Ice Cream Corporation,
Sr. Notes,
10.50%, 12/1/07 ............... 2,135,000
1,000,000 MTS Incorporated,
Sr. Notes (Subord.),
9.375%, 5/1/05 (d) ............ 1,000,000
1,000,000 Perkins Family Restaurant,
Series B, Sr. Notes,
10.125%, 12/15/07 ............. 1,060,000
----------
8,748,750
----------
Telecommunication Services &
Equipment -- 3.4%
1,000,000 Centennial Cellular Corporation,
Sr. Notes,
8.875%, 11/1/01 ............... 1,030,000
</TABLE>
39
<PAGE>
EVERGREEN
Strategic Income Fund
Schedule of Investments (continued)
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Telecommunication Services &
Equipment -- continued
$ 500,000 Intermedia Capital Partners,
Sr. Notes,
11.25%, 8/1/06 ...................... $ 561,250
2,400,000 Nextel Communications,
Incorporated,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 11.17%) (c),
0.00%, 10/31/07 ..................... 1,560,000
3,000,000 Talton Holdings, Incorporated,
Series B, Sr. Notes,
11.00%, 6/30/07 ..................... 3,270,000
Teleport Communications Group:
1,000,000 Sr. Disc. Notes, Step Bond,
(Eff. Yield 8.97%) (c)
0.00%, 7/1/07 ....................... 857,500
525,000 Sr. Notes,
9.875%, 7/1/06 ...................... 597,187
4,000,000 Winstar Communications,
Incorporated,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 9.76%) (c),
0.00%, 10/15/05 ..................... 3,220,000
-----------
11,095,937
-----------
Textile & Apparel -- 0.5%
1,500,000 Delta Mills, Incorporated,
Series B, Sr. Notes,
9.625%, 9/1/07 ...................... 1,530,000
-----------
Transportation -- 2.5%
1,000,000 Coach USA, Incorporated,
Series B, Sr. Notes (Subord.),
9.375%, 7/1/07 ...................... 1,040,000
1,750,000 Pegasus Shipping Hellas Limited,
Sr. Notes,
11.875%, 11/15/04 (d) ............... 1,732,500
Piedmont Aviation, Incorporated:
852,000 Series A,
9.90%, 1/15/01 ...................... 891,022
1,389,000 Series F,
10.15%, 3/28/03 ..................... 1,508,676
2,000,000 Transport World Airlines, Incorporated,
Notes,
11.375%, 3/1/06 (d) ................. 2,000,000
896,000 U.S. Air, Incorporated,
Series 88-B,
9.90%, 1/15/01 ...................... 937,037
-----------
8,109,235
-----------
Utilities -- 0.6%
1,000,000 Calpine Corporation,
Sr. Notes,
8.75%, 7/15/07 ...................... 1,030,000
1,000,000 Cleveland Electric Illuminating
Company,
Series B, 1st Mtge. Notes,
9.50%, 5/15/05 ...................... 1,093,960
-----------
2,123,960
-----------
Total Corporate Bonds
(cost $100,844,371).................. 103,801,666
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
FOREIGN BONDS (U.S. DOLLARS) -- 7.8%
$ 500,000 Aztec Holdings SA DE CV,
Sr. Secd. Notes,
11.00%, 6/15/02 ..................... $ 517,500
Comtel Brasileira Ltd.,
Notes:
2,000,000 10.75%, 9/26/04 .................... 2,061,000
1,500,000 10.75%, 9/26/04 (d) ................ 1,537,500
500,000 Diamond Cable Communicatoins PLC,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 10.48%) (c),
0.00%, 2/15/07 ...................... 350,000
1,000,000 Doman Industries Limited,
Sr. Notes,
8.75%, 3/15/04 ...................... 985,000
2,000,000 Eletson Holdings, Incorporated,
1st Preferred Mtge. Notes,
9.25%, 11/15/03 ..................... 2,050,000
1,000,000 Fundy Cable Ltd.,
Sr. Secd. 2nd Priority Notes,
11.00%, 11/15/05 .................... 1,105,000
1,500,000 Glencore Nickel Property,
Sr. Secd. Bonds,
9.00%, 12/1/14 (d) .................. 1,477,500
1,250,000 Great Central Mines Ltd.,
Sr. Notes,
8.875%, 4/1/08 (d) .................. 1,248,437
1,000,000 Grupo Industrial Durango S.A.,
Notes,
12.625%, 8/1/03 ..................... 1,130,000
2,000,000 Mastellone Hermanos S.A.,
Sr. Notes,
11.75%, 4/1/08 (d) .................. 2,067,200
800,000 PTC International Finance BV,
Sr. Notes (Subord.), Step Bond,
(Eff. Yield 10.14%) (c),
0.00%, 7/1/07 ....................... 548,000
1,000,000 Repap New Brunswick, Incorporated,
Sr. Notes,
9.875%, 7/15/00 ..................... 1,055,000
1,000,000 Rogers Cablesystems Limited,
Sr. Secd. Deb.,
10.125%, 9/1/12 ..................... 1,085,000
1,500,000 Sea Containers Limited,
Sr. Notes,
9.50%, 7/1/03 ....................... 1,545,000
1,425,000 TV Azteca SA DE CV,
Series B, Sr. Notes,
10.50%, 2/15/07 ..................... 1,496,250
5,000,000 United Mexican States,
Bonds,
9.875%, 1/15/07 ..................... 5,387,500
-----------
Total Foreign Bonds (U.S. Dollars)
(cost $24,920,230)................... 25,645,887
-----------
FOREIGN BONDS (NON U.S. DOLLARS) -- 20.6%
2,250,000 Australia (Commonwealth of), Deb.,
AUD 10.00%, 2/15/06 .................... 1,851,610
3,000,000 CEI Citicorp Holding,
ARS Bonds,
11.25%, 2/14/07 ..................... 2,760,400
400,000 European Investment Bank,
GBP Bonds,
7.625%, 12/7/06 ..................... 730,702
19,525,000 Germany (Republic of), Deb.,
DEM 6.875%, 5/12/05 .................... 12,105,272
</TABLE>
40
<PAGE>
EVERGREEN
Strategic Income Fund
Schedule of Investments (continued)
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
FOREIGN BONDS (NON U.S. DOLLARS) -- continued
1,845,000,000 Greece (Republic of), Deb.,
GRD 8.60%, 3/26/08 .................... $6,147,261
Italy (Republic of), Deb.:
6,595,000,000
ITL 6.75%, 2/1/07 ..................... 4,132,695
1,105,000,000
ITL 9.50%, 2/1/06 ..................... 796,179
690,000,000 Korea Development Bank,
JPY Sr. Notes,
4.70%, 3/18/04 ..................... 5,362,959
1,500,000 Microcell Telecommunications,
CAD Series B, Sr. Disc. Notes,
Step Bond,
(Eff. Yield 10.28%) (c),
0.00%, 10/15/07 .................... 679,220
3,500,000 NTL, Incorporated,
GBP Sr. Notes, Step Bond,
(Eff. Yield 9.82%) (c),
0.00%, 4/1/08 ...................... 3,600,486
80,500,000 Nykredit,
DKK 6.00%, 10/1/29 .................... 11,328,336
6,000,000 Quebec (Province of),
CAD Deb.,
9.375%, 1/16/23 .................... 5,887,444
2,000,000 Rogers Cablesystems Limited,
CAD Deb.,
9.65%, 1/15/14 ..................... 1,510,542
1,000,000 Rogers Communications,
CAD Incorporated,
Sr. Notes,
8.75%, 7/15/07 ..................... 702,122
18,000,000 Spain (Government of),
ESP Deb.,
11.45%, 8/30/98 .................... 120,670
23,000,000 Spain (Kingdom of),
ESP Deb.,
12.25%, 3/25/00 .................... 172,160
5,268,000 United Kingdom Treasury,
GBP Deb.,
7.25%, 12/7/07 ..................... 9,761,801
----------
Total Foreign Bonds (Non U.S. Dollars)
(cost $67,089,703).................. 67,649,859
----------
MORTGAGE-BACKED SECURITIES -- 11.8%
$ 4,750,000 FHLB,
5.625%, 3/19/01 .................... 4,731,428
FHLMC:
32,155 Pool #E00434,
7.00%, 5/1/11 ...................... 32,861
1,452,103 Pool #E20217,
7.00%, 1/1/11 ...................... 1,484,006
3,289,024 Pool #E20271,
7.00%, 11/1/11 ..................... 3,356,514
638,986 Pool #E64769,
7.00%, 7/1/11 ...................... 653,024
251,510 Pool #E64891,
7.00%, 7/1/11 ...................... 257,036
1,320,497 Pool #E65184,
7.00%, 8/1/11 ...................... 1,349,509
386,785 Pool #E65186,
7.00%, 8/1/11 ...................... 395,283
53,793 Pool #E65399,
7.00%, 9/1/11 ...................... 54,897
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MORTGAGE-BACKED SECURITIES -- continued
FHLMC -- continued
$ 416,067 Pool #E65450,
7.00%, 10/1/11 ..................... $ 424,605
249,678 Pool #E65454,
7.00%, 10/1/11 ..................... 254,802
133,793 Pool #E65468,
7.00%, 10/1/11 ..................... 136,539
1,907,708 Pool #E65490,
7.00%, 10/1/11 ..................... 1,946,854
268,847 Pool #E65597,
7.00%, 10/1/11 ..................... 274,363
228,227 Pool #E65645,
7.00%, 11/1/11 ..................... 232,910
520,263 Pool #E65660,
7.00%, 11/1/11 ..................... 530,939
1,482,913 Pool #E65702,
7.00%, 11/1/11 ..................... 1,515,492
877,902 Pool #E65703,
7.00%, 11/1/11 ..................... 895,917
1,824,967 Pool #E65712,
7.00%, 12/1/11 ..................... 1,862,416
285,517 Pool #E65717,
7.00%, 11/1/11 ..................... 291,375
872,798 Pool #E65723,
7.00%, 11/1/11 ..................... 891,973
389,971 Pool #E65750,
7.00%, 11/1/11 ..................... 398,539
30,448 Pool #E65759,
7.00%, 12/1/11 ..................... 31,072
27,840 Pool #G10524,
7.00%, 6/1/11 ...................... 28,452
539,858 Pool #G10556,
7.00%, 7/1/11 ...................... 551,719
268,102 Pool #G10590,
7.00%, 10/1/11 ..................... 273,992
2,708,737 FHLMC Participation Certificate,
Pool #607352,
7.862%, 4/1/22 ..................... 2,852,652
FNMA:
1,783,236 Pool #124289,
7.565%, 9/1/21 ..................... 1,866,834
2,074,579 Pool #313994,
7.565%, 12/1/23 .................... 2,121,838
79,590 Pool #403607,
7.00%, 11/1/27 ..................... 80,460
77,903 Pool #404115,
7.00%, 11/1/27 ..................... 78,755
6,859,992 GNMA,
Pool #780163,
6.50%, 7/15/09 ..................... 6,934,972
1,974,567 Independent National Mortgage
Corporation,
Series 1997-A, Class A,
7.84%, 12/26/26 (d) ................ 1,985,540
----------
Total Mortgage-Backed Securities
(cost $38,271,207).................. 38,777,568
----------
U.S. TREASURY OBLIGATIONS -- 24.8%
U.S. Treasury Bonds:
31,500,000 6.375%, 8/15/27 ................... 33,143,985
1,400,000 6.625%, 2/15/27 ................... 1,515,276
4,223,000 7.875%, 2/15/21 ................... 5,169,206
</TABLE>
41
<PAGE>
EVERGREEN
Strategic Income Fund
Schedule of Investments (continued)
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- continued
U.S. Treasury Notes:
$ 3,750,000 5.50%, 2/29/00 ............. $ 3,744,150
2,250,000 5.625%, 12/31/99 ........... 2,251,755
5,185,000 6.625%, 5/15/07 ............ 5,497,707
12,700,000 7.00%, 7/15/06 ............. 13,704,062
15,000,000 7.25%, 5/15/04 ............. 16,162,500
-----------
Total U.S. Treasury Obligations
(cost $79,277,425)........... 81,188,641
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS -- 0.5%
Gaming -- 0.4%
Casino America, Incorporated:
104,514 Common Stock (a) ................ 367,432
19,582 Warrants (a) (b) ................ 196
170,042 Colorado Gaming and Entertainment
Company,
Common Stock (a) ................. 935,231
---------
1,302,859
---------
</TABLE>
<TABLE>
<CAPTION>
Shares
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS -- continued
Telecommunication Services &
Equipment -- 0.1%
Nextel Communications,
Incorporated:
3,718 Common Stock, Class A (a) ....... $ 106,544
4,820 Warrants (a) .................... 50,610
------------
157,154
------------
Total Common Stocks and Warrants
(cost $2,134,477)................. 1,460,013
------------
PREFERRED STOCK -- 0.3% (cost $2,106,054)
Finance & Insurance -- 0.3%
2,156 Ampex Incorporated (a) (b) ....... 1,093,092
------------
Total Investments --
(cost $316,493,467)...... 98.1% 321,532,272
Other Assets and
Liabilities -- net ...... 1.9 6,302,764
----- ------------
Net Assets .............. 100.0% $327,835,036
===== ============
</TABLE>
(a) Non-income producing.
(b) All or a portion of these securities are either (1) restricted securities
(i.e., securities which may not be publicly sold without registration under
the Federal Securities Act of 1933) or (2) illiquid securities, and are
valued using market quotations where readily available. In the absence of
market quotations, the securities are valued based upon their fair value
determined under procedures approved by the Board of Trustees. The Fund may
make investments in an amount up to 15% of the value of the Fund's net
assets in such securities. At April 30, 1998, the fair value of these
securities was $1,093,288 (0.33% of the Fund's net assets).
(c) Effective yield (calculated at the date of purchase) is the yield at which
the bond accretes on an annual basis until maturity date.
(d) Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pursuant to Section 4(2) of the Securities
Act of 1933, as amended. These securities have been determined to be liquid
under guidelines established by the Board of Trustees.
Legend of Portfolio Abbreviations:
ARS Argentine Peso
AUD Australian Dollar
CAD Canadian Dollar
DEM Deutsche Mark
DKK Danish Krone
ESP Spanish Peseta
FHLB Federal Home Loan Bank
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
GBP Pound Sterling
GNMA Government National Mortgage Association
GRD Greek Drachma
ITL Italian Lira
JPY Japanese Yen
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Forward foreign currency exchange contracts to sell:
<TABLE>
<S> <C> <C> <C> <C> <C>
Exchange U.S. $ Value at In Exchange Net Unrealized
Date Contractsto Deliver April 30, 1998 for U.S. $ Depreciation
- ------ ---------------------------- ----------------- ------------- ---------------
8/4/98 70,000,000 Deutsche Mark 39,211,513 39,173,989 $(37,524)
</TABLE>
See Combined Notes to Financial Statements.
42
<PAGE>
EVERGREEN
U.S. Government Fund
Schedule of Investments
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
MORTGAGE-BACKED SECURITIES -- 42.4%
Federal Home Loan Mortgage
Corp. -- 9.0%
$ 13,035,755 6.50%, 04/01/26 ................. $ 12,959,887
1,750,000 7.80%, 09/12/16 ................. 1,919,188
4,327,409 8.00%, 07/01/17 - 04/01/22 ...... 4,521,742
3,075,501 8.50%, 10/01/17 - 04/01/23 ...... 3,240,471
2,806,679 9.00%, 11/01/19 - 04/01/21 ...... 3,003,812
1,071,841 9.50%, 09/01/20 ................. 1,160,053
1,259,265 10.00%, 12/01/19 - 08/01/21 ..... 1,376,961
1,592,069 10.50%, 12/01/19 ................ 1,742,321
------------
29,924,435
------------
Federal National Mortgage
Assn. -- 12.7%
4,365,482 6.50%, 01/01/24 ................. 4,325,922
15,711,901 7.00%, 08/01/25 - 09/01/25 ...... 15,903,397
10,094,472 7.50%, 07/01/23 - 07/01/25 ...... 10,368,920
8,971,054 8.00%, 08/01/25 ................. 9,318,414
1,343,671 9.50%, 02/01/23 ................. 1,437,309
941,145 11.00%, 01/01/16 ................ 1,043,908
------------
42,397,870
------------
Government National Mortgage
Assn. -- 20.7%
3,317,473 6.50%, 10/15/25 ................. 3,295,611
17,194,812 7.00%, 12/15/22 - 05/15/26 ...... 17,433,010
9,504,910 7.50%, 02/15/22 - 03/15/23 ...... 9,772,283
16,644,505 8.00%, 04/15/23 - 08/15/24 ...... 17,333,755
9,492,843 8.50%, 12/15/21 - 07/15/24 ...... 10,039,284
4,434,234 9.00%, 01/15/20 - 06/15/21 ...... 4,752,944
4,517,624 9.50%, 05/15/17 - 02/15/21 ...... 4,891,742
1,066,761 10.00%, 12/15/18 ................ 1,167,104
------------
68,685,733
------------
Total Mortgage-Backed Securities
(cost $138,608,340).............. 141,008,038
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
U. S. TREASURY OBLIGATIONS -- 55.4%
U.S. Treasury Bonds -- 30.4%
$ 15,500,000 6.125%, 11/15/27 ................ $ 15,877,828
5,200,000 7.625%, 2/15/07 ................. 5,520,128
7,520,000 7.875%, 2/15/21 ................. 9,209,654
12,000,000 8.25%, 5/15/05 .................. 12,577,512
8,100,000 8.50%, 2/15/20 .................. 10,497,098
3,650,000 8.75%, 11/15/08 ................. 4,150,736
3,080,000 8.75%, 8/15/20 .................. 4,094,478
14,010,000 8.875%, 8/15/17 ................. 18,528,239
6,000,000 8.875%, 2/15/19 ................. 8,002,506
9,300,000 9.25%, 2/15/16 .................. 12,569,536
------------
101,027,715
------------
U.S. Treasury Notes -- 25.0%
3,500,000 6.00%, 6/30/99 .................. 3,517,504
1,500,000 6.25%, 5/31/99 .................. 1,510,782
7,500,000 6.25%, 6/30/02 .................. 7,657,035
3,000,000 6.75%, 4/30/00 .................. 3,063,753
12,000,000 7.75%, 11/30/99 ................. 12,382,512
9,800,000 7.75%, 1/31/00 .................. 10,146,067
21,500,000 7.875%, 11/15/99 ................ 22,212,209
1,600,000 7.875%, 11/15/04 ................ 1,784,501
9,350,000 8.25%, 7/15/98 .................. 9,411,364
11,205,000 9.25%, 8/15/98 .................. 11,331,067
------------
83,016,794
------------
Total U. S. Treasury Obligations
(cost $185,438,991).............. 184,044,509
------------
REPURCHASE AGREEMENT -- 0.2% (cost $531,701)
531,701 Donaldson, Lufkin & Jenrette
Securities Corp., 5.49% dated
04/30/98, due 05/01/98, maturity
value $531,782 (collateralized by
$819,000 U.S. Treasury STRIPS,
0.00%, due 05/15/2005; value,
including accrued interest
$542,735)........................ 531,701
------------
Total Investments
(cost $324,579,032)..... 98.0% 325,584,248
Other Assets and
Liabilities -- net ..... 2.0 6,661,029
----- ------------
Net Assets ............. 100.0% $332,245,277
===== ============
</TABLE>
See Combined Notes to Financial Statements.
43
<PAGE>
EVERGREEN
Long Term Bond Funds
Statements of Assets and Liabilities
April 30, 1998
<TABLE>
<CAPTION>
Diversified
Bond
Fund
-----------------
<S> <C>
Assets
Investments at market value (identified cost -- $576,701,041,
$481,818,150, $316,493,467 and $324,579,032, respectively)................. $ 591,455,445
Cash and foreign currency, at value (identified cost -- $903, $18,854,
$662,359 and $0, respectively)............................................. 903
Receivable for investments sold ............................................ 13,770,108
Interest receivable ........................................................ 9,154,730
Receivable for Fund shares sold ............................................ 170,504
Receivable for closed forward foreign currency exchange contracts .......... 0
Prepaid expenses and other assets .......................................... 334,221
- ------------------------------------------------------------------------------ ---------------
Total assets .............................................................. 614,885,911
- ------------------------------------------------------------------------------ ---------------
Liabilities
Payable for reverse repurchase agreements .................................. 22,388,446
Payable for investments purchased ......................................... 9,079,280
Payable for securities on loan ............................................. 8,642,617
Dividends payable .......................................................... 1,327,476
Payable for Fund shares redeemed ........................................... 1,223,231
Due to related parties ..................................................... 264,509
Unrealized depreciation on forward foreign currency exchange contracts ..... 196,424
Distribution fee payable ................................................... 61,485
Accrued Trustees' fees and expenses ........................................ 13,549
Accrued expenses and other liabilities ..................................... 0
- ------------------------------------------------------------------------------ ---------------
Total liabilities ......................................................... 43,197,017
- ------------------------------------------------------------------------------ ---------------
Net assets .................................................................. $ 571,688,894
- ------------------------------------------------------------------------------ ---------------
Net assets represented by
Paid-in capital ............................................................ $ 716,267,329
Undistributed net investment income (accumulated distributions in
excess of net investment income) .......................................... 397,123
Accumulated net realized loss on investments, futures contracts and
foreign currency related transactions ..................................... (159,537,483)
Net unrealized appreciation on investments and foreign currency related
transactions .............................................................. 14,561,925
- ------------------------------------------------------------------------------ ---------------
Total net assets .......................................................... $ 571,688,894
- ------------------------------------------------------------------------------ ---------------
Net assets consists of
Class A ................................................................... $ 501,546,856
Class B ................................................................... 70,112,654
Class C ................................................................... 22,811
Class Y .................................................................. 6,573
- ------------------------------------------------------------------------------ ---------------
$ 571,688,894
- ------------------------------------------------------------------------------ ---------------
Shares outstanding
Class A ................................................................... 31,500,841
Class B ................................................................... 4,403,544
Class C ................................................................... 1,433
Class Y .................................................................. 413
- ------------------------------------------------------------------------------ ---------------
Net asset value per share
Class A ................................................................... $ 15.92
- ------------------------------------------------------------------------------ ---------------
Class A -- Offering price (based on sales charge of 4.75%) ................ $ 16.71
- ------------------------------------------------------------------------------ ---------------
Class B ................................................................... $ 15.92
- ------------------------------------------------------------------------------ ---------------
Class C ................................................................... $ 15.92
- ------------------------------------------------------------------------------ ---------------
Class Y ................................................................... $ 15.92
- ------------------------------------------------------------------------------ ---------------
<CAPTION>
High Strategic U.S.zzz
Yield Income Government
Fund Fund Fund
----------------- --------------- ---------------
<S> <C> <C> <C>
Assets
Investments at market value (identified cost -- $576,701,041,
$481,818,150, $316,493,467 and $324,579,032, respectively)................. $ 484,227,114 $ 321,532,272 $ 325,584,248
Cash and foreign currency, at value (identified cost -- $903, $18,854,
$662,359 and $0, respectively)............................................. 18,848 662,359 0
Receivable for investments sold ............................................ 48,065,630 2,698,042 0
Interest receivable ........................................................ 9,217,883 6,563,727 5,015,982
Receivable for Fund shares sold ............................................ 916,624 543,814 2,690,960
Receivable for closed forward foreign currency exchange contracts .......... 0 56,518 0
Prepaid expenses and other assets .......................................... 196,191 86,565 53,150
- ------------------------------------------------------------------------------- --------------- ------------- -------------
Total assets .............................................................. 542,642,290 332,143,297 333,344,340
- ------------------------------------------------------------------------------- --------------- ------------- -------------
Liabilities
Payable for reverse repurchase agreements .................................. 0 1,350,806 0
Payable for investments purchased .......................................... 21,612,175 702,231 0
Payable for securities on loan ............................................. 0 0 0
Dividends payable .......................................................... 1,540,504 904,330 487,192
Payable for Fund shares redeemed ........................................... 595,594 981,432 237,579
Due to related parties ..................................................... 261,204 166,684 142,662
Unrealized depreciation on forward foreign currency exchange contracts ..... 0 37,524 0
Distribution fee payable ................................................... 86,243 142,668 121,743
Accrued Trustees' fees and expenses ........................................ 16,463 10,142 17,264
Accrued expenses and other liabilities ..................................... 41,533 12,444 92,623
- ------------------------------------------------------------------------------- --------------- ------------- -------------
Total liabilities ......................................................... 24,153,716 4,308,261 1,099,063
- ------------------------------------------------------------------------------- --------------- ------------- -------------
Net assets .................................................................. $ 518,488,574 $ 327,835,036 $ 332,245,277
- ------------------------------------------------------------------------------- --------------- ------------- -------------
Net assets represented by
Paid-in capital ............................................................ $ 890,481,827 $ 398,919,207 $ 354,051,006
Undistributed net investment income (accumulated distributions in
excess of net investment income) .......................................... (1,461,940) (1,604,423) 0
Accumulated net realized loss on investments, futures contracts and
foreign currency related transactions ..................................... (372,940,765) (74,488,430) (22,810,945)
Net unrealized appreciation on investments and foreign currency related
transactions .............................................................. 2,409,452 5,008,682 1,005,216
- ------------------------------------------------------------------------------- --------------- ------------- -------------
Total net assets .......................................................... $ 518,488,574 $ 327,835,036 $ 332,245,277
- ------------------------------------------------------------------------------- --------------- ------------- -------------
Net assets consists of
Class A ................................................................... $ 420,777,850 $ 193,617,768 $ 40,136,274
Class B .................................................................. 96,535,489 113,136,319 130,575,812
Class C ................................................................... 1,155,249 19,638,532 5,696,911
Class Y ................................................................... 19,986 1,442,417 155,836,280
- ------------------------------------------------------------------------------- --------------- ------------- -------------
$ 518,488,574 $ 327,835,036 $ 332,245,277
- ------------------------------------------------------------------------------- --------------- ------------- -------------
Shares outstanding
Class A ................................................................... 92,827,579 26,845,937 4,148,338
Class B ................................................................... 21,298,722 15,614,180 13,495,849
Class C ................................................................... 254,831 2,713,720 588,802
Class Y ................................................................... 4,412 204,966 16,106,634
- ------------------------------------------------------------------------------- --------------- ------------- -------------
Net asset value per share
Class A ................................................................... $ 4.53 $ 7.21 $ 9.68
- ------------------------------------------------------------------------------- --------------- ------------- -------------
Class A -- Offering price (based on sales charge of 4.75%) ................ $ 4.76 $ 7.57 $ 10.16
- ------------------------------------------------------------------------------- --------------- ------------- -------------
Class B ................................................................... $ 4.53 $ 7.25 $ 9.68
- ------------------------------------------------------------------------------- --------------- ------------- -------------
Class C ................................................................... $ 4.53 $ 7.24 $ 9.68
- ------------------------------------------------------------------------------- --------------- ------------- -------------
Class Y ................................................................... $ 4.53 $ 7.04 $ 9.68
- ------------------------------------------------------------------------------- --------------- ------------- -------------
</TABLE>
See Combined Notes to Financial Statements.
44
<PAGE>
EVERGREEN
Long Term Bond Funds
Statements of Operations
Year Ended April 30, 1998
<TABLE>
<CAPTION>
Diversified
Bond
Fund*
--------------
<S> <C>
Investment income
Interest income (Net of foreign withholding taxes of $4,314, $23,160, $27,178
and $0, respectively)........................................................... $ 25,456,917
Dividend income ................................................................. 222,685
Other income .................................................................... 154,821
- ---------------------------------------------------------------------------------- ------------
Total investment income ........................................................ 25,834,423
- ---------------------------------------------------------------------------------- ------------
Expenses
Distribution Plan expenses ...................................................... 2,290,679
Management fee .................................................................. 1,847,478
Transfer agent fees ............................................................. 678,105
Custodian fees ................................................................. 136,488
Administrative services fees .................................................... 57,048
Professional fees ............................................................... 26,335
Trustees' fees and expenses ..................................................... 25,826
Other ........................................................................... 194,504
- ---------------------------------------------------------------------------------- ------------
Total expenses ................................................................. 5,256,463
Less: Indirectly paid expenses .................................................. (10,831)
- ---------------------------------------------------------------------------------- ------------
Net expenses ................................................................... 5,245,632
- ---------------------------------------------------------------------------------- ------------
Net investment income ........................................................... 20,588,791
- ---------------------------------------------------------------------------------- ------------
Net realized and unrealized gain (loss) on investments, futures contracts and
foreign currency related transactions
Realized gain (loss) on:
Investments ................................................................... 15,399,570
Futures contracts .............................................................. (348,801)
Foreign currency related transactions .......................................... (4,113,903)
- ---------------------------------------------------------------------------------- ------------
Net realized gain (loss) on investments, futures contracts and foreign currency
related transactions ........................................................... 10,936,866
- ---------------------------------------------------------------------------------- ------------
Net change in unrealized appreciation (depreciation) on:
Investments .................................................................... 2,869,575
Foreign currency related transactions .......................................... 676,869
- ---------------------------------------------------------------------------------- ------------
Net change in unrealized appreciation (depreciation) on investments and foreign
currency related transactions .................................................. 3,546,444
- ---------------------------------------------------------------------------------- ------------
Net realized and unrealized gain on investments, futures contracts and foreign
currency related transactions ................................................. 14,483,310
- ---------------------------------------------------------------------------------- ------------
Net increase in net assets resulting from operations ............................ $ 35,072,101
- ---------------------------------------------------------------------------------- ------------
<CAPTION>
High Strategic U.S.
Yield Income Government
Fund** Fund Fund
-------------- -------------- --------------
<S> <C> <C> <C>
Investment income
Interest income (Net of foreign withholding taxes of $4,314, $23,160, $27,178
and $0, respectively)........................................................... $36,543,259 $ 17,998,152 $23,464,920
Dividend income ................................................................. 332,283 0 0
Other income .................................................................... 327,527 165,375 0
- ----------------------------------------------------------------------------------- ----------- ------------ -----------
Total investment income ........................................................ 37,203,069 18,163,527 23,464,920
- ----------------------------------------------------------------------------------- ----------- ------------ -----------
Expenses
Distribution Plan expenses ...................................................... 3,087,747 1,587,407 1,545,471
Management fee .................................................................. 2,300,383 1,406,494 1,601,407
Transfer agent fees ............................................................. 1,035,815 539,204 402,980
Custodian fees .................................................................. 103,902 93,822 97,071
Administrative services fees ................................................... 76,786 36,278 105,681
Professional fees ............................................................... 29,319 24,213 38,748
Trustees' fees and expenses ..................................................... 30,906 21,252 11,923
Other .......................................................................... 233,116 211,897 230,735
- ----------------------------------------------------------------------------------- ----------- ------------ -----------
Total expenses ................................................................. 6,897,974 3,920,567 4,034,016
Less: Indirectly paid expenses .................................................. (51,507) (8,289) (258)
- ----------------------------------------------------------------------------------- ----------- ------------ -----------
Net expenses ................................................................... 6,846,467 3,912,278 4,033,758
- ----------------------------------------------------------------------------------- ----------- ------------ -----------
Net investment income ........................................................... 30,356,602 14,251,249 19,431,162
- ----------------------------------------------------------------------------------- ----------- ------------ -----------
Net realized and unrealized gain (loss) on investments, futures contracts and
foreign currency related transactions
Realized gain (loss) on:
Investments .................................................................... 16,545,290 7,922,358 (764,906)
Futures contracts ............................................................. 0 0 0
Foreign currency related transactions .......................................... 6,279 (2,286,641) 0
- ----------------------------------------------------------------------------------- ----------- ------------ -----------
Net realized gain (loss) on investments, futures contracts and foreign currency
related transactions ........................................................... 16,551,569 5,635,717 (764,906)
- ----------------------------------------------------------------------------------- ----------- ------------ -----------
Net change in unrealized appreciation (depreciation) on:
Investments .................................................................... 3,464,331 5,407,478 9,555,419
Foreign currency related transactions .......................................... 478 6,045 0
- ----------------------------------------------------------------------------------- ----------- ------------ -----------
Net change in unrealized appreciation (depreciation) on investments and foreign
currency related transactions .................................................. 3,464,809 5,413,523 9,555,419
- ----------------------------------------------------------------------------------- ----------- ------------ -----------
Net realized and unrealized gain on investments, futures contracts and foreign
currency related transactions .................................................. 20,016,378 11,049,240 8,790,513
- ----------------------------------------------------------------------------------- ----------- ------------ -----------
Net increase in net assets resulting from operations ............................ $50,372,980 $ 25,300,489 $28,221,675
- ----------------------------------------------------------------------------------- ----------- ------------ -----------
</TABLE>
* Eight months ended April 30, 1998. During the period, Diversified Bond Fund
changed its fiscal year end from August 31 to April 30.
** Nine months ended April 30, 1998. During the period, High Yield Fund
changed its fiscal year end from July 31 to April 30.
See Combined Notes to Financial Statements.
45
<PAGE>
EVERGREEN
Long Term Bond Funds
Statements of Operations
Prior Year End
<TABLE>
<CAPTION>
Diversified High
Bond Yield
Fund* Fund**
-------------- --------------
<S> <C> <C>
Investment income
Interest:
Unaffiliated issuers (Net of foreign withholding taxes of $0 and $693, respectively).... $40,714,972 $52,953,592
Affiliated issuers ..................................................................... 0 1,118,767
Other income ............................................................................ 107,991 466,791
- ------------------------------------------------------------------------------------------ ----------- -----------
Total investment income .............................................................. 40,822,963 54,539,150
- ------------------------------------------------------------------------------------------ ----------- -----------
Expenses
Distribution Plan expenses .............................................................. 5,106,010 5,686,181
Management fee ......................................................................... 2,835,152 3,259,222
Transfer agent fees ..................................................................... 1,203,224 1,634,507
Custodian fees .......................................................................... 252,608 289,359
Administrative services fees ............................................................ 65,837 50,161
Professional fees ....................................................................... 41,737 67,739
Trustees' fees and expenses ............................................................. 47,515 48,789
Other ................................................................................... 125,172 133,428
- ------------------------------------------------------------------------------------------ ----------- -----------
Total expenses ........................................................................ 9,677,255 11,169,386
Less: Indirectly paid expenses .......................................................... (50,654) (64,295)
- ------------------------------------------------------------------------------------------ ----------- -----------
Net expenses ........................................................................... 9,626,601 11,105,091
- ------------------------------------------------------------------------------------------ ----------- -----------
Net investment income ................................................................... 31,196,362 43,434,059
- ------------------------------------------------------------------------------------------ ----------- -----------
Net realized and unrealized gain on investments and foreign currency related transactions
Realized gain on :
Investments ............................................................................ 10,233,263 3,963,269
Foreign currency related transactions .................................................. 5,320,208 0
- ------------------------------------------------------------------------------------------ ----------- -----------
Net realized gain on investments and foreign currency related transactions .............. 15,553,471 3,963,269
- ------------------------------------------------------------------------------------------ ----------- -----------
Net change in unrealized appreciation (depreciation) on:
Investments ............................................................................ 13,588,288 33,119,281
Foreign currency related transactions .................................................. (237,516) 0
- ------------------------------------------------------------------------------------------ ----------- -----------
Net change in unrealized appreciation (depreciation) on investments and foreign currency 13,350,772 33,119,281
- ------------------------------------------------------------------------------------------ ----------- -----------
related transactions
- ------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign currency related 28,904,243 37,082,550
- ------------------------------------------------------------------------------------------ ----------- -----------
transactions
- ------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations .................................... $60,100,605 $80,516,609
- ------------------------------------------------------------------------------------------ ----------- -----------
</TABLE>
* Year ended August 31, 1997.
** Year ended July 31, 1997.
See Combined Notes to Financial Statements.
46
<PAGE>
EVERGREEN
Long Term Bond Funds
Statements of Changes in Net Assets
Year Ended April 30, 1998
<TABLE>
<CAPTION>
Diversified
Bond
Fund*
-----------------
<S> <C>
Operations
Net investment income ........................................................ $ 20,588,791
Net realized gain (loss) on investments, futures contracts and foreign
currency related transactions ............................................... 10,936,866
Net change in unrealized appreciation (depreciation) on investments and
foreign currency related transactions ....................................... 3,546,444
- ------------------------------------------------------------------------------- ---------------
Net increase in net assets resulting from operations ........................ 35,072,101
- ------------------------------------------------------------------------------- ---------------
Distributions to shareholders from net investment income
Class A ..................................................................... (9,491,102)
Class B .................................................................... (11,097,556)
Class C ..................................................................... (35)
Class Y ..................................................................... (98)
- ------------------------------------------------------------------------------- ---------------
Total distributions to shareholders ......................................... (20,588,791)
- ------------------------------------------------------------------------------- ---------------
Capital share transactions
Proceeds from shares sold .................................................... 19,555,848
Proceeds from shares issued in connection with the acquisition of:
Evergreen Quality Bond Fund ................................................. 172,832,659
Blanchard Flexible Income Fund .............................................. 0
Keystone World Bond Fund .................................................... 0
Keystone Government Securities Fund ......................................... 0
Proceeds from reinvestment of distributions .................................. 11,421,930
Payment for shares redeemed .................................................. (104,305,708)
- ------------------------------------------------------------------------------- ---------------
Net increase (decrease) in net assets resulting from capital share
transactions ............................................................... 99,504,729
- ------------------------------------------------------------------------------- ---------------
Total increase (decrease) in net assets .................................... 113,988,039
Net assets
Beginning of period .......................................................... 457,700,855
- ------------------------------------------------------------------------------- ---------------
End of period ................................................................ $ 571,688,894
- ------------------------------------------------------------------------------- ---------------
Undistributed net investment income (accumulated distributions in excess of
net investment income) ...................................................... $ 397,123
- ------------------------------------------------------------------------------- ---------------
<CAPTION>
High Strategic
Yield Income
Fund** Fund
----------------- ------------------
<S> <C> <C>
Operations
Net investment income ........................................................ $ 30,356,602 $ 14,251,249
Net realized gain (loss) on investments, futures contracts and foreign
currency related transactions ............................................... 16,551,569 5,635,717
Net change in unrealized appreciation (depreciation) on investments and
foreign currency related transactions ....................................... 3,464,809 5,413,523
- -------------------------------------------------------------------------------- -------------- ------------
Net increase in net assets resulting from operations ....................... 50,372,980 25,300,489
- -------------------------------------------------------------------------------- -------------- ------------
Distributions to shareholders from net investment income
Class A ..................................................................... (9,975,169) (5,750,571)
Class B ..................................................................... (20,369,058) (7,053,895)
Class C ..................................................................... (12,343) (1,374,051)
Class Y ..................................................................... (32) (62,982)
- -------------------------------------------------------------------------------- -------------- ------------
Total distributions to shareholders ......................................... (30,356,602) (14,241,499)
- -------------------------------------------------------------------------------- -------------- ------------
Capital share transactions
Proceeds from shares sold .................................................... 55,707,745 52,265,456
Proceeds from shares issued in connection with the acquisition of:
Evergreen Quality Bond Fund ................................................. 0 0
Blanchard Flexible Income Fund ............................................. 0 139,705,470
Keystone World Bond Fund .................................................... 0 13,364,630
Keystone Government Securities Fund ......................................... 0 0
Proceeds from reinvestment of distributions .................................. 17,078,485 8,043,638
Payment for shares redeemed .................................................. (121,704,035) (89,713,499)
- -------------------------------------------------------------------------------- -------------- ------------
Net increase (decrease) in net assets resulting from capital share
transactions ............................................................... (48,917,805) 123,665,695
- -------------------------------------------------------------------------------- -------------- ------------
Total increase (decrease) in net assets .................................... (28,901,427) 134,724,685
Net assets
Beginning of period .......................................................... 547,390,001 193,110,351
- -------------------------------------------------------------------------------- -------------- ------------
End of period ................................................................ $ 518,488,574 $327,835,036
- -------------------------------------------------------------------------------- -------------- ------------
Undistributed net investment income (accumulated distributions in excess of
net investment income) ....................................................... ($ 1,461,940) ($ 1,604,423)
- -------------------------------------------------------------------------------- -------------- ------------
<CAPTION>
U.S.
Government
Fund
----------------
<S> <C>
Operations
Net investment income ........................................................ $ 19,431,162
Net realized gain (loss) on investments, futures contracts and foreign
currency related transactions ............................................... (764,906)
Net change in unrealized appreciation (depreciation) on investments and
foreign currency related transactions ....................................... 9,555,419
- -------------------------------------------------------------------------------- -------------
Net increase in net assets resulting from operations ........................ 28,221,675
- -------------------------------------------------------------------------------- -------------
Distributions to shareholders from net investment income
Class A ..................................................................... (2,040,357)
Class B .................................................................... (7,875,544)
Class C ..................................................................... (261,054)
Class Y ..................................................................... (9,254,414)
- -------------------------------------------------------------------------------- -------------
Total distributions to shareholders ......................................... (19,431,369)
- -------------------------------------------------------------------------------- -------------
Capital share transactions
Proceeds from shares sold .................................................... 63,710,601
Proceeds from shares issued in connection with the acquisition of:
Evergreen Quality Bond Fund ................................................. 0
Blanchard Flexible Income Fund .............................................. 0
Keystone World Bond Fund ................................................... 0
Keystone Government Securities Fund ......................................... 41,845,369
Proceeds from reinvestment of distributions .................................. 13,377,697
Payment for shares redeemed .................................................. (83,317,244)
- -------------------------------------------------------------------------------- -------------
Net increase (decrease) in net assets resulting from capital share
transactions ............................................................... 35,616,423
- -------------------------------------------------------------------------------- -------------
Total increase (decrease) in net assets .................................... 44,406,729
Net assets
Beginning of period .......................................................... 287,838,548
- -------------------------------------------------------------------------------- -------------
End of period ................................................................ $ 332,245,277
- -------------------------------------------------------------------------------- -------------
Undistributed net investment income (accumulated distributions in excess of
net investment income) ....................................................... $ 0
- -------------------------------------------------------------------------------- -------------
</TABLE>
* Eight months ended April 30, 1998. During the period, Diversified Bond Fund
changed its fiscal year end from August 31 to April 30.
** Nine months ended April 30, 1998. During the period, High Yield Fund
changed its fiscal year end from July 31 to April 30.
See Combined Notes to Financial Statements.
47
<PAGE>
EVERGREEN
Long Term Bond Funds
Statements of Changes in Net Assets
For the Periods Indicated
<TABLE>
<CAPTION>
Diversified Bond Fund
-----------------------------------
Year Ended August 31,
1997 1996
----------------- -----------------
<S> <C> <C>
Operations
Net investment income ....................................................... $ 31,196,362 $ 42,141,831
Net realized gain on investments, closed futures contracts and foreign
currency related transactions ............................................... 15,553,471 323,307
Net change in unrealized appreciation (depreciation) on investments and
foreign currency related transactions ...................................... 13,350,772 (14,654,381)
- ------------------------------------------------------------------------------- --------------- --------------
Net increase in net assets resulting from operations ........................ 60,100,605 27,810,757
- ------------------------------------------------------------------------------- --------------- --------------
Distributions to shareholders from
Net investment income ........................................................ (31,196,362) (42,020,420)
In excess of net investment income ........................................... (1,746,263) 0
Tax basis return of capital .................................................. 0 (2,935,918)
- ------------------------------------------------------------------------------- --------------- --------------
Total distributions to shareholders ........................................ (32,942,625) (44,956,338)
- ------------------------------------------------------------------------------- --------------- --------------
Capital share transactions
Proceeds from shares sold .................................................... 33,102,013 89,671,653
Proceeds from reinvestment of distributions .................................. 18,107,160 25,564,686
Payment for shares redeemed .................................................. (180,458,236) (273,136,100)
- ------------------------------------------------------------------------------- --------------- --------------
Net decrease in net assets resulting from capital share transactions ........ (129,249,063) (157,899,761)
- ------------------------------------------------------------------------------- --------------- --------------
Total decrease in net assets ............................................... (102,091,083) (175,045,342)
Net assets
Beginning of period .......................................................... 559,791,938 734,837,280
- ------------------------------------------------------------------------------- --------------- --------------
End of period ................................................................ $ 457,700,855 $ 559,791,938
- ------------------------------------------------------------------------------- --------------- --------------
Undistributed net investment income (accumulated distributions in excess of
net investment income) ....................................................... $ 2,801,682 ($ 1,446,954)
- ------------------------------------------------------------------------------- --------------- --------------
<CAPTION>
High Yield Fund
-----------------------------------
Year Ended July 31,
1997 1996
----------------- -----------------
<S> <C> <C>
Operations
Net investment income ........................................................ $ 43,434,059 $ 53,347,924
Net realized gain on investments, closed futures contracts and foreign
currency related transactions ............................................... 3,963,269 12,528,472
Net change in unrealized appreciation (depreciation) on investments and
foreign currency related transactions ....................................... 33,119,281 (59,100,847)
- -------------------------------------------------------------------------------- -------------- --------------
Net increase in net assets resulting from operations ........................ 80,516,609 6,775,549
- -------------------------------------------------------------------------------- -------------- --------------
Distributions to shareholders from
Net investment income ........................................................ (43,434,060) (49,946,109)
In excess of net investment income ........................................... (1,323,000) (9,344,299)
Tax basis return of capital .................................................. 0 0
- -------------------------------------------------------------------------------- -------------- --------------
Total distributions to shareholders ......................................... (44,757,060) (59,290,408)
- -------------------------------------------------------------------------------- -------------- --------------
Capital share transactions
Proceeds from shares sold .................................................... 136,045,881 162,907,187
Proceeds from reinvestment of distributions .................................. 25,311,702 33,436,642
Payment for shares redeemed .................................................. (243,407,877) (315,113,110)
- -------------------------------------------------------------------------------- -------------- --------------
Net decrease in net assets resulting from capital share transactions ....... (82,050,294) (118,769,281)
- -------------------------------------------------------------------------------- -------------- --------------
Total decrease in net assets ............................................... (46,290,745) (171,284,140)
Net assets
Beginning of period .......................................................... 593,680,746 764,964,886
- -------------------------------------------------------------------------------- -------------- --------------
End of period ................................................................ $ 547,390,001 $ 593,680,746
- -------------------------------------------------------------------------------- -------------- --------------
Undistributed net investment income (accumulated distributions in excess of
net investment income) ....................................................... ($ 1,468,219) ($ 1,700,454)
- -------------------------------------------------------------------------------- -------------- --------------
</TABLE>
See Combined Notes to Financial Statements.
48
<PAGE>
EVERGREEN
Long Term Bond Funds
Statements of Changes in Net Assets
For the Periods Indicated
<TABLE>
<CAPTION>
Strategic Income Fund
-------------------------------------
Nine
Months Year
Ended Ended
April 30, July 31,
1997* 1996
------------------ ------------------
<S> <C> <C>
Operations
Net investment income ........................................................... $ 10,700,165 $ 19,336,690
Net realized gain (loss) on investments, closed futures contracts and foreign
currency related transactions .................................................. 5,462,277 (3,931,838)
Net change in unrealized appreciation (depreciation) on investments and
foreign currency related transactions .......................................... (2,698,555) 247,245
- ---------------------------------------------------------------------------------- ------------ ------------
Net increase in net assets resulting from operations ........................... 13,463,887 15,652,097
- ---------------------------------------------------------------------------------- ------------ ------------
Distributions to shareholders from
Net investment income
Class A ........................................................................ (3,484,550) (5,945,153)
Class B ........................................................................ (5,810,734) (9,706,657)
Class C ........................................................................ (1,404,882) (2,690,979)
Class Y ....................................................................... 0 0
In excess of net investment income
Class A ........................................................................ (256,701) 0
Class B ........................................................................ (428,067) 0
Class C ....................................................................... (103,495) 0
Tax basis return of capital
Class A ........................................................................ 0 (564,217)
Class B ........................................................................ 0 (921,197)
Class C ........................................................................ 0 (255,384)
- ---------------------------------------------------------------------------------- ------------ ------------
Total distributions to shareholders ............................................ (11,488,429) (20,083,587)
- ---------------------------------------------------------------------------------- ------------ ------------
Capital share transactions
Proceeds from shares sold ....................................................... 25,911,778 28,128,495
Proceeds from shares issued in acqusition of
Evergreen U.S. Government Securities Fund ...................................... 0 0
Proceeds from reinvestment of distributions ..................................... 6,009,396 10,567,921
Payment for shares redeemed ..................................................... (64,109,043) (92,224,304)
- ---------------------------------------------------------------------------------- ------------ ------------
Net increase (decrease) in net assets resulting from capital share
transactions .................................................................. (32,187,869) (53,527,888)
- ---------------------------------------------------------------------------------- ------------ ------------
Total increase (decrease) in net assets ....................................... (30,212,411) (57,959,378)
Net assets
Beginning of period ............................................................. 223,322,762 281,282,140
- ---------------------------------------------------------------------------------- ------------ ------------
End of period ................................................................... $193,110,351 $223,322,762
- ---------------------------------------------------------------------------------- ------------ ------------
Undistributed net investment income (accumulated distributions in excess of
net investment income) .......................................................... ($ 576,398) ($ 1,169,996)
- ---------------------------------------------------------------------------------- ------------ ------------
<CAPTION>
U.S. Government Fund
---------------------------------
Ten
Months Year
Ended Ended
April 30, June 30,
1997** 1996
---------------- ----------------
<S> <C> <C>
Operations
Net investment income .......................................................... $ 15,898,690 $ 18,766,488
Net realized gain (loss) on investments, closed futures contracts and foreign
currency related transactions .................................................. (3,340,851) (3,731,984)
Net change in unrealized appreciation (depreciation) on investments and
foreign currency related transactions ......................................... 2,370,773 (3,860,415)
- ----------------------------------------------------------------------------------- ------------- -------------
Net increase in net assets resulting from operations ........................... 14,928,612 11,174,089
- ----------------------------------------------------------------------------------- ------------- -------------
Distributions to shareholders from
Net investment income
Class A ........................................................................ (1,050,495) (1,406,673)
Class B ........................................................................ (7,610,760) (10,727,964)
Class C ........................................................................ (35,021) (28,511)
Class Y ........................................................................ (7,202,207) (6,603,340)
In excess of net investment income
Class A ....................................................................... 0 0
Class B ........................................................................ 0 0
Class C ........................................................................ 0 0
Tax basis return of capital
Class A ....................................................................... 0 0
Class B ........................................................................ 0 0
Class C ........................................................................ 0 0
- ----------------------------------------------------------------------------------- ------------- -------------
Total distributions to shareholders ............................................ (15,898,483) (18,766,488)
- ----------------------------------------------------------------------------------- ------------- -------------
Capital share transactions
Proceeds from shares sold ....................................................... 26,211,170 138,179,343
Proceeds from shares issued in acqusition of
Evergreen U.S. Government Securities Fund ...................................... 0 5,739,713
Proceeds from reinvestment of distributions .................................... 10,717,216 11,871,813
Payment for shares redeemed ..................................................... (56,670,711) (71,866,685)
- ----------------------------------------------------------------------------------- ------------- -------------
Net increase (decrease) in net assets resulting from capital share
transactions ................................................................. (19,742,325) 83,924,184
- ----------------------------------------------------------------------------------- ------------- -------------
Total increase (decrease) in net assets ....................................... (20,712,196) 76,331,785
Net assets
Beginning of period ............................................................. 308,550,744 232,218,959
- ----------------------------------------------------------------------------------- ------------- -------------
End of period ................................................................... $ 287,838,548 $ 308,550,744
- ----------------------------------------------------------------------------------- ------------- -------------
Undistributed net investment income (accumulated distributions in excess of
net investment income) .......................................................... $ 207 $ 0
- ----------------------------------------------------------------------------------- ------------- -------------
</TABLE>
* During the period, the Strategic Income Fund changed its fiscal year end
from July 31 to April 30.
** During the period, the U.S. Government Fund changed its fiscal year end
from June 30 to April 30.
See Combined Notes to Financial Statements.
49
<PAGE>
Combined Notes to Financial Statements
1. ORGANIZATION
The Evergreen Long Term Bond Funds consist of Evergreen Diversified Bond Fund
("Diversified Bond Fund"), Evergreen High Yield Bond Fund ("High Yield Fund"),
Evergreen Strategic Income Fund ("Strategic Income Fund") and Evergreen U.S.
Government Fund ("U.S. Government Fund") (collectively the "Funds"). Each Fund
is a diversified series of Evergreen Fixed Income Trust (the "Trust"), a
Delaware business trust organized on September 17, 1997. The Trust is an
open-end management investment company registered under the Investment Company
Act of 1940, as amended (the "1940 Act").
The Funds offer Class A, Class B, Class C and Class Y shares. Class A shares
are sold with a maximum front-end sales charge of 4.75%. Class B and Class C
shares are sold without a front-end sales charge, but pay a higher ongoing
distribution fee than Class A. Class B shares are sold subject to a contingent
deferred sales charge that is payable upon redemption and decreases depending
on how long the shares have been held. Class B shares of Diversified Bond Fund,
High Yield Fund and Strategic Income Fund purchased after January 1, 1997 will
automatically convert to Class A shares after seven years. Class B shares of
these Funds purchased prior to January 1, 1997 retain their existing
conversion rights. For the U.S. Government Fund, all Class B shares will
automatically convert to Class A shares after seven years. Class C shares are
sold subject to a contingent deferred sales charge payable on shares redeemed
within one year after the month of purchase. Class Y shares are sold at net
asset value and are not subject to contingent deferred sales charges or
distribution fees. Class Y shares are sold only to investment advisory clients
of First Union Corporation ("First Union") and its affiliates, certain
institutional investors or Class Y shareholders of record of certain other
funds managed by First Union and its affiliates as of December 30, 1994.
Effective January 9, 1998, the Diversified Bond Fund and High Yield Fund added
three classes of shares designated as Class A, Class C and Class Y and
designated the existing class of shares as Class B. Shareholders of these Funds
who, on January 16, 1998, held Class B shares purchased before January 1, 1995
and certain other non-commissionable Class B shares had such shares converted
to Class A shares having an aggregate value equal to that of the shareholder's
Class B shares prior to the conversion.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles, which
require management to make estimates and assumptions that affect amounts
reported herein. Actual results could differ from these estimates.
A. Valuation of Securities
U.S. government obligations held by the Funds are valued at the mean between
the over-the-counter bid and asked prices. Corporate bonds, other fixed-income
securities and mortgage and other asset-backed securities are valued at prices
provided by an independent pricing service. In determining a price for normal
institutional-size transactions, the pricing service uses methods based on
market transactions for comparable securities and analysis of various
relationships between similar securities which are generally recognized by
institutional traders.
The Diversified Bond Fund, High Yield Fund and Strategic Income Fund value
securities traded on a national securities exchange or included on the NASDAQ
National Market System ("NMS") at the last reported sales price on the exchange
where primarily traded. Each of these Funds values securities traded on an
exchange or NMS for which there has been no sale and other securities traded in
the over-the-counter market at the mean between the last reported bid and asked
price.
Securities for which market quotations are not readily available or valuations
are not readily available from an independent pricing service (including
restricted securities) are valued at fair value as determined in good faith
according to procedures approved by the Board of Trustees.
Short-term investments with remaining maturities of 60 days or less are carried
at amortized cost, which approximates market value. Short term securities with
greater than 60 days to maturity are valued at market value.
B. Repurchase Agreements
Each Fund may invest in repurchase agreements. Securities pledged as collateral
for repurchase agreements are held by the custodian on the Fund's behalf. Each
Fund monitors the adequacy of the collateral daily and will require the seller
to provide additional collateral in the event the market value of the
securities pledged falls below the carrying value of the repurchase agreement,
including
50
<PAGE>
Combined Notes to Financial Statements (continued)
accrued interest. Each Fund will only enter into repurchase agreements with
banks and other financial institutions which are deemed by the investment
advisor to be creditworthy pursuant to guidelines established by the Board of
Trustees.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, each Fund, except for U.S. Government Fund, along with certain
other funds managed by Keystone Investment Management Company ("Keystone"), may
transfer uninvested cash balances into a joint trading account. These balances
are invested in one or more repurchase agreements that are fully collateralized
by U.S. Treasury and/or federal agency obligations.
C. Reverse Repurchase Agreements
To obtain short-term financing, each Fund, except for U.S. Government Fund, may
enter into reverse repurchase agreements with qualified third-party
broker-dealers. Interest on the value of reverse repurchase agreements is based
upon competitive market rates at the time of issuance. At the time the Fund
enters into a reverse repurchase agreement, it will establish and maintain a
segregated account with the custodian containing qualifying assets having a
value not less than the repurchase price, including accrued interest. If the
counterparty to the transaction is rendered insolvent, the ultimate realization
of the securities to be repurchased by the Fund may be delayed or limited.
D. Foreign Currency
The books and records of the Funds are maintained in United States (U.S.)
dollars. Foreign currency amounts are translated into U.S. dollars as follows:
market value of investments, other assets and liabilities at the daily rate of
exchange; purchases and sales of investments, income and expenses at the rate
of exchange prevailing on the respective dates of such transactions. Net
unrealized foreign exchange gain (loss) resulting from changes in foreign
currency exchange rates is a component of net unrealized appreciation
(depreciation) on investments and foreign currency related transactions. Net
realized foreign currency gains and losses resulting from changes in exchange
rates include foreign currency gains and losses between trade date and
settlement date on investment securities transactions, foreign currency related
transactions and the difference between the amounts of interest and dividends
recorded on the books of the Fund and the amount actually received and are
included in realized gain (loss) on foreign currency related transactions. The
portion of foreign currency gains and losses related to fluctuations in
exchange rates between the initial purchase trade date and subsequent sale
trade date is included in realized gain (loss) on foreign currency related
transactions.
E. Futures Contracts
In order to gain exposure to or protect against changes in security values,
each Fund may buy and sell futures contracts.
The initial margin deposited with a broker when entering into a futures
transaction is subsequently adjusted by daily payments or receipts as the value
of the contract changes. Such changes are recorded as unrealized gains or
losses. Realized gains or losses are recognized on closing the contract.
Risks of entering into futures contracts include (i) the possibility of an
illiquid market for the contract, (ii) the possibility that a change in the
value of the contract may not correlate with changes in the value of the
underlying instrument or index, and (iii) the credit risk that the other party
will not fulfill their obligations under the contract. Futures contracts also
involve elements of market risk in excess of the amount reflected in the
statement of assets and liabilities.
F. Forward Foreign Currency Exchange Contracts
Each Fund, except for U.S. Government Fund, may enter into forward foreign
currency exchange contracts ("forward contracts") to settle portfolio purchases
and sales of securities denominated in a foreign currency and to hedge certain
foreign currency assets or liabilities. Forward contracts are recorded at the
forward rate and marked-to-market daily. Realized gains and losses arising from
such transactions are included in net realized gain (loss) on foreign currency
related transactions. The Fund bears the risk of an unfavorable change in the
foreign currency exchange rate underlying the forward contract and is subject
to the credit risk that the other party will not fulfill their obligations
under the contract. Forward contracts involve elements of market risk in excess
of the amount reflected in the statement of assets and liabilities.
G. Securities Lending
In order to generate income and to offset expenses, each Fund may lend
portfolio securities to brokers, dealers and other financial organizations. The
Funds' investment advisers will monitor the creditworthiness of such borrowers.
Loans of securities may not exceed 30% of total assets for Diversified Bond
Fund, 15% of total assets for High Yield Fund and Strategic Income Fund and
one-third of total assets for U.S. Government Fund. Loans will be
collateralized by cash, letters of credit or U.S. Government securities that
are maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities, including accrued
51
<PAGE>
Combined Notes to Financial Statements (continued)
interest. While such securities are on loan, the borrower will pay a Fund any
income accruing thereon, and the Fund may invest the collateral in portfolio
securities, thereby increasing its return. A Fund will have the right to call
any such loan and obtain the securities loaned at any time on five days'
notice. Any gain or loss in the market price of the loaned securities, which
occurs during the term of the loan, would affect a Fund and its investors. A
Fund may pay reasonable fees in connection with such loans.
H. Security Transactions and Investment Income
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premiums. Dividend income is recorded on the
ex-dividend date or in the case of some foreign securities, on the date when
the Fund is made aware of the dividend. Foreign income may be subject to
foreign withholding taxes, which are accrued as applicable.
I. Federal Taxes
The Funds have qualified and intend to continue to qualify as regulated
investment companies under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Funds will not incur any federal income tax liability since
they are expected to distribute all of their net investment company taxable
income and net capital gains, if any, to their shareholders. The Funds also
intend to avoid any excise tax liability by making the required distributions
under the Code. Accordingly, no provision for federal taxes is required. To the
extent that realized capital gains can be offset by capital loss carryforwards,
it is each Fund's policy not to distribute such gains.
J. Distributions
Distributions from net investment income for the Funds are declared daily and
paid monthly. Distributions from net realized capital gains, if any, are paid
at least annually. Distributions to shareholders are recorded at the close of
business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles. The significant differences between financial
statement amounts available for distributions and distributions made in
accordance with income tax regulations are primarily due to differing treatment
for foreign currency related transactions and expiration of capital loss
carryovers.
K. Class Allocations
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the
relative net assets of each class. Currently, class specific expenses are
limited to expenses incurred under the Distribution Plans for each class.
L. Organization Expenses
U.S. Government Fund's organizational expenses were borne initially by a prior
administrator. As a result of the change in the administration agreement, First
Union purchased the remaining unreimbursed initial organizational expenses from
the prior administrator. U.S. Government Fund will reimburse First Union during
the five-year period following its commencement of operations. For the year
ended April 30, 1998, U.S. Government Fund paid $5,566 in unreimbursed
organization expenses. As of April 30, 1998, unreimbursed organization expenses
for the U.S. Government Fund have been fully amortized.
3. CAPITAL SHARE TRANSACTIONS
Each Fund has an unlimited number of shares of beneficial interest with a par
value of $0.001 authorized. Shares of beneficial interest of the Funds are
currently divided into Class A, Class B, Class C and/or Class Y. Transactions
in shares of the Funds were as follows:
52
<PAGE>
Combined Notes to Financial Statements (continued)
DIVERSIFIED BOND FUND
<TABLE>
<CAPTION>
January 20, 1998
(Commencement
of Class Operations)
through April 30, 1998
--------------------------------
Shares Amount
--------------- ----------------
<S> <C> <C>
Class A
Shares sold ...................................... 136,952 $ 2,185,530
Shares issued in connection with the acquisition
of Evergreen Quality Bond Fund .................. 9,827,053 156,644,304
Automatic conversion of Class B shares ........... 24,126,331 387,832,940
Shares issued in reinvestment of distributions ... 362,116 5,781,141
Shares redeemed .................................. (2,951,611) (47,145,413)
- -------------------------------------------------- ------------- --------------
Net increase ..................................... 31,500,841 $ 505,298,502
- -------------------------------------------------- ------------- --------------
</TABLE>
<TABLE>
<CAPTION>
Eight Months Ended Year Ended
April 30, 1998 August 31, 1997
---------------------------------- ----------------------------------
Shares Amount Shares Amount
---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Class B
Shares sold ...................................... 1,090,412 $ 17,341,006 2,182,629 $ 33,102,013
Shares issued in connection with the acquisition
of Evergreen Quality Bond Fund .................. 1,015,574 16,188,355 0 0
Automatic conversion of shares to Class A
shares .......................................... (24,126,331) (387,832,940) 0 0
Shares issued in reinvestment of distributions ... 357,152 5,640,678 1,195,855 18,107,160
Shares redeemed .................................. (3,620,580) (57,160,295) (11,912,272) (180,458,236)
- -------------------------------------------------- -------------- --------------- -------------- ---------------
Net decrease ..................................... (25,283,773) ($ 405,823,196) (8,533,788) ($ 129,249,063)
- -------------------------------------------------- -------------- --------------- -------------- ---------------
<CAPTION>
Year Ended
August 31, 1996
----------------------------------
Shares Amount
---------------- -----------------
<S> <C> <C>
Class B
Shares sold ...................................... 5,954,123 $ 89,671,653
Shares issued in connection with the acquisition
of Evergreen Quality Bond Fund .................. 0 0
Automatic conversion of shares to Class A
shares .......................................... 0 0
Shares issued in reinvestment of distributions ... 1,709,087 25,564,686
Shares redeemed .................................. (18,152,163) (273,136,100)
- -------------------------------------------------- -------------- ---------------
Net decrease ..................................... (10,488,953) ($ 157,899,761)
- -------------------------------------------------- -------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
April 7, 1998
(Commencement
of Class Operations)
through April 30, 1998
----------------------
Shares Amount
---------- ----------
<S> <C> <C>
Class C
Shares sold ...................................... 1,432 $22,837
Shares issued in reinvestment of distributions ... 1 13
Shares redeemed .................................. 0 0
- -------------------------------------------------- -------- --------
Net increase ..................................... 1,433 $22,850
- -------------------------------------------------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
February 11, 1998
(Commencement
of Class
Operations)
through April 30,
1998
------------------
Shares Amount
-------- ---------
<S> <C> <C>
Class Y
Shares sold ...................................... 407 $6,475
Shares issued in reinvestment of distributions ... 6 98
Shares redeemed .................................. 0 0
- -------------------------------------------------- ------ -------
Net increase ..................................... 413 $6,573
- -------------------------------------------------- ------ -------
</TABLE>
53
<PAGE>
Combined Notes to Financial Statements (continued)
HIGH YIELD FUND
<TABLE>
<CAPTION>
January 20, 1998
(Commencement
of Class Operations)
through April 30, 1998
--------------------------------
Shares Amount
--------------- ----------------
<S> <C> <C>
Class A
Shares sold ....................................... 1,781,307 $ 8,100,467
Automatic conversion of Class B shares ............ 96,655,555 436,706,228
Shares issued in reinvestment of distributions .... 1,396,499 6,343,412
Shares redeemed ................................... (7,005,782) (31,868,872)
- --------------------------------------------------- ------------- --------------
Net increase ...................................... 92,827,579 $ 419,281,235
- --------------------------------------------------- ------------- --------------
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
April 30, 1998 July 31, 1997
---------------------------------- ----------------------------------
Shares Amount Shares Amount
---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Class B
Shares sold ....................................... 10,409,185 $ 46,341,356 32,280,201 $ 136,045,881
Automatic conversion of shares to Class A
shares ........................................... (96,655,555) (436,706,228) 0 0
Shares issued in reinvestment of distributions .... 2,427,463 10,723,559 5,995,434 25,311,702
Shares redeemed ................................... (20,273,137) (89,733,998) (57,681,924) (243,407,877)
- --------------------------------------------------- -------------- --------------- -------------- ---------------
Net decrease ...................................... (104,092,044) ($ 469,375,311) (19,406,289) ($ 82,050,294)
- --------------------------------------------------- -------------- --------------- -------------- ---------------
<CAPTION>
Year Ended
July 31, 1996
----------------------------------
Shares Amount
---------------- -----------------
<S> <C> <C>
Class B
Shares sold ....................................... 38,767,387 $ 162,907,187
Automatic conversion of shares to Class A
shares ........................................... 0 0
Shares issued in reinvestment of distributions .... 7,959,753 33,436,642
Shares redeemed ................................... (74,982,398) (315,113,110)
- ------------------------------------------------------------------ ---------------
Net decrease ...................................... (28,255,258) ($ 118,769,281)
- ------------------------------------------------------------------ ---------------
</TABLE>
<TABLE>
<CAPTION>
January 22, 1998
(Commencement
of Class Operations)
through April 30, 1998
--------------------------
Shares Amount
------------ -------------
<S> <C> <C>
Class C
Shares sold ....................................... 273,398 $1,240,926
Shares issued in reinvestment of distributions .... 2,527 11,482
Shares redeemed ................................... (21,094) (96,165)
- --------------------------------------------------- ---------- -----------
Net increase ...................................... 254,831 $1,156,243
- --------------------------------------------------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
April 14, 1998
(Commencement
of Class Operations)
through April 30, 1998
-----------------------
Shares Amount
----------- -----------
<S> <C> <C>
Class Y
Shares sold ....................................... 5,506 $ 24,996
Shares issued in reinvestment of distributions .... 7 32
Shares redeemed ................................... (1,101) (5,000)
- --------------------------------------------------- --------- ---------
Net increase ...................................... 4,412 $ 20,028
- --------------------------------------------------- --------- ---------
</TABLE>
54
<PAGE>
Combined Notes to Financial Statements (continued)
STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
Year Ended
April 30, 1998
----------------------------------
Shares Amount
--------------- ------------------
<S> <C> <C>
Class A
Shares sold ........................................ 1,976,718 $ 14,098,759
Shares issued in connection with
acquisition of:
Blanchard Flexible Income Fund .................... 19,367,062 139,705,470
Keystone World Bond Fund .......................... 1,077,718 7,661,303
Shares issued in reinvestment of distributions ..... 483,710 3,454,392
Shares redeemed .................................... (4,673,022) (33,390,153)
- ---------------------------------------------------- ------------- ---------------
Net increase (decrease) ............................ 18,232,186 $131,529,771
- ---------------------------------------------------- ------------- ---------------
Class B
Shares sold ........................................ 4,345,019 $ 30,951,849
Shares issued in connection with
acquisition of Keystone World Bond Fund ........... 645,853 4,612,694
Shares issued in reinvestment of distributions ..... 515,938 3,680,766
Shares redeemed .................................... (5,964,560) (42,581,723)
- ---------------------------------------------------- ------------- ---------------
Net decrease ....................................... (457,750) ($ 3,336,414)
- ---------------------------------------------------- ------------- ---------------
Class C
Shares sold ........................................ 261,961 $ 1,864,408
Shares issued in connection with
acquisition of Keystone World Bond Fund ........... 152,895 1,090,633
Shares issued in reinvestment of distributions ..... 122,073 868,861
Shares redeemed .................................... (1,375,841) (9,783,791)
- ---------------------------------------------------- ------------- ---------------
Net decrease ....................................... (838,912) ($ 5,959,889)
- ---------------------------------------------------- ------------- ---------------
<CAPTION>
Nine Months Ended Year Ended
April 30, 1997 July 31, 1996
-------------------------------- --------------------------------
Shares Amount Shares Amount
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Class A
Shares sold ........................................ 722,925 $ 5,021,195 862,737 $ 5,908,665
Shares issued in connection with
acquisition of:
Blanchard Flexible Income Fund .................... 0 0 0 0
Keystone World Bond Fund .......................... 0 0 0 0
Shares issued in reinvestment of distributions ..... 280,932 1,940,819 493,925 3,365,004
Shares redeemed .................................... (2,450,268) (16,920,382) (3,779,494) (25,781,907)
- ------------------------------------------------------------------ -------------- ------------- --------------
Net increase (decrease) ............................ (1,446,411) ($ 9,958,368) (2,422,832) ($ 16,508,238)
- ------------------------------------------------------------------ -------------- ------------- --------------
Class B
Shares sold ........................................ 2,590,485 $ 18,030,379 2,657,436 $ 18,284,154
Shares issued in connection with
acquisition of Keystone World Bond Fund ........... 0 0 0 0
Shares issued in reinvestment of distributions ..... 448,617 3,114,373 781,880 5,354,257
Shares redeemed .................................... (5,099,176) (35,510,240) (6,840,568) (46,918,273)
- ------------------------------------------------------------------ -------------- ------------- --------------
Net decrease ....................................... (2,060,074) ($ 14,365,488) (3,401,252) ($ 23,279,862)
- ------------------------------------------------------------------ -------------- ------------- --------------
Class C
Shares sold ........................................ 413,449 $ 2,860,197 573,201 $ 3,935,676
Shares issued in connection with
acquisition of Keystone World Bond Fund ........... 0 0 0 0
Shares issued in reinvestment of distributions ..... 137,625 954,204 270,184 1,848,660
Shares redeemed .................................... (1,679,415) (11,678,421) (2,845,554) (19,524,124)
- ------------------------------------------------------------------ -------------- ------------- --------------
Net decrease ....................................... (1,128,341) ($ 7,864,020) (2,002,169) ($ 13,739,788)
- ------------------------------------------------------------------ -------------- ------------- --------------
</TABLE>
<TABLE>
<CAPTION>
January 13, 1997
(Commencement
of Class
Operations)
Year Ended through April 30,
April 30, 1998 1997
---------------------------- ----------------
Shares Amount Shares Amount
------------- -------------- -------- -------
<S> <C> <C> <C> <C>
Class Y
Shares sold ................................... 761,672 $ 5,350,440 1 $ 7
Shares issued in reinvestment of distributions 5,675 39,619 0 0
Shares redeemed ............................... (562,382) (3,957,832) 0 0
- ----------------------------------------------- ----------- ------------- ------ -----
Net increase .................................. 204,965 $ 1,432,227 1 $ 7
- ----------------------------------------------- ----------- ------------- ------ -----
</TABLE>
55
<PAGE>
Combined Notes to Financial Statements (continued)
U.S. GOVERNMENT FUND
<TABLE>
<CAPTION>
Year Ended Ten Months Ended
April 30, 1998 April 30, 1997
-------------------------------- ---------------------------------
Shares Amount Shares Amount
--------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
Class A
Shares sold ........................................... 1,510,987 $ 14,617,089 294,513 $ 2,785,151
Shares issued in connection with the acquisition of
Keystone Government Securities Fund .................. 2,239,125 21,547,304 0 0
Shares issued in reinvestment of distributions ........ 133,072 1,282,497 60,924 575,792
Shares redeemed ....................................... (1,642,684) (15,825,689) (606,651) (5,738,805)
- ------------------------------------------------------- ------------- -------------- ------------- ---------------
Net increase (decrease) ............................... 2,240,500 $ 21,621,201 (251,214) ($ 2,377,862)
- ------------------------------------------------------- ------------- -------------- ------------- ---------------
Class B
Shares sold ........................................... 716,498 $ 6,914,840 776,060 $ 7,347,686
Shares issued in connection with the acquisition of
Keystone Government Securities Fund .................. 1,507,183 14,503,355 0 0
Shares issued in reinvestment of distributions ........ 414,856 3,988,496 394,931 3,733,484
Shares redeemed ....................................... (4,306,873) (41,415,996) (3,621,913) (34,238,311)
- ------------------------------------------------------- ------------- -------------- ------------- ---------------
Net decrease .......................................... (1,668,336) ($ 16,009,305) (2,450,922) ($ 23,157,141)
- ------------------------------------------------------- ------------- -------------- ------------- ---------------
Class C
Shares sold ........................................... 94,591 $ 908,119 28,184 $ 265,064
Shares issued in connection with the acquisition of
Keystone Government Securities Fund .................. 602,218 5,794,710 0 0
Shares issued in reinvestment of distributions ........ 16,871 162,793 1,432 13,539
Shares redeemed ....................................... (173,356) (1,672,822) (50,056) (470,176)
- ------------------------------------------------------- ------------- -------------- ------------- ---------------
Net increase (decrease) ............................... 540,324 $ 5,192,800 (20,440) ($ 191,573)
- ------------------------------------------------------- ------------- -------------- ------------- ---------------
Class Y
Shares sold ........................................... 4,285,039 $ 41,270,553 1,675,475 $ 15,813,269
Shares issued in connection with the acquisition of
Evergreen U.S. Government Securities Fund ............ 0 0 0 0
Shares issued in reinvestment of distributions ........ 825,744 7,943,911 676,410 6,394,401
Shares redeemed ....................................... (2,541,523) (24,402,737) (1,715,716) (16,223,419)
- ------------------------------------------------------- ------------- -------------- ------------- ---------------
Net increase .......................................... 2,569,260 $ 24,811,727 636,169 $ 5,984,251
- ------------------------------------------------------- ------------- -------------- ------------- ---------------
<CAPTION>
Year Ended
June 30, 1996
---------------------------------
Shares Amount
--------------- -----------------
<S> <C> <C>
Class A
Shares sold ........................................... 786,564 $ 7,560,325
Shares issued in connection with the acquisition of
Keystone Government Securities Fund .................. 0 0
Shares issued in reinvestment of distributions ........ 78,565 755,991
Shares redeemed ....................................... (1,032,918) (9,892,163)
- --------------------------------------------------------------------- ---------------
Net increase (decrease) ............................... (167,789) ($ 1,575,847)
- --------------------------------------------------------------------- ---------------
Class B
Shares sold ........................................... 1,702,353 $ 16,401,640
Shares issued in connection with the acquisition of
Keystone Government Securities Fund .................. 0 0
Shares issued in reinvestment of distributions ........ 533,686 5,138,748
Shares redeemed ....................................... (4,576,583) (43,960,576)
- --------------------------------------------------------------------- ---------------
Net decrease .......................................... (2,340,544) ($ 22,420,188)
- --------------------------------------------------------------------- ---------------
Class C
Shares sold ........................................... 43,395 $ 420,990
Shares issued in connection with the acquisition of
Keystone Government Securities Fund .................. 0 0
Shares issued in reinvestment of distributions ........ 1,437 13,783
Shares redeemed ....................................... (12,168) (117,297)
- --------------------------------------------------------------------- ---------------
Net increase (decrease) ............................... 32,664 $ 317,476
- --------------------------------------------------------------------- ---------------
Class Y
Shares sold ........................................... 11,801,163 $113,796,388
Shares issued in connection with the acquisition of
Evergreen U.S. Government Securities Fund ............ 590,505 5,739,713
Shares issued in reinvestment of distributions ........ 620,463 5,963,291
Shares redeemed ....................................... (1,866,525) (17,896,649)
- --------------------------------------------------------------------- ---------------
Net increase .......................................... 11,145,606 $107,602,743
- --------------------------------------------------------------------- ---------------
</TABLE>
4. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) were as follows for the year ended April 30, 1998:
<TABLE>
<CAPTION>
Cost of Purchases Proceeds from Sales
------------------------------- -------------------------------
U.S. Non-U.S. U.S. Non-U.S.
Government Government Government Government
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Diversified Bond Fund* ..... $150,876,308 $408,419,367 $183,614,225 $427,890,292
High Yield Fund** .......... 0 791,893,722 0 886,432,803
Strategic Income Fund ...... 192,769,818 314,062,207 225,504,555 299,064,769
U.S. Government Fund ....... 124,854,772 0 65,408,264 0
</TABLE>
* For the eight months ended April 30, 1998.
** For the nine months ended April 30, 1998.
During the year ended April 30, 1998, the Funds entered into reverse repurchase
agreements as follows:
<TABLE>
<CAPTION>
Average Daily
Balance Weighted Average Maximum Amount
Outstanding Interest Rate Outstanding*
-------------- ------------------ ---------------
<S> <C> <C> <C>
Diversified Bond Fund ....... $5,260,739 5.05% $15,813,518
Strategic Income Fund ....... 2,499,410 5.07 10,864,705
</TABLE>
* This represents the maximum daily amount of borrowing outstanding
during the period ended April 30, 1998 (including accrued interest).
On April 30, 1998, the Diversified Bond Fund had reverse repurchase agreements
outstanding in the amount of $22,388,446 (including accrued interest) with
interest rates varying from 3.83% to 7.05%. On April 30, 1998, the Strategic
Income Fund had reverse repurchase agreements outstanding in the amount of
$1,350,806 (including accrued interest) with interest rates varying from 5.27%
to 5.42%.
56
<PAGE>
Combined Notes to Financial Statements (continued)
Diversified Bond Fund loaned securities during the period ended April 30, 1998
to certain brokers who paid the Fund a negotiated lenders' fee. These fees are
included in interest income. At April 30, 1998, the value of securities on loan
and the value of collateral amounted to $8,557,296 and $8,642,617, respectively.
During the period ended April 30, 1998, the Fund earned $43,101 in income from
securities lending.
On April 30, 1998, the composition of unrealized appreciation and depreciation
of investment securities based on the aggregate cost of investments for federal
income tax purposes was as follows:
<TABLE>
<CAPTION>
Gross Gross Net Unrealized
Tax Unrealized Unrealized Appreciation
Cost Appreciation Depreciation (Depreciation)
--------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Diversified Bond Fund ..... $576,899,625 $16,434,370 $ (1,878,550) $ 14,555,820
High Yield Fund ........... 490,697,394 18,252,959 (24,723,239) (6,470,280)
Strategic Income Fund ..... 319,055,653 8,897,719 (6,421,100) 2,476,619
U.S. Government Fund ...... 324,579,032 6,337,651 (5,332,435) 1,005,216
</TABLE>
A of April 30, 1998, the Funds had capital loss carryovers for federal income
tax purposes as follows:
<TABLE>
<CAPTION>
Capital
Loss Expires Expires Expires
Carryover 1999 2000 2001
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Diversified Bond
Fund ............... $159,339,000 $85,002,000 -- $19,436,000
High Yield Fund ..... 364,062,000 91,150,000 $122,350,000 --
Strategic Income
Fund ............... 71,926,000 -- 14,074,000 15,390,000
U.S. Government
Fund ............... 22,367,000 -- -- 1,978,000
<CAPTION>
Expires Expires Expires Expires Expires
2002 2003 2004 2005 2006
------------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Diversified Bond
Fund ............... $ 6,153,000 $ 28,736,000 $20,012,000 -- --
High Yield Fund ..... 44,605,000 105,957,000 -- -- --
Strategic Income
Fund ............... -- 7,390,000 35,072,000 -- --
U.S. Government
Fund ............... 6,522,000 3,703,000 2,973,000 $3,820,000 $3,371,000
</TABLE>
In addition to capital loss carryovers, capital losses incurred after October
31 within a Fund's fiscal year are deemed to arise on the first business day of
the Fund's following fiscal year. For the fiscal year ended April 30, 1998,
U.S. Government Fund incurred and has elected to defer $444,321 of such capital
losses.
5. DISTRIBUTION PLANS
Evergreen Distributor, Inc. ("EDI"), a wholly-owned subsidiary of The BISYS
Group Inc. ("BISYS"), serves as principal underwriter to each of the Funds.
The Fund has adopted Distribution Plans for each class of shares, except Class
Y, as allowed by Rule 12b-1 of the 1940 Act. Distribution plans permit a fund
to reimburse its principal underwriter for costs related to selling shares of
the fund and for various other services. These costs, which consist primarily
of commissions and service fees to broker-dealers who sell shares of the fund,
are paid by the fund through expenses called "Distribution Plan expenses". Each
class, except Class Y, currently pays a service fee equal to 0.25% of the
average daily net asset of the class. Class B and Class C also pay distribution
fees equal to 0.75% of its average daily net assets of the class. Distribution
Plan expenses are calculated daily and paid monthly.
During the year ended April 30, 1998, amounts paid to EDI pursuant to each
Fund's Class A, Class B and Class C Distribution Plans were as follows:
<TABLE>
<CAPTION>
Class A Class B Class C
----------- ------------- ----------
<S> <C> <C> <C>
Diversified Bond Fund ..... $355,868 $1,934,807 $ 4
High Yield Fund ........... 297,165 2,788,933 1,649
Strategic Income Fund ..... 204,306 1,158,148 224,953
U.S. Government Fund ...... 81,637 1,416,250 47,584
</TABLE>
The principal underwriter may pay distribution fees greater than the allowable
annual amounts the Funds are permitted to pay under the Distribution Plans. The
Funds may reimburse the principal underwriter for such excess amounts in later
years with annual interest at prime plus 1.00%. With respect to Class B and
Class C shares of Diversified Bond Fund, High Yield Fund and Strategic Income
Fund, EDI intends but is not obligated to continue to pay distribution costs
that exceed the current annual payments from the Funds. EDI intends to seek
full payment of such distribution costs from each Fund at such time in the
future as, and to the extent that, payment thereof by the Class B and Class C
shares would be within permitted limits.
57
<PAGE>
Combined Notes to Financial Statements (continued)
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting shares
of the respective class. However, for each Fund, except U.S. Government Fund,
after the termination of any Distribution Plan and subject to the discretion of
the Independent Trustees, payments to EDI may continue as compensation for
services which had been provided while the Distribution Plans were in effect.
6. INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT AND OTHER AFFILIATED
TRANSACTIONS
Keystone, a subsidiary of First Union, is the investment adviser for Diversified
Bond Fund, High Yield Fund and Strategic Income Fund. In return for providing
investment management and administrative services to the Funds, the Funds pay
Keystone a management fee that is calculated daily and paid monthly. The
management fee is computed at an annual rate of 2.00% of the Fund's gross
investment income plus an amount determined by applying percentage rates
starting at 0.50% and declining to 0.25% per annum as net assets increase, to
the average daily net asset value of the Funds. The Capital Management Group
("CMG") of First Union National Bank of North Carolina, a subsidiary of First
Union, serves as the investment adviser to the U.S. Government Fund and is paid
a management fee that is computed and paid monthly at an annual rate of 0.50% of
the Fund's average daily net assets.
Evergreen Investment Services ("EIS"), a subsidiary of First Union National
Bank, is the administrator and BISYS Fund Services is sub-administrator for
each Fund.
As administrator for the U.S. Government Fund, EIS is entitled to an annual fee
based on the average daily net assets of the funds administered by EIS for
which First Union or its advisory subsidiaries are also the investment
advisers. The administration fee for the U.S. Government Fund is calculated by
applying percentage rates, which start at 0.05% and decline to 0.01% per annum
as net assets increase, to the average daily net asset value of the Fund. As
administrator for the Diversified Bond Fund, High Yield Fund and Strategic
Income Fund, EIS also provides facilities, equipment and personnel on behalf of
the Fund's investment adviser and is reimbursed by the Fund for its services.
The sub-administration fee for each Fund is calculated by applying percentage
rates, which start at 0.01% and decline to 0.004% as net assets increase, to
the average daily net asset value of the Fund. For each Fund, except for U.S.
Government Fund, the sub-administration fee is paid by Keystone and is not a
fund expense.
For the year ended April 30, 1998, the Funds paid or accrued to EIS the
following amounts for certain administrative services:
<TABLE>
<S> <C>
Diversified Bond Fund ......... $57,048
High Yield Fund ............... 76,786
Strategic Fund ................ 36,278
U.S. Government Fund .......... 87,053
</TABLE>
Evergreen Service Company ("ESC"), a wholly-owned subsidiary of Keystone, serves
as the transfer and dividend disbursing agent for the Funds. Prior to May 5,
1997, State Street Bank and Trust Company ("State Street") served as the
transfer and dividend disbursing agent for the U.S. Government Fund. For certain
accounts, First Union had been sub-contracted by State Street to maintain
shareholder sub-account records, take fund purchase and redemption orders and
answer inquiries. For each account of U.S. Government Fund, First Union earned a
fee which in aggregate totaled $46,846 for the year ended April 30, 1998.
Officers of the Fund and affiliated Trustees receive no compensation directly
from the Fund. As sub-administrator, BISYS provides the officers of the Funds.
7. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an expense offset arrangement with their custodian.
The assets deposited with the custodian under this expense offset arrangement
could have been invested in income-producing assets.
8. ACQUISITIONS
Effective on the close of business on July 7, 1995, U.S. Government Fund
acquired substantially all the assets and assumed certain liabilities of
Evergreen U.S. Government Securities Fund in exchange for Class Y shares of
U.S. Government Fund.
Effective August 1, 1997 Strategic Income Fund acquired substantially all the
assets and assumed certain liabilities of Keystone World Bond Fund in exchange
for Class A, Class B and Class C shares of Strategic Income Fund. Also, the
U.S. Government Fund acquired
58
<PAGE>
Combined Notes to Financial Statements (continued)
substantially all the assets and assumed certain liabilities of Keystone
Government Securities Fund in exchange for Class A, Class B and Class C shares
of the U.S. Government Fund.
Effective on the close of business on January 23, 1998, Diversified Bond Fund
acquired substantially all the assets and assumed certain liabilities of
Evergreen Quality Bond Fund, in an exchange for Class A and Class B shares of
Diversified Bond Fund.
Also, effective on the close of business on February 28, 1998, Strategic Income
Fund acquired all of the assets and assumed certain liabilities of Blanchard
Flexible Income Fund, in an exchange for Class A shares of Strategic Income
Fund.
All of the above acquisitions were accomplished by a tax-free exchange of the
respective shares of each respective fund. The value of assets acquired, number
of shares issued, unrealized appreciation acquired and the aggregate net assets
of each Fund immediately after the acquisition are as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Value of Net Number of Unrealized Net Assets
Acquiring Fund Acquired Fund Assets Acquired Shares Issued Appreciation After Acquisition
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified Bond Fund Evergreen Quality Bond Fund $172,832,659 10,842,627 $ 3,406,186 $610,931,062
Strategic Income Fund Blanchard Flexible Income Fund 139,705,470 19,367,062 4,998,009 339,328,623
Strategic Income Fund Keystone World Bond Fund 13,364,630 1,876,466 646,958 209,347,784
U.S. Government Fund Keystone Government Securities Fund 41,845,369 4,348,526 776,840 330,218,346
U.S. Government Fund Evergreen U.S. Government Securities Fund 5,739,713 590,505 24,133 233,475,732
</TABLE>
9. FINANCING AGREEMENTS
On October 31, 1996, a financing agreement among certain of the Evergreen Funds,
State Street and a group of banks (collectively, the "Banks") became effective.
Under this agreement, the Banks provided an unsecured credit facility in the
aggregate amount of $225 million ($112.5 million committed and $112.5 million
uncommitted) allocated evenly among the Banks. Borrowings under this facility
bore interest at 0.75% per annum above the Federal Funds rate. A commitment fee
of 0.10% per annum was incurred on the unused portion of the committed facility,
which was allocated to all participating funds. State Street served as agent for
the Banks, and as agent was entitled to a fee of $15,000 which was allocated to
all of the participating Funds. This agreement was terminated on October 31,
1997.
On October 31, 1997, a temporary financing agreement between the participating
Funds and First Union became effective. Under this agreement, First Union
provided a fully committed unsecured credit facility in the aggregate amount of
$300 million. Borrowings under this facility bore interest at 1.00% per annum
above the Federal Funds rate. State Street served as administrative agent under
this agreement, but received no compensation for its services. This agreement
was terminated on December 22, 1997.
On December 22, 1997, a financing agreement among all of the Evergreen Funds,
State Street and a group of Banks became effective. Under this agreement, the
Banks provide an unsecured credit facility in the aggregate amount of $400
million ($275 million committed and $125 million uncommitted). The credit
facility is allocated, under the terms of the financing agreement, among the
Banks. The credit facility is to be accessed by the Funds for temporary or
emergency purposes only and is subject to each Fund's borrowing restrictions.
Borrowings under this facility bear interest at 0.50% per annum above the
Federal Funds rate. A commitment fee of 0.065% per annum will be incurred on the
unused portion of the committed facility, which will be allocated to all funds.
For its assistance in arranging this financing agreement, the Capital Market
Group of First Union was paid a one-time arrangement fee of $27,500. State
Street serves as administrative agent for the Banks, and as administrative agent
is entitled to a fee of $20,000 per annum which is allocated to all of the
Funds.
During the year ended April 30, 1998, Diversified Fund, Strategic Income Fund
and U.S. Government Fund had no borrowings under this agreement. High Yield Fund
had borrowings outstanding for 3 days under its line of credit and incurred
$3,085 in interest charges related to these borrowings. High Yield Fund's
average amount of debt outstanding during the period was $67,407 at a weighted
average interest rate of 6.12%.
59
<PAGE>
Independent Auditors' Report
The Trustees and Shareholders
Evergreen Fixed Income Trust
We have audited the accompanying statements of assets and liabilities, including
schedules of investments, of the Evergreen Diversified Bond Fund, Evergreen High
Yield Bond Fund, Evergreen Strategic Income Fund and Evergreen U.S. Government
Fund of the Evergreen Fixed Income Trust (the "Trust") listed below as of April
30, 1998, and the related statements of operations, statements of changes in net
assets, and financial highlights for each of the years or periods presented
below:
Evergreen Diversified Bond Fund -- statements of operations for the eight
months ended April 30, 1998 and the year ended August 31, 1997, statements
of changes in net assets for the eight months ended April 30, 1998 and for
each of the years in the two-year period ended August 31, 1997 and
financial highlights for the eight months ended April 30, 1998 and each of
the years in the ten-year period ended August 31, 1997.
Evergreen High Yield Bond Fund -- statements of operations for the nine
months ended April 30, 1998 and the year ended July 31, 1997, statements of
changes in net assets for the nine months ended April 30, 1998, and for
each of the years in the two-year period ended July 31, 1997 and financial
highlights for the nine months ended April 30, 1998 and each of the years
in the ten-year period ended July 31, 1997.
Evergreen Strategic Income Fund -- statement of operations for the year
ended April 30, 1998, statements of changes in net assets for the year
ended April 30, 1998, the nine months ended April 30, 1997 and the year
ended July 31, 1996, and financial highlights for the year ended April 30,
1998, the nine months ended April 30, 1997 and each of the years in the
nine-year period ended July 31, 1996.
Evergreen U.S. Government Fund -- statement of operations for the year
ended April 30, 1998, statements of changes in net assets for the year
ended April 30, 1998, the ten months ended April 30, 1997 and the year
ended June 30, 1996, and financial highlights for the year ended April 30,
1998, the ten months ended April 30, 1997, the year ended June 30, 1996,
the six months ended June 30, 1995, the year ended December 31, 1994 and
the period from January 11, 1993 (commencement of operations) to December
31, 1993.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of April 30, 1998 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Evergreen Diversified Bond Fund, Evergreen High Yield Bond Fund, Evergreen
Strategic Income Fund and Evergreen U.S. Government Fund as of April 30, 1998,
the results of their operations, changes in their net assets, and financial
highlights for each of the years or periods specified in the first paragraph
above in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
May 29, 1997
60
<PAGE>
ADDITIONAL INFORMATION (Unaudited)
On December 15, 1997, a special meeting of shareholders for the Strategic
Income Fund and U.S. Government Fund was held to consider a number of proposals
with the following number of shares represented at the meeting. On October 16,
1997, the record date for the meeting, the Funds had the following shares
outstanding:
<TABLE>
<CAPTION>
Strategic Income U.S. Government
Fund Fund
------------------ ----------------
<S> <C> <C>
Record Date Shares Outstanding ........................................................... 29,371,964 33,822,261
Shares represented at meeting ............................................................ 17,199,967 18,680,644
Percentage of record date shares represented at meeting .................................. 58.56% 55.23%
Proposal 1 -- The proposed reorganization of the Fund as a series of the Evergreen
Fixed Income Trust, a Delaware business trust:
Shares voted "For" ................................................................. 15,675,686 17,854,153
Shares voted "Against" ............................................................. 264,065 102,787
Shares voted "Abstain" ............................................................. 1,260,216 723,704
Proposal 2 -- Reclassification as non-fundamental investment objective of this Fund
whose investment objective is currently classified as fundamental:
Shares voted "For" ................................................................. 15,513,304 17,767,235
Shares voted "Against" ............................................................. 371,711 145,294
Shares voted "Abstain" ............................................................. 1,314,952 768,115
Proposal 3 -- Changes to Fundamental investment restrictions:
To amend the Fundamental restriction concerning diversification of investments:
Shares voted "For" ................................................................. 15,449,689 17,770,044
Shares voted "Against" ............................................................. 334,145 157,135
Shares voted "Abstain" ............................................................. 1,416,133 753,465
To amend the Fundamental restriction concerning concentration of a Fund's assets in
a particular industry:
Shares voted "For" ................................................................. 15,455,555 17,771,923
Shares voted "Against" ............................................................. 328,279 155,256
Shares voted "Abstain" ............................................................. 1,416,133 753,465
To amend the Fundamental restriction concerning the issuance of senior securities:
Shares voted "For" ................................................................. 15,449,689 17,771,923
Shares voted "Against" ............................................................. 334,145 155,256
Shares voted "Abstain" ............................................................. 1,416,133 753,465
To amend the Fundamental restriction concerning borrowing:
Shares voted "For" ................................................................. 15,450,014 17,768,365
Shares voted "Against" ............................................................. 333,820 158,814
Shares voted "Abstain" ............................................................. 1,416,133 753,465
To amend the Fundamental restriction concerning underwriting:
Shares voted "For" ................................................................. 15,455,555 17,768,182
Shares voted "Against" ............................................................. 328,279 158,997
Shares voted "Abstain" ............................................................. 1,416,133 753,465
To amend the Fundamental restriction concerning investments in real estate:
Shares voted "For" ................................................................. 15,455,555 17,768,365
Shares voted "Against" ............................................................. 328,279 158,814
Shares voted "Abstain" ............................................................. 1,416,133 753,465
To amend the Fundamental restriction concerning commodities:
Shares voted "For" ................................................................. 15,445,967 17,766,131
Shares voted "Against" ............................................................. 337,867 161,048
Shares voted "Abstain" ............................................................. 1,416,133 753,465
To amend the Fundamental restriction concerning lending:
Shares voted "For" ................................................................. 15,451,833 17,766,131
Shares voted "Against" ............................................................. 332,001 161,048
Shares voted "Abstain" ............................................................. 1,416,133 753,465
To amend the Fundamental restriction concerning unseasoned issuers:
Shares voted "For" ................................................................. 15,455,555 N/A
Shares voted "Against" ............................................................. 328,279 N/A
Shares voted "Abstain" ............................................................. 1,416,133 N/A
</TABLE>
61
<PAGE>
ADDITIONAL INFORMATION (Unaudited) (continued)
<TABLE>
<CAPTION>
Strategic Income U.S. Government
Fund Fund
------------------ ----------------
<S> <C> <C>
To amend the Fundamental restriction concerning control or management:
Shares voted "For" ........................................................ N/A 17,761,753
Shares voted "Against" .................................................... N/A 158,831
Shares voted "Abstain" ................................................... N/A 760,060
To amend the Fundamental restriction concerning short sales:
Shares voted "For" ........................................................ 15,455,555 17,767,379
Shares voted "Against" .................................................... 328,279 156,724
Shares voted "Abstain" .................................................... 1,416,133 756,541
To amend the Fundamental restriction concerning other investment companies:
Shares voted "For" ........................................................ 15,455,555 N/A
Shares voted "Against" .................................................... 328,279 N/A
Shares voted "Abstain" .................................................... 1,416,133 N/A
To amend the Fundamental restriction concerning pledging:
Shares voted "For" ........................................................ 15,458,672 17,766,727
Shares voted "Against" .................................................... 328,279 157,376
Shares voted "Abstain" .................................................... 1,413,016 756,541
</TABLE>
62
<PAGE>
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<PAGE>
(This page was intentionally left blank)
<PAGE>
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<PAGE>
EVERGREEN FUNDS
EVERGREEN INVESTMENT SERVICES, INC.
200 Berkeley Street
Boston, MA 02116-5034
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street
Washington, D.C.
Attn: File Room
Re: Evergreen Fixed Income Trust (Evergreen Diversified Bond Fund, Evergreen
High Yield Bond Fund, Evergreen Strategic Income Fund, Evergreen U.S. Government
Fund)
File No. 811-7246
CIK# 0000892649
CCC# viu#5ezc
Commissioners:
Please be advised that the Annual Report for the above referenced Fund(s) were
submitted to your office on July 6, 1998, via electronic transmission (EDGAR).
Any questions or comments about this document should be directed to the
undersigned at (617) 210-3258.
Very Truly Yours,
/s/ Laura Yong
Laura Yong
Assistant Vice President
<PAGE>
Evergreen
Long Term Bond
Funds
October 31, 1998
Semiannual Report
[PICTURE APPEARS HERE]
[LOGO OF EVERGREEN FUNDS(SM) APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Letter to Shareholders ................................................... 1
For Your Information ..................................................... 2
Evergreen Diversified Bond Fund
Fund at a Glance ...................................................... 3
Portfolio Manager Interview ........................................... 4
Evergreen High Yield Bond Fund
Fund at a Glance ...................................................... 7
Portfolio Manager Interview ........................................... 8
Evergreen Strategic Income Fund
Fund at a Glance ...................................................... 10
Portfolio Manager Interview ........................................... 11
Evergreen U.S. Government Fund
Fund at a Glance ...................................................... 14
Portfolio Manager Interview ........................................... 15
Financial Highlights
Evergreen Diversified Bond Fund........................................ 17
Evergreen High Yield Bond Fund......................................... 19
Evergreen Strategic Income Fund........................................ 21
Evergreen U.S. Government Fund......................................... 24
Schedule of Investments
Evergreen Diversified Bond Fund........................................ 26
Evergreen High Yield Bond Fund......................................... 31
Evergreen Strategic Income Fund........................................ 36
Evergreen U.S. Government Fund......................................... 41
Statements of Assets and Liabilities...................................... 42
Statements of Operations ................................................. 43
Statements of Changes in Net Assets....................................... 44
Combined Notes to Financial
Statements ............................................................... 47
- --------------------------------------------------------------------------------
Evergreen Funds
- --------------------------------------------------------------------------------
Evergreen Funds is one of the nation's fastest growing investment companies with
approximately $50 billion in assets under management.
With over 70 mutual funds to choose among and acclaimed service and operations
capabilities, investors enjoy a broad range of quality investment products and
services designed to meet their needs.
The Evergreen Funds employ intensive, research-driven investment strategies
executed by over 90 research analysts and portfolio managers. The fund company
remains dedicated to meeting the needs of investors and their advisors in a
global economy. Look to the Evergreen Funds to provide a distinctive level of
service and excellence in investment management.
This semiannual report must be preceded or accompanied by a prospectus of an
Evergreen fund contained herein. The prospectus contains more complete
information, including fees and expenses, and should be read carefully before
investing or sending money.
------------------------------------------------------------------
Mutual Funds: ARE NOT FDIC INSURED May lose value . Are not bank guaranteed
------------------------------------------------------------------
Evergreen Distributor, Inc.
Evergreen(SM) is a Service Mark of Evergreen Investment Services, Inc.
<PAGE>
Letter to Shareholders
----------------------
December 1998
[PHOTO OF WILLIAM M. ENNIS APPEARS HERE]
William M. Ennis
Managing Director
Dear Shareholders:
We are pleased to provide you the Evergreen Long Term Bonds Funds semiannual
report covering the period ended October 31, 1998.
Market Volatility
The financial markets have certainly experienced volatility in the past several
months. Concerns of foreign currency devaluation, political turbulence and
instability abroad have produced an uncertain market. Through September, the
market all but lost its year-to-date gains, and then in November was on the
rise, reaching new highs. We encourage you to take this opportunity to talk to
your financial representative and review your investment time horizon and ensure
you are on track with your goals.
Introduction of the Euro
On January 1, 1999, eleven European countries will adopt the euro as their
currency. On this date, the wholesale markets and government and financial
sectors will convert to the euro, and new securities will be issued in euro
denomination only. Full conversion to the new currency will not be completed
until 2002. The Evergreen Strategic Income Fund, which is in this report, owns
securities in one or more of the European Union countries.
At this point it is still unclear how the euro conversion will affect foreign
exchange rates, interest rates and the value of European securities, but we
believe the potential benefits to globally oriented investors are significant.
They include changes in currency risk, increased competition, and a central
bank. Foreign exchange risk may decrease for the countries participating in the
European Union; however, currency risk associated with rises and declines of the
value of the euro versus the dollar will still exist. Most noticeable for
investors will be the ability to compare the value of companies across the
European Union member countries without having to factor in the effect of
fluctuating currencies. Increased competition resulting from deregulation and
economic unification may produce a wave of merger and acquisition activity,
which could present attractive investment opportunities for those able to
identify the companies most inclined to benefit from restructuring. Finally, the
European Central Bank, comparable to the U.S. Federal Reserve, will provide
European Union countries with a unified monetary policy for the first time.
If you have any questions about the funds in this report or any other Evergreen
Funds, please contact your financial representative or call us at 800.343.2898,
and we will be happy to assist you.
Thank you for your continued investment with Evergreen Funds.
Sincerely,
/s/ William M. Ennis
William M. Ennis
Managing Director
Evergreen Funds
1
<PAGE>
For Your Information
--------------------
Good News!
Effective for the 1998 Tax Year, long-term capital gains taxes are reduced to
20%.
Year 2000/1/
We have been addressing the Year 2000 issue since February 1996 and have adopted
an industry best practices methodology for the project. Our team is on schedule
to complete the following milestones: Inventory and Assessment, Remediation,
Testing and Contingency. Although Evergreen Funds is striving to identify and
correct every issue under our control related to the Year 2000, it would be
impossible to guarantee a problem-free transition into the next millennium. Our
goal, however, is that our shareholders experience virtually no impact on the
products and services we deliver.
Cost Savings
In an effort to achieve efficiencies and cost savings, we are combining your
funds' required mailings so you only receive one per household, based on the
registration last name and exact address./2/ This reduces the mailing costs, not
to mention the amount of paper needed to print, which in turn benefits your
funds by reducing the overall expenses. If you prefer to receive separate copies
of reports and prospectuses for each registered holder in your household, please
notify us by calling the number on your statement and we will adjust our records
accordingly.
New Evergreen Funds
Evergreen introduces three new funds:
Evergreen Tax Strategic Equity Fund: seeks to maximize the after-tax total
return on its portfolio of investments by using a combination of stock selection
strategies and trading techniques.
Evergreen Select Equity Index Fund: seeks investment results that achieve price
and yield performance similar to the S&P 500 Index.
Evergreen Masters Fund: blends growth and value, large- and mid-cap stocks into
one convenient portfolio. Diversification is taken one step further by employing
four management teams, Evergreen, MFS, Oppenheimer, and Putnam.
Talk to your financial representative or call us at 800.343.2898 for a
prospectus and more information.
/1/ The information above constitutes Year 2000 readiness disclosure.
/2/ If you purchased your shares through a financial representative, we may not
be able to consolidate your mailings by last name and address, because that
institution controls the mailings.
2
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Diversified Bond Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of October 30, 1998
We maintained our long-term investment approach, focusing on individual
industries and companies.
Portfolio
Management
------------------------
[PHOTO OF CHRISTOPHER CONKEY APPEARS HERE]
Christopher Conkey, CFA
Tenure: January 1994
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 10/31/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
/1/Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses paid by the
shareholders investing in each class. The investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The LBABI is an unmanaged index and does not include
transaction costs associated with buying and selling securities or any
management fees. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C Class Y
Inception Date 1/20/98 9/11/35 4/7/98 2/11/98
................................................................................
Average Annual Returns
................................................................................
6 months with sales charge -2.56% -3.04% 0.94% n/a
................................................................................
6 months w/o sales charge 2.30% 1.92% 1.93% 1.46%
................................................................................
1 year with sales charge -- 1.04% -- n/a
................................................................................
1 year w/o sales charge -- 6.04% -- --
................................................................................
5 years -- 5.63% -- --
...............................................................................
10 years -- 7.12% -- --
................................................................................
Since Inception** -1.73% 6.97% 0.33% 2.28%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
30-day SEC Yield 5.88% 5.11% 5.13% 6.13%
................................................................................
6-month distributions per share $0.50 $0.44 $0.44 $0.41
................................................................................
* Adjusted for maximum sales charge.
** Represents cumulative returns for Class A, C, and Y shares; these classes
opened in 1998 and do not have annual returns yet.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Class B Shares LBABI CPI
10/31/88 10000 10000 10000
10/31/89 10504 11190 10449
10/31/90 9916 11896 11107
10/31/91 11761 13777 11431
10/31/92 13149 15132 11797
10/31/93 15133 16928 12122
10/31/94 14181 16307 12438
10/31/95 15887 18859 12787
10/31/96 16942 19962 13170
10/31/97 18768 21742 13444
10/31/98 19901 23765 13627
Comparison of a $10,000 investment in Evergreen Diversified Bond Fund Class B,
versus a similar investment in the Lehman Brothers Aggregate Bond Index (LBABI)
and the Consumer Price Index (CPI).
The Lehman Brothers Aggregate Bond Index is a broad-based unmanaged fixed-income
index of U.S. government, corporate and mortgage-backed securities. It
represents the price change and coupon income of several thousand securities of
various credit qualities and maturities.
3
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Diversified Bond Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform
during the six months ended October 31, 1998?
Evergreen Diversified Bond Fund's Class B shares generated a total return of
1.9% for the six-month period, unadjusted for sales charges. The newly opened
classes, A, C and Y, returned 2.3%, 1.9% and 1.5%, respectively, unadjusted for
any sales charges, for the same six months. In comparison, the Lehman Brothers
Aggregate Bond Index produced a 5.5% return during that same time.
Portfolio
Characteristics
---------------
(as of 10/31/98)
Total Net Assets $535,323,929
...............................................................................
Average Credit Quality A+
................................................................................
Average Maturity 12.1 years
................................................................................
Average Duration 5.2 years
................................................................................
We attribute the Fund's underperformance to its emphasis on investments other
than U.S. government securities. Historically, a diverse mix of fixed-income
securities has produced higher returns than a portfolio that relies solely on
U.S. Treasuries. For the last three months of the reporting period, however,
U.S. Treasuries with longer maturities experienced greater price appreciation
than many other securities because of a "flight-to-quality" that took place in
the global financial markets. We believe this was a temporary phenomenon. Longer
term, we expect the market to return to conditions that are more characteristic
of historical standards, where diversification provides shareholders with more
generous total returns.
What was the investment environment like during the reporting period?
There were two distinct environments. The first half of the period was a
continuation of what had been recent trends with relatively stable interest
rates, rising U.S. stock prices and corporate bonds outperforming U.S.
Treasuries. The investment environment, however, changed dramatically in the
second half of the period. During that time, investors experienced a
"flight-to-quality" that drove long-term U.S. Treasury bond yields to historic
lows and their prices significantly higher. The 30-year U.S. Treasury reached a
low yield of 4.72% on October 5, 1998.
What caused this "flight-to-quality"?
Investors became increasingly concerned about the fragility of the world's
financial markets, ultimately fearing a severe worldwide economic slowdown.
These concerns were prompted by several events, in addition to ongoing problems
in Asia and developing countries.
On July 17, 1998, the U.S. equity market, as measured by the Dow Jones
Industrial Average Index, reached a peak and then began to fall. The following
month, Russia effectively defaulted on its debt. Investors sought safety and
liquidity with increasing intensity. Prices of the highest quality bonds,
particularly U.S. Treasuries, rose dramatically. Many bonds other than U.S.
Treasuries, such as high quality corporate bonds, were perceived by many
investors to have too much credit risk and not enough liquidity for the yield
advantage they provided over U.S. Treasuries. As a result, the prices of
non-U.S. Treasuries did not move up as much as their U.S. government
counterparts. The more limited price movement caused the yield advantages
provided by investment grade and high yield bonds, relative to U.S. Treasuries,
to double, and the yield advantage provided by developing countries
4
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Diversified Bond Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
compared to U.S. Treasuries, to triple. The relative value of corporate bonds
had improved significantly by the end of the period. At that time, the yield
advantage they offered over U.S. Treasuries was greater than it had been since
1991.
In the midst of these concerns, the largest U.S. hedge fund--a private
investment account that uses leveraged, high-risk trading strategies--sought
financial assistance to avoid insolvency. Hedge funds are not subject to the
same regulations as mutual funds. The strategies of this fund were believed to
have far-reaching international effects and involved the capital of many Wall
Street firms that typically could help provide needed liquidity. The situation
fueled investor concerns about the fragility of the global financial markets and
strengthened demand for only the safest, most liquid investments.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(based on 10/31/98 net assets)
[PIE CHART APPEARS HERE]
Corporate Bonds -- 51.6%
Collateralized Mortgage Obligations -- 14.1%
U.S. Treasury Obligations -- 10.6%
Foreign Corporate Bonds -- 9.3%
Asset-backed Securities -- 5.8%
Repurchase Agreements -- 4.6%
Mortgage-backed Securities -- 3.5%
Other Investments and Other Assets & Liabilities (net) -- 0.5%
How did you manage the Fund over the past six months?
We maintained our long-term investment approach, focusing on individual
industries and companies. We continued to thoroughly analyze and understand the
financial operations of the companies we followed, particularly studying how
they would function at various points in the economic cycle. Companies that are
selected to be in the portfolio are subject to ongoing credit reviews. If we
believed in the long-term creditworthiness and relative value of a company, we
held the position, rather than letting external--and perhaps sometimes
irrational--market factors dictate our decision-making process.
For the Fund's high yield portion, we emphasized defensive industries; those
industries whose profits are less dependent on economic cycles. The Fund's
heaviest weightings were in the cable, food, gaming and publishing industries,
as of October 31, 1998. In contrast, we minimized the Fund's holdings in high
risk industries, such as telecommunications, and in cyclical industries; those
businesses whose profits are closely tied to the ups and downs of the economy.
During the reporting period, we made several adjustments to the Fund's structure
which, we believe, should enhance future potential for total return. We upgraded
average credit quality from A to A+. We accomplished this primarily by reducing
holdings in high yield bonds from 23% on April 30, 1998 to 19% on October 31,
1998. The Fund's high yield investments centered on BB- rated bonds, which are
considered to be the strongest credit tier in the high yield bond sector. We
also decreased the Fund's international holdings from 16% to 9% at the end of
the
5
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Diversified Bond Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
period. The Fund's foreign position--primarily Danish securities--was hedged
to U.S. dollars. Further, in recognition of the historically low levels to which
interest rates had fallen and, in our opinion, the limited potential for a
further decline in interest rates, we modestly shortened the Fund's average
maturity. As of October 31, 1998, the Fund's average maturity stood at 12.1
years.
- --------------------------------------------------------------------------------
PORTFOLIO QUALITY
- --------------------------------------------------------------------------------
(based on 10/31/98 portfolio assets)
[PIE CHART APPEARS HERE]
AAA -- 30.5%
A -- 19.8%
AA -- 14.4%
BBB -- 13.8%
BB -- 12.4%
B -- 9.1%
What is your outlook for the bond market over the next six months?
We believe the bond market offers attractive potential for total return over the
next six months. Global economies and financial markets appear to be regaining
some stability, which has had a positive effect on investor confidence. Further,
we think that the greatly increased yield advantages have created attractive
relative value in several sectors of the bond market. The combination of these
factors has improved the possibility for price appreciation, in our opinion.
We attribute much of the improvement in the market's stability to policy
decisions that have been made at both the international and national levels. In
an effort to stem a global slowdown, the Federal Reserve Board cut interest
rates twice during the reporting period and once more in November 1998, as this
report was being written. Further, Japanese lawmakers have passed legislation to
strengthen their banking system and the International Monetary Fund has
developed what we believe is a credible rescue package for Brazil.
Although we still anticipate slower economic growth, we believe these policies
have reduced--and continue to reduce--the chances of a worldwide recession.
Further, we are optimistic that these trends could be ongoing. With minimal
inflationary pressures and more stable market conditions, we anticipate
long-term interest rates, based on the 30-year U.S. Treasury, to moderate,
trending around 5%.
6
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
High Yield Bond Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of October 31, 1998
We believe the Fund's underperformance primarily stemmed from the price declines
of its premium yielding bonds, which typically carry higher credit risk during
unusually difficult market conditions.
Portfolio
Management
------------
[PHOTO OF PRESCOTT B. CROCKER, CFA APPEARS HERE]
Prescott B. Crocker, CFA
Tenure: February 1997
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 10/31/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
/1/ Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses paid by the
shareholders investing in each class. The investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The LBABI and the MLHYMI are unmanaged indices and do
not include transaction costs associated with buying and selling securities or
any management fees. The CPI is a commonly used measure of inflation and does
not represent an investment return. It is not possible to invest directly in an
index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C Class Y
Inception Date 1/20/98 9/11/35 1/21/98 4/14/98
...............................................................................
Average Annual Returns
................................................................................
6 months with sales charge -15.43% -15.80% -12.41% n/a
................................................................................
6 months w/o sales charge -11.21% -11.55% -11.56% -11.10%
................................................................................
1 year with sales charge -- -9.50% -- n/a
................................................................................
1 year w/o sales charge -- -5.10% -- --
................................................................................
5 years -- 2.51% -- --
................................................................................
10 years -- 5.77% -- --
................................................................................
Since Inception** -13.26% 8.24% -10.33% -11.33%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
30-day SEC Yield 10.02% 9.25% 9.24% 10.27%
................................................................................
6-month distributions per share $0.18 $0.17 $0.17 $0.19
................................................................................
* Adjusted for maximum sales charge.
** Represents cumulative returns for Class A, C, and Y shares; these classes
opened in 1998 and do not have annual returns yet.
- --------------------------------------------------------------------------------
Long Term Growth
- --------------------------------------------------------------------------------
Class B Shares LBABI CPI MLHYMI
10/31/88 10000 10000 10000 10000
10/31/89 9768 11190 10449 10490
10/31/90 7903 11896 11107 9822
10/31/91 10479 13777 11431 13213
10/31/92 12086 15132 11797 15556
10/31/93 15283 16928 12122 18437
10/31/94 14212 16307 12438 18455
10/31/95 15331 18859 12787 21620
10/31/96 16274 19962 13170 23968
10/31/97 18469 21742 13444 27284
10/31/98 17527 23765 13627 27558
Comparison of a $10,000 investment in Evergreen High Yield Bond Fund Class B,
versus a similar investment in the Lehman Brothers Aggregate Bond Index (LBABI),
the Merrill Lynch High Yield Master Index (MLHYMI) and the Consumer Price Index
(CPI).
The Lehman Brothers Aggregate Bond Index is a broad-based, unmanaged,
fixed-income index of U.S. government, corporate and mortgage-backed securities.
It represents the price change and coupon income of several thousand securities
of various credit qualities and maturities.
The Merrill Lynch High Yield Master Index is a broad-based measure of the
performance of the non-investment grade U.S. domestic bond market. The index
currently captures close to $200 billion of the outstanding debt of domestic
market issuers rated below investment grade but not in default.
7
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
High Yield Bond Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How was the Fund's performance over the past 6-months?
The total return for the Fund's Class B shares was -11.6%, unadjusted for any
sales charge, for the six months ended October 31, 1998. In comparison, the
Chase High Yield Index returned -2.1% and the Lehman Aggregate Bond Index
returned -5.9% during the same six months. Unlike a mutual fund, these indices
incur no operating expenses, which would further reduce their total returns.
As you are aware, financial markets can be subject to temporary, wide price
swings, which can dramatically alter a fund's short-term performance. These
conditions can be unsettling for even the most seasoned investor; however, they
serve as reminders of the importance of maintaining a longer-term perspective.
For the 12-months ending November 30, 1998, the Fund's Class B shares generated
a return of -0.52%, unadjusted for sales charges, compared to the median return
of 2.4%, produced by the Chase High Yield Index and 9.45% returned by the Lehman
Aggregate Bond Index.
Portfolio
Characteristics
---------------
(as of 10/31/98)
Total Net Assets $403,331,554
...............................................................................
Average Credit Quality B
..............................................................................
Average Maturity 9.0 years
...............................................................................
Average Duration 4.5 years
...............................................................................
We believe the Fund's underperformance primarily stemmed from the price declines
of its premium yielding bonds, which typically carry higher credit risk during
unusually difficult market conditions. During the period, several unexpected
market events occurred which ignited a swift and dramatic "flight-to-quality",
causing prices in the high yield bond sector to fall sharply. Historically,
price distortions of these magnitudes often have presented attractive long-term
investment opportunities. We are closely monitoring the Fund's holdings and
believe that longer term, conditions in the credit markets will return to more
normal relationships, based on historical standards.
- --------------------------------------------------------------------------------
PORTFOLIO CREDIT QUALITY
- --------------------------------------------------------------------------------
(based on 10/31/98 portfolio assets)
[PIE CHART APPEARS HERE]
B -- 70.3%
Not rated -- 17.9%
BB -- 6.9%
CCC -- 4.3%
CC -- 0.6%
What caused this "flight-to-quality"?
Three events--currency devaluations in Russia, currency controls in Malaysia and
the insolvency of the largest U.S. hedge fund--triggered a massive "flight-to-
quality", which took place in August 1998. The first half of the reporting
period was characterized by relatively stable interest rates and a high degree
of investor confidence--an environment in which premium yielding bonds typically
thrive. When these unexpected events unfolded, however, market sentiment shifted
abruptly as investors became increasingly concerned about the fragility of
global financial systems.
In the middle of August, the Russian government devalued the country's currency
and then defaulted on its domestic debt. Investors were particularly surprised
because this occurred approximately two weeks after Russia had successfully
issued a $200 million Eurobond offering. A Eurobond is the bond offering of a
foreign issuer, denominated in U.S. dollars. Shortly thereafter, the government
of Malaysia imposed currency controls, just as Asian regional currencies had
begun to exhibit strength. This action again surprised investors because it
violated previously held beliefs
8
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
High Yield Bond Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
about the international practice of open currency conversion. Finally, in the
midst of these international problems, the largest hedge fund in the United
States declared insolvency. A hedge fund is a private investment account that
often engages in complex, leveraged trading strategies. Hedge funds are not
subject to the same regulations as mutual funds. The strategies were believed to
have far-reaching international effects and involved the capital of many Wall
Street firms that otherwise could help provide needed liquidity. The combination
of these three events caused investors to seek securities carrying the highest
degree of safety and liquidity, specifically U.S. Treasuries. Demand for U.S.
Treasuries soared and demand for high yield bonds declined sharply, when
investors required greater yield advantages as compensation for undertaking
credit risk. As the yields of high yield bonds rose, their prices fell.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(based on 10/31/98 portfolio assets)
[PIE CHART APPEARS HERE]
Corporate Bonds -- 77.3%
Foreign Corporate Bonds -- 9.1%
Repurchase Agreements -- 7.0%
Preferred Stocks -- 5.8%
Common Stocks and Warrants -- 0.8%
How did you manage the Fund during this difficult investment environment?
We prepared for market conditions that might penalize risk further, specifically
employing three strategies. First, as the market rallied, we reduced holdings in
CCC-rated securities from 10% to 4%, as of October 31, 1998. Second, with
expectations of a resumption of a weaker environment for equities, we also sold
the bonds of issuers whose financial soundness was dependent on raising capital
in the stock market. Our third strategy was based on our outlook for the
economy. We lowered our positions in industries whose profits were tied to the
ups-and-downs of the economy, in anticipation of slower economic growth. In
contrast, we increased the Fund's position in industries whose profits were less
dependent on economic cycles, such as food distribution and healthcare.
What is your outlook for high yield bonds over the next six months?
We remain cautious about the stability of the global financial markets and
continuing deflationary price pressures in the world's economies. As we head
into the final months of 1998, market sentiment has turned positive and has been
expressed by a significant rally in the stock market, in response to the Federal
Reserve Board cutting interest rates. Shortly after the close of this reporting
period, the Federal Reserve Board cut interest rates for the third time this
fall. While the stock market has rallied to new highs, however, U.S. Treasuries
have experienced substantial price declines. At least for the time being, the
"flight-to-quality" has dissipated and investors appear to have greater
confidence in the future of the financial markets. Over the near term, we intend
to prepare our funds for the possibility of a less exuberant stock market
environment. We will continue to exercise prudence in this environment, watching
for developments that could indicate the longer-term direction of the world's
economies and financial markets.
9
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Strategic Income Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of October 31, 1998
We attribute the Fund's negative return to the unusually challenging investment
environment that occurred in the last three months of the reporting period.
Portfolio
Management
--------------------------------
[PHOTO OF PRESCOTT B. CROCKER APPEARS HERE]
Prescott B. Crocker, CFA
Tenure: February 1997
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
Morningstar's Style Box is based on a portfolio date as of
10/31/98.
[GRAPHIC APPEARS
HERE] The Fixed-Income Style Box placement is based on a fund's
average effective maturity or duration and the average credit
rating of the bond portfolio.
/1/Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses paid by the
shareholders investing in each class. The investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The LBABI is an unmanaged index and does not include
transaction costs associated with buying and selling securities or any
management fees. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C Class Y
Inception Date 4/14/87 2/1/93 2/1/93 1/13/97
...............................................................................
Average Annual Returns
................................................................................
6 months with sales charge -8.24% -8.64% -4.93% n/a
................................................................................
6 months w/o sales charge -3.66% -3.99% -4.00% -3.57%
................................................................................
1 year with sales charge -3.22% -3.73% 0.06% n/a
................................................................................
1 year w/o sales charge 1.61% 1.02% 1.01% 1.88%
................................................................................
5 years 3.32% 3.28% 3.57% --
................................................................................
10 years 6.96% -- -- --
...............................................................................
Since Inception 6.75% 6.76% 6.96% 3.44%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
30-day SEC Yield 7.86% 7.09% 7.09% 8.12%
................................................................................
6-month distributions per share $0.25 $0.22 $0.22 $0.25
................................................................................
* Adjusted for maximum sales charge.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Class A Shares LBABI CPI
10/31/88 9525 10000 10000
10/31/89 9828 11190 10449
10/31/90 7572 11896 11107
10/31/91 10234 13777 11431
10/31/92 11957 15132 11797
10/31/93 15848 16928 12122
10/31/94 15165 16307 12438
10/31/95 16085 18859 12787
10/31/96 17586 19962 13170
10/31/97 19282 21742 13444
10/31/98 19592 23765 13627
Comparison of a $10,000 investment in Evergreen Strategic Income Fund Class A,
versus a similar investment in the Lehman Brothers Aggregate Bond Index (LBABI)
and the Consumer Price Index (CPI).
The Lehman Brothers Aggregate Bond Index is a broad-based, unmanaged,
fixed-income index of U.S. government, corporate and mortgage-backed securities.
It represents the price change and coupon income of several thousand securities
of various credit qualities and maturities.
10
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Strategic Income Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform during the reporting period?
The Fund's Class A shares experienced a total return of -3.7% for the six months
ended October 31, 1998, unadjusted for any sales charges. While we never like to
see negative returns, these results compare favorably to the median return of
- -4.6% generated by the multi-sector funds followed by Lipper Analytical Services
for the same period. Lipper Analytical Services is an independent monitor of
mutual fund performance. As you are aware, financial markets can be subject to
temporary wide price swings which can dramatically alter a Fund's short-term
performance. These conditions can be unsettling for even the most seasoned
investor; however, they serve as reminders of the importance of maintaining a
long-term perspective. Over the long run, the Fund has produced solid--and very
competitive--investment results. For the 12-months ending November 30, 1998, the
Fund's Class A shares generated a return of 4.57%, unadjusted for sales charges,
compared to the average return of 2.10%, produced by the multi-sector income
funds followed by Lipper Inc.
Portfolio
Characteristics
---------------
(as of 10/31/98)
Total Net Assets $285,504,659
...............................................................................
Average Credit Quality A
...............................................................................
Average Maturity 9.0 years
...............................................................................
Average Duration 5.2 years
...............................................................................
We attribute the Fund's negative return to the unusually challenging investment
environment that occurred in the last three months of the reporting period.
During this time, two of the sectors in which the Fund invests--the emerging
market component of the foreign sector and high yield bonds--experienced sudden
and significant price declines. This price movement offset the positive returns
produced by the Fund's investments in U.S. government securities. We believe
this was a temporary phenomenon and that longer term, more conventional price
relationships will be restored.
How was the Fund structured at the end of the reporting period?
As of October 31, 1998, the Fund was invested as follows: High yield bonds--34%,
U.S. Treasury and agency securities--33% and foreign bonds--29%. Foreign
government bond holdings represented 20% of net assets and included the
governments of the United Kingdom and Greece, the government of Quebec and
Danish mortgage-backed securities. Approximately 9% of the Fund's net assets
were invested in foreign corporate bond holdings, which included Latin America
and multi-national debt obligations.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(based on 10/31/98 net assets)
[PIE CHART APPEARS HERE]
Corporate Bonds--34.2%
Foreign Corporate Bonds--29.0%
Mortgage-backed Securities--28.4%
U.S. Treasury Obligations--4.9%
Repurchase agreements--1.4%
Other Assets and Liabilities, net--0.9%
Asset-backed Securities--0.7%
Common stocks and warrants--0.5%
11
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Strategic Income Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
What caused the investment environment to be so challenging?
Three unexpected events--currency devaluations in Russia, currency controls in
Malaysia and the insolvency of the largest U.S. hedge fund/1/--triggered a
massive "flight-to-quality" in August 1998. This environment stood in stark
contrast to the one that existed earlier in the period. For the first three
months of the reporting period, a continuation of what had been recent trends
characterized market conditions: stable interest rates, a high degree of
investor confidence and price relationships that reflected historical market
standards.
In the middle of August, the Russian government devalued the country's currency
and then defaulted on its domestic debt. Investors were particularly surprised
because this occurred approximately two weeks after Russia had successfully
issued a $200 million Eurobond/2/ offering. Shortly thereafter, the government
of Malaysia imposed currency controls, just as Asian regional currencies had
begun to exhibit strength. This action surprised investors because it violated
previously held beliefs about the international practice of open currency
conversion. Finally, in the midst of these international problems, the largest
hedge fund in the United States declared insolvency. The investment strategies
used by its traders had been extremely complex and were believed to have far-
reaching international effects. The hedge fund's investments also involved the
capital of several Wall Street firms and banks. This both severely limited Wall
Street's ability to help restore some of the needed liquidity and contributed to
investor concerns about the global financial markets. Ultimately, in a highly
unusual move, the Federal Reserve Bank arranged a rescue package for the hedge
fund, which restored some stability to the credit markets.
The combination of these events caused investors to avoid risk and seek
securities that carried the highest degree of safety and liquidity, specifically
U.S. Treasuries and high quality foreign bonds that were believed to have
minimal sovereign risk. At the same time, investors began to require greater
yield advantages for securities carrying credit risk, sovereign risk and limited
liquidity. These market conditions drove the prices of U.S. Treasuries and high
quality foreign government bonds higher and put increasing downward pressure on
the prices of other securities, particularly high yield and emerging market
bonds.
- --------------------------------------------------------------------------------
PORTFOLIO QUALITY
- --------------------------------------------------------------------------------
(based on 10/31/98 portfolio assets)
[PIE CHART APPEARS HERE]
AAA--38.2%
B--30.9%
BB--9.7%
CCC--6.8%
AA--5.9%
A--4.6%
BBB--2.7%
Not Rated--1.2%
What strategies did you use in managing the Fund?
We emphasized quality and flexibility. We maintained the Fund's exposure to U.S.
government securities and high quality foreign bonds, and limited investment in
high yield and emerging market bonds. We selected U.S. Treasuries in the 10 to
15-year maturity range, keeping the Fund's duration between four and six years.
Expressed in years, duration measures a Fund's sensitivity to interest rate
changes. The longer a fund's duration,
/1/A hedge fund is a private investment account that often engages in complex,
leveraged trading strategies. Hedge funds are not subject to the same
regulations as mutual funds.
/2/A Eurobond is the bond offering of a foreign issuer, denominated in U.S.
dollars.
12
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Strategic Income Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
the more sensitive it is to interest rate changes. In contrast, a shorter
duration decreases a fund's sensitivity to changes in interest rates. The Fund's
shorter duration improved price stability when market conditions were unsettled,
and bonds experienced unusually wide price fluctuations. As of October 31, 1998,
the average quality of the Fund was A, its duration was 5.2 years and its
average maturity stood at 9 years. We also believe the Fund's currency hedges
contributed to total return by being well-positioned to take advantage of
short-term price opportunities in the foreign exchange markets.
What is your outlook over the next 6-months?
We remain cautious about the stability of global financial markets and
continuing deflationary price pressures in the world's economies. As we head
into the final months of 1998, market sentiment has turned positive and been
expressed by a significant rally in the stock market in response to the Federal
Reserve Board cutting interest rates. Shortly after the close of this reporting
period, the Federal Reserve Board cut interest rates for the third time this
fall. While the stock market has rallied to new highs, U.S. Treasuries have
experienced substantial price declines. At least for the time being, the
"flight-to-quality" has dissipated and investors appear to have greater
confidence in the future of the financial markets. Over the near term, we intend
to prepare our funds for the possibility of a less exuberant stock market
environment. We will continue to exercise prudence in this environment, watching
for developments that could indicate the longer-term direction of the world's
economies and financial markets.
13
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
U.S. Government Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of October 31, 1998
We took a more aggressive stance and increased the portfolio's duration from 4.4
years to 4.8 years during the six months. Performance was favorably impacted by
this strategy as interest rates fell markedly during the period.
Portfolio
Management
------------------------------
[PHOTO OF ROLLIN C. WILLIAMS APPEARS HERE]
Rollin C. Williams, CFA
Tenure: January 1993
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 10/31/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
/1/Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses paid by the
shareholders investing in each class. The investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The LBITGBI is an unmanaged index and does not include
transaction costs associated with buying and selling securities or any
management fees. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C Class Y
Inception Date 1/11/93 1/11/93 9/2/94 9/2/93
................................................................................
Average Annual Returns
................................................................................
6 months with sales charge 0.45% 0.07% 4.06% n/a
................................................................................
6 months w/o sales charge 5.46% 5.07% 5.06% 5.60%
................................................................................
1 year with sales charge 3.75% 3.12% 7.12% n/a
................................................................................
1 year w/o sales charge 8.93% 8.12% 8.12% 9.20%
................................................................................
3 years 5.51% 5.55% 6.44% 7.50%
...............................................................................
5 years 5.20% 5.16% -- 6.49%
................................................................................
Since Inception 5.80% 5.84% 7.34% 6.42%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
30-day SEC yield 4.98% 4.24% 4.24% 5.25%
................................................................................
6- month distribution per share $0.29 $0.26 $0.26 $0.30
................................................................................
* Adjusted for maximum sales charge
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Class A Shares LBITGBI CPI
1/31/93 9525 10000 10000
10/31/93 10178 10628 10217
10/31/94 9775 10447 10484
10/31/95 11164 11679 10778
10/31/96 11716 12341 11101
10/31/97 12638 13246 11332
10/31/98 13766 14506 11487
Comparison of a $10,000 investment in Evergreen U.S. Government Fund Class A,
versus a similar investment in the Lehman Brothers Intermediate Term Government
Bond Index (LBITGBI) and the Consumer Price Index (CPI).
The Lehman Brothers Intermediate Term Government Bond Index is an unmanaged
fixed-income index of U.S. government securities with maturities of less than 10
years.
14
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
U.S. Government Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform during the past six months?
For the six months ended October 31, the Evergreen U.S. Government Fund's Class
A, B and C shares returned 5.5%, 5.1%, and 5.1%, respectively, unadjusted for
any sales charges. Class Y shares returned 5.6% for the six-month period. This
compares to the Fund's benchmark, the Lehman Brothers Intermediate Term
Government Bond Index, return of 6.3% and the 5.7% average return of general
U.S. government funds tracked by Lipper Inc., an independent monitor of mutual
fund performance. The Fund's solid six-month return can be attributed to our
favorable duration strategy during a period of declining rates as well as an
exceptional period for U.S. Treasuries.
Portfolio
Characteristics
---------------
(as of 10/31/98)
Total Net Assets $373,451,637
...............................................................................
Average Credit Quality AAA
...............................................................................
Average Maturity 8.7 years
..............................................................................
Average Duration 4.8 years
...............................................................................
What was the environment like for fixed income investors during the period?
Over the past six months fixed income investors witnessed a continuation of
themes from earlier in the year: low inflation, a spreading global economic
crisis, a flight to quality bonds and widening spreads between Treasuries and
all other fixed income securities. Against this backdrop, U.S. Treasuries proved
to be the overwhelming asset class of choice, enjoying strong performance as
global investors sought a safe haven from volatile global markets. Consequently,
the Fund's nearly 50% weighting of Treasuries fueled strong relative
performance. In addition, interest rates continued to trend lower which, in
turn, boosted bond prices across the board. The yield on the bellwether 30-year
Treasury Bond fell from 5.95% to 5.16% during the six months. Underscoring this
decline were two interest rate cuts by the Federal Reserve Board undertaken to
insulate the U.S. from the global turmoil, with a third cut which took place
after the semiannual fiscal period in mid-November.
- --------------------------------------------------------------------------------
MATURITY BREAKDOWN
- --------------------------------------------------------------------------------
(based on 10/31/98 portfolio assets)
[PIE CHART APPEARS HERE]
1-5 years -- 51.5%
0-1 years -- 15.4%
5-10 years -- 12.7%
10-20 years -- 9.4%
20-30 years -- 8.5%
30+ years -- 2.5%
What particular strategies did you use during the period?
At the beginning of the fiscal period, we felt there was a strong possibility
the U.S. economy would slow and, in response, the Fed would ease interest rates
to stimulate the economic growth. Consequently, we took a more aggressive stance
and increased the portfolio's duration from 4.4 years to 4.8 years during the
six months. Performance was favorably impacted by this strategy as interest
rates fell markedly during the period.
15
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
U.S. Government Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
During the final half of the period, we purchased additional lower coupon
mortgages to maintain the yield component of the Fund. We also selectively added
corporate bonds because we felt their recent underperformance presented some
attractive opportunities. As of October 31, the portfolio consisted of 44.2%
Treasuries/Agencies, 48.6% mortgages, 6.3% corporate bonds and 0.9% short-term
cash.
Were there any noteworthy adjustments to the Fund?
The CoreFund Government Income Fund merged into the Evergreen U.S. Government
Fund in mid-July. As a result, net assets increased by approximately $25
million, and as of October 31 stood at $373 million. Due to the CoreFund's
similarity in asset mix, the transition was seamless.
What is your outlook for the final half of the fiscal year?
Looking to the final months of 1998 and beyond, we maintain a very cautious
outlook and recognize that global volatility will likely continue to filter back
to the U.S. financial markets in the near term. We have begun looking to
increase exposure to sectors that have recently been out-of-favor and represent
attractive opportunities; namely corporate bonds and mortgages. In addition, we
anticipate maintaining a modestly long duration as interest rates stay in their
trading range and possibly trend lower.
16
<PAGE>
[LOGO OF DIVERSIFIED BOND FUND APPEARS HERE]
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended
October 31, 1998 Period Ended
(unaudited) April 30, 1998 (a)
- --------------------------------------------------------------------------------
CLASS A SHARES
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.92 $ 16.08
-------- --------
................................................................................
INCOME FROM INVESTMENT OPERATIONS
................................................................................
Net investment income 0.50 0.30+++
................................................................................
Net realized and unrealized gains or
losses on securities and foreign currency
related transactions (0.13) (0.16)#
-------- --------
................................................................................
Total from investment operations 0.37 0.14
-------- --------
................................................................................
LESS DISTRIBUTIONS FROM NET INVESTMENT
INCOME (0.50) (0.30)
-------- --------
................................................................................
NET ASSET VALUE, END OF PERIOD $ 15.79 $ 15.92
-------- --------
................................................................................
TOTAL RETURN+ 2.30% 0.85%
................................................................................
RATIOS/SUPPLEMENTAL DATA
................................................................................
NET ASSETS, END OF PERIOD (THOUSANDS) $464,829 $501,547
................................................................................
RATIOS TO AVERAGE NET ASSETS
Expenses 1.21%++ 1.08%++
................................................................................
Expenses, after fee credits 1.21%++ 1.07%++
................................................................................
Net investment income 6.13%++ 6.68%++
................................................................................
PORTFOLIO TURNOVER RATE 44% 109%
................................................................................
</TABLE>
<TABLE>
<CAPTION>
Six Months
Ended Year Ended August 31,
October 31, 1998 Period Ended --------------------------------------
(unaudited) April 30, 1998 (b) 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
CLASS B SHARES
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 15.92 $ 15.42 $ 14.65 $ 15.09 $ 15.28 $ 17.06
------- ------- -------- -------- -------- --------
......................................................................................................
INCOME FROM INVESTMENT
OPERATIONS
......................................................................................................
Net investment income 0.44 0.61+++ 0.91 0.95 1.06 1.06
......................................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions (0.13) 0.50 0.84 (0.35) 0.11 (1.62)
------- ------- -------- -------- -------- --------
......................................................................................................
Total from investment
operations 0.31 1.11 1.75 0.60 1.17 (0.56)
------- ------- -------- -------- -------- --------
......................................................................................................
LESS DISTRIBUTIONS
......................................................................................................
From net investment
income (0.44) (0.61) (0.98) (0.96) (1.28) (1.22)
......................................................................................................
Returns of Capital 0 0 0 (0.08) (0.08) 0
------- ------- -------- -------- -------- --------
......................................................................................................
Total distributions (0.44) (0.61) (0.98) (1.04) (1.36) (1.22)
------- ------- -------- -------- -------- --------
......................................................................................................
NET ASSET VALUE, END OF
PERIOD $ 15.79 $ 15.92 $ 15.42 $ 14.65 $ 15.09 $ 15.28
------- ------- -------- -------- -------- --------
......................................................................................................
TOTAL RETURN+ 1.92% 7.26% 12.25% 4.03% 8.13% (3.53%)
......................................................................................................
RATIOS/SUPPLEMENTAL DATA
......................................................................................................
NET ASSETS, END OF
PERIOD (THOUSANDS) $70,245 $70,113 $457,701 $559,792 $734,837 $814,245
......................................................................................................
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.96%++ 1.93%++ 1.88% 1.84% 1.81% 1.75%
......................................................................................................
Expenses, after fee
credits 1.96%++ 1.92%++ 1.87% 1.83% -- --
......................................................................................................
Net investment income 5.38%++ 5.74%++ 6.07% 6.42% 7.05% 6.48%
......................................................................................................
PORTFOLIO TURNOVER RATE 44% 109% 138% 246% 178% 200%
......................................................................................................
</TABLE>
+ Excluding applicable sales charges.
++ Annualized.
+++ Calculation based on average shares outstanding.
# The per share amount is not in accord with the net realized and unrealized
gains or losses for the period due to the timing of the sales of Fund
shares and the amount of per share realized and unrealized gains or losses
at such time.
(a) For the period from January 20, 1998 (commencement of class operations) to
April 30, 1998.
(b) For the eight months ended April 30, 1998. The Fund changed its fiscal
year end from August 31 to April 30, effective April 30, 1998.
See Combined Notes to Financial Statements.
17
<PAGE>
[LOGO OF DIVERSIFIED BOND FUND APPEARS HERE]
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended
October 31, 1998 Period Ended
(unaudited) April 30, 1998 (a)
- --------------------------------------------------------------------------------
CLASS C SHARES
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $15.92 $16.06
------ ------
................................................................................
INCOME FROM INVESTMENT OPERATIONS
...............................................................................
Net investment income 0.44 0.04+++
................................................................................
Net realized and unrealized gains or
losses on securities and foreign
currency related transactions (0.13) (0.14)#
------ ------
................................................................................
Total from investment operations 0.31 (0.10)
------ ------
................................................................................
LESS DISTRIBUTIONS FROM NET INVESTMENT
INCOME (0.44) (0.04)
------ ------
................................................................................
NET ASSET VALUE, END OF PERIOD $15.79 $15.92
------ ------
................................................................................
TOTAL RETURN+ 1.93% (0.60%)
................................................................................
RATIOS/SUPPLEMENTAL DATA
................................................................................
NET ASSETS, END OF PERIOD (THOUSANDS) $ 202 $ 23
................................................................................
RATIOS TO AVERAGE NET ASSETS
Expenses 1.97%++ 1.88%++
................................................................................
Expenses, after fee credits 1.97%++ 1.88%++
................................................................................
Net investment income 5.44%++ 6.11%++
................................................................................
PORTFOLIO TURNOVER RATE 44% 109%
................................................................................
</TABLE>
<TABLE>
<CAPTION>
Six Months
Ended
October 31, 1998 Period Ended
(unaudited) April 30, 1998 (b)
- --------------------------------------------------------------------------------
CLASS Y SHARES
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $15.92 $16.03
------ ------
................................................................................
INCOME FROM INVESTMENT OPERATIONS
................................................................................
Net investment income 0.41 0.24+++
................................................................................
Net realized and unrealized gains or
losses on securities and foreign
currency related transactions (0.13) (0.11)#
------ ------
................................................................................
Total from investment operations 0.28 0.13
------ ------
................................................................................
LESS DISTRIBUTIONS FROM NET INVESTMENT
INCOME (0.41) (0.24)
------ ------
................................................................................
NET ASSET VALUE, END OF PERIOD $15.79 $15.92
------ ------
................................................................................
TOTAL RETURN 1.46% 0.80%
................................................................................
RATIOS/SUPPLEMENTAL DATA
................................................................................
NET ASSETS, END OF PERIOD (THOUSANDS) $ 48 $ 7
................................................................................
RATIOS TO AVERAGE NET ASSETS
Expenses 0.96%++ 0.83%++
................................................................................
Expenses, after fee credits 0.96%++ 0.82%++
................................................................................
Net investment income 6.59%++ 6.89%++
...............................................................................
PORTFOLIO TURNOVER RATE 44% 109%
................................................................................
</TABLE>
+ Excluding applicable sales charges.
++ Annualized.
+++ Calculation based on average shares outstanding.
# The per share amount is not in accord with the net realized and unrealized
gains or losses for the period due to the timing of the sales of Fund shares
and the amount of per share realized and unrealized gains or losses at such
time.
(a) For the period from April 7, 1998 (commencement of class operations) to
April 30, 1998.
(b) For the period from February 11, 1998 (commencement of class operations) to
April 30, 1998.
See Combined Notes to Financial Statements.
18
<PAGE>
[LOGO OF HIGH YIELD BOND FUND APPEARS HERE]
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended
October 31, 1998 Period Ended
(unaudited) April 30, 1998 (a)
- --------------------------------------------------------------------------------
CLASS A SHARES
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 4.53 $ 4.52
-------- --------
................................................................................
INCOME FROM INVESTMENT OPERATIONS
................................................................................
Net investment income 0.18 0.11+++
................................................................................
Net realized and unrealized gains or
losses on securities and foreign
currency related transactions (0.68) 0.01
-------- --------
................................................................................
Total from investment operations (0.50) 0.12
-------- --------
................................................................................
LESS DISTRIBUTIONS FROM NET INVESTMENT
INCOME (0.18) (0.11)
-------- --------
................................................................................
NET ASSET VALUE, END OF PERIOD $ 3.85 $ 4.53
-------- --------
................................................................................
TOTAL RETURN+ (11.21%) 2.57%
................................................................................
RATIOS/SUPPLEMENTAL DATA
................................................................................
NET ASSETS, END OF PERIOD (THOUSANDS) $324,331 $420,778
................................................................................
RATIOS TO AVERAGE NET ASSETS
Expenses 1.25%++ 1.24%++
................................................................................
Expenses, after fee credits 1.24%++ 1.23%++
................................................................................
Expenses, excluding fee waivers and
expense reimbursement 1.33%++ --
................................................................................
Net investment income 8.46%++ 8.48%++
................................................................................
PORTFOLIO TURNOVER RATE 72% 155%
................................................................................
</TABLE>
<TABLE>
<CAPTION>
Six Months
Ended Year Ended July 31,
October 31, 1998 Period ended --------------------------------------
(unaudited) April 30, 1998 (b) 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
CLASS B SHARES
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 4.53 $ 4.37 $ 4.10 $ 4.42 $ 4.68 $ 5.13
------- ------- -------- -------- -------- --------
.......................................................................................................
INCOME FROM INVESTMENT
OPERATIONS
.......................................................................................................
Net investment income 0.16 0.25+++ 0.32 0.32 0.38 0.38
.......................................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions (0.67) 0.16 0.28 (0.27) (0.15) (0.38)
------- ------- -------- -------- -------- --------
.......................................................................................................
Total from investment
operations (0.51) 0.41 0.60 0.05 0.23 0
------- ------- -------- -------- -------- --------
.......................................................................................................
LESS DISTRIBUTIONS
.......................................................................................................
From net investment
income (0.17) (0.25) (0.33) (0.37) (0.39) (0.45)
......................................................................................................
From capital gains 0 0 0 0 (0.10) 0
------- ------- -------- -------- -------- --------
.......................................................................................................
Total distributions (0.17) (0.25) (0.33) (0.37) (0.49) (0.45)
------- ------- -------- -------- -------- --------
.......................................................................................................
NET ASSET VALUE, END OF
PERIOD $ 3.85 $ 4.53 $ 4.37 $ 4.10 $ 4.42 $ 4.68
------- ------- -------- -------- -------- --------
.......................................................................................................
TOTAL RETURN+ (11.55%) 9.57% 15.32% 1.38% 5.66% (0.41%)
.......................................................................................................
RATIOS/SUPPLEMENTAL DATA
.......................................................................................................
NET ASSETS, END OF
PERIOD (THOUSANDS) $70,596 $96,535 $547,390 $593,681 $764,965 $766,283
......................................................................................................
RATIOS TO AVERAGE NET
ASSETS
Expenses 2.00%++ 1.94%++ 1.96% 1.94% 2.03% 1.84%
.......................................................................................................
Expenses, after fee
credits 1.99%++ 1.93%++ 1.95% 1.93% -- --
.......................................................................................................
Expenses, excluding fee
waivers and expense
reimbursement 2.08%++ -- -- -- -- --
.......................................................................................................
Net investment income 7.70%++ 7.27%++ 7.63% 7.92% 8.64% 7.57%
.......................................................................................................
PORTFOLIO TURNOVER RATE 72% 155% 138% 116% 82% 110%
.......................................................................................................
</TABLE>
+ Excluding applicable sales charges.
++ Annualized.
+++ Calculation based on average shares outstanding.
(a) For the period from January 20, 1998 (commencement of class operations) to
April 30, 1998.
(b) For the nine months ended April 30, 1998. The Fund changed its fiscal year
end from July 31 to April 30, effective April 30, 1998.
See Combined Notes to Financial Statements.
19
<PAGE>
[LOGO OF HIGH YIELD BOND FUND APPEARS HERE]
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended
October 31, 1998 Period Ended
(unaudited) April 30, 1998 (a)
- --------------------------------------------------------------------------------
CLASS C SHARES
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 4.53 $ 4.52
------ ------
................................................................................
INCOME FROM INVESTMENT OPERATIONS
................................................................................
Net investment income 0.17 0.10+++
...............................................................................
Net realized and unrealized gains or
losses on securities and foreign
currency related transactions (0.68) 0.01
------ ------
................................................................................
Total from investment operations (0.51) 0.11
------ ------
................................................................................
LESS DISTRIBUTIONS FROM NET INVESTMENT
INCOME (0.17) (0.10)
------ ------
................................................................................
NET ASSET VALUE END OF PERIOD $ 3.85 $ 4.53
------ ------
................................................................................
TOTAL RETURN+ (11.56%) 2.35%
................................................................................
RATIOS/SUPPLEMENTAL DATA
................................................................................
NET ASSETS, END OF PERIOD (THOUSANDS) $ 971 $1,155
................................................................................
RATIOS TO AVERAGE NET ASSETS
Expenses 1.99%++ 2.04%++
................................................................................
Expenses, after fee credits 1.97%++ 2.01%++
................................................................................
Expenses, excluding fee waivers and
expense reimbursement 2.07%++ --
................................................................................
Net investment income 7.69%++ 7.51%++
................................................................................
PORTFOLIO TURNOVER RATE 72% 155%
................................................................................
</TABLE>
<TABLE>
<CAPTION>
Six Months
Ended
October 31, 1998 Period Ended
(unaudited) April 30, 1998 (b)
- --------------------------------------------------------------------------------
CLASS Y SHARES
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 4.53 $4.56
------ -----
................................................................................
INCOME FROM INVESTMENT OPERATIONS
................................................................................
Net investment income 0.19 0.02+++
................................................................................
Net realized and unrealized gains or
losses on securities and foreign
currency related transactions (0.68) (0.03)#
------ -----
................................................................................
Total from investment operations (0.49) (0.01)
------ -----
................................................................................
LESS DISTRIBUTIONS FROM NET INVESTMENT
INCOME (0.19) (0.02)
------ -----
................................................................................
NET ASSET VALUE, END OF PERIOD $ 3.85 $4.53
------ -----
................................................................................
TOTAL RETURN (11.10%) (0.27%)
................................................................................
RATIOS/SUPPLEMENTAL DATA
................................................................................
NET ASSETS, END OF PERIOD (THOUSANDS) $7,434 $ 20
................................................................................
RATIOS TO AVERAGE NET ASSETS
Expenses 0.93%++ 1.09%++
................................................................................
Expenses, after fee credits 0.91%++ 1.09%++
................................................................................
Expenses, excluding fee waivers and
expense reimbursement 1.07%++ --
................................................................................
Net investment income 9.11%++ 8.21%++
................................................................................
PORTFOLIO TURNOVER RATE 72% 155%
................................................................................
</TABLE>
+ Excluding applicable sales charges.
++ Annualized.
+++ Calculation based on average shares outstanding.
# The per share amount is not in accord with the net realized and unrealized
gains or losses for the period due to the timing of the sales of Fund
shares and the amount of per share realized and unrealized gains or losses
at such time.
(a) For the period from January 22, 1998 (commencement of class operations) to
April 30, 1998.
(b) For the period from April 14, 1998 (commencement of class operations) to
April 30, 1998.
See Combined Notes to Financial Statements.
20
<PAGE>
[LOGO OF STRATEGIC INCOME FUND APPEARS HERE]
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Year Ended April
Ended 30, Year Ended July 31,
October 31, 1998 ------------------- --------------------------
(unaudited) 1998 1997(a) 1996 1995 1994
- -----------------------------------------------------------------------------------------------
CLASS A SHARES
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 7.21 $ 6.82 $ 6.77 $ 6.89 $ 7.35 $ 7.86
-------- -------- ------- ------- ------- --------
...............................................................................................
INCOME FROM INVESTMENT
OPERATIONS
...............................................................................................
Net investment income 0.25 0.50+++ 0.37 0.54 0.64 0.61+++
..............................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions (0.51) 0.38 0.09 (0.09) (0.45) (0.44)
-------- -------- ------- ------- ------- --------
...............................................................................................
Total from investment
operations (0.26) 0.88 0.46 0.45 0.19 0.17
-------- -------- ------- ------- ------- --------
...............................................................................................
LESS DISTRIBUTIONS
...............................................................................................
From net investment
income (0.25) (0.49) (0.41) (0.52) (0.63) (0.64)
..............................................................................................
Returns of capital 0 0 0 (0.05) (0.02) (0.04)
...............................................................................................
Total distributions (0.25) (0.49) (0.41) (0.57) (0.65) (0.68)
-------- -------- ------- ------- ------- --------
...............................................................................................
NET ASSET VALUE, END OF
PERIOD $ 6.70 $ 7.21 $ 6.82 $ 6.77 $ 6.89 $ 7.35
-------- -------- ------- ------- ------- --------
...............................................................................................
TOTAL RETURN+ (3.66%) 13.20% 6.80% 6.84% 3.00% 1.86%
...............................................................................................
RATIOS/SUPPLEMENTAL DATA
...............................................................................................
NET ASSETS, END OF
PERIOD (THOUSANDS) $164,213 $193,618 $58,725 $68,118 $85,970 $105,181
...............................................................................................
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.14%++ 1.27% 1.28%++ 1.30% 1.33% 1.32%
...............................................................................................
Expenses, after fee
credits 1.13%++ 1.26% 1.26%++ 1.28% -- --
...............................................................................................
Expenses, excluding fee
waivers and expense
reimbursement 1.29%++ 1.27% 1.28%++ 1.30% 1.33% 1.32%
...............................................................................................
Net investment income 7.01%++ 6.80% 7.28%++ 8.05% 9.31% 7.79%
...............................................................................................
PORTFOLIO TURNOVER RATE 112% 237% 86% 101% 95% 92%
...............................................................................................
</TABLE>
+ Excluding applicable sales charges.
++ Annualized.
+++ Calculation based on average shares outstanding.
(a) For the nine months ended April 30, 1997. The Fund changed its fiscal year
end from July 31 to April 30, effective April 30, 1997.
See Combined Notes to Financial Statements.
21
<PAGE>
[LOGO OF STRATEGIC INCOME FUND APPEARS HERE]
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Year Ended April
Ended 30, Year Ended July 31,
October 31, 1998 -------------------- ----------------------------
(unaudited) 1998 1997 (a) 1996 1995 1994
- --------------------------------------------------------------------------------------------------
CLASS B SHARES
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 7.25 $ 6.85 $ 6.81 $ 6.92 $ 7.38 $ 7.89
-------- -------- -------- -------- -------- --------
..................................................................................................
INCOME FROM INVESTMENT
OPERATIONS
..................................................................................................
Net investment income 0.22 0.44+++ 0.34 0.50 0.60 0.55+++
..................................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions (0.51) 0.39 0.07 (0.09) (0.47) (0.44)
-------- -------- -------- -------- -------- --------
..................................................................................................
Total from investment
operations (0.29) 0.83 0.41 0.41 0.13 0.11
-------- -------- -------- -------- -------- --------
..................................................................................................
LESS DISTRIBUTIONS
..................................................................................................
From net investment
income (0.22) (0.43) (0.37) (0.47) (0.58) (0.58)
..................................................................................................
Returns of capital 0 0 0 (0.05) (0.01) (0.04)
..................................................................................................
Total distributions (0.22) (0.43) (0.37) (0.52) (0.59) (0.62)
-------- -------- -------- -------- -------- --------
.................................................................................................
NET ASSET VALUE, END OF
PERIOD $ 6.74 $ 7.25 $ 6.85 $ 6.81 $ 6.92 $ 7.38
-------- -------- -------- -------- -------- --------
..................................................................................................
TOTAL RETURN+ (3.99%) 12.47% 6.06% 6.21% 2.12% 1.10%
..................................................................................................
RATIOS/SUPPLEMENTAL DATA
..................................................................................................
NET ASSETS, END OF
PERIOD (THOUSANDS) $102,862 $113,136 $110,082 $123,389 $149,091 $162,866
..................................................................................................
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.89%++ 2.05% 2.04%++ 2.07% 2.06% 2.07%
..................................................................................................
Expenses, after fee
credits 1.88%++ 2.04% 2.02%++ 2.05% -- --
..................................................................................................
Expenses, excluding fee
waivers and expense
reimbursement 2.04%++ -- -- -- -- --
..................................................................................................
Net investment income 6.26%++ 6.08% 6.52%++ 7.28% 8.58% 7.11%
..................................................................................................
PORTFOLIO TURNOVER RATE 112% 237% 86% 101% 95% 92%
..................................................................................................
</TABLE>
+ Excluding applicable sales charges.
++ Annualized.
+++ Calculation based on average shares outstanding.
(a) For the nine months ended April 30, 1997. The Fund changed its fiscal year
end from July 31 to April 30, effective April 30, 1997.
See Combined Notes to Financial Statements.
22
<PAGE>
[LOGO OF STRATEGIC INCOME FUND APPEARS HERE]
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Year Ended April
Ended 30, Year Ended July 31,
October 31, 1998 ------------------- -------------------------
(unaudited) 1998 1997 (a) 1996 1995 1994
- ----------------------------------------------------------------------------------------------
CLASS C SHARES
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 7.24 $ 6.84 $ 6.80 $ 6.92 $ 7.37 $ 7.88
------- ------- ------- ------- ------- -------
..............................................................................................
INCOME FROM INVESTMENT
OPERATIONS
..............................................................................................
Net investment income 0.22 0.44+++ 0.33 0.49 0.59 0.55+++
..............................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions (0.51) 0.39 0.08 (0.09) (0.45) (0.44)
------- ------- ------- ------- ------- -------
..............................................................................................
Total from investment
operations (0.29) 0.83 0.41 0.40 0.14 0.11
------- ------- ------- ------- ------- -------
..............................................................................................
LESS DISTRIBUTIONS FROM
..............................................................................................
From net investment
income (0.22) (0.43) (0.37) (0.47) (0.58) (0.58)
.............................................................................................
Returns of capital 0 0 0 (0.05) (0.01) (0.04)
------- ------- ------- ------- ------- -------
..............................................................................................
Total distributions (0.22) (0.43) (0.37) (0.52) (0.59) (0.62)
------- ------- ------- ------- ------- -------
..............................................................................................
NET ASSET VALUE, END OF
PERIOD $ 6.73 $ 7.24 $ 6.84 $ 6.80 $ 6.92 $ 7.37
------- ------- ------- ------- ------- -------
..............................................................................................
TOTAL RETURN+ (4.00%) 12.48% 6.07% 6.07% 2.27% 1.09%
..............................................................................................
RATIOS/SUPPLEMENTAL DATA
..............................................................................................
NET ASSETS, END OF
PERIOD (THOUSANDS) $16,601 $19,639 $24,304 $31,816 $46,221 $59,228
.............................................................................................
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.89%++ 2.05% 2.04%++ 2.07% 2.08% 2.07%
..............................................................................................
Expenses, after fee
credits 1.88%++ 2.05% 2.03%++ 2.05% -- --
..............................................................................................
Expenses, excluding fee
waivers and expense
reimbursement 2.04%++ -- -- -- -- --
..............................................................................................
Net investment income 6.25%++ 6.10% 6.52%++ 7.29% 8.56% 7.09%
..............................................................................................
PORTFOLIO TURNOVER RATE 112% 237% 86% 101% 95% 92%
.............................................................................................
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
Ended April 30,
October 31, 1998 ------------------
(unaudited) 1998 1997 (b)
- ------------------------------------------------------------------------------
CLASS Y SHARES
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.04 $ 6.65 $7.03
------ ------ -----
..............................................................................
INCOME FROM INVESTMENT OPERATIONS
..............................................................................
Net investment income 0.25 0.46+++ 0
..............................................................................
Net realized and unrealized gains or
losses on securities and foreign
currency related transactions (0.50) 0.41 (0.20)
------ ------ -----
.............................................................................
Total from investment operations (0.25) 0.87 (0.20)
------ ------ -----
..............................................................................
LESS DISTRIBUTIONS FROM NET INVESTMENT
INCOME (0.25) (0.48) (0.18)
------ ------ -----
..............................................................................
NET ASSET VALUE, END OF PERIOD $ 6.54 $ 7.04 $6.65
------ ------ -----
..............................................................................
TOTAL RETURN (3.57%) 13.46% (2.87%)
..............................................................................
RATIOS/SUPPLEMENTAL DATA
..............................................................................
NET ASSETS, END OF PERIOD (THOUSANDS) $1,829 $1,442 $ 0
..............................................................................
RATIOS TO AVERAGE NET ASSETS
Expenses 0.85%++ 1.01% 0.00%++
..............................................................................
Expenses, after fee credits 0.84%++ 1.00% 0.00%++
.............................................................................
Expenses, excluding fee waivers and
expense reimbursement 1.00%++ -- --
..............................................................................
Net investment income 7.20%++ 6.83% 0.00%++
..............................................................................
PORTFOLIO TURNOVER RATE 112% 237% 86%
..............................................................................
</TABLE>
+ Excluding applicable sales charges.
++ Annualized.
+++ Calculation based on average shares outstanding.
(a) For the nine months ended April 30, 1997, the Fund changed its fiscal year
end from July 31 to April 30, effective April 30, 1997.
(b) For the period from January 13, 1997 (commencement of class operations) to
April 30, 1997.
See Combined Notes to Financial Statements.
23
<PAGE>
[LOGO OF U.S. GOVERNMENT FUND APPEARS HERE]
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended Year ended April 30, Year ended June 30, Year ended
December 31,
October 31, 1998 ------------------------ ----------------------
- ---------------------------
(Unaudited) 1998 1997 (c) 1996 1995 (b) 1994
1993 (a)
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.68 $ 9.39 $ 9.42 $ 9.65 $ 9.07 $ 10.05
$ 10.00
------- ---------- ---------- --------- --------- -----------
- -----------
.............................................................................................................................
INCOME FROM INVESTMENT
OPERATIONS
.............................................................................................................................
Net investment income 0.29 0.61 0.52 0.63 0.33
0.66 0.68
.............................................................................................................................
Net realized and
unrealized gains or
losses on securities 0.23 0.29 (0.03) (0.23) 0.58
(0.98) 0.05
------- ---------- ---------- --------- --------- -----------
- -----------
.............................................................................................................................
Total from investment
operations 0.52 0.90 0.49 0.40 0.91
(0.32) 0.73
------- ---------- ---------- --------- --------- -----------
- -----------
.............................................................................................................................
LESS DISTRIBUTIONS FROM
NET INVESTMENT INCOME (0.29) (0.61) (0.52) (0.63) (0.33)
(0.66) (0.68)
------- ---------- ---------- --------- --------- -----------
- -----------
.............................................................................................................................
NET ASSET VALUE, END OF
PERIOD $ 9.91 $ 9.68 $ 9.39 $ 9.42 $ 9.65 $ 9.07
$ 10.05
------- ---------- ---------- --------- --------- -----------
- -----------
............................................................................................................................
TOTAL RETURN+ 5.46% 9.78% 5.30% 4.28% 10.17%
(3.18%) 7.43%
.............................................................................................................................
RATIOS/SUPPLEMENTAL DATA
............................................................................................................................
NET ASSETS, END OF
PERIOD (THOUSANDS) $48,945 $ 40,136 $ 17,913 $ 20,345 $ 22,445 $ 23,706
$ 38,851
.............................................................................................................................
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.98%++ 1.03% 0.98%++ 0.99% 1.04%++
0.96% 0.68%++
.............................................................................................................................
Expenses, after fee
credits 0.98%++ 1.03% 0.98%++ -- --
- -- --
.............................................................................................................................
Expenses, excluding fee
waivers and expense
reimbursement 0.98%++ 1.03% 0.98%++ 0.99% 1.05%++
1.00% 0.99%++
.............................................................................................................................
Net investment income 5.83%++ 6.25% 6.60%++ 6.61% 7.07%++
6.97% 6.93%++
.............................................................................................................................
PORTFOLIO TURNOVER RATE 41% 21% 12% 23% 0%
19% 39%
.............................................................................................................................
</TABLE>
<TABLE>
<CAPTION>
Six Months Year ended April Year ended June
Year ended December
Ended 30,
30, 31,
October 31, 1998 ------------------ ------------------
- -----------------------
(Unaudited) 1998 1997 (c) 1996 1995 (b)
1994 1993 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
<C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.68 $ 9.39 $ 9.42 $ 9.65 $ 9.07 $
10.05 $ 10.00
-------- -------- -------- -------- --------
- -------- --------
....................................................................................................................................
INCOME FROM INVESTMENT OPERATIONS
....................................................................................................................................
Net investment income 0.26 0.53 0.46 0.56 0.29
0.61 0.63
....................................................................................................................................
Net realized and unrealized gains or losses
on securities 0.23 0.29 (0.03) (0.23) 0.58
(0.98) 0.05
-------- -------- -------- -------- --------
- -------- --------
....................................................................................................................................
Total from investment operations 0.49 0.82 0.43 0.33 0.87
(0.37) 0.68
-------- -------- -------- -------- --------
- -------- --------
....................................................................................................................................
LESS DISTRIBUTIONS FROM NET INVESTMENT INCOME (0.26) (0.53) (0.46) (0.56) (0.29)
(0.61) (0.63)
-------- -------- -------- -------- --------
- -------- --------
....................................................................................................................................
NET ASSET VALUE, END OF PERIOD $ 9.91 $ 9.68 $ 9.39 $ 9.42 $ 9.65 $
9.07 $ 10.05
-------- -------- -------- -------- --------
- -------- --------
....................................................................................................................................
TOTAL RETURN+ 5.07% 8.96% 4.65% 3.50% 9.76%
(3.75) 6.91%
....................................................................................................................................
RATIOS/SUPPLEMENTAL DATA
....................................................................................................................................
NET ASSETS, END OF PERIOD (THOUSANDS) $132,259 $130,576 $142,371 $165,988 $192,490
$195,571 $236,696
....................................................................................................................................
RATIOS TO AVERAGE NET ASSETS
Expenses 1.74%++ 1.78% 1.73%++ 1.74% 1.79%++
1.54% 1.19%++
....................................................................................................................................
Expenses, after fee credits 1.74%++ 1.78% 1.73%++ --
- -- -- --
....................................................................................................................................
Expenses, excluding fee waivers and expense
reimbursement 1.74%++ 1.78% 1.73%++ 1.74% 1.80%++
1.58% 1.50%++
....................................................................................................................................
Net investment income 5.14%++ 5.56% 5.85%++ 5.85% 6.32%++
6.42% 6.44%++
...................................................................................................................................
PORTFOLIO TURNOVER RATE 41% 21% 12% 23%
0% 19% 39%
....................................................................................................................................
</TABLE>
+ Excluding applicable sales charges.
++ Annualized.
(a) For the period from January 11, 1993 (commencement of class operations) to
December 31, 1993.
(b) For the six months ended June 30, 1995. The Fund changed its fiscal year
end from December 31 to June 30, effective June 30, 1995.
(c) For the ten months ended April 30, 1997. The Fund changed its fiscal year
end from June 30 to April 30, effective April 30, 1997.
See Combined Notes to Financial Statements.
24
<PAGE>
[LOGO OF U.S. GOVERNMENT FUND APPEARS HERE]
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended Year ended April 30, Year ended June 30,
October 31, 1998 ------------------------ ------------------- Period ended
(Unaudited) 1998 1997 (c) 1996 1995 (d) December 31, 1994
(d)
- -----------------------------------------------------------------------------------------------------------------------
CLASS C SHARES
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.68 $ 9.39 $ 9.42 $ 9.65 $ 9.07 $ 9.39
------ ---------- ---------- --------- --------- ------
.......................................................................................................................
INCOME FROM INVESTMENT
OPERATIONS
.......................................................................................................................
Net investment income 0.26 0.53 0.46 0.56 0.29 0.20
.......................................................................................................................
Net realized and
unrealized gains or
losses on securities 0.23 0.29 (0.03) (0.23) 0.58 (0.32)
------ ---------- ---------- --------- --------- ------
......................................................................................................................
Total from investment
operations 0.49 0.82 0.43 0.33 0.87 (0.12)
------ ---------- ---------- --------- --------- ------
......................................................................................................................
LESS DISTRIBUTIONS FROM
NET INVESTMENT INCOME (0.26) (0.53) (0.46) (0.56) (0.29) (0.20)
------ ---------- ---------- --------- --------- ------
.......................................................................................................................
NET ASSET VALUE, END OF
PERIOD $ 9.91 $ 9.68 $ 9.39 $ 9.42 $ 9.65 $ 9.07
------ ---------- ---------- --------- --------- ------
.......................................................................................................................
TOTAL RETURN+ 5.06% 8.96% 4.65% 3.50% 9.76% (1.30%)
.......................................................................................................................
RATIOS/SUPPLEMENTAL DATA
......................................................................................................................
NET ASSETS, END OF
PERIOD (THOUSANDS) $5,833 $ 5,697 $ 455 $ 649 $ 350 $ 266
.......................................................................................................................
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.74%++ 1.78% 1.73%++ 1.74% 1.79%++ 1.71%++
.......................................................................................................................
Expenses, after fee
credits 1.74%++ 1.78% 1.73%++ -- -- --
.......................................................................................................................
Expenses, excluding fee
waivers and expense
reimbursement 1.74%++ 1.78% 1.73%++ 1.74% 1.80%++ 1.75%++
.......................................................................................................................
Net investment income 5.13%++ 5.49% 5.85%++ 5.87% 6.36%++ 6.70%++
.......................................................................................................................
PORTFOLIO TURNOVER RATE 41% 21% 12% 23% 0% 19%
.......................................................................................................................
</TABLE>
<TABLE>
<CAPTION>
Six Months Year ended April Year ended June
Ended 30, 30, Year ended December 31,
October 31, 1998 ------------------ ------------------ -----------------------
(Unaudited) 1998 1997 (c) 1996 1995 (b) 1994 1993 (a)
- ----------------------------------------------------------------------------------------------------------------------
CLASS Y SHARES
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.68 $ 9.39 $ 9.42 $ 9.65 $ 9.07 $ 10.05 $ 10.25
-------- -------- -------- -------- ------- ----------- -----------
......................................................................................................................
INCOME FROM INVESTMENT
OPERATIONS
.....................................................................................................................
Net investment income 0.30 0.63 0.54 0.66 0.34 0.69 0.25
......................................................................................................................
Net realized and
unrealized gains or
losses on securities 0.23 0.29 (0.03) (0.23) 0.58 (0.98)
(0.20)
-------- -------- -------- -------- ------- ----------- -----------
......................................................................................................................
Total from investment
operations 0.53 0.92 0.51 0.43 0.92 (0.29) 0.05
-------- -------- -------- -------- ------- ----------- -----------
.....................................................................................................................
LESS DISTRIBUTIONS FROM
NET INVESTMENT INCOME (0.30) (0.63) (0.54) (0.66) (0.34) (0.69)
(0.25)
-------- -------- -------- -------- ------- ----------- -----------
......................................................................................................................
NET ASSET VALUE, END OF
PERIOD $ 9.91 $ 9.68 $ 9.39 $ 9.42 $ 9.65 $ 9.07 $ 10.05
-------- -------- -------- -------- ------- ----------- -----------
......................................................................................................................
TOTAL RETURN 5.60% 10.05% 5.52% 4.54% 10.30% (2.94%)
0.49%
......................................................................................................................
RATIOS/SUPPLEMENTAL DATA
......................................................................................................................
NET ASSETS, END OF
PERIOD (THOUSANDS) $186,414 $155,836 $127,099 $121,569 $16,934 $ 15,595 $ 14,486
......................................................................................................................
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.74%++ 0.78% 0.73%++ 0.74% 0.79%++ 0.71%
0.48%++
......................................................................................................................
Expenses, after fee
credits 0.74%++ 0.78% 0.73%++ -- -- -- --
.....................................................................................................................
Expenses, excluding fee
waivers and expense
reimbursement 0.74%++ 0.78% 0.73%++ 0.74% 0.80%++ 0.75%++
0.79%++
......................................................................................................................
Net investment income 6.13%++ 6.55% 6.85%++ 6.86% 7.31%++ 7.27%
7.20%++
......................................................................................................................
PORTFOLIO TURNOVER RATE 41% 21% 12% 23% 0% 19%
39%
......................................................................................................................
</TABLE>
+ Excluding applicable sales charges.
++ Annualized.
(a) For the period from January 11, 1993 (commencement of class operations) to
December 31, 1993.
(b) For the six months ended June 30, 1995. The Fund changed its fiscal year
end from December 31 to June 30, effective June 30, 1995.
(c) For the ten months ended April 30, 1997. The Fund changed its fiscal year
end from June 30 to April 30, effective April 30, 1997.
(d) For the period from September 2, 1994 (commencement of class operations)
to December 31, 1994.
See Combined Notes to Financial Statements.
25
<PAGE>
[LOGO OF DIVERSIFIED BOND FUND APPEARS HERE]
SCHEDULE OF INVESTMENTS
October 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
ASSET-BACKED SECURITIES - 5.8% (A)
$ 3,500,000 Carco Auto Loan Master Trust, Series 1997-1, Class
A,
(Est. Maturity 2000), 6.689%, 8/15/04............. $ 3,584,630
3,100,000 Corestates Home Equity Trust, Series 1996-1, Class
A4,
(Est. Maturity 2000), 7.00%, 6/15/12.............. 3,286,000
Merrill Lynch Mortgage Investors, Inc.:
59 Series 1991-D, Class A,
(Est. Maturity 1999), 9.00%, 7/15/11............... 59
3,113,236 Series 1991-G, Class B,
(Est. Maturity 2000), 9.15%, 10/15/11.............. 3,140,477
1,552,402 Series 1992-B, Class B,
(Est. Maturity 1999), 8.50%, 4/15/12............... 1,579,569
3,514,691 Series 1992-D, Class B,
(Est. Maturity 2001), 8.50%, 6/15/17............... 3,883,207
318,980 Mississippi Auto Grantor Trust, Series 1995-1,
(Est. Maturity 1998),
6.20%, 7/15/01 (c)................................ 324,977
3,300,000 Southern Pacific Secured Assets Corp.,
Series 1996-3, Class A4,
(Est. Maturity 2002), 7.60%, 10/25/27............. 3,522,821
505,000 University Support Services, Inc., Series 1992-CD,
Class D,
(Est. Maturity 1999), 9.00%, 11/1/07.............. 503,422
4,000,000 Western Financial Owner Trust, Series 1997-C, Class
CTFS,
(Est. Maturity 2001), 6.30%, 3/20/05.............. 4,088,750
2,093,915 World Omni Automobile Lease, Securitization Trust,
Series 1997-A, Class A4,
(Est. Maturity 2001), 6.90%, 6/25/03.............. 2,150,178
5,000,000 Zale Funding Trust,
Series 94-1, Class A2,
(Est. Maturity 1999), 7.325%, 3/15/03............. 5,071,875
------------
Total Asset-Backed Securities (cost $29,951,525)... 31,135,965
------------
CORPORATE BONDS - 51.6%
ADVERTISING & RELATED
SERVICES - 0.9%
2,800,000 Hollinger International,
Sr. Notes (Subord.),
9.25%, 2/1/06..................................... 2,898,000
2,000,000 K-III Communications Corp.,
Sr. Notes,
8.50%, 2/1/06..................................... 2,040,000
------------
4,938,000
------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - CONTINUED
AEROSPACE & DEFENSE - 2.8%
$ 250,000 BE Aerospace, Inc.,
Sr. Notes (Subord.),
9.50%, 11/1/08 (c)................................. $ 250,000
5,000,000 Lockheed Martin Corp.,
Notes,
7.25%, 5/15/06..................................... 5,388,150
5,000,000 Northrop Grumman Corp.,
Deb.,
9.375%, 10/15/24................................... 5,769,600
3,000,000 Raytheon Co.,
Deb.,
6.75%, 3/15/18..................................... 3,060,810
500,000 Sequa Corp.,
Sr. Notes,
8.75%, 12/15/01.................................... 505,000
------------
14,973,560
------------
AUTOMOTIVE EQUIPMENT &
MANUFACTURING - 1.3%
3,000,000 Ford Motor Co.,
Deb.,
6.625%, 10/1/28.................................... 2,872,860
2,000,000 Hayes Wheels International,
Series B, Sr. Notes (Subord.),
9.125%, 7/15/07.................................... 2,020,000
2,000,000 Walbro Corp.,
Series B, Sr. Notes,
10.125%, 12/15/07 (c)(e)........................... 1,820,000
------------
6,712,860
------------
BANKS - 3.5%
4,750,000 Amsouth Bancorporation,
Deb. (Subord.),
6.75%, 11/1/25..................................... 4,937,292
4,000,000 BankBoston NA,
Trust 00008,
6.375%, 4/15/08.................................... 3,979,000
9,000,000 Barnett Capital I,
Capital Securities,
8.06%, 12/1/26..................................... 9,676,260
------------
18,592,552
------------
BUILDING, CONSTRUCTION &
FURNISHINGS - 1.1%
3,000,000 Glenborough Realty Trust, REIT,
Sr. Notes,
7.625%, 3/15/05 (c)................................ 3,042,540
2,000,000 HMH Properties, Inc.,
Series B, Sr. Notes,
7.875%, 8/1/08..................................... 1,935,000
750,000 MDC Holdings, Inc.,
Sr. Notes,
8.375%, 2/1/08..................................... 714,375
------------
5,691,915
------------
CABLE/OTHER VIDEO
DISTRIBUTION - 0.8%
Comcast Corp.:
1,000,000 Sr. Deb. (Subord.)
9.50%, 1/15/08...................................... 1,051,540
2,000,000 Sr. Deb. (Subord.),
9.38%, 5/15/05...................................... 2,149,200
</TABLE>
26
<PAGE>
[LOGO OF DIVERSIFIED BOND FUND APPEARS HERE]
SCHEDULE OF INVESTMENTS(continued)
October 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - CONTINUED
CABLE/OTHER VIDEO
DISTRIBUTION - CONTINUED
$ 1,000,000 Lenfest Communications, Inc.,
Sr. Secd. Notes,
8.375%, 11/1/05................................... $ 1,040,000
------------
4,240,740
------------
CHEMICAL & AGRICULTURAL
PRODUCTS - 1.2%
2,000,000 ISP Holdings, Inc.,
Series B, Sr. Notes,
9.75%, 2/15/02.................................... 2,020,000
1,250,000 Polymer Group, Inc.,
Series B, Sr. Notes (Subord.),
9.00%, 7/1/07..................................... 1,162,500
3,000,000 Scotts & Sons Co.,
Sr. Notes (Subord.),
9.875%, 8/1/04.................................... 3,060,000
------------
6,242,500
------------
COMMUNICATION SYSTEMS & SERVICES - 0.6%
2,000,000 Century Communications Corp.,
Sr. Notes,
9.75%, 2/15/02.................................... 2,130,000
950,000 TCI Communications, Inc.,
Sr. Notes,
8.75%, 8/1/15..................................... 1,152,778
------------
3,282,778
------------
CONSUMER PRODUCTS &
SERVICES - 2.6%
4,200,000 American Greetings Corp.,
Sr. Deb.,
6.10%, 8/1/28..................................... 4,245,780
2,500,000 Great Atlantic & Pacific Tea Inc.,
Sr. Notes,
7.70%, 1/15/04.................................... 2,610,550
5,000,000 Mattel Inc.,
Notes,
6.125%, 7/15/05................................... 5,061,200
2,000,000 Westpoint Stevens Inc.,
Sr. Notes,
7.875%, 6/15/05................................... 2,025,000
------------
13,942,530
------------
DIVERSIFIED COMPANIES - 1.1%
5,000,000 Grand Metropolitan Investment Corp.,
Gtd. Sr. Notes,
7.45%, 4/15/35.................................... 5,688,800
------------
ENVIRONMENTAL SERVICES - 0.2%
1,000,000 USA Waste Services, Inc.,
Notes,
6.125%, 7/15/01................................... 1,003,950
------------
FINANCE & INSURANCE - 16.3%
3,000,000 CB Richards Ellis Services, Inc.,
Sr. Notes (Subord.),
8.875%, 6/1/06.................................... 2,880,000
5,000,000 Commercial Credit Group, Inc.,
Notes,
10.00%, 5/15/09................................... 6,387,000
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - CONTINUED
FINANCE & INSURANCE - CONTINUED
$ 2,500,000 General Electric Capital Corp.,
Deb.,
8.75%, 5/21/07..................................... $ 3,048,175
7,850,000 GS Escrow Corp.,
Sr. Notes,
6.75%, 8/1/01 (c).................................. 7,853,689
9,000,000 John Hancock Mutual Life Insurance Co.,
Notes,
7.375%, 2/15/24 (c)................................ 9,549,090
4,000,000 Liberty Mutual Insurance Co.,
Surplus Notes,
7.697%, 10/15/2097 (c)............................. 3,965,200
10,500,000 MBIA, Inc.,
Deb.,
9.375%, 2/15/11.................................... 13,379,835
10,000,000 Nationwide CSN Trust,
Sr. Notes,
9.875%, 2/15/25 (c)................................ 12,278,200
Paine Webber Group, Inc.:
3,000,000 Sr. Notes,
8.25%, 5/1/02....................................... 3,162,120
5,000,000 Sr. Notes (Subord.),
7.75%, 9/1/02....................................... 5,208,150
6,300,000 Prudential Life Insurance Corp.,
Notes,
7.125%, 7/1/07 (c)................................. 6,656,958
2,000,000 Reliance Group Holdings, Inc.,
Sr. Deb. (Subord.),
9.75%, 11/15/03.................................... 2,096,120
10,000,000 SunLife Canada US Capital Trust I,
Capital Securities,
8.526%, 5/29/49 (c)................................ 10,619,200
------------
87,083,737
------------
FOOD & BEVERAGE PRODUCTS - 1.2%
Aurora Foods, Inc.:
2,000,000 Series B, Sr. Notes (Subord.), 9.88%, 2/15/07....... 2,135,000
1,000,000 Series D, Sr. Notes (Subord.), 9.88%, 2/15/07....... 1,067,500
1,250,000 Chiquita Brands International, Inc.,
Sr. Notes,
9.625%, 1/15/04.................................... 1,212,500
2,000,000 Coca Cola Enterprises, Inc.,
Notes,
5.75%, 11/1/08..................................... 1,986,660
------------
6,401,660
------------
GAMING - 1.3%
3,300,000 Boyd Gaming Corp.,
Sr. Notes (Subord.),
9.50%, 7/15/07..................................... 3,135,000
1,000,000 Grand Casino, Inc.,
Gtd. 1st Mtge. Notes,
10.125%, 12/1/03................................... 1,055,000
1,500,000 Players International, Inc.,
Sr. Notes,
10.875%, 4/15/05................................... 1,582,500
1,000,000 Station Casinos, Inc.,
Sr. Notes (Subord.),
9.75%, 4/15/07..................................... 970,000
------------
6,742,500
------------
</TABLE>
27
<PAGE>
[LOGO OF DIVERSIFIED BOND FUND APPEARS HERE]
SCHEDULE OF INVESTMENTS(continued)
October 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - CONTINUED
HEALTHCARE PRODUCTS &
SERVICES - 0.7%
$ 2,550,000 Mariner Post Acute Network, Inc.,
Sr. Notes (Subord.),
9.50%, 11/1/07..................................... $ 2,365,125
1,650,000 Tenet Healthcare Corp.,
Sr. Notes,
7.875%, 1/15/03.................................... 1,670,625
------------
4,035,750
------------
INFORMATION SERVICES &
TECHNOLOGY - 0.9%
3,500,000 Comdisco, Inc.,
Notes,
6.125%, 1/15/03.................................... 3,498,145
1,000,000 Unisys Corp.,
Series B, Sr. Notes,
12.00%, 4/15/03.................................... 1,110,000
------------
4,608,145
------------
METALS & MINING - 0.2%
1,500,000 WHX Corp.,
Sr. Notes,
10.50%, 4/15/05 (c)................................ 1,357,500
------------
MACHINERY - DIVERSIFIED - 2.0%
800,000 Eagle Picher Industries, Inc.,
Sr. Notes (Subord.),
9.375%, 3/1/08 (c)................................. 704,000
8,850,000 John Deere Capital Corp.,
Deb.,
8.625%, 8/1/19..................................... 10,066,875
------------
10,770,875
------------
MANUFACTURING - DISTRIBUTING - 0.3%
2,000,000 Mark IV Industries, Inc.,
Sr. Notes (Subord.),
7.50%, 9/1/07...................................... 1,855,000
------------
OIL/ENERGY - 3.2%
2,500,000 ANR Pipeline Corp.,
Deb.,
9.625%, 11/1/21.................................... 3,160,025
2,250,000 Cross Timbers Oil Co.,
Series B, Sr. Notes (Subord.),
8.75%, 11/1/09..................................... 1,912,500
1,050,000 HS Resources, Inc.,
Sr. Notes (Subord.),
9.25%, 11/15/06.................................... 976,500
3,850,000 Occidental Petroleum Corp.,
Deb.,
9.25%, 8/1/19...................................... 4,282,933
Transocean Offshore, Inc.:
2,500,000 Deb.,
8.00%, 4/15/27...................................... 2,565,125
4,000,000 Notes,
7.45%, 4/15/27...................................... 4,215,880
------------
17,112,963
------------
PAPER & PACKAGING - 0.2%
1,000,000 Printpack, Inc.,
Series B, Sr. Notes,
9.875%, 8/15/04.................................... 1,000,000
------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - CONTINUED
PUBLISHING, BROADCASTING & ENTERTAINMENT - 0.4%
$ 2,300,000 Sinclair Broadcast Group, Inc.,
Sr. Notes (Subord.),
10.00%, 9/30/05.................................... $ 2,311,500
------------
RETAILING & WHOLESALE - 0.4%
1,800,000 Sears Roebuck & Co.,
Notes,
10.00%, 2/3/12..................................... 2,411,172
------------
TELECOMMUNICATION SERVICES & EQUIPMENT - 4.9%
10,250,000 Bellsouth Capital Funding Corp.,
Deb.,
7.12%, 7/15/2097................................... 10,940,850
2,000,000 GTE Corp.,
Deb.,
6.46%, 4/15/08..................................... 2,163,280
2,500,000 GTE Florida, Inc.,
Deb.,
6.86%, 2/1/28...................................... 2,619,450
4,800,000 MCI Worldcom, Inc.,
Sr. Notes,
7.75%, 4/1/07...................................... 5,363,040
2,000,000 Price Communications Wireless,
Sr. Secd. Notes,
9.125%, 12/15/06 (c)............................... 2,000,000
1,450,000 Rural Cellular Corp.,
Series B, Sr. Notes (Subord.),
9.625%, 5/15/08.................................... 1,388,375
2,000,000 Talton Holdings, Inc.,
Series B, Sr. Notes,
11.00%, 6/30/07.................................... 1,900,000
------------
26,374,995
------------
TRANSPORTATION - 2.7%
2,000,000 Airplanes Pass Through Trust,
Series 1, Class D,
10.875%, 3/15/19................................... 2,125,980
7,000,000 Golden State Petroleum Transportation Corp.,
1st Mtge. Notes,
8.04%, 2/1/19...................................... 6,770,582
5,250,000 Norfolk Southern Corp.,
Notes,
7.05%, 5/1/37...................................... 5,640,600
------------
14,537,162
------------
UTILITIES - ELECTRIC - 0.8%
2,000,000 Alabama Power Co.,
Series G, Sr. Notes,
5.375%, 10/1/08.................................... 1,945,500
2,000,000 American Radio Systems Corp.,
Sr. Notes (Subord.),
9.00%, 2/1/06...................................... 2,140,000
------------
4,085,500
------------
Total Corporate Bonds (cost $272,110,857)........... 275,998,644
------------
</TABLE>
28
<PAGE>
[LOGO OF DIVERSIFIED BOND FUND APPEARS HERE]
SCHEDULE OF INVESTMENTS(continued)
October 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COLLATERALLIZED MORTGAGED OBLIGATIONS - 14.1% (A)
$ 1,000,000 Criimi Mae Commercial Mortgage Trust,
Series 1998-C1, Class A2,
(Est. Maturity 2008),
7.00%, 3/2/11 (c)................................... $ 960,625
5,563,608 Criimi Mae Financial Corp.,
Series 1, Class A,
(Est. Maturity 2004),
7.00%, 1/1/33....................................... 5,344,541
1,000,000 Federal Farm Credit Assn.
Secured Lending Corp.,
Series 1997-1, Class B1,
(Est. Maturity 2009),
7.74%, 6/18/13 (c).................................. 1,071,875
5,000,000 Federal Home Loan Mortgage Corp.,
Series 47, Class A,
(Est. Maturity 2004),
5.00%, 2/25/22...................................... 4,895,695
2,696,412 Financial Asset Securitization Inc., Series 1997-
NAM2, Class B2,
(Est. Maturity 2008),
7.881%, 7/25/27..................................... 2,784,846
12,510,527 Financial National Mortgage Assn., Series 1993-248,
Class SA,
(Est. Maturity 2004),
5.004%, 8/25/23..................................... 11,968,946
3,745,000 GE Capital Mortgage Services, Inc., Series 1994-27,
Class A6,
(Est. Maturity 2014),
6.50%, 7/25/24...................................... 3,645,495
9,754,096 Independent National Mortgage Corp.,
Series 1997-A, Class A,
(Est. Maturity 2002),
7.81%, 12/26/26 (c)................................. 9,757,144
391,595 KS Mortgage Capital LP,
Series 1995-1, Class A1,
(Est. Maturity 1999),
7.227%, 4/20/02 (c)................................. 400,406
1,369,270 Marine Midland Bank,
Series 1991-3, Class B1,
(Est. Maturity 1999),
8.00%, 12/25/22..................................... 1,362,423
Merrill Lynch Mortgage Investors, Inc.:
5,000,000 Series 1996-C1, Class B,
(Est. Maturity 2005),
7.42%, 4/25/28....................................... 5,282,275
3,000,000 Series 1997-C2, Class B,
(Est. Maturity 2008),
6.70%, 12/10/29...................................... 3,075,000
2,700,000 Merrill Lynch Trust,
Series 35, Class G,
(Est. Maturity 2001),
8.45%, 11/1/18...................................... 2,826,549
866,398 Mid State Trust,
Series 6, Class A3,
(Est. Maturity 2005),
7.54%, 7/1/35....................................... 876,951
3,300,000 Morgan Stanley Capital I, Inc., Commercial Mtge.
Certificate,
Series 1997-C1, Class B,
(Est. Maturity 2007),
7.69%, 2/15/20...................................... 3,547,781
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COLLATERALLIZED MORTGAGED OBLIGATIONS - CONTINUED
$ 2,672,757 Paine Webber Mortgage Acceptance Corp. IV,
Series 1993-4, Class M1,
(Est. Maturity 2003),
7.50%, 5/25/23.................................... $ 2,738,741
PNC Mortgage Securities Corp.:
5,922,533 Series 1997-4,Class 2PP1,
(Est. Maturity 2002),
7.50%, 7/25/27..................................... 5,996,989
2,470,437 Series 1997-4, Class 2PP3,
(Est. Maturity 2007),
7.25%, 7/25/27..................................... 2,530,906
5,000,000 Residential Asset Securitization Trust,
Series 1996-A3, Class A9,
(Est. Maturity 2004),
7.50%, 7/25/26.................................... 5,097,656
1,500,000 Resolution Trust Corp.,
Series 1995-1, Class A2C,
(Est. Maturity 1999),
7.50%, 10/25/28................................... 1,506,893
------------
Total Collaterallized Mortgaged Obligations
(cost $70,874,431)................................. 75,671,737
------------
FOREIGN BONDS (U.S. DOLLARS) - 5.2%
2,650,000 Aztec Holdings SA DE CV,
Sr. Secd. Notes,
11.00%, 6/15/02................................... 1,855,000
1,000,000 Cenargo International Ltd.,
1st Mtge. Notes,
9.75%, 6/15/08 (c)................................ 872,500
2,000,000 Colombia (Republic of),
Deb.,
8.625%, 4/1/08 (e)................................ 1,550,000
1,000,000 Great Central Mines Ltd.,
Sr. Notes,
8.875%, 4/1/08 (c)................................ 955,000
3,500,000 Grupo Televisa SA DE CV,
Series B, Sr. Notes,
11.875%, 5/15/06 (e).............................. 3,412,500
1,500,000 National Westminster Bancorp,
Gtd. Capital Notes (Subord.),
9.375%, 11/15/03.................................. 1,727,310
3,000,000 Petroleum Geo-Services,
Notes,
7.50%, 3/31/07.................................... 3,149,910
1,000,000 Rogers Cablesystems Ltd.,
Notes
9.625%, 8/1/02.................................... 1,050,000
60,000,000 Skandinaviska Enskilda,
(Eff. Yield 7.14%),
0.00%, 5/26/33 (b)................................ 5,850,000
2,750,000 Stena AB,
Sr. Notes,
10.50%, 12/15/05.................................. 2,787,813
5,000,000 YPF Sociedad Anonima,
Sr. Notes,
7.25%, 3/15/03.................................... 4,569,500
------------
Total Foreign Bonds (U.S. Dollars) (cost
$29,449,644)...................................... 27,779,533
------------
</TABLE>
29
<PAGE>
[LOGO OF DIVERSIFIED BOND FUND APPEARS HERE]
SCHEDULE OF INVESTMENTS(continued)
October 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
FOREIGN BONDS (NON-U.S. DOLLARS) - 4.1%
$ 2,750,000 Canada (Government of),
CAD 5.25%, 11/5/08.................................... $ 2,749,367
100,436,000 Nykredit,
DKK 6.00%, 10/1/26.................................... 15,672,992
21,086,000 Realkredit Danmark,
DKK 6.00%, 10/1/26.................................... 3,301,174
------------
Total Foreign Bonds (Non U.S. Dollars) (cost
$19,837,280)..................................... 21,723,533
------------
MORTGAGE-BACKED SECURITIES - 3.5%
Federal Housing Assn., Charles River Mortgage:
6,705,622 9.13%, 8/1/34..................................... 7,220,949
4,982,085 10.25%, 8/1/34.................................... 5,277,921
6,009,500 Financial National Mortgage Assn.,
6.50%, 10/1/28................................... 6,056,434
------------
Total Mortgage-Backed Securities (cost
$18,580,535)..................................... 18,555,304
------------
MUNICIPAL BONDS - 1.2%
2,500,000 Cook County, IL,
GO, Refunding,
Series A,
5.00%, 11/15/22.................................. 2,465,825
3,918,445 Los Angeles, CA,
Improvement Bond Act,
Assessment District No. 1,
Notes,
8.48%, 9/2/15 (c)................................ 4,131,178
------------
Total Municipal Bonds (cost $6,373,669)........... $ 6,597,003
------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS - 10.6%
$33,050,000 U.S. Treasury Bond STRIPS
(Eff. Yield 8.71%),
0.00%, 11/15/21 (b) (c) .......................... $ 9,106,266
27,150,000 U.S. Treasury Bonds,
6.375%, 8/15/27 (c) .............................. 31,286,031
U.S. Treasury Notes:
11,250,000 5.38%, 6/30/03..................................... 11,747,475
3,955,000 6.63%, 5/15/07..................................... 4,490,784
------------
Total U.S. Treasury Obligations
(cost $53,765,449)................................ $ 56,630,556
------------
MONEY MARKET SHARES - 0.7% (COST $4,074,790)
4,074,790 Navigator Prime Portfolio (f)...................... 4,074,790
------------
REPURCHASE AGREEMENT - 4.6%
24,821,000 Keystone Joint Repurchase Agreement, (Investments
in repurchase agreements, in a joint trading
account, dated 10/30/98, (cost $24,821,000)
maturity value $24,835,961), 5.50%, 11/2/98 (d)... 24,821,000
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS - (COST $529,839,180)..... 101.4% 542,988,065
OTHER ASSETS AND LIABILITIES - NET.......... (1.4) (7,664,136)
----- ------------
NET ASSETS - ............................... 100.0% $535,323,929
===== ============
</TABLE>
(a) The estimated maturity of a Collateralized Mortgage Obligation
("CMO"), an adjustable rate mortgage security or an asset-backed se-
curity is based on currrent and projected prepayment rates. Changes
in interest rates can cause the estimated maturity to differ from the
listed date.
(b) Effective yield (calculated at the date of purchase) is the yield at
which the bond accretes on an annual basis until maturity date.
(c) Securities that may be resold to "qualified institutional buyers" un-
der Rule 144A or securities offered pursuant to Section 4(2) of the
Securities Act of 1933, as amended. These securities have been deter-
mined to be liquid under guidelines established by the Board of
Trustees.
(d) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at October 31, 1998.
(e) All or a portion of this security is currently on loan. (See Note 5)
(f) Represents investment of cash collateral received for securities on
loan.
SUMMARY OF ABBREVIATIONS
CAD Canadian Dollar
DKK Danish Krone
GO General Obligation
REIT Real Estate Investment Trust
STRIPS Separate Trading of Registered Interest and Principal Securities
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
<TABLE>
<CAPTION>
EXCHANGE U.S. $ VALUE AT IN EXCHANGE NET UNREALIZED
DATE CONTRACTS TO DELIVER OCTOBER 31, 1998 FOR U.S. $ GAIN OR LOSS
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Forward foreign currency exchange contract to buy:
1/19/99 72,712,500 Danish Krone $11,565,251 $11,812,799 $(247,548)
==========
Forward foreign currency exchange contract to sell:
1/19/99 188,866,000 Danish Krone $30,039,988 $30,313,137 $ 273,149
==========
</TABLE>
See Combined Notes to Financial Statements.
30
<PAGE>
[LOGO OF HIGH YIELD BOND FUND APPEARS HERE]
SCHEDULE OF INVESTMENTS
October 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - 77.5%
AEROSPACE & DEFENSE - 0.5%
$ 2,000,000 BE Aerospace, Inc.,
Sr. Notes (Subord.),
9.50%, 11/1/08 (d)................................ $ 2,000,000
------------
AUTOMOTIVE EQUIPMENT & MANUFACTURING - 2.6%
Exide Corp.:
1,600,000 Sr. Notes,
10.00%, 4/15/05.................................... 1,336,000
5,833,000 Sr. Notes (Subord.),
2.90%, 12/15/05 (d)................................ 2,675,889
7,000,000 Walbro Corp.,
Series B, Sr. Notes,
10.125%, 12/15/07................................. 6,370,000
------------
10,381,889
------------
BUILDING, CONSTRUCTION &
FURNISHINGS - 1.0%
4,500,000 Del Webb Corp.,
Sr. Debs. (Subord.),
9.375%, 5/1/09.................................... 4,185,000
------------
CABLE/OTHER VIDEO
DISTRIBUTION - 8.8%
4,300,000 Acme Television LLC,
Series B, Sr. Disc. Notes,
Step Bond,
(Eff. Yield 10.49%),
0.00%, 9/30/04 (c) ............................... 3,268,000
750,000 Adelphia Communications Corp.,
Series B, Sr. Notes,
10.50%, 7/15/04................................... 804,375
5,000,000 Charter Communications,
South Eastern Capital LLP,
Series B, Sr. Notes,
11.25%, 3/15/06................................... 5,400,000
5,000,000 Frontiervision LP,
Sr. Notes (Subord.),
11.00%, 10/15/06.................................. 5,525,000
5,250,000 Galaxy Telecom LP,
Sr. Notes (Subord.),
12.375%, 10/1/05.................................. 5,617,500
5,500,000 Lodgenet Entertainment Corp.,
Sr. Notes,
10.25%, 12/15/06.................................. 5,451,875
5,000,000 Pegasus Communications Corp.,
Series B, Sr. Notes,
9.625%, 10/15/05.................................. 4,650,000
10,500,000 United International Holdings, Inc., Series B, Sr.
Disc. Notes,
Step Bond,
(Eff. Yield 9.77%),
0.00%, 2/15/08 (c) ............................... 4,725,000
------------
35,441,750
------------
CHEMICAL & AGRICULTURAL
PRODUCTS - 0.7%
1,000,000 Polymer Group, Inc.,
Series B, Sr. Notes (Subord.),
9.00%, 7/1/07..................................... 930,000
2,000,000 Texas Petrochemical Corp.,
Series B, Sr. Notes (Subord.),
11.125%, 7/1/06................................... 1,860,000
------------
2,790,000
------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - CONTINUED
CONSUMER PRODUCTS &
SERVICES - 2.9%
Affinity Group, Inc.:
$ 4,000,000 Sr. Notes,
11.00%, 4/1/07...................................... $ 4,115,000
1,000,000 Sr. Notes (Subord.),
11.50%, 10/15/03.................................... 1,010,000
4,000,000 Loewen Group International, Inc.,
Series 4, Sr. Notes,
8.25%, 10/15/03.................................... 3,170,000
5,935,000 Revlon Worldwide Corp.,
Series B, Sr. Secd. Disc. Notes,
Step Bond,
(Eff. Yield 9.82%),
0.00%, 3/15/01 (c) ................................ 3,471,975
------------
11,766,975
------------
ENVIRONMENTAL SERVICES - 0.7%
3,500,000 Allied Waste Industries, Inc.,
Sr. Disc. Notes,
Step Bond,
(Eff. Yield 9.85%),
0.00%, 6/1/07 (c) ................................. 2,625,000
------------
FINANCE & INSURANCE - 1.1%
5,000,000 Unicco Service Co.,
Series B, Sr. Notes (Subord.),
9.875%, 10/15/07................................... 4,387,500
------------
FOOD & BEVERAGE PRODUCTS - 3.4%
5,000,000 Aurora Foods, Inc.,
Series D, Sr. Notes (Subord.),
9.875%, 2/15/07.................................... 5,337,500
3,500,000 RAB Enterprises, Inc.,
Sr. Notes,
10.50%, 5/1/05 (d)................................. 3,250,625
5,000,000 Sun World International, Inc.,
Series B, 1st Mtge. Notes,
11.25%, 4/15/04.................................... 5,125,000
------------
13,713,125
------------
GAMING - 3.0%
3,000,000 Ameristar Casinos, Inc.,
Series B, Sr. Notes (Subord.),
10.50%, 8/1/04..................................... 2,685,000
1,750,000 Boyd Gaming Corp.,
Sr. Notes (Subord.),
9.50%, 7/15/07..................................... 1,662,500
1,300,000 Casino America, Inc.,
Sr. Secd. Notes,
12.50%, 8/1/03..................................... 1,397,500
Station Casinos, Inc.,
Sr. Notes (Subord.):
2,000,000 9.63%, 6/1/03....................................... 1,960,000
1,000,000 9.75%, 4/15/07...................................... 970,000
3,800,000 Trump Atlantic City Associates,
1st Mtge. Notes,
11.25%, 5/1/06..................................... 3,306,000
------------
11,981,000
------------
</TABLE>
31
<PAGE>
[LOGO OF HIGH YIELD BOND FUND APPEARS HERE]
SCHEDULE OF INVESTMENTS(continued)
October 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - CONTINUED
HEALTHCARE PRODUCTS &
SERVICES - 1.9%
$ 3,500,000 Integrated Health Services, Inc.,
Sr. Notes (Subord.),
9.25%, 1/15/08.................................... $ 3,202,500
4,000,000 Quorum Health Group, Inc.,
Sr. Notes (Subord.),
8.75%, 11/1/05.................................... 3,800,000
1,000,000 Tenet Healthcare Corp.,
Sr. Notes (Subord.),
6.00%, 12/1/05.................................... 833,750
------------
7,836,250
------------
INFORMATION SERVICES &
TECHNOLOGY - 0.8%
3,000,000 Unisys Corp.,
Series B, Sr. Notes,
12.00%, 4/15/03................................... 3,330,000
------------
LEISURE & TOURISM - 2.4%
5,000,000 Cinemark USA, Inc.,
Series B, Sr. Notes (Subord.),
9.625%, 8/1/08.................................... 5,050,000
5,000,000 Premier Cruise Ltd.,
Sr. Notes,
11.00%, 3/15/08 (d)............................... 2,500,000
2,150,000 Six Flags Theme Parks, Inc.,
Series A, Sr. Notes (Subord.),
Step Bond,
(Eff. Yield 10.70%),
12.25%, 6/15/05 (c) .............................. 2,300,500
------------
9,850,500
------------
METALS & MINING - 1.8%
5,000,000 Acme Metals, Inc.,
Sr. Notes,
10.875%, 12/15/07 (f)............................. 875,000
5,050,000 Anker Coal Group, Inc.,
Series B, Sr. Notes,
9.75%, 10/1/07.................................... 1,717,000
5,000,000 NSM Steel, Inc.,
Sr. Mtge. Notes,
12.00%, 2/1/06 (d)................................ 1,337,500
3,500,000 P & L Coal Holdings Corp.,
Sr. Notes (Subord.),
9.625%, 5/15/08 (d)............................... 3,491,250
------------
7,420,750
------------
MACHINERY - DIVERSIFIED - 1.8%
3,750,000 Eagle Picher Industries, Inc.,
Sr. Notes (Subord.),
9.375%, 3/1/08 (d)................................ 3,300,000
4,000,000 Motors and Gears, Inc.,
Series D, Sr. Notes,
10.75%, 11/15/06.................................. 3,940,000
------------
7,240,000
------------
OIL/ENERGY - 8.9%
5,000,000 Benton Oil & Gas Co.,
Sr. Notes,
9.375%, 11/1/07................................... 3,500,000
4,000,000 Chiles Offshore LLC,
Sr. Notes,
10.00%, 5/1/08.................................... 3,220,000
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - CONTINUED
OIL/ENERGY - CONTINUED
$ 4,700,000 Cross Timbers Oil Co.,
Series B, Sr. Notes (Subord.),
8.75%, 11/1/09..................................... $ 3,995,000
4,750,000 Energy Corp. of America,
Series A, Sr. Notes (Subord.),
9.50%, 5/15/07..................................... 4,227,500
4,850,000 Giant Industries, Inc.,
Sr. Notes (Subord.),
9.00%, 9/1/07...................................... 4,534,750
3,000,000 Houston Exploration Co.,
Series B, Sr. Notes (Subord.),
8.625%, 1/1/08..................................... 2,820,000
7,700,000 HS Resources, Inc.,
Sr. Notes (Subord.),
9.25%, 11/15/06.................................... 7,161,000
4,725,000 Parker Drilling Co.,
Series D, Sr. Notes,
9.75%, 11/15/06.................................... 4,406,063
2,350,000 Petsec Energy, Inc.,
Series B, Sr. Notes (Subord.),
9.50%, 6/15/07..................................... 1,880,000
------------
35,744,313
------------
PAPER & PACKAGING - 3.7%
5,150,000 Printpack, Inc.,
Series B, Sr. Notes (Subord.),
10.625%, 8/15/06................................... 5,150,000
5,000,000 Riverwood International Corp.,
Sr. Notes,
10.25%, 4/1/06..................................... 4,625,000
Stone Container Corp.:
3,750,000 1st Mtge. Notes,
10.75%, 10/1/02..................................... 3,740,625
1,250,000 Sr. Notes,
9.88%, 2/1/01....................................... 1,231,250
------------
14,746,875
------------
PUBLISHING, BROADCASTING & ENTERTAINMENT - 2.5%
5,000,000 American Lawyer Media, Inc.,
Series B, Sr. Notes (Subord.),
9.75%, 12/15/07.................................... 4,975,000
6,925,000 Capstar Broadcasting Partners,
Sr. Disc. Notes,
12.75%, 2/1/09..................................... 5,055,250
------------
10,030,250
------------
RETAILING & WHOLESALE - 5.8%
4,350,000 AFC Enterprises, Inc.,
Sr. Notes (Subord.),
10.25%, 5/15/07.................................... 4,176,000
3,500,000 FRD Acquisition Co.,
Series B, Sr. Notes,
12.50%, 7/15/04.................................... 3,430,000
4,000,000 Jitney Jungle Stores America, Inc.,
Sr. Notes (Subord.),
10.375%, 9/15/07................................... 3,840,000
2,000,000 NE Restaurant, Inc.,
Sr. Notes,
10.75%, 7/15/08 (d)................................ 1,895,000
</TABLE>
32
<PAGE>
[LOGO OF HIGH YIELD BOND FUND APPEARS HERE]
SCHEDULE OF INVESTMENTS(continued)
October 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - CONTINUED
RETAIL & WHOLESALE - CONTINUED
$ 5,150,000 Pamida, Inc.,
Sr. Notes (Subord.),
11.75%, 3/15/03.................................... $ 4,892,500
5,000,000 Perkins Family Restaurant,
Series B, Sr. Notes,
10.125%, 12/15/07.................................. 5,150,000
------------
23,383,500
------------
TELECOMMUNICATION SERVICES & EQUIPMENT - 14.7%
4,000,000 Echostar Communications Corp.,
Sr. Secd. Disc. Notes,
Step Bond,
(Eff. Yield 9.49%),
0.00%, 6/1/04 (c).................................. 3,860,000
3,000,000 Global Crossing Holdings Ltd.,
Sr. Notes,
9.625%, 5/15/08 (d)................................ 2,925,000
2,500,000 ICO Global Commerce,
Sr. Notes,
15.00%, 8/1/05..................................... 1,550,000
5,000,000 Intermedia Capital Partners,
Sr. Notes,
11.25%, 8/1/06..................................... 5,462,500
2,500,000 Jordan Telecommunication Products,
Series B, Sr. Notes,
9.875%, 8/1/07..................................... 2,250,000
4,000,000 Level 3 Communications, Inc.,
Sr. Notes,
9.125%, 5/1/08..................................... 3,710,153
5,000,000 MJD Communications, Inc.,
Sr. Notes (Subord.),
9.50%, 5/1/08 (d).................................. 4,875,000
4,500,000 Mobile Telecommunication Technology,
Sr. Disc. Notes (Subord.),
13.50%, 12/15/02................................... 4,837,500
8,000,000 Nextel International, Inc.,
Sr. Disc. Notes,
Step Bond,
(Eff. Yield 10.00%),
0.00%, 4/15/08 (c)................................. 2,940,000
4,000,000 Paging Network, Inc.,
Sr. Notes (Subord.),
10.00%, 10/15/08................................... 3,880,000
Price Communications Cellular Holding:
1,000,000 Sr. Notes, PIK,
11.25%, 8/15/08..................................... 865,000
5,000,000 Sr. Secd. Notes,
9.13%, 12/15/06 (d)................................. 5,000,000
4,200,000 Qwest Communications
International, Inc.,
Sr. Notes,
7.50%, 11/1/08 (d)................................. 4,171,608
5,000,000 Rural Cellular Corp.,
Series B, Sr. Notes (Subord.),
9.625%, 5/15/08.................................... 4,787,500
6,025,000 Talton Holdings, Inc.,
Series B, Sr. Notes,
11.00%, 6/30/07.................................... 5,723,750
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - CONTINUED
TELECOMMUNICATION SERVICES & EQUIPMENT - CONTINUED
$ 1,000,000 Telewest Communications PLC,
Sr. Notes,
11.25%, 11/1/08 (d)................................ $ 1,045,000
5,000,000 USN Communications, Inc.,
Series B, Sr. Disc. Notes,
Step Bond,
(Eff. Yield 10.23%),
0.00%, 8/15/04 (c)................................. 1,500,000
------------
59,383,011
------------
TEXTILE & APPAREL - 1.2%
5,460,000 Delta Mills, Inc.,
Series B, Sr. Notes,
9.625%, 9/1/07..................................... 5,023,200
------------
TRANSPORTATION - 7.3%
5,000,000 American Commercial Lines
LLC,
Sr. Notes,
10.25%, 6/30/08 (d)................................ 4,875,000
5,000,000 Global Ocean Carriers Limited,
Sr. Notes,
10.25%, 7/15/07.................................... 2,900,000
5,000,000 Greyhound Lines, Inc.,
Series B, Sr. Notes,
11.50%, 4/15/07.................................... 5,500,000
3,500,000 Outboard Marine Corp.,
Sr. Notes (d),
10.75%, 6/1/08..................................... 3,272,500
4,250,000 Pegasus Shipping Hellas Limited,
Series A, 1st Preferred Mtge. Notes,
11.875%, 11/15/04.................................. 4,037,500
Trans World Airlines, Inc.:
3,000,000 Sr. Notes,
11.38%, 3/1/06...................................... 2,580,000
5,000,000 Sr. Secd. Notes,
11.50%, 12/15/04.................................... 4,600,000
2,536,000 Valujet, Inc.,
Sr. Notes,
10.25%, 4/15/01.................................... 1,521,600
------------
29,286,600
------------
Total Corporate Bonds
(cost $353,089,094)................................ 312,547,488
------------
FOREIGN BONDS (U.S. DOLLARS) - 8.4%
Applied International Finance Co.:
2,000,000 8.68%, 6/28/99...................................... 1,560,000
3,000,000 Secd. Notes,
10.25%, 10/1/00..................................... 1,950,000
1,675,000 Aztec Holdings SA DE CV,
Sr. Secd. Notes,
11.00%, 6/15/02.................................... 1,172,500
3,000,000 Cenargo International Ltd.,
1st Mtge. Notes,
9.75%, 6/15/08 (d)................................. 2,617,500
6,000,000 Clearnet Communications, Inc.,
Sr. Disc. Notes,
Step Bond,
(Eff. Yield 9.71%),
0.00%, 12/15/05 (c)................................ 4,740,000
</TABLE>
33
<PAGE>
[LOGO OF HIGH YIELD BOND FUND APPEARS HERE]
SCHEDULE OF INVESTMENTS(continued)
October 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
FOREIGN BONDS (U.S. DOLLARS) - CONTINUED
$ 5,000,000 Great Central Mines Ltd.,
Sr. Notes,
8.875%, 4/1/08 (d)................................ $ 4,775,000
5,000,000 Grupo Televisa SA DE CV,
Sr. Disc. Notes,
Step Bond,
(Eff. Yield 9.90%),
0.00%, 5/15/08 (c)................................ 3,375,000
3,500,000 Microcell Telecommunications,
Series B, Sr. Disc. Notes,
Step Bond,
(Eff. Yield 9.68%),
0.00%, 6/1/06 (c)................................. 2,170,000
3,000,000 Norampac, Inc.,
Sr. Notes,
9.50%, 2/1/08..................................... 2,820,000
5,000,000 Star Choice Communications,
Sr. Secd. Notes,
13.00%, 12/15/05.................................. 4,550,000
1,750,000 Stena Line AB,
Sr. Notes,
10.625%, 6/1/08................................... 1,561,875
3,500,000 TV Azteca SA DE CV,
Series B, Sr. Notes,
10.50%, 2/15/07................................... 2,450,000
------------
Total Foreign Bonds (U.S. Dollars)
(cost $39,445,692)................................ 33,741,875
------------
FOREIGN BONDS (NON-U.S. DOLLARS) - 0.7%
9,500,000 Microcell Telecommunications,
CAD Series B, Sr. Disc. Notes,
Step Bond,
(Eff. Yield 10.23%),
0.00%, 10/15/07
(cost $4,411,743) (c).............................. 2,955,282
------------
<CAPTION>
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS AND WARRANTS - 0.9%
AEROSPACE & DEFENSE - 0.1%
76,000 CHC Helicopter Corp.,
Warrants (a)...................................... 228,000
------------
AUTOMOTIVE EQUIPMENT & MANUFACTURING - 0.0% (G)
9,500 Chatwins Group, Inc.,
Warrants (a) (d).................................. 9,500
------------
CABLE/OTHER VIDEO
DISTRIBUTION - 0.0% (G)
115,800 Star Choice Communications, Warrants (a)........... 180,117
------------
FINANCE & INSURANCE - 0.3%
1,053,108 Ampex Corp.,
Common Stock (a).................................. 1,053,108
------------
FOOD & BEVERAGE PRODUCTS - 0.0% (G)
131,250 Specialty Foods Acquisition Corp.,
Common Stock (a).................................. 6,562
------------
GAMING - 0.2%
10,775,000 Gold River Hotel and Casino Corp.,
Common Stock (a) (b) (h).......................... 107,750
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS AND WARRANTS - CONTINUED
GAMING - CONTINUED
Isle of Capri Casinos, Inc.:
47,778 Warrants (a) (h)................................... $ 478
254,790 Common Stock (a)................................... 684,748
------------
792,976
------------
TELECOMMUNICATION SERVICES &
EQUIPMENT - 0.3%
4,000 Econophone, Inc.,
Warrants (a) (d).................................. 72,000
750 Metronet Communications Corp.,
Class B, Warrants (a) (d)......................... 22,969
Nextel Communications, Inc.:
9,510 Warrants (a) (d)................................... 285
10,843 Common Stock, Class A (a) (d)...................... 196,190
25,800 Price Communications Cellular,
Warrants (a)...................................... 855,270
------------
1,146,714
------------
Total Common Stocks and Warrants (cost
$6,197,970)....................................... 3,416,977
------------
PREFERRED STOCKS - 5.8%
CABLE/OTHER VIDEO
DISTRIBUTION - 0.8%
28,500 Adelphia Communications Corp.,
Series B.......................................... 3,249,000
------------
ENGINEERING - 1.7%
60,582 CSC Holdings, Inc.,
Series M (a)...................................... 6,633,729
------------
FINANCE & INSURANCE - 2.8%
Ampex Corp.:
7,671 Redeemable Preferred Stock (a) (h)................. 7,311,997
3,510 Convertible Preferred Stock (a) (h)................ 2,868,372
12,800 Sinclair Capital................................... 1,280,000
------------
11,460,369
------------
PUBLISHING, BROADCASTING & ENTERTAINMENT - 0.5%
20,000 Primedia, Inc.,
Series F.......................................... 1,980,000
------------
Total Preferred Stocks
(cost $22,285,403)................................ 23,323,098
------------
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount
- --------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT - 7.0%
$28,406,000 Keystone Joint Repurchase Agreement (Investments in
repurchase agreements, in a joint trading account,
dated 10/30/98, maturity value $28,419,019),
5.50%, 11/2/98
(cost $28,406,000) (e)........................... $ 28,406,000
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS -
(COST $453,835,902)........................ 100.3% 404,390,720
OTHER ASSETS AND
LIABILITIES - NET.......................... (0.3) (1,059,166)
----- ------------
NET ASSETS - ............................... 100.0% $403,331,554
===== ============
</TABLE>
34
<PAGE>
[LOGO OF HIGH YIELD BOND FUND APPEARS HERE]
Schedule of Investments(continued)
October 31, 1998 (Unaudited)
(a) Non-income producing.
(b) All or a portion of these securities are either (1) restricted secu-
rities (i.e., securities which may not be publicly sold without reg-
istration under the Federal Securities Act of 1933) or (2) illiquid
securities, and are valued using market quotations where readily
available. In the absence of market quotations, the securities are
valued based upon their fair value determined under procedures ap-
proved by the Board of Trustees. The Fund may make investments in an
amount up to 15% of the value of the Fund's net assets in such secu-
rities.
(c) Effective yield (calculated at the date of purchase) is the yield at
which the bond accretes on an annual basis until maturity date.
(d) Securities that may be resold to "qualified institutional buyers" un-
der Rule 144A or securities offered pursant to Section 4(2) of the
Securities Act of 1933, as amended. These securities have been deter-
mined to be liquid under guidelines established by the Board of
Trustees.
(e) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at October 31, 1998.
(f) This obligation has filed Chapter 11 bankruptcy and has discontinued
accrual of interest income.
(g) Less than 1/10th of one percent of net assets.
(h) Security has been fair valued in accord with procedures established
by the Board of Trustees.
Summary of Abbreviations:
CAD Canadian Dollar
PIK Paid in Kind Security
See Combined Notes to Financial Statements.
35
<PAGE>
[LOGO OF STRATEGIC INCOME FUND APPEARS HERE]
SCHEDULE OF INVESTMENTS
October 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
ASSET-BACKED SECURITIES - 0.7%
$ 1,850,000 PNC Student Loan Trust,
Series 97-2, Class A7,
6.728%, 1/25/07 (cost $1,850,000).................. $ 2,042,881
------------
CORPORATE BONDS - 34.2%
AEROSPACE & DEFENSE - 0.6%
1,700,000 Sequa Corp.,
Sr. Notes,
8.75%, 12/15/01.................................... 1,717,000
------------
AUTOMOTIVE EQUIPMENT & MANUFACTURING - 1.3%
1,000,000 Exide Corp.,
Sr. Notes (Subord.),
2.90%, 12/15/05 (d)................................ 458,750
1,000,000 Oxford Automotive, Inc.,
Sr. Notes (Subord.),
10.125%, 6/15/07................................... 920,000
2,500,000 Walbro Corp.,
Series B, Sr. Notes,
10.125%, 12/15/07.................................. 2,275,000
------------
3,653,750
------------
BUILDING, CONSTRUCTION & FURNISHINGS - 0.6%
2,000,000 Del Webb Corp.,
Sr. Debs. (Subord.),
9.375%, 5/1/09..................................... 1,860,000
------------
CABLE/OTHER VIDEO
DISTRIBUTION - 2.8%
1,150,000 Acme Television LLC,
Series B, Sr. Disc. Notes,
Step Bond,
(Eff. Yield 10.39%),
0.00%, 9/30/04 (c) ................................ 874,000
Adelphia Communications Corp.,
Series B, Sr. Notes:
2,000,000 9.875%, 3/1/07...................................... 2,150,000
250,000 10.50%, 7/15/04..................................... 268,125
1,500,000 Galaxy Telecom LP,
Sr. Notes (Subord.),
12.375%, 10/1/05................................... 1,605,000
1,000,000 Lenfest Communications, Inc.,
Sr. Notes,
8.375%, 11/1/05.................................... 1,040,000
1,000,000 Lodgenet Entertainment Corp.,
Sr. Notes,
10.25%, 12/15/06................................... 991,250
1,000,000 Pegasus Communications Corp.,
Series B, Sr. Notes,
9.625%, 10/15/05................................... 930,000
------------
7,858,375
------------
CHEMICAL & AGRICULTURAL
PRODUCTS - 0.2%
500,000 Texas Petrochemical Corp.,
Series B, Sr. Notes (Subord.),
11.125%, 7/1/06.................................... 450,000
------------
CONSUMER PRODUCTS &
SERVICES - 1.8%
2,000,000 Loewen Group International, Inc.,
Series 4, Sr. Notes,
8.25%, 10/15/03.................................... 1,585,000
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - CONTINUED
CONSUMER PRODUCTS &
SERVICES - CONTINUED
$ 1,000,000 MTS, Inc.,
Sr. Notes (Subord.),
9.375%, 5/1/05.................................... $ 905,000
3,000,000 Revlon Consumer Products Corp.,
Sr. Notes (Subord.),
8.625%, 2/1/08.................................... 2,700,000
------------
5,190,000
------------
FINANCE & INSURANCE - 1.5%
1,500,000 Americo Life, Inc.,
Sr. Notes (Subord.),
9.25%, 6/1/05..................................... 1,486,875
1,500,000 Presidential Life Corp.,
Sr. Notes,
9.50%, 12/15/00................................... 1,535,625
1,250,000 Reliance Group Holdings, Inc.,
Sr. Notes,
9.00%, 11/15/00................................... 1,288,963
------------
4,311,463
------------
FOOD & BEVERAGE PRODUCTS - 0.5%
500,000 Chiquita Brands International, Inc.,
Sr. Notes,
9.625%, 1/15/04................................... 485,000
1,000,000 Sun World International, Inc.,
Series B, 1st Mtge. Notes,
11.25%, 4/15/04................................... 1,025,000
------------
1,510,000
------------
GAMING - 0.5%
1,500,000 Boyd Gaming Corp.,
Sr. Notes (Subord.),
9.50%, 7/15/07.................................... 1,425,000
------------
INFORMATION SERVICES &
TECHNOLOGY - 0.4%
1,000,000 Unisys Corp.,
Sr. Notes,
11.75%, 10/15/04.................................. 1,130,000
------------
LEISURE & TOURISM - 1.4%
500,000 Cinemark USA, Inc.,
Series B, Sr. Notes (Subord.),
9.625%, 8/1/08.................................... 505,000
2,000,000 Loews Cineplex Entertainment Corp.,
Sr. Notes (Subord.),
8.875%, 8/1/08.................................... 1,960,000
1,000,000 Premier Cruise Ltd.,
Sr. Notes,
11.00%, 3/15/08 (d)............................... 500,000
1,000,000 Prime Hospitality Corp.,
Series B, Sr. Notes (Subord.),
9.75%, 4/1/07..................................... 947,500
------------
3,912,500
------------
METALS & MINING - 2.5%
2,000,000 Acme Metals, Inc.,
Sr. Notes,
10.875%, 12/15/07 (f)............................. 350,000
500,000 Anker Coal Group, Inc.,
Series B, Sr. Notes,
9.75%, 10/1/07.................................... 170,000
</TABLE>
36
<PAGE>
[LOGO OF STRATEGIC INCOME FUND APPEARS HERE]
SCHEDULE OF INVESTMENTS(continued)
October 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - CONTINUED
METALS & MINING - CONTINUED
$ 1,500,000 Armco, Inc.,
Sr. Notes,
9.375%, 11/1/00................................... $ 1,507,500
1,000,000 Bethlehem Steel Corp.,
Sr. Notes,
10.375%, 9/1/03................................... 1,020,000
1,000,000 Envirosource, Inc.,
Sr. Notes,
9.75%, 6/15/03.................................... 960,000
2,000,000 NSM Steel, Inc.,
Sr. Mtge. Notes,
12.00%, 2/1/06 (d)................................ 535,000
3,000,000 WHX Corp.,
Sr. Notes,
10.50%, 4/15/05 (d)............................... 2,715,000
------------
7,257,500
------------
OIL/ENERGY - 3.2%
1,500,000 Benton Oil & Gas Co.,
Sr. Notes,
9.375%, 11/1/07................................... 1,050,000
1,000,000 Energy Corp. of America,
Series A, Sr. Notes (Subord.),
9.50%, 5/15/07.................................... 890,000
1,500,000 Houston Exploration Co.,
Series B, Sr. Notes (Subord.),
8.625%, 1/1/08.................................... 1,410,000
2,150,000 HS Resources, Inc.,
Sr. Notes (Subord.),
9.25%, 11/15/06................................... 1,999,500
1,875,000 Parker Drilling Co.,
Series D, Sr. Notes,
9.75%, 11/15/06................................... 1,748,437
2,500,000 Petsec Energy, Inc.,
Series B, Sr. Notes (Subord.),
9.50%, 6/15/07.................................... 2,000,000
------------
9,097,937
------------
PAPER & PACKAGING - 0.8%
350,000 Printpack, Inc.,
Series B, Sr. Notes (Subord.),
10.625%, 8/15/06.................................. 350,000
2,000,000 Stone Container Finance Co.,
Sr. Notes,
11.50%, 8/15/06 (d)............................... 1,860,000
------------
2,210,000
------------
PUBLISHING, BROADCASTING & ENTERTAINMENT - 1.8%
1,500,000 American Lawyer Media, Inc.,
Series B, Sr. Notes (Subord.),
9.75%, 12/15/07................................... 1,492,500
1,000,000 Big Flower Press Holdings, Inc.,
Sr. Notes (Subord.),
8.875%, 7/1/07.................................... 975,000
1,625,000 Capstar Broadcasting Partners,
Sr. Disc. Notes,
12.75%, 2/1/09.................................... 1,186,250
564,000 SFX Broadcasting, Inc.,
Series B, Sr. Notes (Subord.),
10.75%, 5/15/06................................... 604,890
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - CONTINUED
PUBLISHING, BROADCASTING &
ENTERTAINMENT - CONTINUED
$ 1,000,000 Sinclair Broadcast Group, Inc.,
Sr. Notes (Subord.),
10.00%, 9/30/05................................... $ 1,005,000
------------
5,263,640
------------
RETAILING & WHOLESALE - 2.8%
2,000,000 Advance Stores Co.,
Sr. Notes (Subord.),
10.25%, 4/15/08 (d)............................... 1,900,000
825,000 AFC Enterprises, Inc.,
Sr. Notes (Subord.),
10.25%, 5/15/07................................... 792,000
1,500,000 FRD Acquisition Co.,
Series B, Sr. Notes,
12.50%, 7/15/04................................... 1,470,000
2,000,000 Jitney Jungle Stores America, Inc.,
Sr. Notes (Subord.),
10.375%, 9/15/07.................................. 1,920,000
1,000,000 Pathmark Stores, Inc.,
Sr. Notes (Subord.),
9.625%, 5/1/03.................................... 975,000
1,000,000 Perkins Family Restaurant,
Series B, Sr. Notes,
10.125%, 12/15/07................................. 1,030,000
------------
8,087,000
------------
TELECOMMUNICATION SERVICES &
EQUIPMENT - 5.5%
1,000,000 Centennial Cellular Corp.,
Sr. Notes,
8.875%, 11/1/01................................... 1,050,000
1,450,000 Echostar Communications Corp.,
Sr. Secd. Disc. Notes,
Step Bond,
(Eff. Yield 10.05%),
0.00%, 6/1/04 (c)................................. 1,399,250
500,000 Intermedia Capital Partners,
Sr. Notes,
11.25%, 8/1/06.................................... 546,250
2,400,000 Nextel Communications, Inc.,
Sr. Disc. Notes,
Step Bond,
(Eff. Yield 7.29%),
0.00%, 8/15/04 (c)................................ 2,238,000
3,000,000 Price Communication Cellular Holding,
Sr. Notes, PIK,
11.25%, 8/15/08................................... 2,595,000
500,000 Price Communications Wireless,
Sr. Secd. Notes,
9.125%, 12/15/06 (d).............................. 500,000
2,500,000 Rural Cellular Corp.,
Series B, Sr. Notes (Subord.),
9.625%, 5/15/08................................... 2,393,750
3,000,000 Talton Holdings, Inc.,
Series B, Sr. Notes,
11.00%, 6/30/07................................... 2,850,000
3,050,000 Winstar Communications, Inc.,
Sr. Disc. Notes,
Step Bond,
(Eff. Yield 9.76%),
0.00%, 10/15/05 (c)............................... 2,135,000
------------
15,707,250
------------
</TABLE>
37
<PAGE>
[LOGO OF STRATEGIC INCOME FUND APPEARS HERE]
SCHEDULE OF INVESTMENTS(continued)
October 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - CONTINUED
TEXTILE & APPAREL - 0.5%
$ 1,500,000 Delta Mills, Inc.,
Series B, Sr. Notes,
9.625%, 9/1/07.................................... $ 1,380,000
------------
TRANSPORTATION - 3.9%
2,000,000 American Commercial Lines LLC,
Sr. Notes,
10.25%, 6/30/08 (d)............................... 1,950,000
1,500,000 Hvide Marine, Inc.,
8.375%, 2/15/08................................... 1,110,000
1,750,000 Pegasus Shipping Hellas Limited,
Series A, 1st Preferred Mtge. Notes,
11.875%, 11/15/04................................. 1,662,500
Piedmont Aviation, Inc.:
852,000 Series A,
9.90%, 1/15/01..................................... 877,151
1,389,000 Series F,
10.15%, 3/28/03.................................... 1,478,215
1,500,000 Sea Containers Limited,
Series B, Sr. Notes,
7.875%, 2/15/08................................... 1,415,625
2,000,000 Trans World Airlines, Inc.,
Sr. Notes,
11.375%, 3/1/06................................... 1,720,000
896,000 U.S. Air, Inc.,
Series 88-B,
9.90%, 1/15/01.................................... 922,262
------------
11,135,753
------------
UTILITIES - 1.6%
1,000,000 Calpine Corp.,
Sr. Notes,
8.75%, 7/15/07.................................... 1,012,500
1,000,000 Cleveland Electric Illuminating Co.,
Series B, 1st Mtge. Notes,
9.50%, 5/15/05.................................... 1,096,570
2,218,808 Tucson Electric,
Series B,
10.211%, 1/1/09................................... 2,329,749
------------
4,438,819
------------
Total Corporate Bonds
(cost $106,226,705)............................... 97,595,987
------------
COLLATERALLIZED MORTGAGED OBLIGATIONS - 0.7%
1,950,819 Independent National Mortgage Corp.,
Series 1997-A, Class A,
(Est. Maturity 2002) 7.79%, 12/26/26, (cost,
$1,947,822) (d) (e)............................... 1,951,429
------------
FOREIGN BONDS (U.S. DOLLARS) - 4.8%
1,750,000 Applied International Finance Co.,
8.68%, 6/28/99.................................... 1,365,000
500,000 Aztec Holdings SA DE CV,
Sr. Secd. Notes,
11.00%, 6/15/02................................... 350,000
1,000,000 Doman Industries Limited,
Sr. Notes,
8.75%, 3/15/04.................................... 700,000
2,000,000 Globo Communicacoes E Participacoes,
Sr. Notes,
10.625%, 12/5/08 (d).............................. 1,080,000
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
FOREIGN BONDS (U.S. DOLLARS) - CONTINUED
$ 325,000 Globo Participacoes,
10.625%, 12/5/08................................ $ 175,500
1,250,000 Great Central Mines Ltd.,
Sr. Notes,
8.875%, 4/1/08 (d).............................. 1,193,750
1,000,000 Grupo Industrial Durango S.A.,
Notes,
12.625%, 8/1/03................................. 775,000
4,000,000 Jamaica (Government of),
10.875%, 6/10/05................................ 3,080,000
2,000,000 Mastellone Hermanos S A,
Sr. Notes,
11.75%, 4/1/08.................................. 1,252,260
800,000 PTC International Finance BV,
Sr. Disc. Notes (Subord.),
Step Bond,
(Eff. Yield 10.14%),
0.00%, 7/1/07 (c)............................... 340,000
1,000,000 Supercanal Holdings S.A.,
Sr. Notes,
11.50%, 5/15/05 (d)............................. 472,500
1,425,000 TV Azteca SA DE CV,
Series B, Sr. Notes,
10.50%, 2/15/07................................. 997,500
4,000,000 TV Bandeirantes,
Sr. Notes,
12.875%, 5/15/06 (d)............................ 1,910,000
------------
Total Foreign Bonds (U.S. Dollars)
(cost $20,525,862).............................. 13,691,510
------------
FOREIGN BONDS (NON-U.S. DOLLARS) - 24.2%
2,250,000 Australia (Commonwealth of), Deb.,
AUD 10.00%, 2/15/06.................................. 1,849,354
3,000,000 CEI Citicorp Holdings,
ARS 11.25%, 2/14/07.................................. 1,695,560
400,000 European Investment Bank,
GBP Bonds,
7.625%, 12/7/06.................................. 754,001
1,868,000,000 Greece (Republic of),
GRD 8.80%, 6/19/07................................... 6,888,072
3,000,000 ICO Global Communications,
XEU 15.25%, 8/1/05................................... 2,241,730
Italy (Republic of), Deb.:
6,595,000,000 6.75%, 2/1/07.................................... 4,651,153
ITL
1,105,000,000 9.50%, 2/1/06.................................... 888,826
ITL
1,500,000 Microcell Telecommunications,
CAD Series B, Sr. Disc. Notes,
Step Bond,
(Eff. Yield 10.28%)
0.00%, 10/15/07 (c).............................. 466,623
7,220,000 New Zealand (Government of),
NZD 7.00%, 7/15/09................................... 4,312,740
3,500,000 NTL, Inc.,
GBP Sr. Notes, Step Bond,
(Eff. Yield 9.82%),
0.00%, 4/1/08 (c)................................ 2,811,814
</TABLE>
38
<PAGE>
[LOGO OF STRATEGIC INCOME FUND APPEARS HERE]
SCHEDULE OF INVESTMENTS(continued)
October 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
FOREIGN BONDS (NON U.S. DOLLARS) - CONTINUED
6,000,000 Quebec (Province of), Deb.,
CAD 9.375%, 1/16/23................................... $ 5,409,916
76,766,000 Realkredit Danmark,
DKK 6.00%, 10/1/29.................................... 11,677,013
25,840,000 Spain (Government of), Deb.,
ESP 5.00%, 1/31/01.................................... 189,406
12,910,000 United Kingdom Treasury, Deb.,
GBP 7.25%, 12/7/07.................................... 25,129,469
------------
Total Foreign Bonds (Non U.S. Dollars) (cost
$71,181,341)..................................... 68,965,677
------------
MORTGAGE-BACKED SECURITIES - 27.7%
Federal Home Loan Mortgage Corp.
$ 14,357,759 7.00%, 5/1/11 - 8/1/28............................ 14,643,318
2,319,550 Federal Home Loan Mortgage Corp.,Participation
Certificate,
7.614%, 4/1/22................................... 2,385,518
Federal National Mortgage Assn.:
7,928,633 6.00%, 8/1/28..................................... 7,834,441
29,962,417 6.50%, 8/1/28 - 9/1/28............................ 30,196,423
17,100,182 7.00%, 9/1/27 - 2/1/28............................ 17,468,861
1,538,453 7.39%, 9/1/21..................................... 1,574,514
1,536,595 7.48%, 12/1/23.................................... 1,552,976
3,414,627 Government National Mortgage Assn., 6.50%,
7/15/09.......................................... 3,483,978
------------
Total Mortgage-Backed Securities
(cost $78,380,172)............................... 79,140,029
------------
U.S. TREASURY OBLIGATIONS - 4.9%
10,300,000 U.S. Treasury Bond STRIPS,
(Eff. Yield 8.71%),
, 0.00%, 11/15/21 (c)............................ 2,837,959
5,000,000 U.S. Treasury Bonds,
6.375%, 8/15/27.................................. 5,761,700
5,225,000 U.S. Treasury Notes,
5.50%, 5/31/03................................... 5,471,568
------------
Total U.S. Treasury Obligations
(cost $13,863,927)............................... 14,071,227
------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS AND WARRANTS - 0.2%
FINANCE & INSURANCE - 0.1%
92,440 Ampex Corp.,
Common Stock (a)................................... $ 92,440
------------
GAMING - 0.1%
Isle Capri Casinos, Inc.:
104,514 Common Stock (a)................................... 280,881
19,582 Warrants (a) (h).................................... 196
------------
281,077
------------
TELECOMMUNICATION SERVICES &
EQUIPMENT - 0.0%
Nextel Communications, Inc.:
3,718 Common Stock, Class A (a) (g)...................... 67,272
4,820 Warrants (a)........................................ 145
------------
67,417
------------
Total Common Stocks and Warrants
(cost $1,582,039).................................. 440,934
------------
PREFERRED STOCKS - 0.3%
FINANCE & INSURANCE - 0.3%
Ampex Corporation:
308 Convertable Preferred Stock (a) (h)................ 251,697
674 Redeemable Preferred Stock (a) (h).................. 642,457
------------
Total Preferred Stocks
(cost $894,154).................................... 894,154
------------
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount
- --------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT - 1.4%
$4,094,000 Keystone Joint Repurchase Agreement (Investments in
repurchase agreements, in a joint trading, account,
dated 10/30/98, maturity value $4,095,876),
5.50%, 11/2/98
(cost $4,094,000) (b).............................. 4,094,000
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS -
(COST $300,548,864).......................... 99.1% 282,887,828
OTHER ASSETS AND LIABILITIES - NET............ 0.9 2,616,831
----- ------------
NET ASSETS - ................................. 100.0% $285,504,659
===== ============
</TABLE>
(a) Non-income producing.
(b) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at October 31, 1998.
(c) Effective yield (calculated at the date of purchase) is the yield at
which the bond accretes on an annual basis until maturity date.
(d) Securities that may be resold to "qualified institutional buyers" un-
der Rule 144A or securities offered pursant to Section 4(2) of the
Securities Act of 1933, as amended. These securities have been deter-
mined to be liquid under guide-lines established by the Board of
Trustees.
(e) The estimated maturity of a Collateralized Mortgage Obligation
("CMO"), an adjustable rate mortgage security or an asset-backed se-
curity is based on currrent and projected prepayment rates. Changes
in interest rates can cause the estimated maturity to differ from the
listed date.
(f) This obligation has filed Chapter 11 bankruptcy and has discontinued
accrual of interest income.
(g) Less than 1/10th of one percent of net assets.
(h) Security has been fair valued in accord with procedures established
by the Board of Trustees.
See Combined Notes to Financial Statements.
39
<PAGE>
[LOGO OF STRATEGIC INCOME FUND APPEARS HERE]
Schedule of Investments(continued)
October 31, 1998 (Unaudited)
Summary of Abbreviations:
ARS Argentine Peso
AUD Australian Dollar
CAD Canadian Dollar
DKK Danish Krone
ESP Spanish Peseta
GBP Pound Sterling
GRD Greek Drachma
ITL Italian Lira
JPY Japenese Yen
PIK Paid in Kind Security
STRIPS Separate Trading of Registered Interest and Principal Securities
XEU European Currency Unit
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
Exchange U.S. $ Value at In Exchange Net Unrealized
Date Contracts to Deliver October 31, 1998 for U.S. $ gain or loss
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Forward foreign currency exchange contracts to sell:
1/14/99 39,200,000 Deutsche Mark $23,747,515 $23,865,331 $117,816
1/5/99 12,000,000 Pound Sterling 20,017,916 20,326,200 308,284
1/13/99 3,600,000 New Zealand Dollar 1,909,620 1,869,300 (40,320)
--------
$385,780
========
</TABLE>
See Combined Notes to Financial Statements.
40
<PAGE>
[LOGO OF U.S. GOVERNMENT FUND APPEARS HERE]
SCHEDULE OF INVESTMENTS
October 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - 6.3%
CABLE/OTHER VIDEO DISTRIBUTION - 0.6%
$ 2,000,000 Time Warner Entertainment Co., L.P., Sr. Debs.,
7.25%, 9/1/08.................................... $ 2,176,694
------------
RETAILING & WHOLESALE - 2.9%
7,000,000 Dayton Hudson Corp.,
Bonds,
5.95%, 12/15/98.................................. 7,090,608
4,000,000 Kroger Co.,
Notes,
6.00%, 1/1/99.................................... 4,040,396
------------
11,131,004
------------
TELECOMMUNICATION SERVICES & EQUIPMENT - 2.8%
10,000,000 Worldcom, Inc.,
Notes,
6.40%, 8/15/05................................... 10,408,600
------------
Total Corporate Bonds
(cost $23,122,819)............................... 23,716,298
------------
MORTGAGE-BACKED SECURITIES - 48.6%
Federal Home Loan Mortgage Corp.:
11,868,298 6.50%, 4/1/26..................................... 11,973,570
9,953,296 7.00%, 7/1/28..................................... 10,164,804
18,935,700 7.50%, 5/1/27 - 8/1/28............................ 19,422,522
3,424,765 8.00%, 7/1/17 - 4/1/22............................ 3,527,854
2,395,729 8.50%, 2/1/17 - 10/1/17........................... 2,499,304
2,309,051 9.00%, 11/1/19 - 4/1/21........................... 2,466,965
872,762 9.50%, 9/1/20..................................... 942,871
1,120,686 10.00%, 12/1/19 - 8/1/21.......................... 1,194,261
1,475,102 10.50%, 12/1/19................................... 1,564,906
Federal National Mortgage Assn.:
10,000,000 5.75%, 4/15/03.................................... 10,383,250
5,323,435 6.00%, 2/25/05.................................... 5,336,611
3,963,244 6.50%, 1/1/24..................................... 3,996,686
14,066,555 7.00%, 8/1/25 - 11/1/26........................... 14,390,849
8,988,685 7.50%, 7/1/23 - 5/1/27............................ 9,227,556
7,067,732 8.00%, 8/1/25..................................... 7,307,186
1,097,984 9.50%, 6/1/22..................................... 1,172,441
815,268 11.00%, 1/1/16.................................... 905,893
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
MORTGAGE-BACKED SECURITIES - CONTINUED
Government National Mortgage Assn.:
$ 8,491,875 6.00%, 2/20/28 - 12/15/99.......................... $ 8,445,435
6,025,232 6.50%, 10/15/25 - 5/20/28.......................... 6,084,803
16,733,052 7.00%, 12/15/22 - 5/15/26.......................... 17,134,422
9,326,046 7.50%, 2/15/22 - 8/15/23........................... 9,620,815
15,985,268 8.00%, 9/15/09 - 9/15/26........................... 16,582,803
7,950,836 8.50%, 12/15/21 - 7/15/24.......................... 8,417,528
3,701,911 9.00%, 1/15/20 - 6/15/21........................... 3,947,162
3,509,394 9.50%, 1/15/19 - 2/15/21........................... 3,790,145
847,097 10.00%, 12/15/18................................... 925,719
------------
Total Mortgage-Backed Securities
(cost $178,394,024)............................... 181,426,361
------------
U.S. TREASURY OBLIGATIONS - 44.2%
U.S. Treasury Bonds:
30,015,000 5.50%, 8/15/28..................................... 31,609,577
12,000,000 8.25%, 5/15/05..................................... 12,641,256
15,100,000 8.50%, 2/15/20..................................... 20,998,453
7,650,000 8.75%, 11/15/08 - 8/15/20.......................... 10,029,334
20,010,000 8.88%, 8/15/17 - 2/15/19........................... 28,392,285
9,300,000 9.25%, 2/15/16..................................... 13,426,884
U.S. Treasury Notes:
14,500,000 6.25%, 6/30/02..................................... 15,406,264
3,000,000 6.75%, 4/30/00..................................... 3,103,128
21,800,000 7.75%, 11/30/99 - 1/31/00.......................... 22,614,391
6,200,000 8.00%, 5/15/01..................................... 6,740,566
------------
Total U.S. Treasury Obligations
(cost $157,083,610)............................... 164,962,138
------------
REPURCHASE AGREEMENT - 0.9%
3,252,152 Donaldson, Lufkin & Jenrette Securities Corp.,
5.40% dated 10/30/98, due 11/2/98, maturity value,
$3,253,615
(cost $3,252,152) (a)............................. 3,252,152
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS -
(COST $361,852,605)............................. 100.0% 373,356,949
OTHER ASSETS AND
LIABILITIES - NET............................... 0.0 94,688
------ ------------
NET ASSETS - .................................... 100.0% $373,451,637
====== ============
</TABLE>
(a) Collateralized by $3,076,000 U.S. Treasury Notes, 6.25%, due 8/31/02;
value, including accrued interest $3,318,017.
See Combined Notes to Financial Statements.
41
<PAGE>
[LOGO OF LONG TERM BOND FUND APPEARS HERE]
Statements of Assets and Liabilities
October 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Strategic U.S.
Diversified High Yield Income Government
Fund Fund Fund Fund
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Identified cost of
securities............. $ 529,839,180 $ 453,835,902 $300,548,864 $361,852,605
Net unrealized gain or
loss on securities.... 13,148,885 (49,445,182) (17,661,036) 11,504,344
------------- ------------- ------------ ------------
Investments at market
value.................. $ 542,988,065 $ 404,390,720 $282,887,828 $373,356,949
Cash.................... 468 16,716 474 0
Receivable for
investments sold....... 1,811,382 5,656,372 1,289,451 52,523
Receivable for Fund
shares sold............ 885,981 194,537 341,753 3,465,846
Interest receivable..... 8,012,713 9,651,576 5,759,937 4,556,896
Unrealized appreciation
on forward foreign
currency exchange
contracts.............. 273,149 0 426,100 0
Prepaid expenses and
other assets........... 367,736 208,750 64,607 91,664
- ------------------------------------------------------------------------------------
Total assets.......... 554,339,494 420,118,671 290,770,150 381,523,878
- ------------------------------------------------------------------------------------
Liabilities
Distributions payable... 1,102,445 1,380,141 881,029 524,588
Payable for investments
purchased.............. 7,559,403 14,818,394 1,404,688 6,879,833
Payable for Fund shares
redeemed............... 494,500 266,903 1,891,077 345,428
Payable for closed
forward foreign
currency contracts..... 0 0 844,051 0
Payable for reverse
repurchase agreement... 5,112,736 0 0 0
Payable for securities
on loan................ 4,074,790 0 0 0
Unrealized depreciation
on forward foreign
currency exchange
contracts.............. 247,548 0 40,320 0
Advisory fees payable... 241,275 150,146 60,839 154,091
Distribution fees
payable................ 119,392 89,555 84,295 53,579
Due to other related
parties................ 7,000 5,505 4,201 6,383
Accrued expenses and
other liabilities...... 56,476 76,473 54,991 108,339
- ------------------------------------------------------------------------------------
Total liabilities..... 19,015,565 16,787,117 5,265,491 8,072,241
- ------------------------------------------------------------------------------------
Net assets.............. $ 535,323,929 $ 403,331,554 $285,504,659 $373,451,637
- ------------------------------------------------------------------------------------
Net assets represented
by
Paid-in capital......... $ 684,243,618 $ 848,246,842 $378,875,302 $386,576,585
Undistributed net
investment income...... 396,334 (1,538,518) (1,679,081) 0
Accumulated net
realized loss on
securities and foreign
currency related
transactions........... (162,489,555) (393,931,588) (74,421,790) (24,629,292)
Net unrealized gain or
loss on securities and
foreign currency
related transactions... 13,173,532 (49,445,182) (17,269,772) 11,504,344
- ------------------------------------------------------------------------------------
Total net assets...... $ 535,323,929 $ 403,331,554 $285,504,659 $373,451,637
- ------------------------------------------------------------------------------------
Net assets consists of
Class A................. $ 464,828,856 $ 324,330,730 $164,213,007 $ 48,945,226
Class B................. 70,245,132 70,596,077 102,861,621 132,259,387
Class C................. 202,417 970,665 16,601,223 5,832,818
Class Y................. 47,524 7,434,082 1,828,808 186,414,206
- ------------------------------------------------------------------------------------
$ 535,323,929 $ 403,331,554 $285,504,659 $373,451,637
- ------------------------------------------------------------------------------------
Shares outstanding
Class A................. 29,438,762 84,170,021 24,495,701 4,937,457
Class B................. 4,448,804 18,321,338 15,272,557 13,341,442
Class C................. 12,820 251,907 2,467,874 588,378
Class Y................. 3,010 1,929,317 279,601 18,804,647
- ------------------------------------------------------------------------------------
Net asset value per
share
Class A................. $ 15.79 $ 3.85 $ 6.70 $ 9.91
- ------------------------------------------------------------------------------------
Class A--Offering price
(based on sales charge
of 4.75%).............. $ 16.58 $ 4.04 $ 7.03 $ 10.40
- ------------------------------------------------------------------------------------
Class B................. $ 15.79 $ 3.85 $ 6.74 $ 9.91
- ------------------------------------------------------------------------------------
Class C................. $ 15.79 $ 3.85 $ 6.73 $ 9.91
- ------------------------------------------------------------------------------------
Class Y................. $ 15.79 $ 3.85 $ 6.54 $ 9.91
- ------------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
42
<PAGE>
[LOGO OF LONG TERM BOND FUND APPEARS HERE]
Statements of Operations
Six Months Ended October 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Strategic U.S.
Diversified High Yield Income Government
Fund Fund Fund Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income
Interest income (net of
foreign withholding
taxes of $0, $0,
$9,354 and $0,
respectively)......... $20,429,891 $ 22,417,476 $ 12,614,788 $11,720,143
Dividend income........ 57,031 351,650 0 0
Security lending
income................ 34,512 0 0 0
- --------------------------------------------------------------------------------
Total investment
income................ 20,521,434 22,769,126 12,614,788 11,720,143
- --------------------------------------------------------------------------------
Expenses
Advisory fee........... 1,483,801 1,408,826 943,462 853,244
Distribution Plan
expenses.............. 964,714 894,144 862,553 726,777
Transfer agent fees.... 806,659 738,540 407,694 228,023
Administrative services
fees.................. 42,226 30,927 24,314 46,570
Trustees' fees and
expenses.............. 13,355 5,106 2,266 2,876
Shareholder reports
expense............... 145,607 130,822 44,760 14,790
Custodian fees......... 116,393 92,708 94,215 60,502
Registration and filing
fees.................. 16,678 108,220 67,138 24,646
Professional fees...... 16,503 14,557 15,120 11,057
Other.................. 46,379 3,942 8,987 17,980
- --------------------------------------------------------------------------------
Total expenses........ 3,652,315 3,427,792 2,470,509 1,986,465
Less: Fee credits...... (711) (40,027) (11,525) (20)
Fee waivers and
expense
reimbursements...... 0 (176,977) (231,191) 0
- --------------------------------------------------------------------------------
Net expenses.......... 3,651,604 3,210,788 2,227,793 1,986,445
- --------------------------------------------------------------------------------
Net investment income.. 16,869,830 19,558,338 10,386,995 9,733,698
- --------------------------------------------------------------------------------
Net realized and
unrealized gain or
loss on securities and
foreign currency
related transactions
Realized gain or loss
on:
Securities............ (1,588,691) (20,780,179) 3,016,029 (1,818,347)
Foreign currency
related
transactions......... (1,363,381) (210,644) (2,949,389) 0
- --------------------------------------------------------------------------------
Net realized gain or
loss on securities and
foreign currency
related transactions.. (2,952,072) (20,990,823) 66,640 (1,818,347)
- --------------------------------------------------------------------------------
Net change in
unrealized gain or
loss on securities and
foreign currency
related transactions.. (1,388,393) (51,854,634) (22,278,454) 10,087,943
- --------------------------------------------------------------------------------
Net realized and
unrealized gain or
loss on securities and
foreign currency
related transactions.. (4,340,465) (72,845,457) (22,211,814) 8,269,596
- --------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ $12,529,365 $(53,287,119) $(11,824,819) $18,003,294
- --------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
43
<PAGE>
[LOGO OF LONG TERM BOND FUND APPEARS HERE]
Statements of Changes in Net Assets
Six Months Ended October 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Strategic U.S.
Diversified High Yield Income Government
Fund Fund Fund Fund
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income... $ 16,869,830 $ 19,558,338 $ 10,386,995 $ 9,733,698
Net realized gain or
loss on securities,
futures contracts and
foreign currency
related transactions... (2,952,072) (20,990,823) 66,640 (1,818,347)
Net change in unrealized
gain or loss on
securities and foreign
currency related
transactions........... (1,388,393) (51,854,634) (22,278,454) 10,087,943
- ------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ 12,529,365 (53,287,119) (11,824,819) 18,003,294
- ------------------------------------------------------------------------------------
Distributions to
shareholders from
Net investment income
Class A................ (14,966,223) (16,207,895) (6,356,791) (1,223,221)
Class B................ (1,899,703) (3,187,313) (3,452,797) (3,326,972)
Class C................ (4,252) (34,956) (567,249) (141,589)
Class Y................ (441) (204,752) (84,816) (5,041,916)
- ------------------------------------------------------------------------------------
Total distributions to
shareholders.......... (16,870,619) (19,634,916) (10,461,653) (9,733,698)
- ------------------------------------------------------------------------------------
Capital share
transactions
Proceeds from shares
sold................... 18,220,077 37,718,782 29,396,743 78,194,533
Proceeds from
reinvestment of
distributions.......... 9,577,814 10,709,135 6,950,619 6,892,480
Payment for shares
redeemed............... (59,821,602) (90,662,902) (56,391,267) (77,644,701)
Proceeds from shares
issued in connection
with the acquisition of
CoreFund Government
Income Fund........... 0 0 0 25,494,452
- ------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from capital
share transactions.... (32,023,711) (42,234,985) (20,043,905) 32,936,764
- ------------------------------------------------------------------------------------
Total increase
(decrease) in net
assets............... (36,364,965) (115,157,020) (42,330,377) 41,206,360
Net assets
Beginning of period..... 571,688,894 518,488,574 327,835,036 332,245,277
- ------------------------------------------------------------------------------------
End of period........... $535,323,929 $ 403,331,554 $285,504,659 $373,451,637
- ------------------------------------------------------------------------------------
Undistributed net
investment income...... $ 396,334 $ (1,538,518) $ (1,679,081) $ 0
- ------------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
44
<PAGE>
[LOGO OF LONG TERM BOND FUND APPEARS HERE]
Statements of Changes in Net Assets
For the Periods Indicated
<TABLE>
<CAPTION>
Diversified Fund High Yield Fund
------------------------------- ------------------------------
Eight Months Year Nine Months Year
Ended Ended Ended Ended
April 30, 1998* August 31, 1997 April 30, 1998** July 31, 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income... $ 20,588,791 $ 31,196,362 $ 30,356,602 $ 43,434,059
Net realized gain or
loss on securities and
foreign currency
related transactions... 10,936,866 15,553,471 16,551,569 3,963,269
Net change in
unrealized gain or
loss on securities and
foreign currency
related transactions... 3,546,444 13,350,772 3,464,809 33,119,281
- ------------------------------------------------------------------------------------------
Net increase in net
assets resulting from
operations............ 35,072,101 60,100,605 50,372,980 80,516,609
- ------------------------------------------------------------------------------------------
Distributions to
shareholders from
Net investment income
Class A................ (9,491,102) 0 (9,975,169) 0
Class B................ (11,097,556) (32,942,625) (20,369,058) (44,757,060)
Class C................ (35) 0 (12,343) 0
Class Y................ (98) 0 (32) 0
- ------------------------------------------------------------------------------------------
Total distributions to
shareholders......... (20,588,791) (32,942,625) (30,356,602) (44,757,060)
- ------------------------------------------------------------------------------------------
Capital share
transactions
Proceeds from shares
sold................... 19,555,848 33,102,013 55,707,745 136,045,881
Proceeds from
reinvestment of
distributions.......... 11,421,930 18,107,160 17,078,485 25,311,702
Payment for shares
redeemed............... (104,305,708) (180,458,236) (121,704,035) (243,407,877)
Proceeds from shares
issued in acquisition
of
Evergreen Quality Bond
Fund.................. 172,832,659 0 0 0
- ------------------------------------------------------------------------------------------
Net increase
(decrease) in net
assets resulting from
capital share
transactions.......... 99,504,729 (129,249,063) (48,917,805) (82,050,294)
- ------------------------------------------------------------------------------------------
Total increase
(decrease) in net
assets............... 113,988,039 (102,091,083) (28,901,427) (46,290,745)
Net assets
Beginning of period..... 457,700,855 559,791,938 547,390,001 593,680,746
- ------------------------------------------------------------------------------------------
End of period........... $ 571,688,894 $ 457,700,855 $ 518,488,574 $ 547,390,001
- ------------------------------------------------------------------------------------------
Undistributed net
investment income...... $ 397,123 $ 2,801,682 $ (1,461,940) $ (1,468,219)
- ------------------------------------------------------------------------------------------
</TABLE>
*During the period, the Diversified Bond Fund changed its fiscal year end from
August 31 to April 30.
**During the period, the High Yield Bond Fund changed its fiscal year end from
July 31 to April 30.
See Combined Notes to Financial Statements.
45
<PAGE>
[LOGO OF LONG TERM BOND FUND APPEARS HERE]
Statements of Changes in Net Assets
Year Ended April 30, 1998
<TABLE>
<CAPTION>
Strategic Income U.S. Government
Fund Fund
- -------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income...................... $ 14,251,249 $ 19,431,162
Net realized gain or loss on securities
and foreign currency related
transactions.............................. 5,635,717 (764,906)
Net change in unrealized gain or loss on
securities and foreign currency related
transactions.............................. 5,413,523 9,555,419
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations............................... 25,300,489 28,221,675
- -------------------------------------------------------------------------------
Distributions to shareholders from
Net investment income
Class A................................... (5,750,571) (2,040,357)
Class B................................... (7,053,895) (7,875,544)
Class C................................... (1,374,051) (261,054)
Class Y................................... (62,982) (9,254,414)
- -------------------------------------------------------------------------------
Total distributions to shareholders...... (14,241,499) (19,431,369)
- -------------------------------------------------------------------------------
Capital share transactions
Proceeds from shares sold.................. 52,265,456 63,710,601
Proceeds from reinvestment of
distributions............................. 8,043,638 13,377,697
Payment for shares redeemed................ (89,713,499) (83,317,244)
Proceeds from shares issued in acquisition
of:
Blanchard Flexible Income Fund............ 139,705,470 0
Keystone World Bond Fund.................. 13,364,630 0
Keystone Government Securities Fund....... 0 41,845,369
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
capital share transactions............... 123,665,695 35,616,423
- -------------------------------------------------------------------------------
Total increase in net assets............. 134,724,685 44,406,729
Net assets
Beginning of period........................ 193,110,351 287,838,548
- -------------------------------------------------------------------------------
End of period.............................. $327,835,036 $332,245,277
- -------------------------------------------------------------------------------
Undistributed net income................... $ (1,604,423) $ 0
- -------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
46
<PAGE>
[EVERGREEN LOGO APPEARS HERE]
Combined Notes to Financial Statements (Unaudited)
1. ORGANIZATION
The Evergreen Long Term Bond Funds consist of Evergreen Diversified Bond Fund
("Diversified Bond Fund"), Evergreen High Yield Bond Fund ("High Yield Fund"),
Evergreen Strategic Income Fund ("Strategic Income Fund") and Evergreen U.S.
Government Fund ("U.S. Government Fund") (collectively the "Funds"). Each Fund
is a diversified series of Evergreen Fixed Income Trust (the "Trust"), a Dela-
ware business trust organized on September 17, 1997. The Trust is an open-end
management investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act").
The Funds offer Class A, Class B, Class C and Class Y shares. Class A shares
are sold with a maximum front-end sales charge of 4.75%. Class B and Class C
shares are sold without a front-end sales charge, but pay a higher ongoing dis-
tribution fee than Class A. Class B shares are sold subject to a contingent de-
ferred sales charge that is payable upon redemption and decreases depending on
how long the shares have been held. Class B shares of the Funds purchased after
January 1, 1997 will automatically convert to Class A shares after seven years.
Class B shares of the Funds purchased prior to January 1, 1997 retain their ex-
isting conversion rights. Class C shares are sold subject to a contingent de-
ferred sales charge payable on shares redeemed within one year after the month
of purchase. Class Y shares are sold at net asset value and are not subject to
contingent deferred sales charges or distribution fees. Class Y shares are sold
only to investment advisory clients of First Union Corporation ("First Union")
and its affiliates, certain institutional investors or Class Y shareholders of
record of certain other funds managed by First Union and its affiliates as of
December 30, 1994.
Effective January 9, 1998, the Diversified Bond Fund and High Yield Fund added
two classes of shares designated as Class A and Class C and designated the ex-
isting class of shares as Class B. Shareholders of these Funds who, on January
16, 1998, held Class B shares purchased before January 1, 1995 and certain
other non-commissionable Class B shares had such shares converted to Class A
shares having an aggregate value equal to that of the shareholder's Class B
shares prior to the conversion.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently fol-
lowed by the Funds in the preparation of their financial statements. The poli-
cies are in conformity with generally accepted accounting principles, which re-
quire management to make estimates and assumptions that affect amounts reported
herein. Actual results could differ from these estimates.
A. Valuation of Securities
U.S. government obligations held by the Funds are valued at the mean between
the over-the-counter bid and asked prices. Corporate bonds, other fixed-income
securities and mortgage and other asset-backed securities are valued at prices
provided by an independent pricing service. In determining a price for normal
institutional-size transactions, the pricing service uses methods based on mar-
ket transactions for comparable securities and analysis of various relation-
ships between similar securities which are generally recognized by institu-
tional traders.
Securities traded on a national securities exchange or included on the NASDAQ
National Market System ("NMS") at the last reported sales price on the exchange
where primarily traded. The Funds value securities traded on an exchange or NMS
for which there has been no sale and other securities traded in the over-the-
counter market at the mean between the last reported bid and asked price.
Securities for which market quotations are not readily available or valuations
are not readily available from an independent pricing service (including re-
stricted securities) are valued at fair value as determined in good faith ac-
cording to procedures approved by the Board of Trustees.
Securities with remaining maturities of 60 days or less are carried at amor-
tized cost, which approximates market value.
47
<PAGE>
[EVERGREEN LOGO APPEARS HERE]
Combined Notes to Financial Statements(Unaudited) (continued)
B. Repurchase Agreements
Each Fund may invest in repurchase agreements. Securities pledged as collateral
for repurchase agreements are held by the custodian on the Fund's behalf. Each
Fund monitors the adequacy of the collateral daily and will require the seller
to provide additional collateral in the event the market value of the securi-
ties pledged falls below the carrying value of the repurchase agreement, in-
cluding accrued interest. Each Fund will only enter into repurchase agreements
with banks and other financial institutions which are deemed by the investment
advisor to be creditworthy pursuant to guidelines established by the Board of
Trustees.
Pursuant to an exemptive order issued by the Securities and Exchange Commis-
sion, each Fund, except for U.S. Government Fund, along with certain other
funds managed by Evergreen Investment Management Company (formerly known as
Keystone Investment Management Company)("EIMCO"), may transfer uninvested cash
balances into a joint trading account. These balances are invested in one or
more repurchase agreements that are fully collateralized by U.S. Treasury
and/or federal agency obligations.
C. Reverse Repurchase Agreements
To obtain short-term financing, each Fund may enter into reverse repurchase
agreements with qualified third-party broker-dealers. Interest on the value of
reverse repurchase agreements is based upon competitive market rates at the
time of issuance. At the time the Fund enters into a reverse repurchase agree-
ment, it will establish and maintain a segregated account with the custodian
containing qualifying assets having a value not less than the repurchase price,
including accrued interest. If the counterparty to the transaction is rendered
insolvent, the ultimate realization of the securities to be repurchased by the
Fund may be delayed or limited.
D. Foreign Currency
The books and records of the Funds are maintained in United States (U.S.) dol-
lars. Foreign currency amounts are translated into U.S. dollars as follows:
market value of investments, other assets and liabilities at the daily rate of
exchange; purchases and sales of investments, income and expenses at the rate
of exchange prevailing on the respective dates of such transactions. Net
unrealized foreign exchange gain or loss resulting from changes in foreign cur-
rency exchange rates is a component of net unrealized gain or loss on securi-
ties and foreign currency related transactions. Net realized foreign currency
gains and losses resulting from changes in exchange rates include foreign cur-
rency gains and losses between trade date and settlement date on investment se-
curities transactions, foreign currency related transactions and the difference
between the amounts of interest and dividends recorded on the books of the Fund
and the amount actually received and are included in realized gain or loss on
foreign currency related transactions. The portion of foreign currency gains
and losses related to fluctuations in exchange rates between the initial pur-
chase trade date and subsequent sale trade date is included in realized gain or
loss on foreign currency related transactions.
E. Futures Contracts
In order to gain exposure to or protect against changes in security values,
each Fund may buy and sell futures contracts.
The initial margin deposited with a broker when entering into a futures trans-
action is subsequently adjusted by daily payments or receipts as the value of
the contract changes. Such changes are recorded as unrealized gains or losses.
Realized gains or losses are recognized on closing the contract.
Risks of entering into futures contracts include (i) the possibility of an il-
liquid market for the contract, (ii) the possibility that a change in the value
of the contract may not correlate with changes in the value of the underlying
instrument or index, and (iii) the credit risk that the other party will not
fulfill their obligations under the contract. Futures contracts also involve
elements of market risk in excess of the amount reflected in the statement of
assets and liabilities.
F. Forward Foreign Currency Exchange Contracts
Each Fund, except for U.S. Government Fund, may enter into forward foreign cur-
rency exchange contracts ("forward contracts") to settle portfolio purchases
and sales of securities denominated in a foreign currency
48
<PAGE>
[EVERGREEN LOGO APPEARS HERE]
Combined Notes to Financial Statements(Unaudited) (continued)
and to hedge certain foreign currency assets or liabilities. Forward contracts
are recorded at the forward rate and marked-to-market daily. Realized gains and
losses arising from such transactions are included in net realized gain (loss)
on foreign currency related transactions. The Fund bears the risk of an unfa-
vorable change in the foreign currency exchange rate underlying the forward
contract and is subject to the credit risk that the other party will not ful-
fill their obligations under the contract. Forward contracts involve elements
of market risk in excess of the amount reflected in the statement of assets and
liabilities.
G. Securities Lending
In order to generate income and to offset expenses, each Fund may lend portfo-
lio securities to brokers, dealers and other financial organizations. The
Funds' investment advisers will monitor the creditworthiness of such borrowers.
Loans of securities by a Fund may not exceed 33 1/3% of the value of the Fund's
total assets. Loans will be collateralized by cash, letters of credit or U.S.
Government securities that are maintained at all times in an amount equal to at
least 100% of the current market value of the loaned securities, including ac-
crued interest. While such securities are on loan, the borrower will pay a Fund
any income accruing thereon, and the Fund may invest the collateral in portfo-
lio securities, thereby increasing its return. A Fund will have the right to
call any such loan and obtain the securities loaned at any time on five days'
notice. Any gain or loss in the market price of the loaned securities, which
occurs during the term of the loan, would affect a Fund and its investors. A
Fund may pay reasonable fees in connection with such loans.
H. Security Transactions and Investment Income
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premiums. Dividend income is recorded on
theex-dividend date or in the case of some foreign securities, on the date
thereafter when the Fund is made aware of the dividend. Foreign income may be
subject to foreign withholding taxes, which are accrued as applicable.
I. Federal Taxes
The Funds have qualified and intend to continue to qualify as a regulated in-
vestment companies under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Funds will not incur any federal income tax liability since
they are expected to distribute all of their net investment company taxable in-
come and net capital gains, if any, to their shareholders. The Funds also in-
tend to avoid any excise tax liability by making the required distributions un-
der the Code. Accordingly, no provision for federal taxes is required. To the
extent that realized capital gains can be offset by capital loss carryforwards,
it is each Fund's policy not to distribute such gains.
J. Distributions
Distributions from net investment income for the Funds are declared daily and
paid monthly. Distributions from net realized capital gains, if any, are paid
at least annually. Distributions to shareholders are recorded at the close of
business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in accor-
dance with income tax regulations, which may differ from generally accepted ac-
counting principles. Certain distributions paid during previous years have been
reclassified to conform with current year presentation.
K. Class Allocations
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the rela-
tive net assets of each class. Currently, class specific expenses are limited
to expenses incurred under the Distribution Plans for each class.
49
<PAGE>
[EVERGREEN LOGO APPEARS HERE]
Combined Notes to Financial Statements(Unaudited) (continued)
3. ACQUISITIONS
Effective on the close of business on July 24, 1998, U.S. Government Fund ac-
quired all of the assets and assumed certain liabilities of CoreFund Government
Income Fund, in an exchange for Class A and Class Y shares of U.S. Government
Fund.
Effective on the close of business on February 28, 1998, Strategic Income Fund
acquired all of the assets and assumed certain liabilities of Blanchard Flexi-
ble Income Fund, in an exchange for Class A shares of Strategic Income Fund.
Effective on the close of business on January 23, 1998, Diversified Bond Fund
acquired substantially all the assets and assumed certain liabilities of Ever-
green Quality Bond Fund, in an exchange for Class A and Class B shares of Di-
versified Bond Fund.
Effective August 1, 1997 Strategic Income Fund acquired substantially all the
assets and assumed certain liabilities of Keystone World Bond Fund in exchange
for Class A, Class B and Class C shares of Strategic Income Fund. Also, the
U.S. Government Fund acquired substantially all the assets and assumed certain
liabilities of Keystone Government Securities Fund in exchange for Class A,
Class B and Class C shares of the U.S. Government Fund.
All of the above acquisitions were accomplished by a tax-free exchange of
shares of each respective fund. The value of assets acquired, number of shares
issued, unrealized gain or loss acquired and the aggregate net assets of each
Fund immediately after the acquisition are as follows:
<TABLE>
<CAPTION>
Value of Net Number of Unrealized Net
Assets
Acquiring Fund Acquired Fund Assets Acquired Shares Issued Gain or Loss After
Acquisition
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Government Fund.... CoreFund Government Income Fund $ 25,494,452 2,618,772 $ 441,185
$333,331,520
Strategic Income Fund... Blanchard Flexible Income Fund 139,705,470 19,367,062 4,998,009
339,328,623
Diversified Fund........ Evergreen Quality Bond Fund 172,832,659 10,842,627 3,406,186
610,931,062
Strategic Income Fund... Keystone World Bond Fund 13,364,630 1,876,466 646,958
209,347,784
U.S. Government Fund.... Keystone Government Securities Fund 5,739,713 590,505 24,133
233,475,732
</TABLE>
50
<PAGE>
[EVERGREEN LOGO APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(Unaudited) (continued)
4. CAPITAL SHARE TRANSACTIONS
Each Fund has an unlimited number of shares of beneficial interest with a par
value of $0.001 authorized. Shares of beneficial interest of the Funds are cur-
rently divided into Class A, Class B, Class C and Class Y. Transactions in
shares of the Funds were as follows:
- --------------------------------------------------------------------------------
DIVERSIFIED BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period Ended
October 31, 1998 April 30, 1998*
------------------------ ------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ............... 337,307 $ 5,354,851 136,952 $ 2,185,530
Shares issued in
reinvestment of
distributions............. 536,708 8,575,423 362,116 5,781,141
Shares redeemed............ (2,936,094) (46,888,020) (2,951,611) (47,145,413)
Shares issued in connection
with the acquisition of
Evergreen Quality Bond
Fund...................... 0 0 9,827,053 156,644,304
Automatic conversion of
Class B shares............ 0 0 24,126,331 387,832,940
- --------------------------------------------------------------------------------
Net increase (decrease).... (2,062,079) ($32,957,746) 31,500,841 $505,298,502
- --------------------------------------------------------------------------------
</TABLE>
* For the period from January 20, 1998 (commencement of class operations) to
April 30, 1998.
<TABLE>
<CAPTION>
Six Months Ended Period Ended Year Ended
October 31, 1998 April 30, 1998* August 31, 1997
---------------------- -------------------------- ---------------------------
Shares Amount Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Shares sold ............ 767,679 $ 12,239,687 1,090,412 $ 17,341,006 2,182,629 $ 33,102,013
Shares issued in
reinvestment of
distributions.......... 62,610 1,000,344 357,152 5,640,678 1,195,855 18,107,160
Shares redeemed......... (785,029) (12,535,992) (3,620,580) (57,160,295) (11,912,272) (180,458,236)
Shares issued in
connection with the
acquisition of
Evergreen Quality Bond
Fund................... 0 0 1,015,574 16,188,355 0 0
Automatic conversion of
shares to Class A...... 0 0 (24,126,331) (387,832,940) 0 0
- ---------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 45,260 $ 704,039 (25,283,773) ($405,823,196) (8,533,788) ($129,249,063)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* For the eight month period ended April 30, 1998. The Fund changed its fiscal
year end from August 31 to April 30, effective April 30, 1998.
<TABLE>
<CAPTION>
Period Ended
Six Months Ended April 30,
October 31, 1998 1998*
------------------ --------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C
Shares sold ............................... 36,002 $ 571,257 1,432 $22,837
Shares issued in reinvestment of
distributions............................. 95 1,527 1 13
Shares redeemed............................ (24,710) (390,919) 0 0
- -------------------------------------------------------------------------------
Net increase............................... 11,387 $ 181,865 1,433 $22,850
- -------------------------------------------------------------------------------
* For the period from April 7, 1998 (commencement of class operations) to April
30, 1998.
<CAPTION>
Period Ended
Six Months Ended April 30,
October 31, 1998 1998*
------------------ --------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS Y
Shares sold ............................... 2,984 $ 54,282 407 $ 6,475
Shares issued in reinvestment of
distributions............................. 26 520 6 98
Shares redeemed............................ (413) (6,671) 0 0
- -------------------------------------------------------------------------------
Net increase............................... 2,597 $ 48,131 413 $ 6,573
- -------------------------------------------------------------------------------
</TABLE>
* For the period from April 7, 1998 (commencement of class operations) to April
30, 1998.
51
<PAGE>
[EVERGREEN LOGO APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(Unaudited) (continued)
- --------------------------------------------------------------------------------
High Yield Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period Ended
October 31, 1998 April 30, 1998*
------------------------- ------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold.............. 3,502,481 $ 14,992,498 1,781,307 $ 8,100,467
Shares issued in
reinvestment of
distributions........... 2,153,074 9,083,236 1,396,499 6,343,412
Shares redeemed.......... (14,313,113) (61,643,286) (7,005,782) (31,868,872)
Automatic conversion of
Class B shares.......... 0 0 96,655,555 436,706,228
- -------------------------------------------------------------------------------
Net increase (decrease).. (8,657,558) ($37,567,552) 92,827,579 $419,281,235
- -------------------------------------------------------------------------------
</TABLE>
*For the period from January 20, 1998 (commencement of class operations) to
April 30, 1998.
<TABLE>
<CAPTION>
Six Months Ended Period Ended Year Ended
October 31,1998 April 30, 1998* July 31,1997
------------------------ --------------------------- --------------------------
Shares Amount Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Shares sold............. 3,114,478 $ 13,358,045 10,409,185 $ 46,341,356 32,280,201 $ 136,045,881
Shares issued in
reinvestment of
distributions.......... 349,407 1,477,230 2,427,463 10,723,559 5,995,434 25,311,702
Shares redeemed......... (6,441,269) (28,005,412) (20,273,137) (89,733,998) (57,681,924) (243,407,877)
Automatic conversion of
shares to Class A...... 0 (96,655,555) (436,706,228) 0 0
- -----------------------------------------------------------------------------------------------------------
Net decrease............ (2,977,384) ($13,170,137) (104,092,044) ($469,375,311) (19,406,289) ($82,050,294)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
*For the nine month period ended April 30, 1998. The Fund changed its fiscal
year end from July 31 to April 30, effective April 30, 1998.
<TABLE>
<CAPTION>
Six Months Ended Period Ended
October 31,1998 April 30, 1998*
--------------------- -------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C
Shares sold....................... 164,967 $ 708,392 273,398 $1,240,926
Shares issued in reinvestment of
distributions.................... 4,614 19,658 2,527 11,482
Shares redeemed................... (172,505) (765,563) (21,094) (96,165)
- ------------------------------------------------------------------------------
Net increase (decrease)........... (2,924) ($37,513) 254,831 $1,156,243
- ------------------------------------------------------------------------------
*For the period from January 22, 1998 (commencement of class operations) to
April 30, 1998.
<CAPTION>
Six Months Ended Period Ended
October 31,1998 April 30, 1998*
--------------------- -------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS Y
Shares sold....................... 1,948,271 $8,659,847 5,506 $ 24,996
Shares issued in reinvestment of
distributions.................... 32,321 129,011 7 32
Shares redeemed................... (55,687) (248,641) (1,101) (5,000)
- ------------------------------------------------------------------------------
Net increase...................... 1,924,905 $8,540,217 4,412 $ 20,028
- ------------------------------------------------------------------------------
</TABLE>
*For the period from April 14, 1998 (commencement of class operations) to April
30, 1998.
52
<PAGE>
[EVERGREEN LOGO APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(Unaudited) (continued)
- --------------------------------------------------------------------------------
Strategic Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
October 31, 1998 April 30, 1998
------------------------ ------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold............... 1,719,999 $ 12,085,146 1,976,718 $ 14,098,759
Shares issued in
reinvestment of
distributions............ 659,073 4,575,492 483,710 3,454,392
Shares redeemed........... (4,729,308) (33,162,056) (4,673,022) (33,390,153)
Shares issued in
connection with the
acquisition of
Blanchard Flexible Income
Fund..................... 0 0 19,367,062 139,705,470
Keystone World Bond Fund.. 0 0 1,077,718 7,661,303
- ---------------------------------------------------------------------------------
Net increase (decrease)... (2,350,236) ($16,501,418) 18,232,186 $131,529,771
- ---------------------------------------------------------------------------------
CLASS B
Shares sold............... 2,160,673 $ 15,108,890 4,345,019 $ 30,951,849
Shares issued in
reinvestment of
distributions............ 283,802 1,978,590 515,938 3,680,766
Shares redeemed........... (2,786,098) (19,511,224) (5,964,560) (42,581,723)
Shares issued in
connection with the
acquisition of
Keystone World Bond Fund.. 0 0 645,853 4,612,694
- ---------------------------------------------------------------------------------
Net decrease.............. (341,623) ($2,423,744) (457,750) ($3,336,414)
- ---------------------------------------------------------------------------------
CLASS C
Shares sold............... 174,311 $ 1,196,099 261,961 $ 1,864,408
Shares issued in
reinvestment of
distributions............ 51,594 360,223 122,073 868,861
Shares redeemed........... (471,751) (3,329,062) (1,375,841) (9,783,791)
Shares issued in
connection with the
acquisition of
Keystone World Bond Fund.. 0 0 152,895 1,090,633
- ---------------------------------------------------------------------------------
Net decrease.............. (245,846) ($1,772,740) (838,912) ($5,959,889)
- ---------------------------------------------------------------------------------
CLASS Y
Shares sold............... 126,900 $ 1,006,608 761,672 $ 5,350,440
Shares issued in
reinvestment of
distributions............ 5,366 36,314 5,675 39,619
Shares redeemed........... (57,631) (388,925) (562,382) (3,957,832)
- ---------------------------------------------------------------------------------
Net increase.............. 74,635 $ 653,997 204,965 $ 1,432,227
- ---------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
U.S. Government Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
October 31, 1998 April 30, 1998
------------------------ ------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold............... 3,191,712 $ 31,286,779 1,510,987 $ 14,617,089
Shares issued in
reinvestment of
distributions............ 80,941 795,673 133,072 1,282,497
Shares redeemed........... (2,634,833) (25,712,114) (1,642,684) (15,825,689)
Shares issued in
connection with the
acquisition of
CoreFund Government Income
Fund..................... 151,299 1,472,982 0 0
Keystone Government
Securities Fund.......... 0 0 2,239,125 21,547,304
- ---------------------------------------------------------------------------------
Net increase.............. 789,119 $ 7,843,320 2,240,500 $ 21,621,201
- ---------------------------------------------------------------------------------
CLASS B
Shares sold............... 1,525,632 $ 15,057,643 716,498 $ 6,914,840
Shares issued in
reinvestment of
distributions............ 184,447 1,811,866 414,856 3,988,496
Shares redeemed........... (1,864,486) (18,270,500) (4,306,873) (41,415,996)
Shares issued in
connection with the
acquisition of
Keystone Government
Securities Fund.......... 0 0 1,507,183 14,503,355
- ---------------------------------------------------------------------------------
Net decrease.............. (154,407) ($1,400,991) (1,668,336) ($16,009,305)
- ---------------------------------------------------------------------------------
CLASS C
Shares sold............... 102,016 $ 1,004,787 94,591 $ 908,119
Shares issued in
reinvestment of
distributions............ 8,461 83,055 16,871 162,793
Shares redeemed........... (110,901) (1,085,404) (173,356) (1,672,822)
Shares issued in
connection with the
acquisition of
Keystone Government
Securities Fund.......... 0 0 602,218 5,794,710
- ---------------------------------------------------------------------------------
Net increase.............. (424) $ 2,438 540,324 $ 5,192,800
- ---------------------------------------------------------------------------------
CLASS Y
Shares sold............... 3,138,555 $ 30,845,324 4,285,039 $ 41,270,553
Shares issued in
reinvestment of
distributions............ 427,560 4,201,886 825,744 7,943,911
Shares redeemed........... (3,335,575) (32,576,683) (2,541,523) (24,402,737)
Shares issued in
connection with the
acquisition of
CoreFund Government Income
Fund..................... 2,467,473 24,021,470 0 0
- ---------------------------------------------------------------------------------
Net increase.............. 2,698,013 $ 26,491,997 2,569,260 $ 24,811,727
- ---------------------------------------------------------------------------------
</TABLE>
53
<PAGE>
[EVERGREEN LOGO APPEARS HERE]
Combined Notes to Financial Statements(Unaudited) (continued)
5. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (excluding short-term
securities) were as follows for the six months ended October 31, 1998:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases from Sales
------------------------- -------------------------
U.S. Non-U.S. U.S. Non-U.S.
Government Government Government Government
------------------------------------------------------
<S> <C> <C> <C> <C>
Diversified Bond Fund... $ 68,842,900 $176,493,974 $ 52,978,931 $253,921,791
High Yield Fund......... 29,802,844 288,035,790 30,172,031 308,548,141
Strategic Income Fund... 148,171,799 188,711,650 172,195,503 187,332,489
U.S. Government Fund.... 130,838,753 23,122,300 118,523,826 0
</TABLE>
On July 27, 1998, U.S. Government Fund acquired U.S. Government securities, ex-
cluding short-term securities, with an aggregate cost $22,471,886 through the
Fund's acquisition of CoreFund Government Income Fund.
During the six months ended October 31, 1998, the Funds entered into reverse
repurchase agreements as follows:
<TABLE>
<CAPTION>
Average Daily
Balance Weighted Average Maximum Amount
Outstanding Interest Rate Outstanding*
----------------------------------------------
<S> <C> <C> <C>
Diversified Bond Fund.... $4,393,759 4.466% $9,387,055
Strategic Income Fund.... 2,980,770 5.520 9,876,542
</TABLE>
-------
*The Maximum Amount Outstanding under reverse repurchase agreements
includes accrued interest.
On October 31, 1998, the Diversified Bond Fund had reverse repurchase agree-
ments outstanding in the amount of $5,112,736 (including accrued interest) with
interest rates varying from 1.25% to 6.00%.
Diversified Bond Fund loaned securities during the six months ended October 31,
1998 to certain brokers who paid the Fund a negotiated lenders' fee. At October
31, 1998, the value of securities on loan and the value of collateral amounted
to $3,277,928, and $4,074,790, respectively. During the six months ended Octo-
ber 31, 1998, the Fund earned $34,512 in income from securities lending.
As of April 30, 1998, the Funds had capital loss carryovers for federal income
tax purposes as follows:
<TABLE>
<CAPTION>
Capital
Loss Expires Expires Expires Expires Expires Expires
Expires Expires
Carryover 1999 2000 2001 2002 2003 2004
2005 2006
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
<C> <C>
Diversified Bond
Fund........... $159,339,000 $85,002,000 -- $19,436,000 $ 6,153,000 $ 28,736,000 $20,012,000
- -- --
High Yield
Fund........... 364,062,000 91,150,000 $122,350,000 -- 44,605,000 105,957,000 --
- -- --
Strategic Income
Fund........... 71,926,000 -- 14,074,000 15,390,000 -- 7,390,000 35,072,000
- -- --
U.S. Government
Fund........... 22,367,000 -- -- 1,978,000 6,522,000 3,703,000 2,973,000
$3,820,000 $3,371,000
</TABLE>
In addition to capital loss carryovers, capital losses incurred after October
31 within a Fund's fiscal year are deemed to arise on the first business day of
the Fund's following fiscal year. For the fiscal year ended April 30, 1998,
U.S. Government Fund incurred and has elected to defer $444,321 of such capital
losses.
6. DISTRIBUTION PLANS
Evergreen Distributor, Inc. ("EDI"), a wholly-owned subsidiary of The BISYS
Group Inc. ("BISYS"), serves as principal underwriter to each of the Funds.
The Fund has adopted Distribution Plans for each class of shares as allowed by
Rule 12b-1 of the 1940 Act. Distribution plans permit a fund to reimburse its
principal underwriter for costs related to selling shares of the fund and for
various other services. These costs, which consist primarily of commissions and
service fees to broker-dealers who sell shares of the fund, are paid by the
fund through expenses called "Distribution Plan expenses". Each class, except
Class Y, currently pays a service fee equal to 0.25% (annualized) of the aver-
age daily net asset of the class. Class B and Class C also pay distribution
fees equal to 0.75% (annualized) of its average daily net assets of the class.
Distribution Plan expenses are calculated daily and paid monthly.
54
<PAGE>
[EVERGREEN LOGO APPEARS HERE]
Combined Notes to Financial Statements(Unaudited) (continued)
During the six months ended October 31, 1998, amounts paid to EDI pursuant to
each Fund's Class A, Class B and Class C Distribution Plans were as follows:
<TABLE>
<CAPTION>
Class A Class B Class C
-----------------------------
<S> <C> <C> <C>
Diversified Bond Fund......................... $610,557 $353,379 $ 778
High Yield Fund............................... 477,347 412,268 4,529
Strategic Income Fund......................... 225,210 547,279 90,064
U.S. Government Fund.......................... 52,420 646,780 27,577
</TABLE>
With respect to Class B and Class C shares, the principal underwriter may pay
12b-1 fees greater than the allowable annual amounts the Fund is permitted to
pay. The Fund may reimburse the principal underwriter for such excess amounts
in later years with annual interest at the prime rate plus 1.00%.
Each of the Distribution Plans may be terminated at any time by vote of the In-
dependent Trustees or by vote of a majority of the outstanding voting shares of
the respective class.
Contingent deferred sales charges paid by redeeming shareholders are paid to
EDI.
7. INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT AND OTHER AFFILIATED
TRANSACTIONS
EIMCO, a subsidiary of First Union, is the investment advisor for Diversified
Bond Fund, High Yield Fund and Strategic Income Fund. In return for providing
investment management and administrative services to the Funds, the Funds pay
EIMCO an Advisory fee that is calculated daily and paid monthly. The management
fee is computed at an annual rate of 2.00% of the Fund's gross investment in-
come plus an amount determined by applying percentage rates starting at 0.50%
and declining to 0.25% per annum as net assets increase, to the average daily
net assets of the Funds. For the six months ended October 31, 1998, EIMCO
waived advisory fees of $176,977 and $231,191, respectively, for High Yield
Fund and Strategic Income Fund.
The Capital Management Group ("CMG") of First Union National Bank of North Car-
olina, a subsidiary of First Union, serves as the investment adviser to the
U.S. Government Fund and is paid an Advisory fee that is computed and paid
monthly at an annual rate of 0.50% of the Fund's average daily net assets.
Evergreen Investment Services ("EIS"), a subsidiary of First Union National
Bank, is the administrator and BISYS Fund Services is sub-administrator for
each Fund. As Administrator, EIS provides the Funds with facilities, equipment
and personnel. As Sub-Administrator BISYS provides the officers of the Funds.
As administrator for the U.S. Government Fund, EIS is entitled to an annual fee
based on the average daily net assets of the funds administered by EIS for
which First Union or its advisory subsidiaries are also the investment advis-
ers. The administration fee for the U.S. Government Fund is calculated by ap-
plying percentage rates, which start at 0.05% and decline to 0.01% per annum as
net assets increase, to the average daily net asset value of the Fund. For the
six months ended October 31, 1998, the U.S. Government Fund paid or accrued to
EIS $37,195. For Diversified Bond Fund, High Yield Bond Fund and Strategic In-
come Fund the expense for providing administration services are incurred by
EIMCO and are reimbursed by the Funds. For the six months ended October 31,
1998, Diversified Bond Fund, High Yield Fund and Strategic Income Fund reim-
bursed EIMCO for certain accounting and administration expenses of $42,226,
$30,927 and $24,314, respectively.
The sub-administration fee for each Fund is calculated by applying percentage
rates, which start at 0.01% and decline to 0.004% as net assets increase, to
the average daily net asset value of the Fund. For each Fund, except for U.S.
Government Fund, the sub-administration fee is paid by EIMCO and is not a fund
expense.
Evergreen Service Company ("ESC"), an indirect wholly-owned subsidiary of First
Union, serves as the transfer and dividend disbursing agent for the Funds. The
Funds have entered into an expense offset arrangement with ESC relating to cer-
tain cash balances held at First Union for the benefit of the Evergreen Funds.
Officers of the Fund and affiliated Trustees receive no compensation directly
from the Fund.
55
<PAGE>
[EVERGREEN LOGO APPEARS HERE]
Combined Notes to Financial Statements(Unaudited) (continued)
8. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an expense offset arrangement with their custodian.
The assets deposited with the custodian under this expense offset arrangement
could have been invested in income-producing assets.
9. DEFERRED TRUSTEES' FEES
Each Independent Trustee of the Funds may defer any or all compensation related
to performance of their duties as Trustees. The Trustees deferred balances are
allocated to deferral accounts, which are included in the accrued expenses for
the Fund. The investment performance of the deferral accounts are based on the
investment performance of certain Evergreen Funds. Any gains earned or losses
incurred in the deferral accounts are reported in each Fund's Trustees' fees
and expenses. Trustees will be paid either in one lump sum or in quarterly in-
stallments for up to ten years at their election, not earlier than either the
year in which the Trustee ceases to be a member of the Board of Trustees or
January 1, 2000.
10. FINANCING AGREEMENT
On December 22, 1997, a financing agreement among all of the Evergreen Funds,
State Street and a group of Banks became effective. Under this agreement, the
Banks provide an unsecured credit facility in the aggregate amount of $400 mil-
lion ($275 million committed and $125 million uncommitted). The credit facility
is allocated, under the terms of the financing agreement, among the Banks. The
credit facility is to be accessed by the Funds for temporary or emergency pur-
poses only and is subject to each Fund's borrowing restrictions. Borrowings un-
der this facility bear interest at 0.50% per annum above the Federal Funds
rate. A commitment fee of 0.065% per annum will be incurred on the unused por-
tion of the committed facility, which will be allocated to all funds. For its
assistance in arranging this financing agreement, the Capital Market Group of
First Union was paid a one-time arrangement fee of $27,500. State Street serves
as administrative agent for the Banks, and as administrative agent is entitled
to a fee of $20,000 per annum which is allocated to all of the Funds.
During the six months ended October 31, 1998, the Funds had no borrowings under
this agreement.
11. YEAR 2000
Like other investment companies, the Funds could be adversely affected if the
computer systems used by the Funds' investment advisors and the Funds' other
service providers are not able to perform their intended functions effectively
after 1999 because of the inability of computer software to distinguish the
year 2000 from the year 1900. The Funds' investment advisors are taking steps
to address this potential year 2000 problem with respect to the computer sys-
tems that they use and to obtain satisfactory assurances that comparable steps
are being taken by the Funds' other major service providers. At this time, how-
ever, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the Funds from this problem.
56
<PAGE>
Evergreen Funds
Money Market
Treasury Money Market Fund
Money Market Fund
Municipal Money Market Fund
Florida Municipal Money Market Fund
New Jersey Municipal Money Market Fund
Pennsylvania Municipal Money Market Fund
Tax Exempt
Short Intermediate Municipal Fund
High Grade Municipal Bond Fund
Municipal Bond Fund
California Municipal Bond Fund
Connecticut Municipal Bond Fund
Florida Municipal Bond Fund
Florida High Income Municipal Bond Fund
Georgia Municipal Bond Fund
Maryland Municipal Bond Fund
Massachusetts Municipal Bond Fund
Missouri Municipal Bond Fund
New Jersey Municipal Bond Fund
New York Municipal Bond Fund
North Carolina Municipal Bond Fund
Pennsylvania Municipal Bond Fund
South Carolina Municipal Bond Fund
Virginia Municipal Bond Fund
Income
Capital Preservation and Income Fund
Short Intermediate Bond Fund
Intermediate Term Government Securities Fund
Intermediate Term Bond Fund
U.S. Government Fund
Diversified Bond Fund
Strategic Income Fund
High Yield Bond Fund
Balanced
American Retirement Fund
Balanced Fund
Tax Strategic Foundation Fund
Foundation Fund
Growth & Income
Utility Fund
Income and Growth Fund
Equity Income Fund
Value Fund
Blue Chip Fund
Growth and Income Fund
Small Cap Value Fund
Domestic Growth
Tax Strategic Equity Fund
Strategic Growth Fund
Stock Selector Fund
Evergreen Fund
Masters Fund
Omega Fund
Small Company Growth Fund
Aggressive Growth Fund
Micro Cap Fund
Global International
Global Leaders Fund
International Growth Fund
Global Opportunities Fund
Precious Metals Fund
Emerging Markets Growth Fund
Latin America Fund
Express Line
800.346.3858
Investor Services
800.343.2898
Retirement Plan Services
800.247.4075
www.evergreen-funds.com
19367 540390 03/99
BULK RATE
U.S. POSTAGE
[LOGO OF EVERGREEN Evergreen Funds(SM) PAID
APPEARS HERE] SINCE 1932 PERMIT NO. 19
200 BERKELEY STREET HUDSON, MA
BOSTON, MA 02116
<PAGE>
June 30, 1998
Annual Report
Evergreen
Short and
Intermediate Term
Bond Funds
[ART DEPICTING STATUE OF LIBERTY APPEARS HERE]
[LOGO OF EVERGREEN FUNDS APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Letter to Shareholders ................................................... 1
Evergreen Capital Preservation and Income Fund
Fund at a Glance ....................................................... 2
Portfolio Manager Interview ............................................ 3
Evergreen Intermediate Term Bond Fund
Fund at a Glance ....................................................... 6
Portfolio Manager Interview ............................................ 7
Evergreen Intermediate Term Government Securities Fund
Fund at a Glance ....................................................... 10
Portfolio Manager Interview ............................................ 11
Evergreen Short Intermediate Bond Fund
Fund at a Glance ....................................................... 13
Portfolio Manager Interview ............................................ 14
Financial Highlights
Evergreen Capital Preservation
and Income Fund ...................................................... 16
Evergreen Intermediate Term
Bond Fund ............................................................ 19
Evergreen Intermediate Term
Government Securities Fund ........................................... 22
Evergreen Short Intermediate
Bond Fund ............................................................ 24
Schedule of Investments
Evergreen Capital Preservation
and Income Fund ...................................................... 27
Evergreen Intermediate Term
Bond Fund ............................................................ 29
Evergreen Intermediate Term
Government Securities Fund ........................................... 34
Evergreen Short Intermediate
Bond Fund ............................................................ 35
Statements of Assets and Liabilities ..................................... 38
Statements of Operations ................................................. 39
Statements of Changes in Net Assets--
Year ended June 30, 1998 ............................................... 40
Statements of Changes in Net Assets--
Prior Periods .......................................................... 41
Combined Notes to Financial
Statements ............................................................... 42
Independent Auditor's Report ............................................. 51
Additional Information ................................................... 52
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Evergreen Funds
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Evergreen Funds is one of the nation's fastest growing investment companies with
approximately $52 billion in assets under management.
With over 70 mutual funds to choose among and acclaimed service and operations
capabilities, investors enjoy a broader range of quality investment products and
services designed to meet their needs.
The Evergreen Funds employ intensive, research-driven investment strategies
executed by over 90 research analysts and portfolio managers. The fund company
remains dedicated to meeting the needs of investors and their advisors in a
global economy. Look to the Evergreen Funds to provide a distinctive level of
service and excellence in investment management.
This annual report must be preceded or accompanied by a prospectus of an
Evergreen fund contained herein. The prospectus contains more complete
information, including fees and expenses, and should be read carefully before
investing or sending money.
----------------------------------------------------------------
Mutual Funds: ARE NOT FDIC INSURED May lose value . Are not bank guaranteed
----------------------------------------------------------------
Evergreen Funds Distributor, Inc.
Evergreen(SM) is a Service Mark of Evergreen Investment Services, Inc.
<PAGE>
Letter to Shareholders
----------------------
August 1998
[PHOTO APPEARS HERE]
William M. Ennis
Managing Director
Dear Shareholders:
The bond market continued its remarkable rally for the fiscal year that
concluded on June 30, 1998, and provided few reasons to be pessimistic about the
remainder of 1998. While short- and intermediate-term bond funds did not benefit
from the rally as fully as longer-maturity (and riskier) funds, the more
conservative funds still provided generous returns in absolute terms.
The Year in Review
As economic growth has moderated -- in part the result of the financial and
currency crisis in Asia--fears of inflation in the United States have subsided,
and interest rates have continued their decline. Not all sectors of the bond
market were affected to the same degree, however. Longer-term bonds experienced
the greatest decline in interest rates, which meant that their prices tended to
rise the most. During the 12 months that ended on June 30, 1998, the 30-year
Treasury fell by more than a full percentage point, from 6.78% to 5.63%. Short-
and intermediate-term yields also fell, but far less dramatically. By the end of
the period, the yield of the 10-year Treasury was 5.45% and the yield of the
one-year Treasury was 5.37%. In light of the 5.63% yield on the 30-year Treasury
Bond, one can recognize a classic case of what investment professionals call a
"flat yield curve" with a very narrow difference between longer- and
shorter-maturity yields.
Potential Opportunity
The financial markets never remain static, however, and it is very possible that
the recent relative underperformance of shorter- and intermediate-term bonds may
have created opportunity.
In light of the evidence that the pace of economic growth in the United States
is starting to slow and that inflation remains under control, it appears
possible that interest rates may decline even further, with the Federal Reserve
Board easing monetary policy and lowering short-term rates. This scenario would
be extremely positive for short- and intermediate-term funds, as their yields
have the potential to decline the most.
One doesn't have to "bet" on this scenario, however, to appreciate the strong
relative value of a conservative portfolio of short- and intermediate-maturity
bonds. In the wake of extraordinary rallies in both the long-term bond market
and the stock market, it makes increasing sense for prudent investors to
diversify and reduce their overall risk by maintaining at least part of their
portfolio in lower-risk, fixed income portfolios.
Cost Savings
Over the past year during our transition of combining Evergreen and Keystone
funds, we have been striving for efficiencies in our fund administration. We
have realigned the funds' fiscal year ends by asset class and combined them in
semiannual and annual reports, and prospectuses. This reduces the number of
different reports and prospectuses, as well as reduces overall costs through
efficiencies in printing and mailing.
Another change we have made is in the way we mail your funds' information.
Wherever possible, we are trying to combine your funds' required mailings so
that you only receive one per household, based on the registration's last name
and exact address./1/ This reduces the mailing costs, not to mention the amount
of paper needed to print. This in turn benefits your funds by reducing the
overall expenses. If you prefer to receive separate copies of reports and
prospectuses for each registered holder in your household, please notify us by
calling the number on your statement and we will adjust our records accordingly.
The Evergreen Commitment
At Evergreen Funds, we are committed to providing a broad array of funds with
complementary objectives and strategies to help investors and their financial
advisors assemble personal portfolios that make sense for their needs and risk
tolerances over the long run. If you have any questions about the Evergreen
Short and Intermediate Term Bond Funds or other Evergreen funds, we encourage
you to consult your financial advisor or call us at 800.343.2898.
Thank you for your continued investment with Evergreen Funds.
Sincerely,
/s/ William M. Ennis
William M. Ennis
Managing Director
Evergreen Funds
/1/ If you purchased your shares through a financial advisor, we may not be
able to consolidate your mailings by last name and address, as the
brokerage firm controls the mailings.
1
<PAGE>
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EVERGREEN
Capital Preservation And Income Fund
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Fund at a Glance as of June 30, 1998
The biggest move in our strategy has been to reduce our emphasis on adjustable
rate mortgages.
Portfolio
Management
----------
[PHOTO APPEARS HERE]
Gary E. Pzegeo
Tenure: April 1997
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CURRENT INVESTMENT STYLE
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Quantity Duration
Short Intermediate Long
High X
Medium
Low
Morningstar's Style Box is based on a portfolio date as of 6/30/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
Source: 1998 Morningstar, Inc.
* * * *
4-star by Morningstar/1/
(For overall period ended June 30, 1998)
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Performance and Returns*
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Class A Class B Class C
Inception Date 12/30/94 7/1/91 2/1/93
................................................................................
Average Annual Returns
................................................................................
1 year with sales charge 1.82% (0.54%) 3.54%
...............................................................................
1 year w/o sales charge 5.24% 4.42% 4.53%
................................................................................
3 years 4.93% 4.44% 5.39%
................................................................................
5 years -- 4.09% 4.45%
...............................................................................
Since Inception 5.67% 4.50% 4.55%
................................................................................
Maximum Sales Charge 3.25% 5.00% 1.00%
Front End CDSC CDSC
................................................................................
30-day SEC Yield 5.13% 4.38% 4.37%
................................................................................
12-month distributions per share $ 0.57 $ 0.49 $ 0.49
................................................................................
* Adjusted for maximum applicable sales charge
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LONG TERM GROWTH
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[LINEGRAPH APPEARS HERE]
CPI 6 Month Treasury Bill Class B Shares
6/30/91 10,000 10,000 10,000
6/30/92 10,309 10,453 10,644
6/30/93 10,618 10,787 10,961
6/30/94 10,882 11,174 11,101
6/30/95 11,213 11,815 11,642
6/30/96 11,518 12,439 12,292
6/30/97 11,787 13,099 13,034
6/30/98 11,993 13,787 13,610
Comparison of a $10,000 investment in Evergreen Capital Preservation and Income
Fund, Class B shares, versus a similar investment in a 6-Month Treasury Bill and
the Consumer Price Index (CPI).
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. The 6-Month Treasury Bill does not include transaction costs
associated with buying and selling securities nor any management fees. The CPI
is a commonly used measure of inflation and does not represent an investment
return. It is not possible to invest directly in an index.
2
<PAGE>
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EVERGREEN
Capital Preservation and Income Fund
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Portfolio Manager Interview
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How did the Fund perform during the year?
- --------------------------------------------------------------------------------
The Fund had strong relative performance, despite an unfriendly environment for
investors in adjustable rate mortgages. For the 12 months that ended on June 30,
1998, the Fund's Class A shares had a total return of 5.24%, while the Class B
and C shares had total returns of 4.42% and 4.53%, respectively. These returns
are unadjusted for any applicable sales charges. All three classes of shares
were rated four-stars, the second highest rating, by Morningstar, another
monitor of mutual fund performance, as of June 30, 1998./1/
In a difficult period for adjustable rate mortgages, the Fund was able to
maintain a relatively stable net asset value. The net asset value of Class A
shares began the fiscal period at $9.80 and ended the period at $9.73.
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Portfolio
Characteristics
---------------
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Total Net Assets $48,050,193
..............................................................
Average Credit Quality AAA
..............................................................
Average Maturity 5.0 years
..............................................................
Average Duration 0.4 years
..............................................................
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Why was the environment for adjustable rate mortgages so difficult?
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We are in an unprecedented environment for adjustable rate mortgages. We have
never seen the combination of such low interest rates and such a narrow
difference between the yields of long-term and short-term securities since
adjustable rate mortgages became a viable part of the bond market. To
illustrate, on June 30, 1998, the 10-year Treasury Bond offered a yield of
5.45%, while the 1-year Treasury Bill paid a yield of 5.37%.
This combination of low rates and narrow difference between the yields of
long-term and short-term securities has created a compelling incentive for
homeowners, particularly those with adjustable rate mortgages, to refinance into
fixed mortgages at low interest rates. As a result, prepayments of existing
mortgages, particularly adjustable rate mortgages, are coming very fast. A study
we did on certain types of adjustable rate mortgages that originated in 1995
indicated that prepayments are up 40% from their level before the current wave,
while mortgages that originated in 1988 are up 80%. The prepayments of newer
mortgages still are much higher in absolute terms, but even the holders of more
seasoned mortgages, who usually are less prone to refinancing, are considering
refinancing.
/1/ Source: Morningstar, Inc. Morningstar's proprietary ratings reflect
historical risk-adjusted performance as of June 30, 1998, for Class A, B,
and C shares. These ratings are subject to change monthly and are
calculated from the Fund's 3-, 5-, and 10-year average annual returns in
excess of 90-day Treasury bill returns with appropriate fee adjustments,
and a risk factor that reflects fund performance below 90-day T-bill
returns. The Fund's Class A shares received 4 stars for the overall and
3-year periods ended June 30, 1998. The Fund's Class B and C shares
received 4 stars for the overall, 3-, and 5-year periods ended June 30,
1998. The Fund was rated among 1,468 taxable bond funds for the 3-year
period and 890 taxable bond funds for the 5-year period ended June 30,
1998. The top 10% of rated funds in an investment category receive five
stars, the next 22.5% receive four stars. Past performance is no guarantee
of future results.
3
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Capital Preservation And Income Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
This refinancing wave is also propelled by the fact that, because interest rates
have been low for some time, mortgage brokers have had ample opportunity to
advertise to encourage refinancing. In addition, the economic recovery in the
United States has given people the opportunity either to move into larger, more
expensive homes or to refinance their existing homes without any risk to their
existing home equity. In either scenario, older mortgages were retired.
The consequence of this increased refinancing has been a very poor market for
adjustable rate mortgages. Existing mortgage-backed securities either have been
called back or they have lost part of their value. This is why the Fund's net
asset value has slipped somewhat during the 12 months.
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In light of this unfriendly environment, what have been your principal
strategies?
- --------------------------------------------------------------------------------
The biggest move in our strategy has been to reduce our emphasis on adjustable
rate mortgages. We wanted to move out of the most vulnerable sector of the
environment I have just been describing. We did this to protect both the income
stream and the principal value of the Fund. We can't completely escape from the
negative effects of the environment, but we can reduce the impact while keeping
the Fund's identity and objective as an adjustable rate mortgage fund. By
prospectus, under ordinary circumstances, the Fund will invest at least 65% of
its assets in of its assets in adjustable rate securities.
During the fiscal year, the Fund reduced its emphasis on adjustable rate
mortgages from 91% of assets to 69%.
[PIE CHART APPEARS HERE]
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ASSET ALLOCATION 6/30/98
- --------------------------------------------------------------------------------
(as a percentage of portfolio assets)
Adjustable Rate Mortgages -- 69%
Fixed Rate Securities -- 29%
Cash -- 2%
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Asset Allocation 6/30/97
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(as a percentage of portfolio assets)
Adjustable Rate Mortgages -- 91%
Fixed Rate Securities -- 6%
Cash -- 3%
Within the 29% of portfolio assets invested in fixed-rate securities on June 30,
1998, 15% were invested in fixed rate mortgages, 9% were invested in
asset-backed securities such as automobile loan receivables, 4% were invested in
Treasuries, and 1% were invested in government agency securities.
We also pursued an additional strategy to protect the performance of the Fund.
Within the adjustable rate mortgage allocation of the Fund, we sold some
seasoned adjustable rate securities to buy hybrid adjustable rate mortgages.
These are newer mortgage products that guarantee a fixed interest rate for a
stated period of time -- often either three or five years -- before the rate
starts floating. These have proven popular with homeowners, and they offer the
Fund significantly more prepayment protection than a traditional adjustable rate
security. At the end of the fiscal year, about 7% of net assets were invested in
these hybrid mortgages. Both the increased emphasis
4
<PAGE>
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EVERGREEN
Capital Preservation And Income Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
on fixed rate securities and the allocation to hybrid mortgages helped the
Fund's performance during the fiscal year.
The Fund invested only in securities issued by the U.S. government or government
agencies or AAA-rated asset-backed and mortgage-backed securities, so the
average credit rating has remained at AAA.
- --------------------------------------------------------------------------------
What is your outlook?
- --------------------------------------------------------------------------------
We expect interest rates to remain low, with a continuation of the narrow
difference between short- and long-term interest rates. The principal factors
driving interest rates are inflation and growth. We expect inflation to remain
restrained and economic growth to be moderate or even slower than at the present
time. In addition, the U.S. government's budget surplus means that the Treasury
is borrowing less money and this also puts downward pressure on interest rates.
The big story continues to be Asia. The economic crisis in Asia is beginning to
have an effect on some sectors of the domestic economy, such as manufacturing.
For example, jobs in goods-producing industries grew by just 1.6% during the 12
months ending June 30, 1998, while jobs in service industries grew by 2.9%.
Moreover, the growth of jobs in goods-producing industries has started to
decline. Slower economic growth tends to keep interest rates low.
In such an environment, prepayments of adjustable rate mortgages are likely to
continue to run at a faster pace than a year ago. If rates were to move even
lower, we probably would see renewed pressure on adjustable rate mortgage
securities.
Given this outlook, we do not anticipate increasing the Fund's allocation to
adjustable rate mortgages beyond the present allocation. Although the prices of
these securities have declined significantly, we are not ready to start buying
more until we see a change in interest rate trends.
If we were to see more concrete signs that Asian countries were beginning to
introduce meaningful economic reforms, it is possible that interest rates could
turn around as investors would again become concerned about the level of growth
in the United States. If interest rates were to start moving up, prepayments of
adjustable rate mortgages would start to decline and the sector would stabilize.
5
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Intermediate Term Bond Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of June 30, 1998
Two significant steps we took during the past six months were to invest in
European mortgage-backed securities and to reduce substantially the emphasis on
U.S. mortgage-related securities.
Portfolio
Management
- ----------
[PHOTO APPEARS HERE]
Chris Conkey
Tenure: January 1998
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CURRENT INVESTMENT STYLE
- --------------------------------------------------------------------------------
Quality Duration
Short Intermediate Long
High
Medium X
Low
Morningstar's Style Box is based on a portfolio date as of 6/30/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C Class Y**
Inception Date 2/13/87 2/1/93 2/1/93 1/26/98
................................................................................
Average Annual Returns
...............................................................................
1 year with sales charge 5.28% 2.89% 7.01% n/a
................................................................................
1 year w/o sales charge 8.82% 7.89% 8.01% --
................................................................................
3 years 6.13% 5.60% 6.49% --
................................................................................
5 years 5.27% 4.84% 5.18% --
................................................................................
10 years 7.19% -- -- --
................................................................................
Since Inception 6.43% 5.37% 5.52% 2.58%
................................................................................
Maximum Sales Charge 3.25% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
30-day SEC Yield 5.50% 4.94% 4.94% 5.94%
................................................................................
12-month distributions per share $ 0.62 $ 0.55 $ 0.55 $ 0.24
...............................................................................
* Adjusted for maximum applicable sales charge
** Class Y shares were introduced in January 1998 and do not have any annual
returns yet.
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Long Term Growth
- --------------------------------------------------------------------------------
CPI LBITGCBI Class A Shares
6/30/88 10,000 10,000 9,675
6/30/89 10,517 11,022 10,196
6/30/90 11,008 11,884 10,688
6/30/91 11,525 13,135 11,710
6/30/92 11,881 14,864 13,373
6/30/93 12,237 16,424 14,980
6/30/94 12,542 16,382 14,805
6/30/95 12,924 18,082 16,205
6/30/96 13,275 18,987 16,905
6/30/97 13,585 20,359 18,398
6/30/98 13,822 22,088 20,021
Comparison of a $10,000 investment in Evergreen Intermediate Term Bond Fund,
Class A shares, versus a similar investment in the Lehman Brothers Intermediate
Government/Corporate Bond Index (LBIGCBI) and the Consumer Price Index (CPI).
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. The LBIGCBI is an unmanaged index and does not include
transaction costs associated with buying and selling securities nor any
management fees. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
6
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Intermediate Term Bond Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
- --------------------------------------------------------------------------------
How did the Fund perform during the 12-month period that ended on June 30, 1998?
- --------------------------------------------------------------------------------
The Fund performed well relative to the intermediate-term bond market. For the
fiscal year ending June 30, the Fund's Class A shares had a total return of
8.82%. During the same period, the Fund's Class B and C shares had returns of
7.89% and 8.01%, respectively. These returns are unadjusted for any applicable
sales charges. During the same 12-month period, the Lehman Brothers Intermediate
Government/Corporate Bond Index had a return of 8.54%.
- --------------------------------------------------------------------------------
Portfolio
Characteristics
---------------
- --------------------------------------------------------------------------------
Total Net Assets $203,645,350
................................................................................
Average Credit Quality A+
................................................................................
Average Maturity 7.2 years
................................................................................
Average Duration 4.7 years
...............................................................................
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
How would you describe the investment environment during the period?
- --------------------------------------------------------------------------------
It was a very positive environment for fixed income investments. Interest rates
fell significantly over the year, with a dramatic flattening of the yield curve.
Flattening of the yield curve occurs when long-term bond yields fall by more
than short-term yields in a declining rate environment. It also could happen if
short-term yields rose by more than long-term yields in a rising rate
environment. During the 12 months ended June 30, 1998, the yield on a one-year
Treasury fell by 0.28%, from 5.65% to 5.37%. At the same time, the yield on a
30-year Treasury fell by 1.15%, from 6.78% to 5.63%. This was clearly a
significant event, with bond prices tending to rise as rates fell. It also
benefited bonds with longer maturities, which performed better than bonds with
short- or intermediate-term maturities. During the year, higher-quality
securities tended to outperform lower-quality securities within the investment
grade bond universe. In general, higher quality bonds tend to do better when
rates fall.
There also were other factors that impacted the returns of the financial markets
during the period. One was very low inflation -- the lowest since the 1960s.
This was partly the result of the tight monetary and tight fiscal policies in
the United States. The federal government now has a budget surplus -- the first
since 1969. All things being equal, a budget surplus is disinflationary. The
second factor affecting the bond market is the impact of the Asian financial
crisis.
- --------------------------------------------------------------------------------
How is the financial and currency crisis in Asia affecting the bond market in
the United States?
- --------------------------------------------------------------------------------
There are several ways the crisis in Asia is affecting the bond market. The
first influence was to lower expectations of inflation, which helped stimulate
the decline in long-term interest rates and the rise in bond prices. Currency
depreciation in Asia has translated into currency appreciation in other
countries, particularly the United States. A stronger currency makes goods
manufactured in foreign countries cheaper in the United States, so the impact of
the currency depreciation in Asia over the past year has been essentially
disinflationary. While this is positive for U.S. consumers of imported products,
it is negative for U.S. firms that compete with Asian exporters. So the initial
impact of lower inflation expectations was obviously a boon to consumers and
corporations, stimulating the housing market and capital spending by business.
In the longer run, however, slower growth in Asian economies will sharply reduce
our exports to these nations, which had been experiencing the fastest growth in
the world in recent years. This should cause a very noticeable slowdown in the
manufacturing sector at the same time that Asian
7
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Intermediate Term Bond Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
manufacturers will have a price advantage for their goods here in the U.S. So,
while economic growth was impressive at the start of 1998, we expect it to slow
in the second half of the year as the impact of the manufacturing slowdown and a
larger trade deficit begins to work its way through the domestic economy.
- --------------------------------------------------------------------------------
Portfolio Composition
- --------------------------------------------------------------------------------
(as a percentage of net assets)
[PIE CHART APPEARS HERE]
Corporate Notes/Bonds -- 50.7%
Foreign Bond -- 20.0%
U.S. Treasury/Agency -- 15.5%
CMO & Mortgage-Backed Securities 10.6%
Asset-Backed Securities -- 2.9%
Repurchase Agreements/Other assets and liabilities (net) -- 0.3%
- --------------------------------------------------------------------------------
The Fund has grown substantially during the year as a result of the merger of
the two Evergreen intermediate term bond funds and also the merger with the
former Blanchard Short-Term Flexible Income Fund. The resulting fund is now more
than $200 million in size. How have these mergers affected the portfolio?
- --------------------------------------------------------------------------------
The mergers were significant events in the history of the Fund. As a result of
the merger with the Blanchard Fund, the Fund has taken a position in high yield
bonds for the first time. At the close of the fiscal year, these high yield
investments accounted for about 21% of net assets. We have emphasized better
quality high yield bonds, with credit ratings of BB and higher. We also have
concentrated in non-cyclical industries -- or companies that would not be highly
affected if economic growth were to slow. These include cable, media, aerospace
and telecommunications.
We have maintained an investment in high yield because this sector has been one
of the best performing areas in the bond market. And this good performance has
come with lower volatility than that of very high-grade investments because the
high yield market is less affected by changes in interest rates. We are bullish
on the U.S. economy, and so we believe it makes sense to have a portion of the
portfolio in the upper areas of the high yield market, where we can take
advantage of investments in companies with healthy balance sheets and rising
earnings.
Even with the addition of high yield bonds, the average credit quality
of the Fund has not changed significantly. It still is A+, down just slightly
from the AA-average credit quality on December 31, 1997. We have accomplished
this by increasing the allocation to U.S. Treasuries, which were 13.7% of assets
at the end of the period, balancing a higher position in government securities
with the Fund's position in lower-rated securities.
- --------------------------------------------------------------------------------
Quality Allocation
- --------------------------------------------------------------------------------
BB or less BBB A AA Gov't/AAA
31-Dec-97 0 15 34 15 36
31-Jan-98 11 7 23 8 51
28-Feb-98 18 7 17 10 48
31-Mar-98 18 15 21 20 26
30-Apr-98 18 12 22 20 28
31-May-98 22 12 21 17 28
30-Jun-98 21 12 20 16 31
8
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Intermediate Term Bond Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
- --------------------------------------------------------------------------------
What were your principal investment strategies during the year in addition to
investing in better quality high yield bonds?
- --------------------------------------------------------------------------------
Especially in recent months, we have been anticipating that economic growth
would slow and interest rates would decline. As a result, within the investment
grade and high-grade portion of the portfolio, we have upgraded credit quality
and increased the emphasis on government securities. We have done this both to
take advantage of falling rates and to reduce credit risk in the event of an
economic slowdown. As I mentioned earlier, we have maintained a position in high
yield bonds because we are bullish on this sector over the long term.
Maturity and duration -- measures of the Fund's sensitivity to changes in
interest rates -- have remained essentially unchanged. On June 30, 1998, average
weighted maturity was 7.2 years and the effective duration of the portfolio was
4.7 years.
Two significant steps we took during the past six months were to invest in
European mortgage-backed securities and to reduce substantially the emphasis on
U.S. mortgage-related securities.
Overall, we have invested about 12% of the portfolio in European bonds, with the
major portion (9%) in mortgage-securities in Denmark. These investments have
been hedged to protect against currency risk. We invested in these bonds to take
advantage of significantly higher interest rates in Europe. These investments
have an average credit quality of AA.
During the past six months, we have substantially reduced the emphasis on U.S.
mortgage-backed securities, from 33.6% of assets on December 31, 1997 to 10.6%
on June 30. We have done this because U.S. mortgage-related securities tend to
underperform in a falling interest rate environment as homeowners prepay their
existing mortgages to take advantage of lower rates. When this happens,
investors in mortgage-backed securities lose the income from prepaid mortgages
and are forced to reinvest in securities with lower yields.
- --------------------------------------------------------------------------------
What is your outlook?
- --------------------------------------------------------------------------------
We expect the growth in the domestic economy to slow during the second half of
the year, with an average annualized growth rate of perhaps 2%. This will be due
to a combination of factors, including: a rising trade deficit brought on by the
currency crisis in Asia; the need for American companies to reduce the large
inventories they amassed early in the year; and a likely slowdown in consumer
spending.
This should be very good for the bond market. We expect interest rates to fall.
Long-term interest rates are likely to fall first. We anticipate the Federal
Reserve Board, as it sees economic growth slowing, will ease its monetary
policy, resulting in declines in rates among short-term and intermediate-term
securities. Intermediate-term rates have the potential to fall more than
longer-term rates, and intermediate term bonds should be among the best
performers in the fixed income market.
With this outlook, we believe we are very well positioned to benefit from the
anticipated decline in short-term and intermediate-term rates. Our emphasis on
investments in government bonds and in corporate bonds from non-cyclical
industries should help the Fund perform very well in a slowing economy.
9
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Intermediate Term Government Securities Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of June 30, 1998
Duration was kept relatively neutral to its benchmark during the fiscal year and
closed at 3.06 years, or 101% of the benchmark.
Portfolio
Management
- ----------
[PHOTO APPEARS HERE]
L. Robert Cheshire
Tenure: January 1994
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE
- --------------------------------------------------------------------------------
Quality Duration
Short Intermediate Long
High X
Medium
Low
Morningstar's Style Box is based on a portfolio date as of 6/30/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
Performance and Returns*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
<S> <C> <C> <C> <C>
Inception Date 5/2/95 2/9/96 4/10/96 11/1/91
.........................................................................................
Average Annual Returns
.........................................................................................
1 year with sales charge 4.05% 1.57% 5.57% n/a
.........................................................................................
1 year w/o sales charge 7.55% 6.57% 6.57% 7.63%
.........................................................................................
3 years 4.66% -- -- 5.88%
.........................................................................................
5 years -- -- -- 5.08%
.........................................................................................
Since Inception 5.37% 2.77% 5.62% 6.09%
.........................................................................................
Maximum Sales Charge 3.25% 5.00% 1.00% n/a
Front End CDSC CDSC
.........................................................................................
30-day SEC Yield 5.16% 4.39% 4.39% 5.39%
.........................................................................................
12-month distributions per share $ 0.55 $ 0.46 $ 0.46 $ 0.56
.........................................................................................
</TABLE>
* Adjusted for maximum applicable sales charge long term growth
- --------------------------------------------------------------------------------
Long Term Growth
- --------------------------------------------------------------------------------
Class A LBITGBI CPI
5/2/95 9,675 10,000 10,000
6/30/95 9,959 10,064 10,020
12/31/95 10,421 10,561 10,079
6/30/96 10,353 10,559 10,292
12/31/96 10,735 10,990 10,420
6/30/97 10,974 11,293 10,532
12/31/97 11,456 11,838 10,598
6/30/98 11,803 12,233 10,716
Comparison of a $10,000 investment in Evergreen Intermediate Term Government
Securities Fund, Class A shares, versus a similar investment in the Lehman
Brothers Intermediate Government Bond Index (LBIGBI) and the Consumer Price
Index (CPI).
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. The LBIGBI is an unmanaged index and does not include
transaction costs associated with buying and selling securities nor any
management fees. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
10
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Intermediate Term Government Securities Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
- --------------------------------------------------------------------------------
How did the Fund perform during the fiscal period?
- --------------------------------------------------------------------------------
For the fiscal year ending June 30, 1998, the Evergreen Intermediate Term
Government Securities Fund Class Y shares posted a 7.63% total return, while
Class A shares returned 7.55%. Class B and C shares both returned 6.57%. These
returns are unadjusted for any applicable sales charges. This performance
modestly trailed that of the Lehman Brothers Intermediate Government Bond Index,
but still ranks in the top 30% of all Short/Intermediate U.S. Government Funds
tracked by Lipper Analytical Services. The Fund's Class Y and A shares ranked 27
and 31, respectively, out of the 99 Short-Intermediate U.S. Government Funds
tracked by Lipper for the one-year period ended June 30, 1998. Class B and C
shares ranked 73 out of the 99 funds for the same period.
The Fund's strong performance relative to its peers can be partially attributed
to an increased duration which positively impacted returns within a declining
interest rate environment.
- --------------------------------------------------------------------------------
Portfolio
Characteristics
---------------
Total Net Assets $181,941,246
......................................................
Average Credit Quality AAA
......................................................
Average Maturity 4.39 years
......................................................
Average Duration 3.06 years
......................................................
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
What was the investment environment like during the fiscal period?
- --------------------------------------------------------------------------------
The past twelve months has been a very favorable period for fixed income
investors. Healthy economic growth and benign inflation allowed interest rates
to trend lower, in turn boosting bond prices. During the fiscal period, the
yield on the bellwether 30-year Treasury Bond declined steadily from 6.78% to
5.63%.
The only major dilemma began in late 1997 when the well-publicized financial
crisis -- dubbed the "Asian Contagion" --flared up in several Asian countries.
Despite initial dire headlines, the turmoil initiated a flight to quality U.S.
fixed income markets which had a generally positive effect on domestic bond
prices. Foreign investors leaving this region's markets sought shelter from the
volatility, prompting huge demand for the perceived safety of U.S. Treasuries
which, consequently, was the best performing sector in the final months of the
fiscal period. Conversely, because of the potential negative impact on U.S.
corporate earnings, U.S. corporate bonds were penalized and subsequently
underperformed during the final months of the period.
- --------------------------------------------------------------------------------
PORTFOLIO MATURITY
- --------------------------------------------------------------------------------
(as a percentage of portfolio assets)
[PIE CHART APPEARS HERE]
1-5 Years -- 58%
5-10 Years -- 36%
0-1 Year -- 6%
/1/ Source: Lipper Analytical Services, Inc., an independent mutual fund
performance monitoring company. The rankings are based on total return and do
not include the effect of a sales charge. Past performance is no guarantee of
future results.
11
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Intermediate Term Government Securities Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
- --------------------------------------------------------------------------------
What was your strategy during the fiscal period?
- --------------------------------------------------------------------------------
Duration was kept relatively neutral to its benchmark during the fiscal year and
closed at 3.06 years, or 101% of the benchmark. Early in the period, signs of
increasing prices, a tight labor market and rising wages all pointed to higher
interest rates. Although several underlying fundamentals supported stable rates,
we felt that the best strategy within that environment of uncertainty was a
defensive stance. As a result, we kept duration near that of the benchmark.
From a sector standpoint, we made some significant adjustments during the
period. The portfolio's exposure to Treasuries was reduced significantly and
closed the period at a 39% weighting. Conversely, our weighting of
mortgage-backed securities more than doubled to 45%. We feel that spreads in the
mortgage sector are attractive, and we anticipate maintaining this strong
weighting going forward. Because homeowners tend to refinance their mortgage as
interest rates fall, we have emphasized non-callable issues within this sector
in an effort to reduce the portfolio's prepayment risk should rates continue to
decline.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(as a percentage of net assets)
[PIE CHART APPEARS HERE]
Mortgage Backed Securities -- 44.7%
Treasury Notes/Bonds -- 39.4%
Government Agency Notes/Bonds -- 13.9%
Repurchase Agreements and
Other assets less liabilities (net) -- 2.0%
- --------------------------------------------------------------------------------
What is your outlook?
- --------------------------------------------------------------------------------
Our long-term outlook for the bond market remains extremely positive as a number
of economic forces continue to bode well for low interest rates and benign
inflation over the long term. In the short term, however, uncertain investors
are currently struggling to gauge which of the "countervailing forces" -- strong
U.S. growth or the tempering effect from the Asian crisis -- will prevail. This
uncertainty is likely to cause increased volatility in the near term as the
situation and its effects unfold.
Consequently, we will anticipate maintaining a neutral duration in order to
protect the portfolio from potential volatility. The Fund's overweighted
position in mortgage-backed securities will serve to increase current yield and
also provide a degree of protection in the event of fluctuating interest rates
in the near term.
12
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Short Intermediate Bond Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of May 31, 1998
Our decision to maintain a "barbell" portfolio throughout most of the fiscal
year had a positive impact on performance.
Portfolio
Management
- ----------
[PHOTO APPEARS HERE]
Thomas L. Ellis
Tenure: January 1989
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE
- --------------------------------------------------------------------------------
Quality Duration
Short Intermediate Long
High
Medium X
Low
Morningstar's Style Box is based on a portfolio date as of 6/30/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
Performance and Returns*
- --------------------------------------------------------------------------------
Class A Class B Class C Class Y
Inception Date 1/28/89 1/25/93 9/6/94 1/4/91
.............................................................
Average Annual Returns
.............................................................
1 year with sales charge 3.60% 1.11% 5.11% n/a
.............................................................
1 year w/o sales charge 7.08% 6.11% 6.11% 7.19%
............................................................
3 years 4.93% 4.26% 5.13% 6.22%
.............................................................
5 years 4.59% 4.09% -- 5.42%
.............................................................
Since Inception 7.14% 4.68% 5.83% 7.04%
.............................................................
Maximum Sales Charge 3.25% 5.00% 1.00% n/a
Front End CDSC CDSC
.............................................................
30-day SEC Yield 5.56% 4.83% 4.83% 5.85%
.............................................................
12-month distributions
per share $0.61 $0.52 $0.52 $0.62
.............................................................
* Adjusted for maximum applicable sales charge
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
CPI LBITGCBI Class A Shares
1/31/89 10,000 10,000 9,675
6/30/89 10,248 10,666 10,275
6/30/90 10,727 11,500 10,902
6/30/91 11,230 12,710 12,007
6/30/92 11,577 14,384 13,524
6/30/93 11,924 15,893 14,802
6/30/94 12,221 15,853 14,680
6/30/95 12,593 17,498 16,034
6/30/96 12,935 18,374 16,747
6/30/97 13,237 19,701 17,881
6/30/98 13,468 21,735 19,147
Comparison of a $10,000 investment in Evergreen Short Intermediate Bond Fund,
Class A shares, versus a similar investment in the Lehman Brothers Intermediate
Government/Corporate Bond Index (LBIGCBI) and the Consumer Price Index (CPI).
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. The LBIGCBI is an unmanaged index and does not include
transaction costs associated with buying and selling securities nor any
management fees. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
13
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Short Intermediate Bond Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
- --------------------------------------------------------------------------------
How did the Fund perform during the fiscal period?
- --------------------------------------------------------------------------------
The Evergreen Short Intermediate Bond Fund Class Y shares posted a total return
of 7.19% for the fiscal year ending June 30, 1998, while Class A shares had a
return of 7.08%. Class B and C shares both had a 6.11% return. The returns are
unadjusted for any applicable sales charges. These returns trailed the benchmark
Lehman Brothers Intermediate Government/Corporate Bond Index return of 8.50%,
but were in line with the 7.20% average return of 94 Short Intermediate
Investment Grade Funds tracked by Lipper Analytical Services, an independent
mutual fund performance monitoring company.
- --------------------------------------------------------------------------------
Portfolio
Characteristics
---------------
Total Net Assets $389,015,067
...............................................
Average Credit Quality AA
...............................................
Average Maturity 4.6 years
...............................................
Average Duration 3.6 years
...............................................
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
What was the investment climate like during the Fund's fiscal period ended June
30, 1998?
- --------------------------------------------------------------------------------
The twelve months ending June 30, was a very positive period for fixed income
investors. The main event in the financial markets was the crisis in Asia --
dubbed the "Asian Contagion" -- which devalued this region's currencies and
caused concern of lower earnings of multi-national U.S. companies. As positive
side-effects, however, the situation effectively calmed inflation (by way of
lower import prices); initiated a "flight-to-quality" whereby foreign investors
flocked to the perceived safety of U.S. securities; and allowed interest rates
to trend lower. During the fiscal period, the yield on the bellwether 30-year
Treasury Bond declined steadily from 6.78% to 5.63%.
- --------------------------------------------------------------------------------
What was your strategy?
- --------------------------------------------------------------------------------
Our decision to maintain a "barbell" portfolio throughout most of the fiscal
year had a positive impact on performance. A barbell structure is distinguished
by holding securities on both ends of the yield curve rather than in the middle.
This strategy tends to enhance performance when the yield curve flattens, a
scenario which transpired in the second half of the fiscal year as yields on the
long end of the curve fell more sharply than those at the short end.
- --------------------------------------------------------------------------------
PORTFOLIO MATURITY
- --------------------------------------------------------------------------------
(as a percentage of portfolio assets)
[PIE CHART APPEARS HERE]
1-5 Years -- 50%
5-10 Years -- 33%
0-1 Year -- 17%
Our decision to extend duration also enhanced performance. A duration stance
longer than that of the benchmark fuels performance during periods of declining
interest rates. Duration was increased from 3.0 years to 3.6 years during the
twelve months and, as of June 30, duration stood at 108% of the benchmark Lehman
Brothers Intermediate Government/Corporate Bond Index. This extended duration
positively impacted performance as interest rates trended significantly lower.
14
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Short Intermediate Bond Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
These strategies were especially effective during the final six months of the
fiscal year during which the Fund returned 3.44%. This return outperformed the
3.05% average return of the Lipper short intermediate investment grade funds
category during the same period.
- --------------------------------------------------------------------------------
PORTFOLIO QUALITY
- --------------------------------------------------------------------------------
(as a percentage of portfolio assets)
[PIE CHART APPEARS HERE]
Government/Agency -- 43.0%
A -- 24.0%
AAA -- 21.0%
BAA -- 8.0%
AA -- 2.0%
BA -- 2.0%
- --------------------------------------------------------------------------------
What is your outlook?
- --------------------------------------------------------------------------------
Although long term market fundamentals remain favorable and support lower
interest rates, many troubled foreign economies are showing signs of worsening,
which likely would negatively impact U.S. financial markets. As a positive side
effect, however, softer foreign economies and declining import prices would
likely reward investors with benign inflation and stable interest rates.
As a result, we expect to maintain a duration longer than that of our benchmark
in the coming months. On the flip side, should Asian economies continue their
downward spiral, U.S. corporate earnings will certainly be adversely affected.
In response, we anticipate paring back our weighting of corporate bonds, a
sector we feel may underperform going forward.
15
<PAGE>
EVERGREEN
Capital Preservation and Income Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
December 30, 1994
(Commencement of
Nine Months Class Operations)
Year Ended Ended Year Ended through
June 30, 1998 June 30, 1997 (d) September 30, 1996 September 30, 1995
- --------------------------------------------------------------------------------------------------
CLASS A SHARES
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $ 9.80 $ 9.74 $ 9.68 $ 9.51
------- ------- ------- -------
..................................................................................................
INCOME FROM INVESTMENT
OPERATIONS
..................................................................................................
Net investment income 0.57 0.46 0.61(c) 0.46
..................................................................................................
Net realized and
unrealized gain (loss)
on investments (0.07) 0.03 0.01 0.14
------- ------- ------- -------
..................................................................................................
Total from investment
operations 0.50 0.49 0.62 0.60
------- ------- ------- -------
..................................................................................................
LESS DISTRIBUTIONS FROM
..................................................................................................
Net investment income (0.56) (0.42) (0.53) (0.42)
.................................................................................................
In excess of net
investment income (0.01) (0.01) 0 (0.01)
..................................................................................................
Tax basis return of
capital 0 0 (0.03) 0
------- ------- ------- -------
..................................................................................................
Total distributions (0.57) (0.43) (0.56) (0.43)
------- ------- ------- -------
..................................................................................................
NET ASSET VALUE END OF
PERIOD $ 9.73 $ 9.80 $ 9.74 $ 9.68
------- ------- ------- -------
..................................................................................................
TOTAL RETURN (a) 5.24% 5.12% 6.56% 6.36%
..................................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.87% 0.92%(b) 0.91% 0.86%(b)
..................................................................................................
Expenses excluding
indirectly paid
expenses 0.87% 0.90%(b) 0.90% 0.82%(b)
..................................................................................................
Expenses excluding
waivers and
reimbursements 1.29% 1.47%(b) 1.33% 1.27%(b)
..................................................................................................
Net investment income 5.77% 6.24%(b) 6.31% 6.37%(b)
..................................................................................................
PORTFOLIO TURNOVER RATE 88% 52% 74% 67%
.................................................................................................
NET ASSETS END OF PERIOD
(THOUSANDS) $18,022 $15,751 $22,684 $19,293
..................................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
(c) Calculation based on average shares outstanding.
(d) The Fund changed its fiscal year end from September 30 to June 30.
See Combined Notes to Financial Statements.
16
<PAGE>
EVERGREEN
Capital Preservation and Income Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
July 1, 1991
(Commencement of
Nine Months Year Ended September 30, Class
Operations)
Year Ended Ended -----------------------------------------------
through
June 30, 1998 June 30, 1997 (d) 1996 1995 1994 1993 1992
September 30, 1991
- -------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $ 9.81 $ 9.75 $ 9.68 $ 9.62 $ 9.91 $ 9.88 $ 10.06
$ 10.00
------- ------- ------- ------- ------- -------- --------
- -------
...............................................................................................................................
INCOME FROM INVESTMENT
OPERATIONS
...............................................................................................................................
Net investment income 0.49 0.39 0.55 (c) 0.52 0.47 0.45
0.58 0.18
...............................................................................................................................
Net realized and
unrealized gain (loss)
on investments (0.07) 0.04 0.01 0.03 (0.41) (0.05)
(0.21) 0.06
------- ------- ------- ------- ------- -------- --------
- -------
...............................................................................................................................
Total from investment
operations 0.42 0.43 0.56 0.55 0.06 0.40
0.37 0.24
------- ------- ------- ------- ------- -------- --------
- -------
...............................................................................................................................
LESS DISTRIBUTIONS FROM
...............................................................................................................................
Net investment income (0.48) (0.36) (0.46) (0.48) (0.34) (0.37)
(0.55) (0.18)
...............................................................................................................................
In excess of net
investment income (0.01) (0.01) 0 (0.01) (0.01) 0
0 0
...............................................................................................................................
Tax basis return of
capital 0 0 (0.03) 0 0 0
0 0
------- ------- ------- ------- ------- -------- --------
- -------
...............................................................................................................................
Total distributions (0.49) (0.37) (0.49) (0.49) (0.35) (0.37)
(0.55) (0.18)
------- ------- ------- ------- ------- -------- --------
- -------
..............................................................................................................................
NET ASSET VALUE END OF
PERIOD $ 9.74 $ 9.81 $ 9.75 $ 9.68 $ 9.62 $ 9.91 $ 9.88
$ 10.06
------- ------- ------- ------- ------- -------- --------
- -------
...............................................................................................................................
TOTAL RETURN (a) 4.42% 4.53% 5.90% 5.81% 0.58% 4.16%
3.71% 2.43%
...............................................................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.65% 1.67% (b) 1.63% 1.53% 1.50% 1.50%
1.36% 1.19% (b)
..............................................................................................................................
Expenses excluding
indirectly paid
expenses 1.65% 1.65% (b) 1.62% 1.50% -- --
- -- --
...............................................................................................................................
Expenses excluding
waivers and
reimbursements 2.10% 2.23% (b) 2.09% 2.09% 1.93% 1.94%
2.03% 3.19% (b)
...............................................................................................................................
Net investment income 5.07% 5.52% (b) 5.63% 5.46% 4.05% 4.44%
5.50% 6.42% (b)
...............................................................................................................................
PORTFOLIO TURNOVER RATE 88% 52% 74% 67% 34% 60%
41% 2%
...............................................................................................................................
NET ASSETS END OF PERIOD
(THOUSANDS) $26,056 $32,694 $44,096 $62,998 $95,761 $144,725 $186,742
$25,769
...............................................................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
(c) Calculation based on average shares outstanding.
(d) The Fund changed its fiscal year end from September 30 to June 30.
See Combined Notes to Financial Statements.
17
<PAGE>
EVERGREEN
Capital Preservation and Income Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
February 1, 1993
Year Ended September (Commencement of
Nine Months 30, Class Operations)
Year Ended Ended ------------------------ through
June 30, 1998 June 30, 1997(d) 1996 1995 1994 September 30, 1993
- -------------------------------------------------------------------------------------------------------
CLASS C SHARES
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $ 9.80 $ 9.74 $ 9.67 $ 9.60 $ 9.90 $ 9.82
------ ------ ------ ------ ------ ------
.......................................................................................................
INCOME FROM INVESTMENT
OPERATIONS
.......................................................................................................
Net investment income 0.49 0.40 0.54(c) 0.52 0.40 0.23
.......................................................................................................
Net realized and
unrealized gain (loss)
on investments (0.06) 0.03 0.02 0.04 (0.35) 0.09
------ ------ ------ ------ ------ ------
.......................................................................................................
Total from investment
operations 0.43 0.43 0.56 0.56 0.05 0.32
------ ------ ------ ------ ------ ------
.......................................................................................................
LESS DISTRIBUTIONS FROM
.......................................................................................................
Net investment income (0.48) (0.36) (0.46) (0.48) (0.34) (0.24)
.......................................................................................................
In excess of net
investment income (0.01) (0.01) 0 (0.01) (0.01) 0
.......................................................................................................
Tax basis return of
capital 0 0 (0.03) 0 0 0
------ ------ ------ ------ ------ ------
.......................................................................................................
Total distributions (0.49) (0.37) (0.49) (0.49) (0.35) (0.24)
------ ------ ------ ------ ------ ------
.......................................................................................................
NET ASSET VALUE END OF
PERIOD $ 9.74 $ 9.80 $ 9.74 $ 9.67 $ 9.60 $ 9.90
------ ------ ------ ------ ------ ------
.......................................................................................................
TOTAL RETURN (a) 4.53% 4.53% 5.91% 5.93% 0.48% 3.28%
......................................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.65% 1.67%(b) 1.64% 1.53% 1.50% 1.50%(b)
.......................................................................................................
Expenses excluding
indirectly paid
expenses 1.65% 1.65%(b) 1.62% 1.50% -- --
.......................................................................................................
Expenses excluding
waivers and
reimbursements 2.09% 2.23%(b) 2.09% 2.08% 1.94% 1.67%(b)
.......................................................................................................
Net investment income 5.05% 5.53%(b) 5.60% 5.51% 4.08% 2.91%(b)
.......................................................................................................
PORTFOLIO TURNOVER RATE 88% 52% 74% 67% 34% 60%
.......................................................................................................
NET ASSETS END OF PERIOD
(THOUSANDS) $3,972 $4,105 $4,152 $2,755 $2,874 $2,077
......................................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
(c) Calculation based on average shares outstanding.
(d) The Fund changed its fiscal year end from September 30 to June 30.
See Combined Notes to Financial Statements.
18
<PAGE>
EVERGREEN
Intermediate Term Bond Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Eleven Months Year Ended July 31,
Year Ended Ended -------------------------
June 30, 1998 June 30, 1997 (d) 1996 1995 1994
- -----------------------------------------------------------------------------------------
CLASS A SHARES
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $ 8.93 $ 8.73 $ 8.88 $ 8.84 $ 9.46
-------- ------- ------- ------- -------
.........................................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................................
Net investment income 0.57(c) 0.54 0.59 0.63 0.57(c)
.........................................................................................
Net realized and
unrealized gain (loss)
on investments, closed
futures contracts and
foreign currency
related transactions 0.20 0.18 (0.16) 0.02 (0.59)
-------- ------- ------- ------- -------
.........................................................................................
Total from investment
operations 0.77 0.72 0.43 0.65 (0.02)
-------- ------- ------- ------- -------
.........................................................................................
LESS DISTRIBUTIONS FROM
.........................................................................................
Net investment income (0.61) (0.52) (0.58) (0.57) (0.57)
.........................................................................................
In excess of net
investment income (0.01) 0 0 (0.04) (0.02)
.........................................................................................
Tax basis return of
capital 0 0 0 0 (0.01)
-------- ------- ------- ------- -------
.........................................................................................
Total distributions (0.62) (0.52) (0.58) (0.61) (0.60)
-------- ------- ------- ------- -------
.........................................................................................
NET ASSET VALUE END OF
PERIOD $ 9.08 $ 8.93 $ 8.73 $ 8.88 $ 8.84
-------- ------- ------- ------- -------
.........................................................................................
TOTAL RETURN (a) 8.82% 8.40% 4.95% 7.76% (0.29%)
.........................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.11% 1.12%(b) 1.10% 1.00% 1.00%
.........................................................................................
Expenses excluding
indirectly paid
expenses 1.10% 1.10%(b) 1.08% -- --
........................................................................................
Expenses excluding
waivers and
reimbursements 1.44% 1.58%(b) 1.54% 1.48% 1.80%
.........................................................................................
Net investment income 6.00% 6.43%(b) 6.57% 7.13% 6.81%
.........................................................................................
PORTFOLIO TURNOVER RATE 331% 179% 231% 149% 280%
.........................................................................................
NET ASSETS END OF PERIOD
(THOUSANDS) $123,723 $10,341 $12,958 $14,558 $16,036
.........................................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended July 31,
----------------------------------------------------
1993 1992 1991 1990 1989 1988
- ---------------------------------------------------------------------------------
CLASS A SHARES
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $ 9.23 $ 8.64 $ 8.60 $ 9.11 $ 9.05 $ 9.61
------- ------- ------- ------- ------- -------
.................................................................................
INCOME FROM INVESTMENT
OPERATIONS
.................................................................................
Net investment income 0.70 0.71 0.72 0.67 0.69 0.72
.................................................................................
Net realized and
unrealized gain (loss)
on investments, closed
futures contracts and
foreign currency
related transactions 0.18 0.60 0.05 (0.45) 0.10 (0.45)
------- ------- ------- ------- ------- -------
.................................................................................
Total from investment
operations 0.88 1.31 0.77 0.22 0.79 0.27
------- ------- ------- ------- ------- -------
.................................................................................
LESS DISTRIBUTIONS FROM
.................................................................................
Net investment income (0.65) (0.71) (0.72) (0.70) (0.73) (0.83)
.................................................................................
In excess of net
investment income 0 (0.01) (0.01) (0.03) 0 0
..................................................................................
Tax basis return of
capital 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
.................................................................................
Total distributions (0.65) (0.72) (0.73) (0.73) (0.73) (0.83)
------- ------- ------- ------- ------- -------
.................................................................................
NET ASSET VALUE END OF
PERIOD $ 9.46 $ 9.23 $ 8.64 $ 8.60 $ 9.11 $ 9.05
------- ------- ------- ------- ------- -------
.................................................................................
TOTAL RETURN (a) 9.88% 15.65% 9.42% 2.71% 9.13% 2.95%
.................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.52% 1.88% 2.00% 2.00% 1.92% 1.30%
.................................................................................
Expenses excluding
indirectly paid
expenses -- -- -- -- -- --
................................................................................
Expenses excluding
waivers and
reimbursements 1.99% 1.88% 2.06% 2.33% 2.19% 2.65%
.................................................................................
Net investment income 7.48% 7.85% 8.42% 7.90% 7.88% 7.48%
.................................................................................
PORTFOLIO TURNOVER RATE 160% 90% 76% 107% 148% 208%
.................................................................................
NET ASSETS END OF PERIOD
(THOUSANDS) $18,032 $19,288 $20,227 $23,694 $30,337 $38,615
.................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
(c) Calculation based on average shares outstanding.
(d) The Fund changed its fiscal year end from July 31 to June 30.
See Combined Notes to Financial Statements.
19
<PAGE>
EVERGREEN
Intermediate Term Bond Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
February 1, 1993
(Date of Initial
Eleven Months Year Ended July 31, Public Offering)
Year Ended Ended ------------------------- through
June 30, 1998 June 30, 1997 (d) 1996 1995 1994 July 31, 1993
- ----------------------------------------------------------------------------------------------------------
CLASS B SHARES
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $ 8.95 $ 8.74 $ 8.89 $ 8.85 $ 9.47 $ 9.35
------- ------- ------- ------- ------- ------
.........................................................................................................
INCOME FROM INVESTMENT
OPERATIONS
..........................................................................................................
Net investment income 0.48(c) 0.47 0.52 0.56 0.49(c) 0.29
..........................................................................................................
Net realized and
unrealized gain (loss)
on investments, closed
futures contracts and
foreign currency
related transactions 0.21 0.20 (0.16) 0.02 (0.58) 0.12
------- ------- ------- ------- ------- ------
..........................................................................................................
Total from investment
operations 0.69 0.67 0.36 0.58 (0.09) 0.41
------- ------- ------- ------- ------- ------
..........................................................................................................
LESS DISTRIBUTIONS FROM
..........................................................................................................
Net investment income (0.54) (0.46) (0.51) (0.51) (0.49) (0.29)
..........................................................................................................
In excess of net
investment income (0.01) 0 0 (0.03) (0.03) 0
..........................................................................................................
Tax basis return of
capital 0 0 0 0 (0.01) 0
------- ------- ------- ------- ------- ------
..........................................................................................................
Total distributions (0.55) (0.46) (0.51) (0.54) (0.53) (0.29)
------- ------- ------- ------- ------- ------
..........................................................................................................
NET ASSET VALUE END OF
PERIOD $ 9.09 $ 8.95 $ 8.74 $ 8.89 $ 8.85 $ 9.47
------- ------- ------- ------- ------- ------
..........................................................................................................
TOTAL RETURN (a) 7.89% 7.81% 4.10% 6.87% (1.05%) 4.42%
..........................................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.86% 1.87%(b) 1.85% 1.75% 1.75% 1.76%(b)
..........................................................................................................
Expenses excluding
indirectly paid
expenses 1.85% 1.85%(b) 1.83% -- -- --
..........................................................................................................
Expenses excluding
waivers and
reimbursements 2.22% 2.35%(b) 2.32% 2.21% 2.36% 2.71%(b)
..........................................................................................................
Net investment income 5.28% 5.68%(b) 5.82% 6.38% 5.48% 5.67%(b)
..........................................................................................................
PORTFOLIO TURNOVER RATE 331% 179% 231% 149% 280% 160%
..........................................................................................................
NET ASSETS END OF PERIOD
(THOUSANDS) $10,763 $11,368 $16,034 $17,985 $17,819 $8,159
..........................................................................................................
</TABLE>
<TABLE>
<CAPTION>
February 1, 1993
(Date of Initial
Eleven Months Year Ended July 31, Public Offering)
Year Ended Ended ------------------------ through
June 30, 1998 June 30, 1997 (d) 1996 1995 1994 July 31, 1993
- --------------------------------------------------------------------------------------------------------
CLASS C SHARES
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $ 8.94 $ 8.74 $ 8.89 $ 8.85 $ 9.46 $ 9.35
------ ------ ------ ------- ------- ------
.........................................................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................................................
Net investment income 0.49(c) 0.46 0.52 0.55 0.49(c) 0.29
.........................................................................................................
Net realized and
unrealized gain (loss)
on investments, closed
futures contracts and
foreign currency
related transactions 0.21 0.20 (0.16) 0.03 (0.57) 0.11
------ ------ ------ ------- ------- ------
.........................................................................................................
Total from investment
operations 0.70 0.66 0.36 0.58 (0.08) 0.40
------ ------ ------ ------- ------- ------
........................................................................................................
LESS DISTRIBUTIONS FROM
.........................................................................................................
Net investment income (0.54) (0.46) (0.51) (0.51) (0.49) (0.29)
.........................................................................................................
In excess of net
investment income (0.01) 0 0 (0.03) (0.03) 0
.........................................................................................................
Tax basis return of
capital 0 0 0 0 (0.01) 0
------ ------ ------ ------- ------- ------
........................................................................................................
Total distributions (0.55) (0.46) (0.51) (0.54) (0.53) (0.29)
------ ------ ------ ------- ------- ------
.........................................................................................................
NET ASSET VALUE END OF
PERIOD $ 9.09 $ 8.94 $ 8.74 $ 8.89 $ 8.85 $ 9.46
------ ------ ------ ------- ------- ------
.........................................................................................................
TOTAL RETURN (a) 8.01% 7.70% 4.10% 6.87% (0.95%) 4.31%
.........................................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.86% 1.87%(b) 1.85% 1.75% 1.75% 1.77%(b)
.........................................................................................................
Expenses excluding
indirectly paid
expenses 1.85% 1.85%(b) 1.83% -- -- --
.........................................................................................................
Expenses excluding
waivers and
reimbursements 2.21% 2.35%(b) 2.31% 2.23% 2.37% 2.61%(b)
.........................................................................................................
Net investment income 5.26% 5.68%(b) 5.82% 6.37% 5.44% 5.61%(b)
.........................................................................................................
PORTFOLIO TURNOVER RATE 331% 179% 231% 149% 280% 160%
.........................................................................................................
NET ASSETS END OF PERIOD
(THOUSANDS) $5,439 $7,259 $9,084 $10,185 $13,086 $7,522
.........................................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized
(c) Calculation based on average shares outstanding.
(d) The Fund changed its fiscal year end from July 31 to June 30.
See Combined Notes to Financial Statements.
20
<PAGE>
EVERGREEN
Intermediate Term Bond Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
January 26, 1998
(Commencement
of Class Operations)
through
June 30, 1998
- -----------------------------------------------------------------------------
CLASS Y SHARES
- -----------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE BEGINNING OF PERIOD $ 9.09
-------
.............................................................................
INCOME FROM INVESTMENT OPERATIONS
.............................................................................
Net investment income 0.24(b)
.............................................................................
Net realized and unrealized gain (loss) on investments
and foreign currency related transactions (0.01)
-------
.............................................................................
Total from investment operations 0.23
-------
............................................................................
LESS DISTRIBUTIONS FROM
.............................................................................
Net investment income (0.24)
.............................................................................
In excess of net investment income 0(c)
............................................................................
Total distributions (0.24)
-------
.............................................................................
NET ASSET VALUE END OF PERIOD $ 9.08
-------
.............................................................................
TOTAL RETURN 2.58%
.............................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS
Expenses 0.86%(a)
.............................................................................
Expenses excluding indirectly paid expenses 0.85%(a)
.............................................................................
Expenses excluding waivers and reimbursements 1.10%(a)
.............................................................................
Net investment income 6.23%(a)
.............................................................................
PORTFOLIO TURNOVER RATE 331%
............................................................................
NET ASSETS END OF PERIOD (THOUSANDS) $63,721
.............................................................................
</TABLE>
(a) Annualized
(b) Calculation based on average shares outstanding.
(c) Represents an amount less than $0.01 per share.
See Combined Notes to Financial Statements.
21
<PAGE>
EVERGREEN
Intermediate Term Government Securities Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
May 2, 1995
(Commencement
Year Ended June 30, Ten Months of Class Operations)
--------------------- Ended through
1998 1997 June 30,1996 (c) August 31, 1995
- ---------------------------------------------------------------------------------------
CLASS A SHARES
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF YEAR $ 10.02 $ 9.99 $10.15 $ 9.95
---------- --------- ------ ------
.......................................................................................
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.55 0.55 0.46 0.19
.......................................................................................
Net realized and
unrealized gain (loss)
on investments 0.19 0.03 (0.16) 0.20
---------- --------- ------ ------
.......................................................................................
Total from investment
operations 0.74 0.58 0.30 0.39
---------- --------- ------ ------
.......................................................................................
LESS DISTRIBUTIONS FROM
NET INVESTMENT INCOME (0.55) (0.55) (0.46) (0.19)
---------- --------- ------ ------
.......................................................................................
NET ASSET VALUE END OF
YEAR $ 10.21 $ 10.02 $ 9.99 $10.15
---------- --------- ------ ------
......................................................................................
TOTAL RETURN (a) 7.55% 6.00% 3.00% 3.90%
.......................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.83% 0.86% 0.81%(b) 0.80%(b)
.......................................................................................
Expenses excluding
indirectly paid
expenses 0.83% 0.86% -- --
.......................................................................................
Expenses excluding
waivers and
reimbursements 1.02% 0.94% 1.06%(b) 1.34%(b)
.......................................................................................
Net investment income 5.39% 5.47% 5.49%(b) 5.42%(b)
......................................................................................
PORTFOLIO TURNOVER RATE 45% 68% 28% 45%
.......................................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 81,034 $ 571 $ 497 $ 9
......................................................................................
</TABLE>
<TABLE>
<CAPTION>
February 9, 1996
(Commencement
Year Ended June 30, of Class Operations)
-------------------- through
1998 1997 June 30, 1996
- ---------------------------------------------------------------------------------
CLASS B SHARES
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE BEGINNING OF YEAR $ 10.02 $ 9.99 $10.38
--------- --------- ------
.................................................................................
INCOME FROM INVESTMENT OPERATIONS
................................................................................
Net investment income 0.46 0.45 0.18
.................................................................................
Net realized and unrealized gain
(loss) on investments 0.19 0.04 (0.39)
--------- --------- ------
.................................................................................
Total from investment operations 0.65 0.49 (0.21)
--------- --------- ------
.................................................................................
LESS DISTRIBUTIONS FROM NET
INVESTMENT INCOME (0.46) (0.46) (0.18)
--------- --------- ------
.................................................................................
NET ASSET VALUE END OF YEAR $ 10.21 $ 10.02 $ 9.99
--------- --------- ------
.................................................................................
TOTAL RETURN (a) 6.57% 5.03% (1.99)%
.................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS
Expenses 1.82% 1.81% 1.80%(b)
.................................................................................
Expenses excluding indirectly paid
expenses 1.82% 1.81% --
.................................................................................
Expenses excluding waivers and
reimbursements 1.82% 1.89% 1.91%(b)
................................................................................
Net investment income 4.49% 4.53% 4.62%(b)
.................................................................................
PORTFOLIO TURNOVER RATE 45% 68% 28%
.................................................................................
NET ASSETS END OF YEAR (THOUSANDS) $ 1,052 $ 742 $ 359
.................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
(c) The Fund changed its fiscal year end from August 31 to June 30.
See Combined Notes to Financial Statements.
22
<PAGE>
EVERGREEN
Intermediate Term Government Securities Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
April 10, 1996
(Commencement
Year Ended June 30, of Class Operations)
---------------------- through
1998 1997 June 30, 1996
- --------------------------------------------------------------------------------
CLASS C SHARES
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE BEGINNING OF
YEAR $ 10.02 $ 9.99 $10.01
--------- --------- ------
................................................................................
INCOME FROM INVESTMENT
OPERATIONS
................................................................................
Net investment income 0.45(c) 0.40 0.11
................................................................................
Net realized and unrealized gain
(loss) on investments 0.20 0.09 (0.02)
--------- --------- ------
...............................................................................
Total from investment operations 0.65 0.49 0.09
--------- --------- ------
................................................................................
LESS DISTRIBUTIONS FROM NET
INVESTMENT INCOME (0.46) (0.46) (0.11)
--------- --------- ------
...............................................................................
NET ASSET VALUE END OF YEAR $ 10.21 $ 10.02 $ 9.99
--------- --------- ------
................................................................................
TOTAL RETURN (a) 6.57% 5.03% 0.89%
................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS
Expenses 1.83% 1.81% 1.80%(b)
................................................................................
Expenses excluding indirectly
paid expenses 1.83% 1.81% --
................................................................................
Expenses excluding waivers and
reimbursements 1.83% 1.90% 1.91%(b)
...............................................................................
Net investment income 4.54% 4.53% 4.47%(b)
................................................................................
PORTFOLIO TURNOVER RATE 45% 68% 28%
................................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $126 $12 $32
................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
(c) Calculation based on average shares outstanding.
<TABLE>
<CAPTION>
November 1,
1991
(Commencement
Year Ended June 30, Ten Months Year Ended August 31, of Class
Operations)
-------------------- Ended ----------------------------- through
1998 1997 June 30, 1996 (b) 1995 1994 1993 August 31,
1992
- -----------------------------------------------------------------------------------------------------------------------
CLASS Y SHARES
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF YEAR $ 10.02 $ 9.99 $ 10.15 $ 9.92 $ 10.61 $ 10.41 $ 10.00
--------- --------- ------- -------- -------- -------- -------
......................................................................................................................
INCOME FROM INVESTMENT
OPERATIONS
.......................................................................................................................
Net investment income 0.56 0.56 0.46 0.55 0.54 0.57 0.48
.......................................................................................................................
Net realized and
unrealized gain (loss)
on investments 0.19 0.03 (0.16) 0.23 (0.64) 0.24 0.40
--------- --------- ------- -------- -------- -------- -------
.......................................................................................................................
Total from investment
operations 0.75 0.59 0.30 0.78 (0.10) 0.81 0.88
--------- --------- ------- -------- -------- -------- -------
.......................................................................................................................
LESS DISTRIBUTIONS FROM
.......................................................................................................................
Net investment income (0.56) (0.56) (0.46) (0.55) (0.54) (0.58) (0.47)
.......................................................................................................................
Net realized gains on
investments 0 0 0 0 (0.05) (0.03) 0
--------- --------- ------- -------- -------- -------- -------
.......................................................................................................................
Total distributions (0.56) (0.56) (0.46) (0.55) (0.59) (0.61) (0.47)
--------- --------- ------- -------- -------- -------- -------
.......................................................................................................................
NET ASSET VALUE END OF
YEAR $ 10.21 $ 10.02 $ 9.99 $ 10.15 $ 9.92 $ 10.61 $ 10.41
--------- --------- ------- -------- -------- -------- -------
.......................................................................................................................
TOTAL RETURN 7.63% 6.08% 3.00% 8.16% (0.99%) 8.03% 9.04%
.......................................................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.82% 0.81% 0.80%(a) 0.70% 0.55% 0.55%
0.55%(a)
.......................................................................................................................
Expenses excluding
indirectly paid
expenses 0.82% 0.81% -- -- -- -- --
......................................................................................................................
Expenses excluding
waivers and
reimbursements 0.82% 0.89% 0.87%(a) 0.84% 0.82% 0.83%
0.86%(a)
.......................................................................................................................
Net investment income 5.47% 5.52% 5.47%(a) 5.54% 5.22% 5.48%
5.68%(a)
.......................................................................................................................
PORTFOLIO TURNOVER RATE 45% 68% 28% 45% 45% 31% 47%
.......................................................................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 99,729 $ 71,588 $87,004 $106,066 $106,448 $119,172 $87,648
.......................................................................................................................
</TABLE>
(a) Annualized.
(b) The Fund changed its fiscal year end from August 31 to June 30.
See Combined Notes to Financial Statements.
23
<PAGE>
EVERGREEN
Short Intermediate Bond Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ended June 30, Six Months Year Ended December 31,
------------------------- Ended ---------------------------
1998 1997 1996 June 30, 1995 (c) 1994 1993
- ----------------------------------------------------------------------------------------------------
CLASS A SHARES
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF YEAR $ 9.83 $ 9.82 $ 10.02 $ 9.52 $ 10.42 $ 10.41
------- ------- ------- ------- ----------- -----------
....................................................................................................
INCOME FROM INVESTMENT
OPERATIONS
....................................................................................................
Net investment income 0.61 0.63 0.63 0.32 0.65 0.65
....................................................................................................
Net realized and
unrealized gain (loss)
on investments 0.07 0.02 (0.19) 0.50 (0.91) 0.19
------- ------- ------- ------- ----------- -----------
....................................................................................................
Total from investment
operations 0.68 0.65 0.44 0.82 (0.26) 0.84
------- ------- ------- ------- ----------- -----------
....................................................................................................
LESS DISTRIBUTIONS FROM
....................................................................................................
Net investment income (0.61) (0.64) (0.64) (0.32) (0.64) (0.65)
...................................................................................................
In excess of net
investment income 0 0 0 0 0 0
....................................................................................................
Net realized gains on
investments 0 0 0 0 0 (0.18)
------- ------- ------- ------- ----------- -----------
....................................................................................................
Total distributions (0.61) (0.64) (0.64) (0.32) (0.64) (0.83)
------- ------- ------- ------- ----------- -----------
....................................................................................................
NET ASSET VALUE END OF
YEAR $ 9.90 $ 9.83 $ 9.82 $ 10.02 $ 9.52 $ 10.42
------- ------- ------- ------- ----------- -----------
....................................................................................................
TOTAL RETURN (a) 7.08% 6.77% 4.45% 8.77% (2.57)% 8.29%
....................................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.80% 0.72% 0.79% 0.77%(b) 0.75%(b) 0.93%
....................................................................................................
Expenses excluding
indirectly paid
expenses 0.80% 0.72% -- -- -- --
....................................................................................................
Expenses excluding
waivers and
reimbursements 0.80% -- -- -- -- --
....................................................................................................
Net investment income 6.14% 6.37% 6.35% 6.58%(b) 6.46%(b) 6.15%
....................................................................................................
PORTFOLIO TURNOVER RATE 68% 45% 76% 34% 48% 73%
...................................................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $16,848 $17,703 $18,630 $18,898 $ 19,127 $ 22,865
....................................................................................................
</TABLE>
<TABLE>
<CAPTION>
January 28, 1989
(Commencement of
Year Ended December 31, Nine Months Year Class Operations)
------------------------ Ended Ended through
1992 1991 December 31, 1990 (d) March 31, 1990 March 31, 1989
- -----------------------------------------------------------------------------------------------------------
CLASS A SHARES
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF YEAR $ 10.54 $ 9.99 $ 9.72 $ 9.50 $ 9.70
----------- ----------- ------- ------ -------
..........................................................................................................
INCOME FROM INVESTMENT
OPERATIONS
...........................................................................................................
Net investment income 0.71 0.73 0.55 0.79 0.10
..........................................................................................................
Net realized and
unrealized gain (loss)
on investments (0.06) 0.60 0.24 0.20 (0.14)
----------- ----------- ------- ------ -------
...........................................................................................................
Total from investment
operations 0.65 1.33 0.79 0.99 (0.04)
----------- ----------- ------- ------ -------
...........................................................................................................
LESS DISTRIBUTIONS FROM
...........................................................................................................
Net investment income (0.67) (0.70) (0.52) (0.77) (0.16)
..........................................................................................................
In excess of net
investment income 0 (0.01) 0 0 0
...........................................................................................................
Net realized gains on
investments (0.11) (0.07) 0 0 0
----------- ----------- ------- ------ -------
...........................................................................................................
Total distributions (0.78) (0.78) (0.52) (0.77) (0.16)
----------- ----------- ------- ------ -------
...........................................................................................................
NET ASSET VALUE END OF
YEAR $ 10.41 $ 10.54 $ 9.99 $ 9.72 $ 9.50
----------- ----------- ------- ------ -------
...........................................................................................................
TOTAL RETURN (a) 6.39% 13.74% 8.31% 10.51% (0.31)%
..........................................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.90% 0.80% 1.01%(b) 1.00% 1.78%(b)
...........................................................................................................
Expenses excluding
indirectly paid
expenses -- -- -- -- --
...........................................................................................................
Expenses excluding
waivers and
reimbursements -- 0.89% 1.82%(b) 1.50% --
...........................................................................................................
Net investment income 6.79% 7.30% 7.53%(b) 7.57% 6.10%(b)
...........................................................................................................
PORTFOLIO TURNOVER RATE 66% 53% 27% 32% 18%
...........................................................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 21,488 $ 17,680 $11,765 $6,496 $11,580
..........................................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
(c) The Fund changes its fiscal year end from December 31 to June 30.
(d) The Fund changes its fiscal year end from March 31 to December 31.
See Combined Notes to Financial Statements.
24
<PAGE>
EVERGREEN
Short Intermediate Bond Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
January 25, 1993
(Commencement
Year Ended June 30, Six Months of Class Operations)
------------------------- Ended Year Ended through
1998 1997 1996 June 30, 1995 (c) December 31, 1994 December 31, 1993
- -------------------------------------------------------------------------------------------------------------
CLASS B SHARES
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF YEAR $ 9.85 $ 9.84 $ 10.04 $ 9.54 $ 10.44 $10.57
------- ------- ------- ------- ------- ------
.............................................................................................................
INCOME FROM INVESTMENT
OPERATIONS
............................................................................................................
Net investment income 0.52 0.54 0.55 0.28 0.58 0.58
.............................................................................................................
Net realized and
unrealized gain (loss)
on investments 0.07 0.01 (0.19) 0.50 (0.92) 0.05
------- ------- ------- ------- ------- ------
.............................................................................................................
Total from investment
operations 0.59 0.55 0.36 0.78 (0.34) 0.63
------- ------- ------- ------- ------- ------
.............................................................................................................
LESS DISTRIBUTIONS FROM
.............................................................................................................
Net investment income (0.52) (0.54) (0.56) (0.28) (0.56) (0.58)
.............................................................................................................
Net realized gains on
investments 0 0 0 0 0 (0.18)
------- ------- ------- ------- ------- ------
.............................................................................................................
Total distributions (0.52) (0.54) (0.56) (0.28) (0.56) (0.76)
------- ------- ------- ------- ------- ------
.............................................................................................................
NET ASSET VALUE END OF
YEAR $ 9.92 $ 9.85 $ 9.84 $ 10.04 $ 9.54 $10.44
------- ------- ------- ------- ------- ------
.............................................................................................................
TOTAL RETURN (a) 6.11% 5.78% 3.62% 8.31% (3.33%) 6.08%
.............................................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.70% 1.62% 1.69% 1.67%(b) 1.50% 1.57%(b)
.............................................................................................................
Expenses excluding
indirectly paid
expenses 1.70% 1.62% -- -- -- --
.............................................................................................................
Net investment income 5.23% 5.48% 5.45% 5.68%(b) 5.75% 5.42%(b)
.............................................................................................................
PORTFOLIO TURNOVER RATE 68% 45% 76% 34% 48% 73%
.............................................................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $22,689 $22,237 $21,006 $17,366 $17,625 $8,876
.............................................................................................................
</TABLE>
<TABLE>
<CAPTION>
September 6, 1994
(Commencement
Year Ended June 30, Six Months of Class Operations)
---------------------- Ended through
1998 1997 1996 June 30, 1995 (c) December 31, 1994
- ------------------------------------------------------------------------------------------
CLASS C SHARES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF YEAR $ 9.85 $ 9.84 $10.05 $ 9.55 $9.85
------ ------ ------ ------ -----
..........................................................................................
INCOME FROM INVESTMENT
OPERATIONS
..........................................................................................
Net investment income 0.52 0.54 0.55 0.26 0.18
..........................................................................................
Net realized and
unrealized gain (loss)
on investments 0.07 0.01 (0.20) 0.50 (0.30)
------ ------ ------ ------ -----
.........................................................................................
Total from investment
operations 0.59 0.55 0.35 0.76 (0.12)
------ ------ ------ ------ -----
..........................................................................................
LESS DISTRIBUTIONS FROM
NET INVESTMENT INCOME (0.52) (0.54) (0.56) (0.26) (0.18)
------ ------ ------ ------ -----
..........................................................................................
NET ASSET VALUE END OF
YEAR $ 9.92 $ 9.85 $ 9.84 $10.05 $9.55
------ ------ ------ ------ -----
..........................................................................................
TOTAL RETURN (a) 6.11% 5.77% 3.51% 8.23% (1.27%)
..........................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.70% 1.62% 1.69% 1.67%(b) 1.65%(b)
..........................................................................................
Expenses excluding
indirectly paid
expenses 1.70% 1.62% -- -- --
..........................................................................................
Net investment income 5.25% 5.47% 5.46% 5.69%(b) 5.87%(b)
..........................................................................................
PORTFOLIO TURNOVER RATE 68% 45% 76% 34% 48%
.........................................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $1,143 $1,029 $1,155 $ 527 $ 512
..........................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
(c) The Fund changed its fiscal year end from December 31 to June 30.
See Combined Notes to Financial Statements.
25
<PAGE>
EVERGREEN
Short Intermediate Bond Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ended June 30, Six Months
---------------------------- Ended
1998 1997 1996 June 30, 1995 (b)
- -------------------------------------------------------------------------------
CLASS Y SHARES
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF
YEAR $ 9.83 $ 9.82 $ 10.02 $ 9.52
-------- -------- -------- --------
..............................................................................
INCOME FROM INVESTMENT
OPERATIONS
...............................................................................
Net investment income 0.62 0.64 0.64 0.33
...............................................................................
Net realized and unrealized
gain (loss) on investments 0.07 0.02 (0.19) 0.49
-------- -------- -------- --------
...............................................................................
Total from investment
operations 0.69 0.66 0.45 0.82
-------- -------- -------- --------
...............................................................................
LESS DISTRIBUTIONS FROM
.........................................................................
Net investment income (0.62) (0.65) (0.65) (0.32)
..............................................................................
In excess of net investment
income 0 0 0 0
...............................................................................
Net realized gains on
investments 0 0 0 0
-------- -------- -------- --------
..............................................................................
Total distributions (0.62) (0.65) (0.65) (0.32)
-------- -------- -------- --------
...............................................................................
NET ASSET VALUE END OF YEAR $ 9.90 $ 9.83 $ 9.82 $ 10.02
-------- -------- -------- --------
...............................................................................
TOTAL RETURN 7.19% 6.88% 4.63% 8.80%
...............................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS
Expenses 0.70% 0.62% 0.69% 0.67%(a)
...............................................................................
Expenses excluding indirectly
paid expenses 0.70% 0.62% -- --
...............................................................................
Expenses excluding waivers
and reimbursements 0.70% 0.62% 0.69% 0.67%(a)
...............................................................................
Net investment income 6.25% 6.48% 6.45% 6.68%(a)
..............................................................................
PORTFOLIO TURNOVER RATE 68% 45% 76% 34%
...............................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $348,358 $357,706 $352,095 $347,050
...............................................................................
</TABLE>
<TABLE>
<CAPTION>
January 4, 1991
(Commencement
Year Ended December 31, of Class Operations)
----------------------------- through
1994 1993 1992 December 31, 1991
- -------------------------------------------------------------------------------
CLASS Y SHARES
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING
OF YEAR $ 10.43 $ 10.41 $ 10.54 $ 10.06
-------- -------- -------- --------
...............................................................................
INCOME FROM INVESTMENT
OPERATIONS
...............................................................................
Net investment income 0.65 0.69 0.70 0.71
...............................................................................
Net realized and
unrealized gain (loss)
on investments (0.91) 0.19 (0.02) 0.56
-------- -------- -------- --------
...............................................................................
Total from investment
operations (0.26) 0.88 0.68 1.27
-------- -------- -------- --------
...............................................................................
LESS DISTRIBUTIONS FROM
...............................................................................
Net investment income (0.65) (0.68) (0.70) (0.71)
...............................................................................
In excess of net
investment income 0 0 0 (0.01)
...............................................................................
Net realized gains on
investments 0 (0.18) (0.11) (0.07)
-------- -------- -------- --------
...............................................................................
Total distributions (0.65) (0.86) (0.81) (0.79)
-------- -------- -------- --------
...............................................................................
NET ASSET VALUE END OF
YEAR $ 9.52 $ 10.43 $ 10.41 $ 10.54
-------- -------- -------- --------
...............................................................................
TOTAL RETURN (2.55)% 8.67% 6.64% 13.80%
...............................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.65% 0.66% 0.69% 0.69%(a)
...............................................................................
Expenses excluding
indirectly paid expenses -- -- --
...............................................................................
Expenses excluding
waivers and
reimbursements 0.65% 0.66% 0.69% 0.69%(a)
...............................................................................
Net investment income 6.56% 6.41% 6.67% 7.12%(a)
...............................................................................
PORTFOLIO TURNOVER RATE 48% 73% 66% 53%
..............................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $345,025 $376,445 $324,068 $256,254
...............................................................................
</TABLE>
(a) Annualized.
(b) The Fund changed its fiscal year end from December 31 to June 30.
See Combined Notes to Financial Statements.
26
<PAGE>
EVERGREEN
Capital Preservation and Income Fund
SCHEDULE OF INVESTMENTS
June 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES - 69.2%
FHLMC - 30.4%
$ 613,120 FHLMC Pool #605343, Cap 13.61%, Margin 2.75%+ WTAL,
Resets Annually,
7.77%, 3/1/19...................................... $ 639,944
1,627,748 FHLMC Pool #605386, Cap 12.87%, Margin 2.75%+ WTAL,
Resets Annually,
7.75%, 9/1/17...................................... 1,700,231
557,719 FHLMC Pool #606541, Cap 13.55%, Margin 2.79%+ WTAL,
Resets Annually,
7.58%, 3/1/21...................................... 583,167
1,096,311 FHLMC Pool #606679, Cap 12.08%, Margin 2.88%+ WTAL,
Resets Annually,
7.74%, 10/1/21..................................... 1,140,163
359,688 FHLMC Pool #607352, Cap 13.61%, Margin 2.75%+ WTAL,
Resets Annually,
7.79%, 4/1/22...................................... 377,899
2,722,010 FHLMC Pool #608034, Cap 14.78%, Margin 2.22%+ WTAL,
Resets Annually,
7.08%, 6/1/16...................................... 2,790,060
137,902 FHLMC Pool #645062, Cap 14.14%, Margin 2.90%+ WTAL,
Resets Annually,
7.98%, 5/1/19...................................... 143,074
329,286 FHLMC Pool #785114, Cap 13.31%, Margin 2.75%+ WTAL,
Resets Annually,
7.79%, 7/1/19...................................... 344,051
50,844 FHLMC Pool #785147, Cap 12.78%, Margin 2.75%+ WTAL,
Resets Annually,
7.55%, 5/1/20...................................... 51,463
1,302,119 FHLMC Pool #845063, Cap 12.10%, Margin 2.83%+ WTAL,
Resets Annually,
7.76%, 11/1/21..................................... 1,346,066
2,343,747 FHLMC Pool #845070, Cap 11.84%, Margin 2.78%+ WTAL,
Resets Annually,
7.67%, 1/1/22...................................... 2,430,173
1,649,372 FHLMC Pool #845082, Cap 12.58%, Margin 2.69%+ WTAL,
Resets Annually,
7.52%, 3/1/22...................................... 1,692,668
945,107 FHLMC Pool #846163, Cap 13.07%, Margin 2.71%+ WTAL,
Resets Annually,
7.53%, 7/1/30...................................... 981,881
374,893 FHLMC Pool #865220, Cap 15.08%, Margin 2.35%+ WTAL,
Resets Triennially,
8.32%, 4/1/20...................................... 384,149
-----------
14,604,989
-----------
FNMA - 38.8%
255,689 FNMA Pool #062610, Cap 12.75%, Margin 2.75%+ CMT,
Resets Annually,
8.00%, 6/1/18...................................... 264,799
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES - CONTINUED
FNMA - CONTINUED
$ 331,250 FNMA Pool #070033, Cap 14.31%, Margin 2.60%+ CMT,
Resets Annually,
7.38%, 10/1/17....................................... $ 343,258
1,354,358 FNMA Pool #070119, Cap 12.00%, Margin 2.76%+ CMT,
Resets Annually,
7.67%, 11/1/17....................................... 1,404,300
247,811 FNMA Pool #070327, Cap 12.95%, Margin 2.75%+ CMT,
Resets Annually,
7.46%, 6/1/19........................................ 257,297
1,340,201 FNMA Pool #090678, Cap 13.15%, Margin 2.70%+ CMT,
Resets Annually,
7.54%, 9/1/18........................................ 1,400,296
339,211 FNMA Pool #092086, Cap 15.55%, Margin 2.75%+ CMT,
Resets Annually,
7.42%, 10/1/16....................................... 348,170
766,342 FNMA Pool #094564, Cap 15.84%, Margin 2.50%+ CMT,
Resets Annually,
7.33%, 1/1/16........................................ 793,042
904,757 FNMA Pool #095405, Cap 13.65%, Margin 2.73%+ CMT,
Resets Annually,
7.65%, 12/1/19....................................... 937,554
428,145 FNMA Pool #102905, Cap 13.11%, Margin 2.82%+ CMT,
Resets Annually,
7.44%, 7/1/20........................................ 448,884
281,328 FNMA Pool #105007, Cap 13.33%, Margin 2.75%+ CMT,
Resets Annually,
7.60%, 7/1/19........................................ 291,175
252,610 FNMA Pool #114714, Cap 12.60%, Margin 2.75%+ CMT,
Resets Annually,
7.28%, 3/1/19........................................ 262,083
828,027 FNMA Pool #124015, Cap 13.24%, Margin 2.58%+ CMT,
Resets Annually,
7.38%, 11/1/18....................................... 856,494
714,866 FNMA Pool #124204, Cap 13.51%, Margin 2.71%+ CMT,
Resets Annually,
7.50%, 1/1/22........................................ 740,000
2,641,683 FNMA Pool #124289, Cap 13.46%, Margin 2.67%+ CMT,
Resets Annually,
7.48%, 9/1/21........................................ 2,764,283
1,143,805 FNMA Pool #124945, Cap 12.54%, Margin 2.78%+ CMT,
Resets Annually,
7.59%, 1/1/31........................................ 1,187,418
291,215 FNMA Pool #142963, Cap 11.03%, Margin 2.63%+ CMT,
Resets Annually,
7.45%, 1/1/22........................................ 295,447
1,920,414 FNMA Pool #313663, Cap 12.96%, Margin 2.81%+ CMT,
Resets Annually,
7.39%, 5/1/22........................................ 2,000,226
</TABLE>
27
<PAGE>
EVERGREEN
Capital Preservation and Income Fund
SCHEDULE OF INVESTMENTS(continued)
June 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES - CONTINUED
FNMA - CONTINUED
$1,064,457 FNMA Pool #313994, Cap 9.83%, 2.48%+ Six Month LIBOR,
7.46%, 12/1/23...................................... $ 1,083,564
1,379,137 FNMA Pool #331526, Cap 11.17%, Margin 2.75%+ CMT,
Resets Annually,
6.15%, 5/1/36....................................... 1,387,536
132,996 FNMA Pool #391290, Cap 12.68%, Margin 2.71%+ CMT,
Resets Annually,
7.59%, 2/1/17....................................... 136,675
1,422,375 FNMA Pool #423207, Cap 11.87%, Margin 2.75%+ CMT,
Resets Annually,
5.87%, 4/1/38....................................... 1,433,488
-----------
18,635,989
-----------
Total Adjustable Rate Mortgage Securities (cost
$33,150,562)........................................ 33,240,978
-----------
ASSET-BACKED SECURITIES - 9.0%
1,000,000 Carco Auto Loan Master Trust,
Series 1997-1, Class A,
6.69%, 8/15/04...................................... 1,005,690
1,580,326 CoreStates Home Equity Trust,
Series 1994-1, Class A,
6.65%, 5/15/09...................................... 1,590,914
1,713,109 Merrill Lynch Mortgage Investors, Inc., Series 1992-
B, Class B,
8.50%, 4/15/12...................................... 1,743,089
-----------
Total Asset-Backed Securities
(cost $4,334,129)................................... 4,339,693
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS - 8.3%
14,937 FHLMC CMO, Series 11 Class 11C,
(Est. Mat. 1998), (a)
9.50%, 4/15/19...................................... 15,175
1,305,666 FHLMC Strip, Series 20, Class F,
6.57%, 7/1/29....................................... 1,311,379
559,018 FNMA, Series 1993-160, Class PD, 5.60%, 10/25/12..... 556,921
918,065 Nomura Depositor Trust,
Series 1998-ST1, Class A1,
5.94%, 2/15/34 (b) ................................. 918,065
1,184,818 Prudential Home Mortgage Securities, Series 1990-12,
Class A1,
8.15%, 11/25/20..................................... 1,196,296
-----------
Total Collateralized Mortgage Obligations
(cost $3,997,932)................................... 3,997,836
-----------
</TABLE>
(a) The estimated maturity of a Collateralized Mortgage Obligation (CMO)
is based on current and projected prepayment rates. Changes in inter-
est rates can cause the estimated maturity to differ from the listed
date.
(b) Securities that may be sold to qualified institutional buyers under
Rule 144A or securities offered pursuant to Section 4(2) of the Secu-
rities Act of 1933, as amended. These securities have been determined
to be liquid under guidelines established by the Board of Trustees.
(c) The repurchase agreements are fully collateralized by U.S. Government
and/or agency obligations based on market prices at June 30, 1998.
LEGEND OF PORTFOLIO ABBREVIATIONS
CMT 1, 3, or 5 year Constant Maturity Treasury Index
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
GNMA Government National Mortgage Association
LIBOR London Interbank Overnight Rate
WTAL 1 to 3 year Weekly Treasury Average Lookback
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
FIXED RATE MORTGAGE SECURITIES - 6.3%
FHLMC - 1.7%
$ 436,116 FHLMC Pool #B00078,
10.50%, 10/1/05................................ $ 450,451
346,064 FHLMC Pool #B00475,
10.50%, 4/1/04................................. 361,149
-----------
811,600
-----------
FNMA - 1.8%
380,227 FNMA Pool #002497,
11.00%, 1/1/16................................. 422,786
166,499 FNMA Pool #058442,
11.00%, 1/1/18................................. 183,014
256,995 FNMA Pool #100051,
9.50%, 4/15/05................................. 267,516
-----------
873,316
-----------
GNMA - 2.8%
1,286,393 GNMA Pool #268164,
10.25%, 11/15/29............................... 1,335,404
-----------
Total Fixed Rate Mortgage Securities
(cost $3,049,005).............................. 3,020,320
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 1.0%
(COST $499,610)
500,000 Federal Home Loan Bank,
5.625%, 3/19/01................................ 499,060
-----------
U.S. TREASURY OBLIGATIONS - 4.2%
600,000 5.75%, 11/30/02................................. 604,968
1,380,000 6.25%, 8/31/02.................................. 1,416,004
-----------
Total U.S. Treasury Obligations
(cost $2,020,391).............................. 2,020,972
-----------
REPURCHASE AGREEMENT - 0.6% (COST $267,000)
267,000 Keystone Joint Repurchase Agreement,
(6.06% dated 6/30/98 due 7/1/98, maturity value
$267,045) (c) ................................. 267,000
-----------
TOTAL INVESTMENTS -
(COST $47,318,629)............................ 98.6% 47,385,859
OTHER ASSETS AND
LIABILITIES - NET............................. 1.4 664,334
----- -----------
NET ASSETS -................................... 100.0% $48,050,193
===== ===========
</TABLE>
See Combined Notes to Financial Statements.
28
<PAGE>
EVERGREEN
Intermediate Term Bond Fund
SCHEDULE OF INVESTMENTS
June 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
ASSET-BACKED SECURITIES - 2.9% (B)
$1,000,000 California Infrastructure PG&E,
Series 1997-1 Certificate,
Class A4 (Est. Maturity 2000),
6.16%, 6/25/03..................................... $ 1,003,281
2,500,000 Contimortgage Home Equity Loan Trust,
Series 1998-1 Class A6
(Est. Maturity 2003),
6.58%, 12/15/18.................................... 2,523,950
1,044,800 CoreStates Home Equity Trust,
Series 1994-1 Class A
(Est. Maturity 2000),
6.65%, 5/15/09..................................... 1,051,800
187,779 Merrill Lynch Mortgage Investors, Inc.,
Series 1990-I Class A
(Est. Maturity 1999),
9.20%, 1/15/11..................................... 188,072
1,000,000 Southern Pacific Secured Assets Corp., Series 1996-3
Class A4
(Est. Maturity 2002),
7.60%, 10/25/27.................................... 1,033,438
------------
Total Asset-Backed Securities
(cost $5,727,737).................................. 5,800,541
------------
CORPORATE BONDS - 50.7%
AEROSPACE & DEFENSE - 3.9%
3,675,000 Boeing, Inc.,
Debentures,
8.10%, 11/15/06.................................... 4,132,795
200,000 Eagle Picher Industries, Inc.,
Senior Subordinated Notes,
9.375%, 3/1/08 (a)................................. 202,000
3,000,000 Lockheed Martin Corp.,
Note,
7.25%, 5/15/06..................................... 3,182,910
500,000 Northrop Grumman Corp.,
Note,
7.00%, 3/1/06...................................... 517,130
------------
8,034,835
------------
BANKS - 6.5%
1,000,000 Amsouth Bancorp,
Subordinated Debentures,
Puttable 2005,
6.75%, 11/1/25..................................... 1,026,870
675,000 Bayerische Landesbank Girozen,
New York,
Senior Notes, Series D,
6.20%, 2/9/06...................................... 668,358
Chase Manhattan Corp.:
2,500,000 Series A, MTN,
6.75%, 9/15/06...................................... 2,597,875
1,250,000 Subordinated Notes,
9.375%, 7/1/01...................................... 1,362,625
1,000,000 CIT Group Holdings, Inc.,
Tranche Trust 00001, MTN,
9.25%, 3/15/01...................................... 1,080,030
1,164,000 First Chicago Corp.,
Subordinated Note,
9.875%, 8/15/00..................................... 1,251,230
2,000,000 NationsBank Corp.,
Subordinated Notes,
8.125%, 6/15/02..................................... 2,140,240
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - CONTINUED
BANKS - CONTINUED
$1,000,000 Southtrust Bank,
Subordinated Notes, Bank Notes,
6.565%, 12/15/27................................. $ 1,043,500
2,000,000 Suntrust Banks, Inc.,
Senior Bond,
6.00%, 1/15/28................................... 1,968,340
------------
13,139,068
------------
BUILDING, CONSTRUCTION & FURNISHINGS - 0.3%
200,000 MDC Holdings, Inc.,
Senior Notes,
8.375%, 2/1/08................................... 200,000
500,000 Webb Delaware Corp.,
Senior Subordinated Debenture,
9.375%, 5/1/09.................................. 495,000
------------
695,000
------------
BUSINESS EQUIPMENT & SERVICES - 0.3%
500,000 Williams Scotsman, Inc.,
Senior Note,
9.875%, 6/1/07.................................. 520,000
------------
CABLE/OTHER VIDEO DISTRIBUTION - 1.4%
750,000 Century Communications Corp.,
Senior Note,
9.75%, 2/15/02.................................. 802,500
500,000 Jones Intercable, Inc.,
Senior Note,
9.625%, 3/15/02................................. 540,000
1,000,000 Lenfest Communications, Inc.,
Senior Secured Notes,
8.375%, 11/1/05................................. 1,062,500
500,000 Marcus Cable Operating Co. LP,
Guaranteed Senior
Subordinated Discount Note
(Eff. Yield 7.43%) (c),
0.00%, 8/1/04................................... 485,000
------------
2,890,000
------------
CHEMICAL & AGRICULTURAL PRODUCTS - 1.6%
500,000 Borden Chemicals and Plastics,
Note,
9.50%, 5/1/05................................... 500,000
1,164,000 Dow Chemical Co.,
Debentures,
8.625%, 4/1/06.................................. 1,320,639
500,000 Harris Chemical North American, Inc.,
Senior Secured Note,
10.25%, 7/15/01................................. 520,000
300,000 International Specialty Products Holdings, Inc.,
Senior Note, Series B,
9.00%, 10/15/03.................................. 313,500
500,000 Kaiser Aluminum & Chemical Corp.,
Senior Note,
9.875%, 2/15/02................................. 513,750
------------
3,167,889
------------
COMMUNICATION SYSTEMS & SERVICES - 5.8%
2,600,000 Bell Telephone Co. of Pennsylvania,
Debentures,
8.35%, 12/15/30................................. 3,278,314
</TABLE>
29
<PAGE>
EVERGREEN
Intermediate Term Bond Fund
SCHEDULE OF INVESTMENTS(continued)
June 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - CONTINUED
COMMUNICATION SYSTEMS & SERVICES - CONTINUED
$ 950,000 Centennial Cellular Corp.,
Senior Notes,
8.875%, 11/1/01..................................... $ 988,000
5,000,000 GTE Corp.,
Debenture,
6.46%, 4/15/08...................................... 5,047,550
1,000,000 MCI Communications Corp.,
Puttable and Callable @ 100, 4/15/02
(Eff. Yield 6.23%) (c),
6.125%, 4/15/12..................................... 996,280
500,000 Olympus Communications LP,
Senior Note,
10.625%, 11/15/06................................... 550,000
500,000 Price Communications Wireless,
Senior Notes,
9.125%, 12/15/06 (a)................................ 500,000
500,000 Rural Cellular,
Subordinated Note,
9.625%, 5/15/08 (a)................................. 497,500
------------
11,857,644
------------
CONSUMER PRODUCTS & SERVICES - 1.8%
200,000 Dryper's Corp.,
Senior Notes, Series B,
10.25%, 6/15/07...................................... 206,500
1,000,000 French Fragrances, Inc.,
Senior Note, Series C,
10.375%, 5/15/07 (a) ............................... 1,067,500
1,164,000 General Mills, Inc.,
Series B, MTN,
9.00%, 12/20/02..................................... 1,298,046
1,000,000 Westpoint Stevens, Inc.,
Senior Notes,
7.875%, 6/15/05 (a)................................. 1,000,000
------------
3,572,046
------------
FINANCE & INSURANCE - 11.0%
1,000,000 Bear Stearns Co., Inc.,
Global Note,
6.20%, 3/30/03...................................... 995,760
1,000,000 Beneficial Corp.,
Series I, MTN,
6.25%, 2/18/13...................................... 997,800
1,000,000 CB Richards Ellis Services, Inc.,
Senior Subordinated Note,
8.875%, 6/1/06...................................... 987,500
2,000,000 Donaldson Lufkin & Jenrette,
Senior Note,
6.50%, 6/1/08....................................... 1,999,840
2,000,000 Fleet Financial Group, Inc.,
Note,
6.50%, 3/15/08...................................... 2,024,040
2,000,000 General Electric Capital Corp.,
Debentures,
8.75%, 5/21/07...................................... 2,370,000
1,000,000 Glenborough Properties LP,
Senior Notes,
7.625%, 3/15/05 (a)................................. 1,007,470
1,500,000 Grand Metropolitan Investment Corp.,
6.50%, 9/15/99...................................... 1,508,610
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - CONTINUED
FINANCE & INSURANCE - CONTINUED
$ 800,000 Harris BanCorp.,
Subordinated Notes,
9.375%, 6/1/01.................................... $ 870,152
500,000 International Lease Finance Corp.,
Note,
5.75%, 1/15/03.................................... 493,245
500,000 Lehman Brothers Holdings, Inc.,
Note,
6.50%, 10/1/02.................................... 505,290
3,000,000 Liberty Mutual Insurance Co.,
Surplus Notes,
8.20%, 5/4/07 (a)................................. 3,384,030
500,000 National Westminster Bancorp,
Subordinated Notes,
9.375%, 11/15/03.................................. 571,190
875,000 Paine Webber Group, Inc.,
Senior Note,
8.25%, 5/1/02..................................... 932,750
500,000 Presidential Life Insurance Corp.,
Senior Notes,
9.50%, 12/15/00................................... 516,875
2,000,000 Prudential Insurance,
Note,
7.125%, 7/1/07 (a)................................ 2,092,140
1,000,000 Reliance Group Holdings, Inc.,
Senior Notes,
9.00%, 11/15/00................................... 1,044,250
------------
22,300,942
------------
FOOD & BEVERAGE PRODUCTS - 1.7%
750,000 Chiquita Brands International, Inc.,
Senior Note,
9.625%, 1/15/04................................... 783,750
600,000 Fleming Companies, Inc.,
Senior Note,
10.625%, 12/15/01................................. 636,000
2,000,000 Fred Meyer, Inc.,
Note,
7.15%, 3/1/03...................................... 2,000,980
------------
3,420,730
------------
GAMING - 0.3%
200,000 Boyd Gaming Corp.,
Senior Subordinated Notes,
9.50%, 7/15/07.................................... 208,000
400,000 Station Casinos, Inc.,
Senior Subordinated Note,
9.625%, 6/1/03.................................... 414,000
------------
622,000
------------
HEALTHCARE PRODUCTS & SERVICES - 0.7%
1,164,000 Baxter International, Inc.,
Note,
7.25%, 2/15/08.................................... 1,253,279
200,000 Paragon Health Network, Inc.,
Senior Subordinated Note, Series B,
9.50%, 11/1/07.................................... 203,000
------------
1,456,279
------------
INDUSTRIAL SPECIALTY PRODUCTS & SERVICES - 0.3%
200,000 Delta Mills, Inc.,
Senior Note, Series B,
9.625%, 9/1/07.................................... 196,000
</TABLE>
30
<PAGE>
EVERGREEN
Intermediate Term Bond Fund
SCHEDULE OF INVESTMENTS(continued)
June 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - CONTINUED
INDUSTRIAL SPECIALTY PRODUCTS & SERVICES - CONTINUED
$ 500,000 Sequa Corp.,
Senior Note,
8.75%, 12/15/01.................................... $ 510,000
------------
706,000
------------
INFORMATION SERVICES & TECHNOLOGY - 0.1%
118,000 Unisys Corp.,
Senior Notes,
10.625%, 10/1/99................................... 119,180
------------
IRON & STEEL - 1.5%
1,000,000 Ameristeel Corp.,
Senior Note,
8.75%, 4/15/08 (a)................................. 1,000,000
850,000 Armco, Inc.,
Senior Notes,
9.375%, 11/1/00.................................... 850,000
350,000 Bethlehem Steel Corp.,
Senior Notes,
10.375%, 9/1/03.................................... 364,000
750,000 Wheeling Pittsburgh Corp.,
Senior Note,
9.375%, 11/15/03................................... 820,313
------------
3,034,313
------------
LEISURE & TOURISM - 1.9%
1,000,000 Caesar's World, Inc.,
Senior Subordinated Notes,
8.875%, 8/15/02.................................... 1,015,170
700,000 Hammon John Q Hotels,
First Mortgage,
8.875%, 2/15/04.................................... 705,250
1,000,000 Host Marriott Hotel Properties, Inc.,
Senior Notes, Series B,
9.50%, 5/15/05..................................... 1,087,500
405,000 Host Marriott Travel Plazas, Inc.,
Senior Secured Notes, Series B,
9.50%, 5/15/05..................................... 431,831
500,000 Prime Hospitality Corp.,
First Mortgage Note,
9.25%, 1/15/06..................................... 530,000
------------
3,769,751
------------
METALS & MINING - 0.2%
500,000 Great Central Mines Ltd.,
Senior Notes,
8.875%, 4/1/08 (a)................................. 490,000
------------
OIL/ENERGY - 2.3%
900,000 Occidental Petroleum Corp.,
Debentures,
9.25%, 8/1/19...................................... 1,120,752
500,000 PDV America, Inc.,
Senior Notes,
7.25%, 8/1/98...................................... 498,180
1,000,000 R & B Falcon Corp.,
Senior Notes,
6.95%, 4/15/08 (a)................................. 1,002,980
2,000,000 Transocean Offshore, Inc.,
Notes,
7.45%, 4/15/27..................................... 2,139,860
------------
4,761,772
------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - CONTINUED
PAPER & PACKAGING - 0.7%
$ 500,000 Container Corp. of America,
Senior Notes, Series A,
11.25%, 5/1/04...................................... $ 538,750
Stone Container Corp.:
700,000 Senior Notes,
9.875%, 2/1/01...................................... 715,750
200,000 Senior Subordinated Note,
11.00%, 8/15/99...................................... 207,000
------------
1,461,500
------------
PUBLISHING, BROADCASTING & ENTERTAINMENT - 3.2%
200,000 American Lawyer Media, Inc.,
Senior Notes,
9.75%, 12/15/07(a).................................. 207,500
1,000,000 Comcast Corp.,
Senior Subordinated Debenture,
9.375%, 5/15/05..................................... 1,068,070
200,000 Hollinger International Publishing,
Senior Subordordinated Notes,
9.25%, 2/1/06....................................... 209,250
2,327,000 Loews Corp.,
6.75%, 12/15/06..................................... 2,357,554
250,000 Pegasus Communications Corp.,
Senior Note, Series B,
9.625%, 10/15/05.................................... 257,500
200,000 Sinclair Broadcast Group, Inc.,
Senior Subordinated Notes,
10.00%, 9/30/05..................................... 215,000
1,000,000 Time Warner Entertainment, Inc.,
Notes,
9.625%, 5/1/02...................................... 1,117,070
500,000 Viacom, Inc.,
Subordinated Debenture,
8.00%, 7/7/06....................................... 516,250
600,000 World Color Press, Inc.,
Senior Subordinated Notes,
9.125%, 3/15/03..................................... 622,500
------------
6,570,694
------------
REAL ESTATE - 0.9%
1,900,000 Equity Office Properties Trust,
Senior Notes,
6.375%, 2/15/03 (a)................................. 1,891,925
------------
TRANSPORTATION - 1.7%
13,569 Atlantic Coast Airlines Corp.,
7.20%, 1/1/14 (a)................................... 13,659
200,000 Coach USA, Inc.,
Senior Subordinated Note, Series B,
9.375%, 7/1/07...................................... 208,000
950,000 Ford Motor Co.,
Debenture,
9.00%, 9/15/01...................................... 1,030,237
1,000,000 Norfolk Southern Corp.,
Note,
7.05%, 5/1/37....................................... 1,061,890
500,000 Sea Containers Ltd.,
Senior Notes,
7.875%, 2/15/08 .................................... 495,625
500,000 TBS Shipping International Ltd.,
Mortgage Notes, First Preferred Ship,
10.00%, 5/1/05 (a)................................... 452,500
</TABLE>
31
<PAGE>
EVERGREEN
Intermediate Term Bond Fund
SCHEDULE OF INVESTMENTS(continued)
June 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - CONTINUED
TRANSPORTATION - CONTINUED
$ 200,000 U.S. Air, Inc.,
Equipment Test Certificate, Series 88-D,
9.80%, 1/15/00...................................... $ 205,508
------------
3,467,419
------------
UTILITIES - 2.6%
200,000 Benton Oil and Gas Co.,
Senior Notes,
9.375%, 11/1/07..................................... 195,000
2,000,000 K N Energy, Inc.,
Senior Note,
6.65%, 3/1/05....................................... 2,005,580
1,000,000 Long Island Lighting Co.,
Debentures,
7.30%, 7/15/99...................................... 1,010,490
2,000,000 Oklahoma Gas & Electric Co.,
Senior Notes,
6.65%, 7/15/27...................................... 2,104,940
------------
5,316,010
------------
Total Corporate Bonds
(cost $101,711,004)................................. 103,264,997
------------
COLLATERALIZED MORTGAGE OBLIGATIONS (B) - 8.6%
500,000 Chase Commercial Mortgage Securities Corp.,
Series 1997-1 Class B
(Est. Maturity 2007),
7.37%, 4/19/07....................................... 511,156
990,541 Criimi Mae Financial Corp.,
Series 1 Class A
(Est. Maturity 2004),
7.00%, 1/1/33....................................... 978,314
1,000,000 Federal National Mortgage Association,
Series 1993-248 Class SA, REMIC
(Est. Maturity 2004),
4.059%, 8/25/23 (d)................................. 862,020
1,961,757 Independent National Mortgage Corp.,
Series 1997-A Class A
(Est. Maturity 2004),
7.791%, 12/26/26 (a)................................ 1,975,725
500,000 Merrill Lynch Trust,
Series 35 Class G
(Est. Maturity 2005),
8.45%, 11/1/18...................................... 525,465
Morgan Stanley Capital I, Inc.:
700,000 Series 1997-C1 Class B
(Est. Maturity 2006),
7.69%, 2/15/20...................................... 752,719
4,000,000 Series 1998-WF1 Class C
(Est. Maturity 2007),
6.77%, 1/15/08....................................... 4,072,500
3,133,030 Nationslink Funding Corp.,
Series 1998-1 Class C
(Est. Maturity 2007),
6.648%, 1/20/08..................................... 3,144,779
675,658 PNC Mortgage Securities Corp.,
Series 1997-4 Class 2PP1, REMIC
(Est. Maturity 2000),
7.50%, 7/25/27...................................... 682,183
1,836,130 Nomura Depositor Trust,
Series 1998-ST1 Class A1
(Est. Maturity 2002),
5.936%, 1/15/03(a)(d)............................... 1,836,130
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS - CONTINUED
$ 939,567 Paine Webber Mortgage Acceptance Corp.,
Series 1993-4 Class M1
(Est. Maturity 2002),
7.50%, 5/25/23................................... $ 948,082
1,250,000 Resolution Trust Corp.,
Series 1995-1 Class A2C
(Est. Maturity 1999),
7.50%, 10/25/28................................. 1,266,406
------------
Total Collateralized Mortgage Obligations
(cost $17,268,621).............................. 17,555,479
------------
MORTGAGE-BACKED SECURITIES (B) - 2.0%
Resolution Trust Corp. Mortgage Pass Thru:
344,219 Series 1992 C Class A1
(Est. Maturity 1999),
8.80%, 8/25/23................................... 353,685
1,532,565 Series 1992-3 Class A2, REMIC
(Est. Maturity 1999),
6.882%, 9/25/19.................................. 1,535,439
1,032,957 Series 1992-3 Class A3, REMIC
(Est. Maturity 1999),
6.854%, 5/25/21.................................. 1,034,894
1,108,447 Series 1992-6, Class A4, REMIC
(Est. Maturity 1999),
7.505%, 11/25/25................................. 1,110,525
------------
Total Mortgage-Backed Securities
(cost $3,917,255)............................... 4,034,543
------------
U.S. AGENCY OBLIGATIONS - 1.8%
2,500,000 Farm Credit Systems Financial Assistance Corp.,
Bonds, Series A-05,
8.80%, 6/10/05................................... 2,921,875
750,000 Federal Home Loan Mortgage Corp.,
6.70%, 1/5/07................................... 792,068
------------
Total U.S. Agency Obligations
(cost $3,408,746)............................... 3,713,943
------------
U.S. TREASURY OBLIGATIONS - 13.7%
U.S. Treasury Notes:
1,425,000 5.50%, 2/28/03................................... 1,423,888
25,510,000 6.125%, 8/15/07.................................. 26,542,390
------------
Total U. S. Treasury Obligations
(cost $27,671,040).............................. 27,966,278
------------
YANKEE OBLIGATIONS - 8.2%
300,000 Disco SA,
Note,
9.875%, 5/15/08 (a)............................. 283,398
1,000,000 Group Videotron Ltd.,
Senior Notes,
10.625%, 2/15/05................................ 1,098,260
2,000,000 Manitoba Province, Canada,
Notes,
8.00%, 4/15/02.................................. 2,132,780
2,000,000 Nippon Telegraph and Telephone Corp.,
6.00%, 3/25/08.................................. 2,006,480
1,000,000 Petroleum Geo Services,
6.625%, 3/30/08................................. 1,013,140
1,164,000 Province of Ontario, Canada,
Notes,
7.75%, 6/4/02................................... 1,236,063
</TABLE>
32
<PAGE>
EVERGREEN
Intermediate Term Bond Fund
SCHEDULE OF INVESTMENTS(continued)
June 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
YANKEE OBLIGATIONS - CONTINUED
$1,000,000 Republic of Colombia,
Bonds,
8.625%, 4/1/08.................................. $ 948,820
1,000,000 Rogers Cablesystems Ltd.,
Notes,
9.625%, 8/1/02.................................. 1,070,000
600,000 Sifto Canada, Inc.,
Guaranteed Senior Secured Note,
8.50%, 7/15/00.................................. 618,000
1,000,000 Svenska Handelsbanken,
Subordinated Notes,
8.35%, 7/15/04.................................. 1,092,220
500,000 Tevecap SA,
Senior Notes,
12.625%, 11/26/04............................... 435,000
2,000,000 United Utilities PLC,
Notes,
6.45%, 4/1/08................................... 1,993,700
700,000 Westpac Banking Corp.,
Subordinated Debenture,
9.125%, 8/15/01................................. 756,693
2,000,000 YPF Sociedad Anonima,
Senior Notes,
7.25%, 3/15/03.................................. 1,947,160
------------
Total Yankee Obligations
(cost $16,344,936).............................. 16,631,714
------------
</TABLE>
(a) Securities that may be sold to qualified institutional buyers under
Rule 144A or securities offered pursuant to Section 4(2) of the Secu-
rities Act of 1933, as amended. These securities have been determined
to be liquid under guidelines established by the Board of Trustees.
(b) The estimated maturity of a Collateralized Mortgage Obligation or
Mortgage-Backed Security is based on current and projected prepayment
rates. Changes in interest rates can cause the estimated maturity to
differ from the listed date.
(c) Effective yield (calculated at the time of purchase) is the yield at
which the bond accretes on an annual basis until maturity date.
(d) Inverse floater, resets monthly.
(e) The repurchase agreements are fully collateralized by U.S. Government
and/or agency obligations based on market prices at June 30, 1998.
LEGEND OF PORTFOLIO ABBREVIATIONS
DEM Deutsche Mark
DKK Danish Krone
GRD Greek Drachma
MTN Medium Term Note
NOK Norwegian Krone
REMIC Real Estate Mortgage Investment Conduit
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Forward foreign currency exchange contracts to sell:
<TABLE>
<CAPTION>
NET
EXCHANGE U.S. $ VALUE AT IN EXCHANGE UNREALIZED
DATE CONTRACTS TO DELIVER JUNE 30, 1998 FOR U.S. $ APPRECIATION
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
7/16/98 11,460,000Danish Krone 1,669,316 1,675,316 $ 6,000
9/14/98 109,234,000Danish Krone 15,952,144 16,033,171 81,027
9/28/98 4,140,201Deutsche Mark 2,307,867 2,309,323 1,456
-------
$88,483
=======
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
FOREIGN BONDS - (NON-US DOLLAR DENOMINATED) - 11.8%
3,600,000 Greece Republic of Hellenic,
DEM Series E, MTN,
6.75%, 11/13/06.................................... $ 2,180,820
615,000,000 Greece Republic of Hellenic,
GRD Government Bonds,
8.60%, 3/26/08..................................... 2,129,796
13,770,000 Kingdom of Norway,
NOK 6.75%, 1/15/07..................................... 1,939,424
61,180,000 Nykredit,
DKK Series ANN,
6.00%, 10/1/26..................................... 8,879,316
60,900,000 Realkredit Danmark,
DKK 6.00%, 10/1/26..................................... 8,856,409
------------
Total Foreign Bonds - (Non-US Dollar Denominated)
(cost $23,413,251)................................ 23,985,765
------------
REPURCHASE AGREEMENT (COST $844,000) - 0.4%
$ 844,000 Keystone Joint Repurchase Agreement (6.06% dated
6/30/98, due 7/1/98, maturity
value $844,142) (e)............................... 844,000
------------
TOTAL INVESTMENTS -
(COST $200,306,590)........................ 100.1% 203,797,260
OTHER ASSETS AND LIABILITIES - NET.......... (0.1) (151,910)
----- ------------
NET ASSETS - ............................... 100.0% $203,645,350
===== ============
</TABLE>
See Combined Notes to Financial Statements.
33
<PAGE>
EVERGREEN
Intermediate Term Government Securities Fund
SCHEDULE OF INVESTMENTS
June 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
MORTGAGE-BACKED SECURITIES - 44.7%
Federal Home Loan Mortgage Corp.:
$ 2,592,283 5.60%, 2/15/13..................................... $ 2,587,966
56,166 7.843%, 8/1/19..................................... 58,504
29,211 8.187%, 12/1/20.................................... 29,704
9,606,478 6.50%, 9/1/08...................................... 9,700,814
6,821,261 6.50%, 11/1/09..................................... 6,888,246
3,324,054 Federal Home Loan Mortgage Corp. Gold,
9.00%, 1/1/17...................................... 3,568,305
Federal National Mortgage Assn.:
3,000,000 6.50%, 6/25/22..................................... 3,041,479
3,322,182 7.00%, 3/1/24...................................... 3,377,031
229,328 8.50%, 12/1/01..................................... 236,721
57,604 7.971%, 6/1/19..................................... 60,183
3,282,001 7.00%, 12/1/99..................................... 3,319,416
2,807,260 7.00%, 8/1/01...................................... 2,849,538
2,593,449 6.00%, 2/1/08...................................... 2,571,275
13,096,787 7.00%, 4/1/11...................................... 13,352,829
3,958,441 6.374%, 3/1/06..................................... 4,011,892
688,598 6.00%, 5/1/11...................................... 682,608
8,423,896 7.50%, 8/1/26...................................... 8,652,942
3,500,000 6.40%, 12/1/07..................................... 3,594,150
Government National Mortgage Assn.:
150,451 8.00%, 3/15/17..................................... 158,399
245,645 9.00%, 9/15/21..................................... 264,847
1,624,968 7.00%, 3/15/28..................................... 1,653,031
9,783,068 6.50%, 2/15/27..................................... 9,775,144
835,560 U.S. Department of Veteran Affairs,
7.00%, 5/15/12..................................... 835,906
------------
Total Mortgage-Backed Securities (cost
$79,858,048)...................................... 81,270,930
------------
U.S. AGENCY OBLIGATIONS - 13.9%
993,000 Federal Agricultural Mortgage Corp. MTN,
7.37%, 8/1/06...................................... 1,063,442
Federal Home Loan Bank:
5,000,000 5.50%, 4/14/00..................................... 4,987,540
1,300,000 8.60%, 1/25/00..................................... 1,356,306
8,500,000 Federal Home Loan Mortgage Corp.,
7.36%, 6/5/07...................................... 8,989,337
Federal National Mortgage Assn.:
2,000,000 7.50%, 2/11/02..................................... 2,119,422
2,000,000 7.875%, 2/24/05.................................... 2,240,064
</TABLE>
LEGEND OF PORTFOLIO ABBREVIATIONS
MTN Medium Term Note
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
U.S. AGENCY OBLIGATIONS - CONTINUED
$ 4,480,000 Federal National Mortgage Assn. MTN,
6.16%, 4/3/01...................................... $ 4,538,643
------------
Total U.S. Agency Obligations
(cost $24,302,796)................................ 25,294,754
------------
U.S. TREASURY OBLIGATIONS - 39.4%
2,500,000 U.S. Treasury Bonds,
11.75%, 11/15/14................................... 3,764,845
U.S. Treasury Notes:
4,500,000 5.50%, 2/28/99..................................... 4,501,409
5,000,000 6.125%, 9/30/00.................................... 5,064,065
8,400,000 6.25%, 4/30/01..................................... 8,557,508
4,000,000 6.375%, 7/15/99.................................... 4,035,004
10,750,000 6.625%, 5/15/07.................................... 11,556,261
1,000,000 6.75%, 4/30/00..................................... 1,021,251
2,300,000 7.00%, 7/15/06..................................... 2,513,470
14,250,000 7.125%, 2/29/00.................................... 14,610,710
4,000,000 7.50%, 10/31/99.................................... 4,100,004
2,000,000 7.50%, 11/15/01.................................... 2,118,752
4,400,000 7.50%, 5/15/02..................................... 4,697,004
2,500,000 7.875%, 11/15/04................................... 2,808,595
1,300,000 8.50%, 11/15/00.................................... 1,385,314
1,000,000 8.875%, 2/15/99.................................... 1,020,626
------------
Total U.S. Treasury Obligations
(cost $70,572,489)................................ 71,754,818
------------
REPURCHASE AGREEMENT - 1.2% (COST $2,122,810)
2,122,810 Donaldson, Lufkin & Jenrette Securities Corp.
5.75%, dated 6/30/98, due 7/1/98, maturity value,
$2,123,149 (Collaterallized by $5,059,000 U.S.
Treasury Strips, 0.00%, due 5/15/13; value,
including accrued interest $2,123,094)............ 2,122,810
------------
TOTAL INVESTMENTS -
(COST $176,856,143)......................... 99.2% 180,443,312
OTHER ASSETS AND LIABILITIES - NET........... 0.8 1,497,934
----- ------------
NET ASSETS -................................. 100.0% $181,941,246
===== ============
</TABLE>
See Combined Notes to Financial Statements.
34
<PAGE>
EVERGREEN
Short Intermediate Bond Fund
SCHEDULE OF INVESTMENTS
June 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
ASSET-BACKED SECURITIES - 14.6%
$ 3,295,285 Advanta Home Equity Loan Trust, Pass Through
Certificates,
Series 1992-4, Class A1,
7.20%, 11/25/08............................... $ 3,358,241
Amresco Residential Securities Mortgage Loan
Trust:
3,450,000 6.245%, 4/25/22................................ 3,458,625
3,000,000 6.50%, 11/25/15................................ 3,003,750
1,100,000 Associates Manufactured Housing, Pass Through
Certificates,
Series 1997-1, Class A3,
6.60%, 6/15/28................................ 1,109,851
4,000,000 Carco Auto Loan Master Trust,
Series 1997-1, Class A,
6.689%, 8/15/04............................... 4,064,180
1,750,000 Case Equipment Loan Trust,
Asset Backed Certificate,
Series 1995 B, Class B,
6.45%, 9/15/02................................ 1,765,181
1,999,985 Contimortgage Home Equity Loan Trust, Series
1996-1, Class A5, 6.15%, 3/15/11.............. 2,003,195
2,473,831 Continental Airlines, Inc.,
Pass-Through Certificates,
Series 1997, Class 1B,
7.461%, 4/1/13................................ 2,660,914
5,495,999 Empire Funding Home Loan
Owner Trust,
6.64%, 12/25/12............................... 5,518,176
1,178,060 EQCC Home Equity Loan Trust,
Series 1996-1, Class A2,
5.82%, 9/15/09................................ 1,176,912
690,633 First Bank Auto Receivable,
Asset Backed Certificates, Class B, 8.30%,
1/15/00....................................... 691,811
1,171,199 First Security Auto Grantor Trust, Series 1995
A, Class A,
6.25%, 1/15/01................................ 1,173,618
4,903,984 Fleetwood Credit Corp. Grantor Trust, Series
1993 B, Class A,
4.95%, 8/15/08................................ 4,854,036
5,000,000 Iroquois Trust, Indexed Amortization Notes,
Series 1997-3, Class A, 6.68%, 11/10/03 (a)... 5,039,000
4,997,935 Life Financial Home Loan
Owner Trust,
6.79%, 10/25/11............................... 5,028,647
876,840 SCFC Recreational Vehicle Loan Trust, Series
1991-1,
7.25%, 9/15/06................................ 878,642
2,500,000 Southern Pacific Secured Assets Corp., Series
1998-1, Class A6,
7.08%, 3/25/28................................ 2,577,350
Western Financial Grantor Trust, Series 1995,
Class A2:
1,147,604 6.20%, 2/1/02.................................. 1,151,351
2,618,494 5.875%, 3/1/02................................. 2,618,612
4,545,537 Xerox Rental Equipment Trust,
Series 1996 A,
6.20%, 12/26/05 (a)........................... 4,565,423
------------
Total Asset-Backed Securities
(cost $56,011,861)............................ 56,697,515
------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - 22.7%
BANKS - 5.2%
$ 3,000,000 BB&T Corp.,
6.375%, 6/30/05.............................. $ 3,021,186
3,000,000 Cenfed Financial Corp.,
Senior Debenture,
11.17%, 12/15/01 (a)......................... 3,334,800
2,000,000 Chase Manhattan Corp.,
Subordinated Note,
8.00%, 5/15/04............................... 2,031,636
First Chicago NBD Corp.: Subordinated Note,
4,000,000
9.00%, 6/15/99................................ 4,110,204
2,000,000 MTN, Series E,
9.20%, 12/17/01............................... 2,193,792
5,000,000 First Security Corp.,
6.40%, 2/10/03................................ 5,065,075
500,000 Security Pacific Corp., Note,
10.45%, 5/8/01................................ 557,985
------------
20,314,678
------------
FINANCE & INSURANCE - 12.4%
2,000,000 American Express Credit Corp.,
Step Bond
(Eff. Yield 5.57%) (b),
6.25%, 8/10/05................................ 2,018,158
3,350,000 Amsouth Bancorporation, Debenture,
6.75%, 11/1/25................................ 3,498,717
3,000,000 Associated P&C Holdings, Inc.,
Guaranteed Senior Note,
6.75%, 7/15/03 (a)............................ 3,020,175
3,000,000 Bear Stearns Co., Inc.,
7.625%, 4/15/00............................... 3,083,232
1,000,000 Horace Mann Educators Corp.,
Senior Note,
6.625%, 1/15/06............................... 1,019,443
Lehman Brothers Holdings, Inc.:
5,000,000 6.625%, 11/15/00.............................. 5,051,685
5,000,000 8.875%, 3/1/02................................ 5,432,725
2,500,000 MTN,
6.84%, 10/7/99................................ 2,521,897
Metropolitan Life Insurance Co.,
Surplus Note (a):
5,000,000 6.30%, 11/1/03................................ 4,992,750
5,000,000 7.00%, 11/1/05................................ 5,202,110
5,000,000 Money Store, Inc.,
7.88%, 9/15/00................................ 5,116,150
7,000,000 Salomon, Inc.,
7.20%, 2/1/04................................. 7,316,561
------------
48,273,603
------------
HEALTHCARE PRODUCTS & SERVICES - 2.5%
10,000,000 Columbia/HCA Healthcare Corp.,
6.875%, 7/15/01............................... 9,770,370
------------
INDUSTRIAL SPECIALTY PRODUCTS & SERVICES - 2.6%
5,000,000 GTE Corp.,
10.25%, 11/1/20............................... 5,603,205
4,375,000 Johnson Controls, Inc.,
6.30%, 2/1/08................................. 4,431,691
------------
10,034,896
------------
Total Corporate Bonds
(cost $86,931,072)........................... 88,393,547
------------
</TABLE>
35
<PAGE>
EVERGREEN
Short Intermediate Bond Fund
SCHEDULE OF INVESTMENTS(continued)
June 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
MORTGAGE-BACKED SECURITIES - 29.7%
$ 3,150,000 Chase Commercial Mortgage Security Corp., Mortgage
Pass Through Certificates, Series 1996-2, Class C,
6.90%, 11/19/28.................................... $ 3,233,743
2,194,036 CMC Securities Corp.,
Collateralized Mortgage Obligation, Series 93,
Class D3,
10.00%, 7/25/23.................................... 2,276,134
5,000,000 Credit Suisse First Boston
Mortgage Securities Corp.,
Series 1998-C1, Class A1B,
6.48%, 5/17/08..................................... 5,082,500
2,500,000 DLJ Mortgage Acceptance Corp., Series 1993 MF7,
7.95%, 6/18/03..................................... 2,625,000
Federal Home Loan Mortgage Corp.:
6,050,000 6.48%, 7/10/00..................................... 6,054,096
1,017,086 6.80%, 10/15/05.................................... 1,015,820
2,000,000 6.97%, 6/16/05..................................... 2,041,234
4,809,612 7.40%, 10/15/05.................................... 4,843,832
343,899 10.50%, 9/1/15..................................... 376,139
Federal Housing Administration -Puttable Project
Loans:
5,247,523 7.43%, 7/1/22...................................... 5,558,517
4,562,826 7.43%, 11/1/22..................................... 4,743,354
4,601,828 Merrill Lynch 199,
8.43%, 2/1/20...................................... 4,843,585
2,853,863 Reilly 18,
6.875%, 4/1/15..................................... 2,825,324
1,550,218 Reilly 55,
7.43%, 3/1/24...................................... 1,631,659
10,153,738 Reilly 64,
7.43%, 1/1/24...................................... 10,708,183
Federal National Mortgage Assn.:
1,500,000 5.30%, 8/25/98..................................... 1,500,144
500,000 6.00%, 12/15/00.................................... 499,202
855,566 6.23%, 12/25/25.................................... 854,073
5,000,000 7.11%, 8/7/01...................................... 4,978,475
2,100,000 8.00%, 11/25/06.................................... 2,177,210
9,000,000 8.10%, 4/25/25..................................... 9,396,397
7,168,885 11.00%, 1/1/99..................................... 8,280,062
18,983 14.00%, 6/1/11..................................... 21,869
896,393 GCC Second Mortgage Trust,
10.00%, 7/15/05.................................... 898,576
1,393,470 Government National Mortgage Assn., Series 1996-10,
Class E,
7.50%, 11/20/08.................................... 1,399,901
4,000,000 Kidder Peabody Acceptance Corp., Series 1994-C1,
Class A,
6.65%, 2/1/06...................................... 4,086,300
3,000,000 Nationslink Funding Corp.,
Commercial Mortgage Certificates,
Series 98-1, Class D,
6.803%, 1/20/08.................................... 3,012,300
2,000,000 Painewebber Mortgage Acceptance Corp. IV,
Multifamily Mortgages, Series 1996-M1, Class E,
7.655%, 1/2/12 (a)................................. 2,081,250
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
MORTGAGE-BACKED SECURITIES - CONTINUED
Potomac Gurnee Finance
Corp., Commercial
Mortgage Pass Through
Certificates:
$ 2,448,059 Class A,
6.887%, 12/21/26.................................. $ 2,542,639
2,500,000 Class B,
7.003%, 12/21/26.................................. 2,599,538
Prudential Home Mortgage
Securities:
843,110 Mortgage Pass Through
Certificates, Series 92-
31, Class A5,
6.30%, 10/25/99................................... 841,057
4,788,537 Series 1993-39, Class A8,
6.50%, 10/25/08................................... 4,804,937
3,401,203 Prudential Securities
Secured Financing Corp.,
Series 1994-4, Class A1,
8.12%, 2/15/25.................................... 3,577,301
4,165,335 Saxon Mortgage Securities
Corp., Series 1993-8A,
Class 1A2,
7.375%, 9/25/23................................... 4,205,895
------------
Total Mortgage-Backed
Securities (cost
$112,711,013).................................... 115,616,246
------------
U. S. AGENCY OBLIGATIONS - 2.9%
Federal Home Loan Bank:
3,000,000 6.043%, 4/28/03................................... 3,003,750
5,000,000 6.47%, 9/16/02.................................... 5,015,500
3,150,000 Consolidated Bond,
6.55%, 12/18/02................................... 3,150,000
------------
Total U.S. Agency
Obligations
(cost $11,166,094)............................... 11,169,250
------------
U.S. TREASURY OBLIGATIONS - 21.2%
U.S. Treasury Notes:
9,500,000 5.50%, 2/15/08.................................... 9,500,009
9,000,000 5.75%, 4/30/03.................................... 9,090,009
21,000,000 6.125%, 8/15/07................................... 21,866,271
8,000,000 6.25%, 2/15/07.................................... 8,382,504
2,500,000 6.50%, 10/15/06................................... 2,656,253
9,000,000 6.625%, 5/15/07................................... 9,675,009
4,980,000 7.00%, 7/15/06.................................... 5,442,209
4,500,000 7.75%, 11/30/99................................... 4,635,004
11,000,000 8.875%, 2/15/99................................... 11,226,886
------------
Total U. S. Treasury
Obligations
(cost $83,063,323).................................. 82,474,154
------------
TAXABLE MUNICIPAL BONDS - 0.8% (COST 2,885,285)
2,900,000 Virginia State Housing
Development Authority,
Subseries A-4,
7.00%, 1/1/14.................................... 3,074,580
------------
FOREIGN BONDS - (US DOLLAR
DENOMINATED) - 7.3%
5,000,000 Boral Limited Australia
Co., MTN, 7.90%, 11/19/99
(a).............................................. 5,144,415
Korea Development Bank,
Bond:
5,000,000 7.25%, 5/15/06.................................... 4,054,130
6,000,000 7.375%, 9/17/04................................... 4,890,516
</TABLE>
36
<PAGE>
EVERGREEN
Short Intermediate Bond Fund
SCHEDULE OF INVESTMENTS(continued)
June 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
FOREIGN BONDS - (US DOLLAR DENOMINATED) - CONTINUED
$ 6,000,000 National Bank of Canada,
Yankee Notes, Series B,
8.125%, 8/15/04................................... $ 6,572,886
6,500,000 Petroliam Nasional Berhad,
Bond,
7.125%, 10/18/06 (a).............................. 5,732,051
2,000,000 Ras Laffan Liquefied Natural Gas, Bond,
7.628%, 9/15/06 (a)............................... 1,943,912
------------
Total Foreign Bonds - (US Dollar Denominated) (cost
$30,983,680)...................................... 28,337,910
------------
</TABLE>
(a) Securities that may be sold to qualified institutional buyers under
Rule 144A or securities offered pursuant to Section 4(2) of the Secu-
rities Act of 1933, as amended. These securities have been determined
to be liquid under guidelines established by the Board of Trustees.
(b) Effective yield (calculated at the time of purchase) is the yield at
which the bond accretes on an annual basis until maturity date.
LEGEND OF PORTFOLIO ABBREVIATIONS
MTN Medium Term Note
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT - 0.0% (COST $221,289)
$ 221,289 Donaldson, Lufkin & Jenrette Securities Corp.,
5.75% dated 06/30/98, due 07/01/98, maturity value
$221,324 (Collateralized by $520,000 U.S. Treasury
STRIPS, due 02/15/13, value, including accrued
interest $225,842)................................ $ 221,289
------------
TOTAL INVESTMENTS -
(COST $383,973,617)......................... 99.2% 385,984,491
OTHER ASSETS AND LIABILITIES - NET........... 0.8 3,030,576
----- ------------
NET ASSETS -................................. 100.0% $389,015,067
===== ============
</TABLE>
See Combined Notes to Financial Statements.
37
<PAGE>
EVERGREEN
Short and Intermediate Term Bond Fund
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1998
<TABLE>
<CAPTION>
Capital Intermediate Intermediate Short
Preservation Bond Government Intermediate
Fund Fund Fund Fund
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments at market
value (identified
cost-$47,318,629,
$200,306,590,
$176,856,143 and
$383,973,617,
respectively).......... $47,385,859 $203,797,260 $180,443,312 $385,984,491
Cash.................... 647 0 0 0
Principal paydown
receivable............. 420,347 0 0 714
Interest receivable..... 399,819 3,454,770 1,923,580 5,536,950
Receivable for Fund
shares sold............ 1,200 37,404 196,305 247,544
Receivable for
investments sold....... 0 987,918 0 0
Unrealized appreciation
on forward foreign
currency contracts..... 0 88,483 0 0
Prepaid expenses and
other assets........... 25,605 97,984 16,441 57,441
- ----------------------------------------------------------------------------------
Total assets.......... 48,233,477 208,463,819 182,579,638 391,827,140
- ----------------------------------------------------------------------------------
LIABILITIES
Dividends payable....... 80,968 369,397 299,177 833,595
Payable for Fund shares
redeemed............... 48,667 716,739 201,280 1,710,011
Due to related
parties................ 30,440 45,420 94,123 169,177
Distribution fee
payable................ 6,246 73,491 0 17,449
Accrued Trustees' fees
and expenses........... 815 11,459 7,779 21,867
Payable for reverse
repurchase
agreements............. 0 3,500,573 0 0
Due to custodian........ 0 29,790 0 0
Accrued expenses and
other liabilities...... 16,148 71,600 36,033 59,974
- ----------------------------------------------------------------------------------
Total liabilities..... 183,284 4,818,469 638,392 2,812,073
- ----------------------------------------------------------------------------------
NET ASSETS $48,050,193 $203,645,350 $181,941,246 $389,015,067
- ----------------------------------------------------------------------------------
NET ASSETS REPRESENTED
BY
Paid-in capital......... $54,848,044 $215,090,111 $198,348,192 $404,144,613
Distributions in excess
of net investment
income................. (81,569) (381,370) (41,722) (199,106)
Accumulated net
realized loss on
investments and
foreign currency
related transactions... (6,783,512) (14,640,938) (19,952,393) (16,941,314)
Net unrealized
appreciation on
investments and
foreign currency
related transactions... 67,230 3,577,547 3,587,169 2,010,874
- ----------------------------------------------------------------------------------
Total net assets...... $48,050,193 $203,645,350 $181,941,246 $389,015,067
- ----------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Class A................. $18,022,236 $123,722,642 $ 81,033,871 $ 16,848,094
Class B................. 26,056,021 10,763,332 1,052,160 22,689,226
Class C................. 3,971,936 5,438,597 126,497 1,143,291
Class Y................. -- 63,720,779 99,728,718 348,334,456
- ----------------------------------------------------------------------------------
$48,050,193 $203,645,350 $181,941,246 $389,015,067
- ----------------------------------------------------------------------------------
SHARES OUTSTANDING
Class A................. 1,851,308 13,624,306 7,939,396 1,702,321
Class B................. 2,674,041 1,183,619 103,086 2,287,879
Class C................. 407,970 598,217 12,394 115,273
Class Y................. -- 7,017,260 9,771,069 35,195,495
- ----------------------------------------------------------------------------------
NET ASSET VALUE PER
SHARE
Class A................. $ 9.73 $ 9.08 $ 10.21 $ 9.90
- ----------------------------------------------------------------------------------
Class A--Offering price
(based on sales charge
of 3.25%).............. $ 10.06 $ 9.39 $ 10.55 $ 10.23
- ----------------------------------------------------------------------------------
Class B................. $ 9.74 $ 9.09 $ 10.21 $ 9.92
- ----------------------------------------------------------------------------------
Class C................. $ 9.74 $ 9.09 $ 10.21 $ 9.92
- ----------------------------------------------------------------------------------
Class Y................. -- $ 9.08 $ 10.21 $ 9.90
- ----------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
38
<PAGE>
EVERGREEN
Short and Intermediate Term Bond Funds
STATEMENTS OF OPERATIONS
Year ended June 30, 1998
<TABLE>
<CAPTION>
Capital Intermediate Intermediate Short
Preservation Bond Government Intermediate
Fund Fund Fund Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest (net of foreign
withholding taxes of $0,
$2,393, $0 and $0,
respectively)........... $3,250,458 $6,544,221 $7,005,323 $27,445,658
- --------------------------------------------------------------------------------
EXPENSES
Distribution Plan
expenses................ 365,926 296,425 80,936 239,174
Management fee........... 307,654 574,715 668,939 1,976,366
Transfer agent fees...... 87,227 182,600 45,534 336,004
Registration and filing
fees.................... 52,502 144,108 62,836 58,227
Shareholders reports
expense................. 33,823 77,260 21,857 72,141
Custodian fees........... 16,901 36,627 35,706 142,039
Administrative services
fees.................... 8,656 17,249 33,343 123,018
Trustees' fees and
expenses................ 2,717 7,592 3,663 12,811
Other.................... 19,426 37,907 27,771 42,976
Fee waivers and/or
expense reimbursements.. (212,054) (285,486) (54,649) 0
- --------------------------------------------------------------------------------
Total expenses.......... 682,778 1,088,997 925,936 3,002,756
Less: Indirectly paid
expenses................ (1,244) (6,912) (914) (3,939)
- --------------------------------------------------------------------------------
Net expenses............ 681,534 1,082,085 925,022 2,998,817
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME.... 2,568,924 5,462,136 6,080,301 24,446,841
- --------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND
FOREIGN CURRENCY RELATED
TRANSACTIONS
Net realized gain (loss)
on:
Investments............. 162,335 449,089 263,411 (1,189,957)
Foreign currency related
transactions........... 0 (355,667) 0 0
- --------------------------------------------------------------------------------
Net realized gain (loss)
on investments and
foreign currency related
transactions............ 162,335 93,422 263,411 (1,189,957)
- --------------------------------------------------------------------------------
Net change in unrealized
appreciation
(depreciation) on:
Investments............. (474,778) 468,516 1,220,668 3,858,427
Foreign currency related
transactions........... 0 50,268 0 0
- --------------------------------------------------------------------------------
Net change in unrealized
appreciation
(depreciation) on
investments and foreign
currency related
transactions............ (474,778) 518,784 1,220,668 3,858,427
- --------------------------------------------------------------------------------
Net realized and
unrealized gain (loss)
on investments and
foreign currency
related transactions.... (312,443) 612,206 1,484,079 2,668,470
- --------------------------------------------------------------------------------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS.............. $2,256,481 $6,074,342 $7,564,380 $27,115,311
- --------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
39
<PAGE>
EVERGREEN
Short and Intermediate Term bond Funds
STATEMENTS OF CHANGES IN NET ASSETS
Year ended June 30, 1998
<TABLE>
<CAPTION>
Capital Intermediate Intermediate Short
Preservation Bond Government Intermediate
Fund Fund Fund Fund
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income... $ 2,568,924 $ 5,462,136 $ 6,080,301 $ 24,446,841
Net realized gain (loss)
on investments and
foreign currency
related transactions... 162,335 93,422 263,411 (1,189,957)
Net change in unrealized
appreciation
(depreciation) on
investments and foreign
currency related
transactions........... (474,778) 518,784 1,220,668 3,858,427
- -----------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ 2,256,481 6,074,342 7,564,380 27,115,311
- -----------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income
Class A................ (865,044) (2,914,112) (1,551,596) (1,003,205)
Class B................ (1,436,957) (644,528) (35,699) (1,108,182)
Class C................ (201,810) (403,611) (5,115) (53,200)
Class Y................ 0 (1,626,128) (4,476,803) (22,216,773)
In excess of net
investment income
Class A................ (22,496) (46,536) 0 0
Class B................ (37,369) (10,293) 0 0
Class C................ (5,248) (6,445) 0 0
Class Y................ 0 (25,968) 0 0
- -----------------------------------------------------------------------------------
Total distributions to
shareholders.......... (2,568,924) (5,677,621) (6,069,213) (24,381,360)
- -----------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS
Proceeds from shares
sold................... 19,443,143 24,366,074 19,195,384 140,518,437
Proceeds from shares
issued in connection
with the acquisition
of:
Blanchard Short-Term
Flexible Income Fund.. 0 116,766,103 0 0
Evergreen Intermediate
Term Bond Fund II..... 0 66,213,695 0 0
Virtus U.S. Government
Securities Fund....... 0 0 133,551,466 0
Proceeds from
reinvestment of
distributions.......... 1,756,964 3,396,992 4,080,093 13,099,071
Payment for shares
redeemed............... (25,657,158) (36,461,819) (49,294,072) (166,012,044)
- -----------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from capital
share transactions.... (4,457,051) 174,281,045 107,532,871 (12,394,536)
- -----------------------------------------------------------------------------------
Total increase
(decrease) in net
assets............... (4,769,494) 174,677,766 109,028,038 (9,660,585)
NET ASSETS
Beginning of year....... 52,819,687 28,967,584 72,913,208 398,675,652
- -----------------------------------------------------------------------------------
END OF YEAR............. $48,050,193 $203,645,350 $181,941,246 $389,015,067
- -----------------------------------------------------------------------------------
Distributions in excess
of net investment
income................. $ (81,569) $ (381,370) $ (41,722) $ (199,106)
- -----------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
40
<PAGE>
EVERGREEN
Short and Intermediate Term Bond Funds
STATEMENTS OF CHANGES IN NET ASSETS
Prior Periods
<TABLE>
<CAPTION>
INTERMEDIATE
SHORT
GOVERNMENT
INTERMEDIATE
CAPITAL PRESERVATION FUND INTERMEDIATE BOND FUND FUND FUND
--------------------------------- ----------------------------- -------------
- -------------
Nine Months Year Eleven Months Year Year Year
Ended Ended Ended Ended Ended
Ended
June 30, 1997* September 30, 1996 June 30, 1997** July 31, 1996 June 30, 1997 June
30, 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income... $ 2,537,291 $ 4,442,259 $ 1,846,301 $ 2,540,623 $ 5,023,428 $
25,626,353
Net realized gain (loss)
on investments and
foreign currency
related transactions... (101,173) (549,777) 104,018 26,604 (16,049)
(2,101,788)
Net change in unrealized
appreciation
(depreciation) on
investments and foreign
currency related
transactions........... 279,120 648,310 669,755 (730,346) 219,766
2,666,233
- -----------------------------------------------------------------------------------------------------------------------
Net increase in net
assets resulting from
operations............ 2,715,238 4,540,792 2,620,074 1,836,881 5,227,145
26,190,798
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income
Class A................ (710,409) (1,089,444) (666,667) (898,299) (31,632)
(1,217,283)
Class B................ (1,412,040) (2,568,398) (719,674) (1,028,103) (29,748)
(1,225,460)
Class C................ (160,768) (147,748) (417,078) (576,335) (1,189)
(58,085)
Class Y................ 0 0 0 0 (4,959,781)
(23,369,583)
In excess of net
investment income
Class A................ (20,595) 0 0 0
(97) 0
Class B................ (40,936) 0 0 0
(91) 0
Class C................ (4,661) 0 0 0
(4) 0
Class Y................ 0 0 0 0
(15,207) 0
Tax basis return of
capital
Class A................ 0 (52,292) 0 0
0 0
Class B................ 0 (123,279) 0 0
0 0
Class C................ 0 (7,092) 0 0
0 0
- -----------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders.......... (2,349,409) (3,988,253) (1,803,419) (2,502,737) (5,037,749)
(25,870,411)
- -----------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS
Proceeds from shares
sold................... 8,631,265 12,691,883 3,559,906 10,120,565 35,487,793
122,641,025
Proceeds from
reinvestment of
distributions.......... 1,854,608 2,823,494 1,095,398 1,417,473 3,993,534
15,137,626
Payment for shares
redeemed............... (28,964,306) (30,181,809) (14,580,292) (15,524,524) (54,650,906)
(132,309,835)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from capital
share transactions.... (18,478,433) (14,666,432) (9,924,988) (3,986,486) (15,169,579)
5,468,816
- -----------------------------------------------------------------------------------------------------------------------
Total increase
(decrease) in net
assets............... (18,112,604) (14,113,893) (9,108,333) (4,652,342) (14,980,183)
5,789,203
NET ASSETS
Beginning of period..... 70,932,291 85,046,184 38,075,917 42,728,259 87,893,391
392,886,449
- -----------------------------------------------------------------------------------------------------------------------
END OF PERIOD........... $52,819,687 $70,932,291 $28,967,584 $38,075,917 $72,913,208
$398,675,652
- -----------------------------------------------------------------------------------------------------------------------
Undistributed net
investment income
(accumulated
distributions in excess
of net investment
income)................ $ (95,813) $ (305,808) $ 242,787 $ (21,199) $ (5,097) $
(16,203)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* During the period, the Fund changed its fiscal year end from September 30 to
June 30.
** During the period, the Fund changed its fiscal year end from July 31 to June
30.
See Combined Notes to Financial Statements.
41
<PAGE>
[ARTWORK APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The Evergreen Short and Intermediate Term Bond Funds consist of Evergreen
Capital Preservation and Income Fund ("Capital Preservation Fund"), Evergreen
Intermediate Term Bond Fund ("Intermediate Bond Fund"), Evergreen Intermediate
Term Government Securities Fund ("Intermediate Government Fund") and Evergreen
Short Intermediate Bond Fund ("Short Intermediate Fund"), (collectively, the
"Funds"). Each Fund is a diversified series of Evergreen Fixed Income Trust
(the "Trust"), a Delaware business trust organized on September 18, 1997. The
Trust is an open end management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act").
The Funds offer Class A, Class B, Class C and/or Class Y shares. Class A shares
are sold with a maximum front-end sales charge of 3.25%. Class B and Class C
shares are sold without a front-end sales charge, but pay a higher ongoing
distribution fee than Class A. Class B shares are sold subject to a contingent
deferred sales charge that is payable upon redemption and decreases depending
on how long the shares have been held. Class B shares of Capital Preservation
Fund and Intermediate Bond Fund purchased after January 1, 1997 will
automatically convert to Class A shares after seven years. Class B shares of
Capital Preservation Fund and Intermediate Bond Fund purchased prior to January
1, 1997 retain their existing conversion rights. For Intermediate Government
Fund and Short Intermediate Fund, all Class B shares will automatically convert
to Class A shares after seven years. Class C shares are sold subject to a
contingent deferred sales charge payable on shares redeemed within one year
after the month of purchase. Class Y shares are sold at net asset value and are
not subject to contingent deferred sales charges or distribution fees. Class Y
shares are sold only to investment advisory clients of First Union Corporation
("First Union") and its affiliates, certain institutional investors or Class Y
shareholders of record of certain other funds managed by First Union and its
affiliates as of December 30, 1994.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles, which
require management to make estimates and assumptions that affect amounts
reported herein. Actual results could differ from these estimates.
A. VALUATION OF SECURITIES
U.S. government obligations held by the Funds are valued at the mean between
the over-the-counter bid and asked prices. Corporate bonds, other fixed-income
securities, and mortgage and other asset-backed securities are valued at prices
provided by an independent pricing service. In determining value for normal
institutional-size transactions, the pricing service uses methods based on
market transactions for comparable securities and analysis of various
relationships between similar securities which are generally recognized by
institutional traders. Securities for which valuations are not available from
an independent pricing service (including restricted securities) are valued at
fair value as determined in good faith according to procedures established by
the Board of Trustees.
Short-term investments with remaining maturities of 60 days or less are carried
at amortized cost, which approximates market value.
B. REPURCHASE AGREEMENTS
Each Fund may invest in repurchase agreements. Securities pledged as collateral
for repurchase agreements are held by the custodian on the Fund's behalf. Each
Fund monitors the adequacy of the collateral daily and will require the seller
to provide additional collateral in the event the market value of the
securities pledged falls below the carrying value of the repurchase agreement,
including accrued interest. Each Fund will only enter into repurchase
agreements with banks and other financial institutions which are deemed by the
investment advisor to be creditworthy pursuant to guidelines established by the
Board of Trustees.
42
<PAGE>
[ARTWORK APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Capital Preservation Fund and Intermediate Bond Fund, along
with certain other funds managed by Keystone Investment Management Company
("Keystone"), a subsidiary of First Union, may transfer uninvested cash
balances into a joint trading account. These balances are invested in one or
more repurchase agreements that are fully collateralized by U.S. Treasury
and/or federal agency obligations.
C. REVERSE REPURCHASE AGREEMENTS
To obtain short-term financing, the Capital Preservation Fund and Intermediate
Bond Fund may enter into reverse repurchase agreements with qualified third-
party broker-dealers. Interest on the value of reverse repurchase agreements is
based upon competitive market rates at the time of issuance. At the time the
Fund enters into a reverse repurchase agreement, it will establish and maintain
a segregated account with the custodian containing qualifying assets having a
value not less than the repurchase price, including accrued interest. If the
counterparty to the transaction is rendered insolvent, the ultimate realization
of the securities to be repurchased by the Fund may be delayed or limited.
D. FOREIGN CURRENCY
The books and records of the Funds are maintained in United States (U.S.)
dollars. Foreign currency amounts are translated into U.S. dollars as follows:
market value of investments, other assets and liabilities at the daily rate of
exchange; purchases and sales of investments, income and expenses at the rate
of exchange prevailing on the respective dates of such transactions. Net
unrealized foreign exchange gain (loss) resulting from changes in foreign
currency exchange rates is a component of net unrealized appreciation
(depreciation) on investments and foreign currency related transactions. Net
realized foreign currency gains and losses resulting from changes in exchange
rates include foreign currency gains and losses between trade date and
settlement date on investment securities transactions, foreign currency related
transactions and the difference between the amounts of interest and dividend
recorded on the books of the Fund and the amount actually received and is
included in realized gain (loss) on foreign currency related transactions. The
portion of foreign currency gains and losses related to fluctuations in
exchange rates between the initial purchase trade date and subsequent sale
trade date is included in realized gain (loss) on investments.
E. SECURITY TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts.
F. SECURITIES LENDING
In order to generate income and to offset expenses, the Funds may lend
portfolio securities to brokers, dealers and other financial organizations. The
Fund's investment adviser will monitor the creditworthiness of such borrowers.
Loans of securities may not exceed 33 1/3% of a Fund's total assets and will be
collateralized by cash, letters of credit or U.S. Government securities that
are maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities, including interest. While such
securities are out on loan, the borrower will pay the Fund any income accruing
thereon and the Fund may invest the collateral in portfolio securities,
thereby, increasing its return. Any gain or loss in the market price of the
loaned securities, which occur during the term of the loan would affect the
Fund and its investors. A Fund may pay reasonable fees in connection with such
loans.
G. DISTRIBUTIONS
Distributions from net investment income for each Fund are declared daily and
paid monthly. Distributions from net realized capital gains for each Fund, if
any, are paid at least annually. Distributions to shareholders are recorded at
the close of business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles. The significant differences between financial
statement amounts available for distributions and distributions made in
accordance with
43
<PAGE>
[ARTWORK APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
income tax regulations are primarily due to differing treatment for mortgage
paydown gains (losses) and foreign currency related transactions.
H. CLASS ALLOCATIONS
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the
relative net assets of each class. Currently, class specific expenses are
limited to expenses incurred under the Distribution Plans for each class.
I. FEDERAL INCOME TAXES
The Funds have qualified and intend to continue to qualify as regulated
investment companies under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Funds will not incur any federal income tax liability since
they are expected to distribute all of their net investment company taxable
income and net capital gains, if any, to their shareholders. The Funds also
intend to avoid any excise tax liability by making the required distributions
under the Code. Accordingly, no provision for federal income taxes is required.
To the extent that realized capital gains can be offset by capital loss
carryforwards, it is each Fund's policy not to distribute such gains.
Capital losses incurred after October 31, within the Fund's fiscal year are
deemed to arise on the first business day of the Fund's following fiscal year.
The Short Intermediate Fund has incurred and will elect to defer post October
losses of $683,000.
2. CAPITAL SHARE TRANSACTIONS
The Funds have an unlimited number of shares of beneficial interest with a par
value of $0.001 authorized. Shares of beneficial interest of the Funds are
currently divided into Class A, Class B, Class C and/or Class Y. Transactions
in shares of the Funds were as follows:
Capital Preservation Fund
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended Year Ended
June 30, 1998 June 30, 1997 September 30, 1996
------------------------ ------------------------ ------------------------
Shares Amount Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold............. 1,684,678 $ 16,480,670 534,956 $ 5,229,171 808,295 $ 7,859,112
Shares issued in
reinvestment of
distributions.......... 62,340 609,698 61,902 604,810 89,475 865,840
Shares redeemed ........ (1,502,907) (14,712,976) (1,318,046) (12,878,080) (563,085) (5,471,951)
- ------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 244,111 $ 2,377,392 (721,188) $ (7,044,099) 334,685 $ 3,253,001
- ------------------------------------------------------------------------------------------------------
CLASS B
Shares sold............. 212,637 $ 2,082,936 182,841 $ 1,788,928 282,004 $ 2,742,007
Shares issued in
reinvestment of
distributions.......... 99,464 974,126 114,536 1,119,992 187,040 1,829,883
Shares redeemed......... (998,736) (9,785,685) (1,459,187) (14,270,487) (2,455,640) (23,865,587)
- ------------------------------------------------------------------------------------------------------
Net decrease............ (686,635) $ (6,728,623) (1,161,810) $(11,361,567) (1,986,596) $(19,293,697)
- ------------------------------------------------------------------------------------------------------
CLASS C
Shares sold............. 89,775 $ 879,537 164,962 $ 1,613,166 215,390 $ 2,090,764
Shares issued in
reinvestment of
distributions.......... 17,696 173,140 13,283 129,806 12,718 127,771
Shares redeemed......... (118,346) (1,158,497) (185,566) (1,815,739) (86,982) (844,271)
- ------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. (10,875) $ (105,820) (7,321) $ (72,767) 141,126 $ 1,374,264
- ------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
[ARTWORK APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
Intermediate Bond Fund
<TABLE>
<CAPTION>
Eleven Months
Year Ended Ended Year Ended
June 30, 1998 June 30, 1997 July 31, 1996
------------------------ --------------------- ---------------------
Shares Amount Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold............. 955,523 $ 8,660,565 175,221 $ 1,566,271 258,497 $ 2,283,194
Shares issued in
acquisition of:
Evergreen Intermediate
Term Bond Fund II...... 349,314 3,173,762 0 0 0 0
Blanchard Short-Term
Flexible Income Fund... 12,856,531 116,766,103 0 0 0 0
Shares issued in
reinvestment of
distributions.......... 263,979 2,392,256 45,592 404,429 52,934 469,775
Shares redeemed......... (1,958,558) (17,753,140) (547,872) (4,863,536) (465,961) (4,141,580)
- --------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 12,466,789 $113,239,546 (327,059) $(2,892,836) (154,530) $(1,388,611)
- --------------------------------------------------------------------------------------------------
CLASS B
Shares sold............. 150,439 $ 1,368,742 170,620 $ 1,528,256 555,555 $ 4,965,806
Shares issued in
acquisition of:
Evergreen Intermediate
Term Bond Fund II...... 129,724 1,180,255 0 0 0 0
Shares issued in
reinvestment of
distributions.......... 36,150 328,759 46,270 411,336 63,537 565,232
Shares redeemed......... (403,520) (3,667,231) (779,593) (6,943,044) (808,199) (7,205,208)
- --------------------------------------------------------------------------------------------------
Net decrease............ (87,207) $ (789,475) (562,703) $(5,003,452) (189,107) $(1,674,170)
- --------------------------------------------------------------------------------------------------
CLASS C
Shares sold............. 243,096 $ 2,208,772 52,022 $ 465,379 318,799 $ 2,871,565
Shares issued in
acquisition of:
Evergreen Intermediate
Term Bond Fund II...... 5,677 51,630 0 0 0 0
Shares issued in
reinvestment of
distributions.......... 30,163 274,457 31,491 279,633 42,997 382,466
Shares redeemed......... (492,378) (4,464,809) (311,128) (2,773,712) (468,122) (4,177,736)
- --------------------------------------------------------------------------------------------------
Net decrease............ (213,442) $ (1,929,950) (227,615) $(2,028,700) (106,326) $ (923,705)
- --------------------------------------------------------------------------------------------------
<CAPTION>
January 26, 1998
(Commencement of
Class Operations)
through June 30, 1998
------------------------
Shares Amount
------------------------
<S> <C> <C>
CLASS Y
Shares sold............. 1,335,378 $ 12,127,995
Shares issued in
acquisition of:
Evergreen Intermediate
Term Bond Fund II...... 6,802,769 61,808,048
Shares issued in
reinvestment of
distributions.......... 44,309 401,520
Shares redeemed......... (1,165,196) (10,576,639)
- ----------------------------------------------------
Net increase............ 7,017,260 $ 63,760,924
- ----------------------------------------------------
</TABLE>
45
<PAGE>
[ARTWORK APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
Intermediate Government Fund
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1998 June 30, 1997
------------------------ ------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold............... 230,309 $ 2,342,853 10,763 $ 107,284
Shares issued in
acquisition of Virtus
U.S. Government
Securities Fund.......... 8,857,360 90,273,998
Shares issued in
reinvestment of
distributions............ 118,050 1,202,780 2,429 24,330
Shares redeemed........... (1,323,352) (13,483,204) (5,953) (59,462)
- ------------------------------------------------------------------------------
Net increase.............. 7,882,367 $ 80,336,427 7,239 $ 72,152
- ------------------------------------------------------------------------------
CLASS B
Shares sold............... 79,762 $ 811,849 49,960 $ 500,124
Shares issued in
reinvestment of
distributions............ 2,377 24,146 1,735 17,379
Shares redeemed........... (53,064) (538,430) (13,674) (136,147)
- ------------------------------------------------------------------------------
Net increase.............. 29,075 $ 297,565 38,021 $ 381,356
- ------------------------------------------------------------------------------
CLASS C
Shares sold............... 10,721 $ 108,822 2,288 $ 22,910
Shares issued in
reinvestment of
distributions............ 496 5,037 85 967
Shares redeemed........... (30) (306) (4,419) (44,414)
- ------------------------------------------------------------------------------
Net increase (decrease)... 11,187 $ 113,553 (2,046) $ (20,537)
- ------------------------------------------------------------------------------
CLASS Y
Shares sold............... 1,570,425 $ 15,931,860 3,476,575 $ 34,857,475
Shares issued in
acquisition of Virtus
U.S. Government
Securities Fund.......... 4,246,474 43,277,468 0 0
Shares issued in
reinvestment
distributions............ 280,814 2,848,130 394,427 3,950,858
Shares redeemed........... (3,469,534) (35,272,132) (5,437,776) (54,410,883)
- ------------------------------------------------------------------------------
Net increase (decrease)... 2,628,179 $ 26,785,326 (1,566,774) $(15,602,550)
- ------------------------------------------------------------------------------
</TABLE>
Short Intermediate Fund
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1998 June 30, 1997
-------------------------- --------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold............. 500,922 $ 4,955,344 584,893 $ 5,786,371
Shares issued in
reinvestment of
distributions.......... 76,079 752,038 93,998 924,863
Shares redeemed......... (674,862) (6,681,274) (775,720) (7,650,833)
- --------------------------------------------------------------------------------
Net decrease............ (97,861) $ (973,892) (96,829) $ (939,599)
- --------------------------------------------------------------------------------
CLASS B
Shares sold............. 1,023,010 $ 10,138,464 520,912 $ 5,138,212
Shares issued in
reinvestment of
distributions.......... 78,547 778,080 87,527 862,791
Shares redeemed......... (1,071,136) (10,623,170) (486,579) (4,795,124)
- --------------------------------------------------------------------------------
Net increase............ 30,421 $ 293,374 121,860 $ 1,205,879
- --------------------------------------------------------------------------------
CLASS C
Shares sold............. 64,686 $ 642,818 35,729 $ 354,646
Shares issued in
reinvestment of
distributions.......... 4,490 44,480 4,508 44,442
Shares redeemed......... (58,395) (579,321) (53,064) (524,077)
- --------------------------------------------------------------------------------
Net increase
(decrease)............. 10,781 $ 107,977 (12,827) $ (124,989)
- --------------------------------------------------------------------------------
CLASS Y
Shares sold............. 12,608,737 $ 124,781,811 11,302,391 $ 111,361,796
Shares issued in
reinvestment of
distributions.......... 1,165,985 11,524,473 1,353,407 13,305,530
Shares redeemed......... (14,971,442) (148,128,279) (12,121,462) (119,339,801)
- --------------------------------------------------------------------------------
Net increase
(decrease)............. (1,196,720) $ (11,821,995) 534,336 $ 5,327,525
- --------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
[ARTWORK APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) were as follows for the year ended June 30, 1998:
<TABLE>
<CAPTION>
Cost of Purchases Proceeds from Sales
---------------------------- ----------------------------
U.S. Government Other U.S. Government Other
--------------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
Capital Preservation
Fund................... $ 34,505,283 $ 7,001,629 $ 45,210,651 $ 0
Intermediate Bond Fund.. 145,906,750 153,387,945 231,420,018 62,975,390
Intermediate Government
Fund................... 47,135,045 0 77,483,980 0
Short Intermediate
Fund................... 141,889,283 118,908,133 137,337,799 133,524,515
</TABLE>
On June 30, 1998, the composition of unrealized appreciation and depreciation
of investment securities based on the aggregate cost of investments for federal
income tax purposes was as follows:
<TABLE>
<CAPTION>
Gross Gross Net Unrealized
Tax Unrealized Unrealized Appreciation
Cost Appreciation Depreciation (Depreciation)
------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
Capital Preservation
Fund................... $ 47,323,866 $ 174,327 $ (112,334) $ 61,993
Intermediate Bond Fund.. 200,470,423 3,969,001 (642,164) 3,326,837
Intermediate Government
Fund................... 176,896,637 3,588,365 (41,690) 3,546,675
Short Intermediate
Fund................... 384,045,808 7,778,598 (5,839,915) 1,938,683
</TABLE>
The Short Intermediate Fund loaned securities during the year ended June 30,
1998 to certain brokers who paid the Fund a negotiated lenders' fee. During the
year ended June 30, 1998, the Fund earned $24,160 in income from securities
lending. There were no securities on loan at June 30, 1998.
During the year ended June 30, 1998, the Capital Preservation and Intermediate
Bond Funds had entered into reverse repurchase agreements as follows:
<TABLE>
<CAPTION>
Average Daily
Balance Weighted Average Maximum Amount
Outstanding Interest Rate Outstanding*
------------- ---------------- --------------
<S> <C> <C> <C>
Capital Preservation
Fund................... $ 440,893 5.746% $ 1,015,161
Intermediate Bond Fund.. 1,160,425 5.325 33,086,957
</TABLE>
-------
* The Maximum Amount Outstanding under reverse repurchase agreements
includes accrued interest.
On June 30, 1998, the Intermediate Bond Fund had reverse repurchase agreements
outstanding in the amount of $3,500,573 (including accrued interest) with in-
terest rates varying from 4.25% to 5.90%.
As of June 30, 1998, the Funds had capital loss carryovers for federal income
tax purposes as follows:
<TABLE>
<CAPTION>
Expiration
--------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 2006
-------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Capital Preservation
Fund................... -- $5,685,000 $ 197,000 $ 642,000 $ 254,000 -- --
Intermediate Bond Fund.. $598,000 2,688,000 9,514,000 118,000 359,000 $1,200,000 --
Intermediate Government
Fund................... -- -- 9,743,000 2,020,000 4,450,000 3,660,000 $ 39,000
Short Intermediate
Fund................... -- -- 6,021,000 -- 4,049,000 4,374,000 1,743,000
</TABLE>
4. DISTRIBUTION PLANS
Evergreen Distributor, Inc. ("EDI"), a wholly-owned subsidiary of The BISYS
Group Inc. ("BISYS"), serves as principal underwriter to the Funds.
Each Fund has adopted Distribution Plans for each class of shares, except Class
Y, as allowed by Rule 12b-1 of the 1940 Act. Distribution plans permit each
Fund to reimburse its principal underwriter for costs related to selling shares
of the Fund and for various other services. These costs, which consist primar-
ily of commissions and services fees to broker-dealers who sell shares of the
Fund, are paid by shareholders through expenses called Distribution Plan ex-
penses. Each class, except Class Y, currently pays a service fee equal to 0.25%
of the average daily net assets of the class. The service fee for Class A
shares of Short Intermediate is currently limited to 0.10% of average daily net
assets. Class B and Class C of each Fund also pay distribution fees equal to
0.75% of the average daily net assets of each respective class. Distribution
Plan expenses are calculated daily and paid monthly.
47
<PAGE>
[ARTWORK APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
During the year ended June 30, 1998, amounts accrued or paid to EDI pursuant to
each Fund's Class A, Class B and Class C Distribution Plans were as follows:
<TABLE>
<CAPTION>
Class A Class B Class C
-------------------------
<S> <C> <C> <C>
Capital Preservation Fund.......... $ 33,973 $290,982 $40,971
Intermediate Bond Fund............. 120,529 109,116 66,780
Intermediate Government Fund....... 71,906 7,899 1,131
Short Intermediate Fund............ 16,363 212,701 10,110
</TABLE>
For the year ended June 30, 1998, EDI waived Class A distribution fees for the
Intermediate Government Fund in the amount of $54,649.
The principal underwriter may pay distribution fees greater than the allowable
annual amounts the Funds are permitted to pay under the Distribution Plans. The
Funds may reimburse the principal underwriter for such excess amounts in later
years with annual interest at the prime rate plus 1.00%. With respect to Class
B and Class C shares of the Capital Preservation Fund and the Intermediate Bond
Fund, EDI intends but is not obligated to continue to pay distribution costs
that exceed the current annual payments from the Funds. EDI intends to seek
full payment of such distribution costs from the Funds at such time in the fu-
ture as, and to the extent that, payment thereof by Class B and C shares would
be within the permitted limits.
Each of the Distribution Plans may be terminated at any time by vote of the In-
dependent Trustees or by vote of a majority of the outstanding voting shares of
the respective class. However, for the Capital Preservation Fund and the Inter-
mediate Bond Fund, after the termination of any Distribution Plan and subject
to the discretion of the Independent Trustees, payments to EDI may continue as
compensation for services which had been provided while the Distribution Plans
were in effect.
5. INVESTMENT MANAGEMENT AGREEMENT AND OTHER AFFILIATED TRANSACTIONS
Keystone is the investment adviser for the Capital Preservation Fund and the
Intermediate Bond Fund and is paid a management fee that is computed daily and
paid monthly. The management fee is computed at an annual rate of 2.00% of each
Fund's gross investment income plus an amount determined by applying percentage
rates, starting at 0.50% and declining to 0.25% per annum as net assets in-
crease, to the average daily net asset value of each Fund.
Capital Management Group ("CMG") of First Union National Bank, a subsidiary of
First Union, serves as the investment adviser to the Intermediate Government
Fund and Short Intermediate Fund and is paid a management fee that is computed
daily and paid monthly. For the Intermediate Government Fund, CMG is entitled
to a fee at an annual rate of 0.60% of the Fund's average daily net assets. For
the Short Intermediate Fund, CMG is entitled to a fee at an annual rate of
0.50% of the Fund's average daily net assets.
For each of the Funds, Evergreen Investment Services, Inc. ("EIS"), a subsidi-
ary of First Union, is the administrator and BISYS serves as the sub-adminis-
trator. As sub-administrator to the Funds, BISYS provides the officers of the
Funds.
The administrator and sub-administrator for the Intermediate Government Fund
and Short Intermediate Fund are entitled to an annual fee based on the average
daily net assets of the funds administered by EIS for which First Union or its
investment advisory subsidiaries are also the investment advisers. The adminis-
tration fee is calculated by applying percentage rates, which start at 0.05%
and decline to 0.01% per annum as net assets increase, to the average daily net
asset value of each Fund. The sub-administration fee is calculated by applying
percentage rates, which start at 0.01% and decline to 0.004% per annum as net
assets increase, to the average daily net assets of each Fund.
As administrator for the Capital Preservation Fund and the Intermediate Bond
Fund, EIS also provides facilities, equipment and personnel on behalf of the
Fund's investment adviser and is reimbursed by the Fund for its services. For
Capital Preservation Fund and Intermediate Bond Fund, the sub-administration
fee is paid by Keystone and is not a fund expense.
48
<PAGE>
[ARTWORK APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
For the Capital Preservation Fund and Intermediate Bond Fund, Keystone has vol-
untarily limited the expenses, excluding indirectly paid expenses, to the fol-
lowing rates based on the average daily net assets of each respective class:
<TABLE>
<CAPTION>
Average Daily Net
Assets
-----------------------
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Capital Preservation Fund............ 0.90% 1.65% 1.65%
Intermediate Bond Fund............... 1.10% 1.85% 1.85%
</TABLE>
For the year ended June 30, 1998, the adviser of the following Funds waived
management fees as follows:
<TABLE>
<S> <C>
Capital Preservation Fund............................. $212,054
Intermediate Bond Fund................................ 285,486
</TABLE>
During the year ended June 30, 1998, the Funds paid or accrued to EIS the fol-
lowing amounts for certain administrative services:
<TABLE>
<S> <C>
Capital Preservation Fund............................. $ 8,656
Intermediate Bond Fund................................ 17,249
Intermediate Government Fund.......................... 27,255
Short Intermediate Fund............................... 100,665
</TABLE>
Evergreen Service Company ("ESC"), a wholly-owned subsidiary of Keystone,
serves as the transfer and dividend disbursing agent for the Funds. For certain
accounts, First Union has been sub-contracted to maintain shareholder sub-ac-
count records, take fund purchase and redemption orders and answer inquiries.
For each account of the Intermediate Bond Fund, Intermediate Government Fund
and Short Intermediate Fund, First Union earned a fee which in aggregate to-
taled $16,870, $939, and $115,410, respectively for the year ended June 30,
1998.
Officers of the Funds and affiliated Trustees receive no compensation directly
from the Funds.
6. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an expense offset arrangement with their custodian.
The assets deposited with the custodian under this expense offset arrangement
could have been invested in income-producing assets.
7. DEFERRED TRUSTEES' FEES
Each Independent Trustee of the Funds may defer any or all compensation related
to performance of duties as a Trustee. Each Trustees' deferred balances are al-
located to deferral accounts which are included in the accrued expenses for the
Fund. The investment performance of the deferral accounts are based on the in-
vestment performance of certain Evergreen Funds. Any gains earned or losses in-
curred in the deferral accounts are reported in each Fund's Trustees' fees and
expenses. Trustees will be paid either in one lump sum or in quarterly install-
ments for up to ten years at their election, not earlier than either the year
in which the Trustee ceases to be a member of the Board of Trustees or January
1, 2000.
8. ACQUISITIONS
The Intermediate Bond Fund was organized for the purpose of combining the as-
sets of the Keystone Intermediate Term Bond Fund and Evergreen Intermediate
Term Bond Fund II (formerly, the Evergreen Intermediate-Term Bond Fund).
On January 21, 1998, prior to the combination of assets into Intermediate Bond
Fund, Evergreen Intermediate Term Bond Fund II transferred substantially all of
its net assets attributable to its Class Y shares to Evergreen Select Core Bond
Fund, an institutional fund, through a redemption-in-kind in the amount of ap-
proximately $108,000,000.
Effective on the close of business on January 23, 1998, Intermediate Bond Fund
acquired all the remaining assets and assumed certain liabilities of Evergreen
Intermediate Term Bond Fund II in exchange for Class A,
49
<PAGE>
[ARTWORK APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
Class B, Class C and Class Y shares of the Intermediate Bond Fund. Also, the
Intermediate Bond Fund acquired all the assets and assumed certain liabilities
of Keystone Intermediate Term Bond Fund in exchange for Class A, Class B and
Class C shares of Intermediate Bond Fund.
Effective on the close of business on February 28, 1998, Intermediate Bond Fund
acquired all of the assets and assumed certain liabilities of Blanchard Short-
Term Flexible Income Fund in an exchange for Class A shares of Intermediate
Bond Fund. Also, the Intermediate Government Fund acquired all of the assets
and assumed certain liabilities of Virtus U.S. Government Securities Fund in an
exchange for Class A shares of Intermediate Government Fund.
All of the above acquisitions were accomplished by a tax-free exchange of the
respective shares of each respective fund. The value of assets acquired, number
of shares issued, unrealized appreciation acquired and the aggregate net assets
of each Fund immediately after the acquisition are as follows:
<TABLE>
<CAPTION>
Number of Net
Assets
Acquiring Acquired Value of Net Shares Unrealized
After
Fund Fund Assets Acquired Issued Appreciation
Acquisition
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Intermediate Bond Fund.. Evergreen Intermediate Term Bond Fund II $ 66,213,695 7,287,484 $ 616,992 $
93,235,040
Intermediate Bond Fund.. Blanchard Short-Term Flexible Income Fund 116,766,103 12,856,531 2,511,574
211,601,433
Intermediate Government
Fund................... Virtus U.S. Government Securities Fund 133,551,466 13,103,834 1,895,706
201,883,701
</TABLE>
9. FINANCING AGREEMENT
On October 31, 1996, a financing agreement between all of the Evergreen Funds,
State Street Bank & Trust ("State Street") and a group of banks (collectively,
the "Banks") became effective. Under this agreement, the Banks provided an
unsecured credit facility in the aggregate amount of $225 million ($112.5 mil-
lion committed and $112.5 million uncommitted) allocated evenly between the
Banks. Borrowings under this facility bore interest at 0.75% per annum above
the Federal Funds rate. A commitment fee of 0.10% per annum was incurred on the
unused portion of the committed facility, which was allocated to all partici-
pating funds. State Street served as administrative agent for the Banks, and as
agent was entitled to a fee of $15,000 which is allocated to all of the Ever-
green Funds. This agreement was terminated on October 31, 1997.
On October 31, 1997, a temporary financing agreement between all of the Ever-
green Funds and First Union became effective. Under this agreement, First Union
provided a fully committed unsecured credit facility in the aggregate amount of
$300 million. Borrowings under this facility bore interest at 1.00% per annum
above the Federal Funds rate. State Street served as administrative agent under
this agreement, but received no compensation for its services.
On December 22, 1997, a financing agreement among all of the Evergreen Funds,
State Street and a group of Banks became effective. Under this agreement, the
Banks provide an unsecured credit facility in the aggregate amount of $400 mil-
lion ($275 million committed and $125 million uncommitted). The credit facility
is allocated evenly among the Banks, except that $15 million of the committed
facility is being provided to the Funds by State Street under a swing line fa-
cility. The credit facility is to be accessed by the Funds for temporary or
emergency purposes only and is subject to each Fund's borrowing restrictions.
Borrowings under this facility bear interest at 0.50% per annum above the Fed-
eral Funds rate. A commitment fee of 0.065% per annum will be incurred on the
unused portion of the committed facility, which will be allocated to all par-
ticipating funds. For its assistance in arranging this financing agreement, the
Capital Market Group of First Union was paid a one time arrangement fee of
$27,500. State Street serves as administrative agent for the Banks, and as ad-
ministrative agent is entitled to a fee of $20,000 per annum which is allocated
to all of the Funds.
During the year ended June 30, 1998, the Funds had no borrowings under these
agreements.
50
<PAGE>
[ARTWORK APPEARS HERE]
INDEPENDENT AUDITOR'S REPORT
Trustees and Shareholders
Evergreen Fixed Income Trust
We have audited the accompanying statements of assets and liabilities, includ-
ing the schedules of investments, of Evergreen Capital Preservation and Income
Fund, Evergreen Intermediate Term Bond Fund, Evergreen Intermediate Term Gov-
ernment Securities Fund and Evergreen Short Intermediate Bond Fund (the
"Funds") of Evergreen Fixed Income Trust (the "Trust") as of June 30, 1998, and
the related statements of operations for the year then ended, and the state-
ments of changes in net assets, and financial highlights for each of the years
or periods presented below:
Evergreen Capital Preservation and Income Fund--statements of changes in
net assets for the year ended June 30, 1998, the nine months ended June 30,
1997 and the year ended September 30, 1996, and financial highlights for
the years or periods presented on pages 16 through 18.
Evergreen Intermediate Term Bond Fund--statements of changes in net assets
for the year ended June 30, 1998, the eleven months ended June 30, 1997 and
the year ended July 31, 1996, and financial highlights for the years or pe-
riods presented on pages 19 through 21.
Evergreen Intermediate Term Government Securities Fund--statements of
changes in net assets for each of the years in the two year period ended
June 30, 1998, and financial highlights for the years or periods presented
on pages 22 through 23, except for the periods ended prior to June 30,
1996. The financial highlights for the periods ended prior to June 30, 1996
were audited by other auditors whose report dated October 6, 1995 expressed
an unqualified opinion therein.
Evergreen Short Intermediate Bond Fund--statements of changes in net assets
for each of the years in the two year period ended June 30, 1998, and fi-
nancial highlights for the years or periods presented on pages 24 through
26.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of June 30, 1998 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall fi-
nancial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Ever-
green Capital Preservation and Income Fund, Evergreen Intermediate Term Bond
Fund, Evergreen Intermediate Term Government Securities Fund and Evergreen
Short Intermediate Bond Fund, funds of Evergreen Fixed Income Trust, as of June
30, 1998, the results of their operations, changes in their net assets and fi-
nancial highlights for each of the years or periods specified in the first par-
agraph above, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
July 31, 1998
51
<PAGE>
[ARTWORK APPEARS HERE]
ADDITIONAL INFORMATION (UNAUDITED)
On December 15, 1997, a special meeting of shareholders for the Capital Preser-
vation Fund, Intermediate Government Fund and Short Intermediate Fund was held
to consider a number of proposals with the following number of shares repre-
sented at the meeting. On October 16, 1997, the record date for the meeting,
the Funds had the following shares outstanding:
<TABLE>
<CAPTION>
Short
Capital Intermediate Intermediate
Preservation Fund Government Fund Fund
----------------------------------------------
<S> <C> <C> <C>
Record Date Shares Outstanding.. 4,899,426 7,216,931 39,427,061
Shares represented at meeting... 2,791,778 3,863,879 36,315,562
Percentage of record date shares
represented at meeting......... 56.98% 53.54% 92.11%
PROPOSAL 1 - THE PROPOSED
REORGANIZATION OF THE FUND
AS A SERIES OF THE
EVERGREEN FIXED INCOME
TRUST, A DELAWARE BUSINESS
TRUST:
Shares voted "For"......... 2,531,048 3,819,294 31,241,583
Shares voted "Against"..... 50,245 38,882 114,679
Shares voted "Abstain"..... 210,485 5,703 4,959,300
PROPOSAL 2 -
RECLASSIFICATION AS NON-
FUNDAMENTAL INVESTMENT
OBJECTIVE OF THIS FUND
WHOSE INVESTMENT OBJECTIVE
IS CURRENTLY CLASSIFIED AS
FUNDAMENTAL:
Shares voted "For"......... 2,443,185 3,818,694 31,213,583
Shares voted "Against"..... 91,604 38,882 121,618
Shares voted "Abstain"..... 256,989 6,303 4,980,361
PROPOSAL 3 - CHANGES TO
FUNDAMENTAL INVESTMENT
RESTRICTIONS:
To amend the Fundamental
restriction concerning
diversification of
investments:
Shares voted "For"......... 2,435,995 3,822,428 30,953,772
Shares voted "Against"..... 103,440 38,882 363,495
Shares voted "Abstain"..... 252,343 2,569 4,998,295
To amend the Fundamental
restriction concerning
concentration of a Fund's
assets in a particular
industry:
Shares voted "For"......... 2,437,255 3,822,428 30,953,772
Shares voted "Against"..... 102,180 38,882 363,495
Shares voted "Abstain"..... 252,343 2,569 4,998,295
To amend the Fundamental
restriction concerning the
issuance of senior
securities:
Shares voted "For"......... 2,438,791 3,822,428 30,953,772
Shares voted "Against"..... 101,399 38,882 363,495
Shares voted "Abstain"..... 251,588 2,569 4,998,295
To amend the Fundamental
restriction concerning
borrowing:
Shares voted "For"......... 2,437,013 3,822,428 30,953,772
Shares voted "Against"..... 103,177 38,882 363,495
Shares voted "Abstain"..... 251,588 2,569 4,998,295
To amend the Fundamental
restriction concerning
underwriting:
Shares voted "For"......... 2,438,249 3,822,428 30,953,772
Shares voted "Against"..... 101,186 38,882 363,495
Shares voted "Abstain"..... 252,343 2,569 4,998,295
To amend the Fundamental
restriction concerning
investments in real
estate:
Shares voted "For"......... 2,438,249 3,822,428 30,953,772
Shares voted "Against"..... 101,941 38,882 363,495
Shares voted "Abstain"..... 251,588 2,569 4,998,295
To amend the Fundamental
restriction concerning
commodities:
Shares voted "For"......... 2,437,255 3,822,428 30,953,772
Shares voted "Against"..... 102,935 38,882 363,495
Shares voted "Abstain"..... 251,588 2,569 4,998,295
To amend the Fundamental
restriction concerning
lending:
Shares voted "For"......... 2,438,249 3,822,428 30,953,772
Shares voted "Against"..... 101,941 38,882 363,495
Shares voted "Abstain"..... 251,588 2,569 4,998,295
</TABLE>
52
<PAGE>
[ARTWORK APPEARS HERE]
ADDITIONAL INFORMATION (UNAUDITED) (continued)
<TABLE>
<CAPTION>
Short
Capital Intermediate Intermediate
Preservation Fund Government Fund Fund
----------------------------------------------
<S> <C> <C> <C>
To amend the Fundamental
restriction concerning
unseasoned issuers:
Shares voted "For"......... 2,439,004 N/A N/A
Shares voted "Against"..... 101,186 N/A N/A
Shares voted "Abstain"..... 251,588 N/A N/A
To amend the Fundamental
restriction concerning
control or management:
Shares voted "For"......... N/A 3,822,428 30,953,772
Shares voted "Against"..... N/A 38,882 363,495
Shares voted "Abstain"..... N/A 2,569 4,998,295
To amend the Fundamental
restriction concerning
short sales:
Shares voted "For"......... 2,439,004 3,822,428 3,238,335
Shares voted "Against"..... 101,186 38,882 255,636
Shares voted "Abstain"..... 251,588 2,569 182,401
To amend the Fundamental
restriction concerning
other investment
companies:
Shares voted "For"......... 2,439,004 3,822,428 N/A
Shares voted "Against"..... 101,186 38,882 N/A
Shares voted "Abstain"..... 251,588 2,569 N/A
To amend the Fundamental
restriction concerning
other investment
companies:
Shares voted "For"......... 2,439,004 3,822,428 N/A
Shares voted "Against"..... 101,186 38,882 N/A
Shares voted "Abstain"..... 251,588 2,569 N/A
</TABLE>
53
<PAGE>
Evergreen Funds
Money Market
Treasury Money Market Fund
Money Market Fund
Municipal Money Market Fund
Pennsylvania Municipal Money Market Fund
Tax Exempt
Short Intermediate Municipal Fund
High Grade Tax Free Fund
Tax Free Fund
California Tax Free Fund
Connecticut Municipal Bond Fund
Florida Municipal Bond Fund
Florida High Income Municipal Bond Fund
Georgia Municipal Bond Fund
Maryland Municipal Bond Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New Jersey Tax Free Income Fund
New York Tax Free Fund
North Carolina Municipal Bond Fund
Pennsylvania Tax Free Fund
South Carolina Municipal Bond Fund
Virginia Municipal Bond Fund
Income
Capital Preservation and Income Fund
Short Intermediate Bond Fund
Intermediate Term Government Securities Fund
Intermediate Term Bond Fund
U.S. Government Fund
Diversified Bond Fund
Strategic Income Fund
High Yield Bond Fund
Balanced
American Retirement Fund
Balanced Fund
Tax Strategic Foundation Fund
Foundation Fund
Growth & Income
Utility Fund
Income and Growth Fund
Fund for Total Return
Value Fund
Blue Chip Fund
Growth and Income Fund
Small Cap Equity Income Fund
Domestic Growth
Strategic Growth Fund
Stock Selector Fund
Evergreen Fund
Omega Fund
Small Company Growth Fund
Aggressive Growth Fund
Micro Cap Fund
Global International
Global Leaders Fund
International Growth Fund
International Equity Fund
Global Opportunities Fund
Natural Resources Fund
Precious Metals Fund
Emerging Markets Growth Fund
Latin America Fund
Express Line
800.346.3858
Investor Services
800.343.2898
Retirement Plan Services
800.247.4075
www.evergreenfunds.com
59119
543693 RVO 8/98
-------------
BULK RATE
U.S. POSTAGE
PAID
PERMIT NO. 19
HUDSON, MA
-------------
[LOGO OF EVERGREEN FUNDS APPEARS HERE]
200 Berkeley Street
Boston, MA 02116
<PAGE>
Semiannual
Report
as of December 31, 1998
Evergreen
Short and Intermediate Term Bond Funds
[LOGO OF EVERGREEN FUNDS APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Letter to Shareholders.................................................. 1
For Your Information.................................................... 2
Evergreen Capital Preservation and
Income Fund
Fund at a Glance...................................................... 3
Portfolio Manager Interview........................................... 4
Evergreen Intermediate Term
Bond Fund
Fund at a Glance...................................................... 6
Portfolio Manager Interview........................................... 7
Evergreen Intermediate Term
Government Securities Fund
Fund at a Glance...................................................... 10
Portfolio Manager Interview........................................... 11
Evergreen Short Intermediate Bond Fund
Fund at a Glance...................................................... 13
Portfolio Manager Interview........................................... 14
Financial Highlights
Evergreen Capital Preservation and
Income Fund........................................................... 16
Evergreen Intermediate Term Bond Fund................................. 19
Evergreen Intermediate Term Government Securities Fund................ 23
Evergreen Short Intermediate Bond Fund................................ 25
Schedule of Investments
Evergreen Capital Preservation and
Income Fund........................................................... 27
Evergreen Intermediate Term Bond Fund................................. 29
Evergreen Intermediate Term Government Securities Fund................ 34
Evergreen Short Intermediate Bond Fund................................ 35
Statements of Assets and Liabilities.................................... 38
Statements of Operations................................................ 39
Statements of Changes in Net Assets..................................... 40
Combined Notes to Financial
Statements.............................................................. 42
- --------------------------------------------------------------------------------
Evergreen Funds
- --------------------------------------------------------------------------------
Evergreen Funds is one of the nation's fastest growing investment companies with
over $50 billion in assets under management.
With over 70 mutual funds to choose among and acclaimed service and operations
capabilities, investors enjoy a broad range of quality investment products and
services designed to meet their needs.
The Evergreen Funds employ intensive, research-driven investment strategies
executed by over 90 research analysts and portfolio managers. The fund company
remains dedicated to meeting the needs of investors and their advisors in a
global economy. Look to the Evergreen Funds to provide a distinctive level of
service and excellence in investment management.
- --------------------------------------------------------------------------------
This semiannual report must be preceded or accompanied by a prospectus of an
Evergreen fund contained herein. The prospectus contains more complete
information, including fees and expenses, and should be read carefully before
investing or sending money.
--------------------------------------------------------------
Mutual Funds: ARE NOT FDIC INSURED May lose value . Are not bank guaranteed
--------------------------------------------------------------
Evergreen Distributor, Inc.
Evergreen(SM) is a Service Mark of Evergreen Investment Services, Inc.
<PAGE>
Letter to Shareholders
----------------------
February 1999
[PICTURE OF
WILLIAM M. ENNIS
MANAGING DIRECTOR
APPEARS HERE]
Dear Shareholders:
We are pleased to provide you the Evergreen Short and Intermediate Term Bond
Funds semiannual report covering the six months ended December 31, 1998.
Increased Market Volatility in 1998
During the year, interest rates declined while inflation remained low and
investors became concerned about a possible slowdown in economic growth.
Despite the volatility which started in July, the market ended on a positive
note, as indicated by the Dow Jones Industrial Average posting a 16.1% gain and
the S&P 500 returning 28.7% for the 12 months ended December 31, 1998. The
financial markets have certainly experienced increased volatility this year
compared to the smoother ride of the past few years, and we anticipate the
volatility will continue. We encourage you to take this opportunity to talk to
your financial representative and review your investment time horizon to ensure
you are on track with your goals.
Introduction of the Euro
On January 1, 1999, eleven European countries adopted the euro as their
currency. Currently, the wholesale markets and government and financial sectors
have converted to the euro, and new securities will be issued in euro
denomination only. Full conversion to the new currency will not be completed
until 2002.
At this point it is still unclear how the euro conversion will affect foreign
exchange rates, interest rates and the value of European securities, but we
believe the potential benefits to globally oriented investors are significant.
They include changes in currency risk, increased competition, and a central
bank. Foreign exchange risk may decrease for the countries participating in the
European Union; however, currency risk associated with rises and declines of the
value of the euro versus the dollar will still exist. Most noticeable for
investors will be the ability to compare the value of companies across the
European Union member countries without having to factor in the effect of
fluctuating currencies. Increased competition resulting from deregulation and
economic unification may produce a wave of merger and acquisition activity,
which could present attractive investment opportunities for those able to
identify the companies most inclined to benefit from restructuring. Finally, the
European Central Bank, comparable to the U.S. Federal Reserve, will provide
European Union countries with a unified monetary policy for the first time.
If you have any questions about the funds in this report or any other Evergreen
Funds, please contact your financial representative or call us at 800.343.2898,
and we will be happy to assist you.
Thank you for your continued investment with Evergreen Funds.
Sincerely,
/s/ William M. Ennis
William M. Ennis
Managing Director
Evergreen Funds
1
<PAGE>
For Your Information
--------------------
New Evergreen Funds
Evergreen introduces three new funds:
Evergreen Tax Strategic Equity Fund: seeks to maximize the after-tax total
return on its portfolio of investments by using a combination of stock selection
strategies and trading techniques.
Evergreen Select Equity Index Fund: seeks investment results that achieve price
and yield performance similar to the S&P 500 Index.
Evergreen Masters Fund: blends growth and value, large- and mid-cap stocks into
one convenient portfolio. Diversification is taken one step further by
employing four management teams, Evergreen, MFS, Oppenheimer and Putnam.
Talk to your financial representative or call us at 800-343-2898 for a
prospectus and more information.
Good News!
Effective for the 1998 Tax Year, long-term capital gains taxes are reduced to
20%.
Year 2000/1/
We have been addressing the Year 2000 issue since February 1996 and have adopted
an industry best practices methodology for the project. Our team is on schedule
to complete the following milestones: Inventory and Assessment, Remediation,
Testing and Contingency. Although Evergreen Funds is striving to identify and
correct every issue under our control related to the Year 2000, it would be
impossible to guarantee a problem-free transition into the next millennium. Our
goal, however, is that our shareholders experience virtually no impact on the
products and services we deliver.
/1/ The information above constitutes Year 2000 readiness disclosure.
2
<PAGE>
- --------------------------------------------------------------------------------
Evergreen
Capital Preservation and Income Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of December 31, 1998
It was a favorable period for the government bond market, although not as
favorable for adjustable rate mortgage securities (ARMs).
Portfolio
Management
- ----------
[PICTURE OF
GARY E. PZEGEO
APPEARS HERE]
Gary E. Pzegeo
Tenure: April 1997
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[ARTWORK
APPEARS
HERE]
Morningstar's Style Box is based on a portfolio date as of 12/31/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
/1/Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses paid by the
shareholders investing in each class. Historical performance for Classes A and
C prior to inception reflects that of Class B, the original class offered, the
inception date of which is 7/1/91, and includes appropriate 12b-1 fees for Class
B.If appropriate fees were reflected, returns for Class A would have been
higher. The investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than original cost.
The 6-Month Treasury Bill is an unmanaged market index and does not include
transaction costs associated with buying and selling securities nor any
management fees. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
Average Annual Returns
- --------------------------------------------------------------------------------
6 months with sales charge -1.25% -3.26% 0.61%
- --------------------------------------------------------------------------------
6 months w/o sales charge 2.10% 1.70% 1.60%
- --------------------------------------------------------------------------------
1 year with sales charge 0.95% -1.36% 2.58%
- --------------------------------------------------------------------------------
1 year w/o sales charge 4.36% 3.57% 3.57%
- --------------------------------------------------------------------------------
3 years 4.57% 4.06% 4.97%
- --------------------------------------------------------------------------------
5 years 4.40% 4.16% 4.52%
- --------------------------------------------------------------------------------
Since Inception 4.36% 4.43% 4.42%
- --------------------------------------------------------------------------------
Maximum Sales Charge 3.25% 5.00% 1.00%
Front End CDSC CDSC
- --------------------------------------------------------------------------------
30-day SEC Yield 5.24% 4.42% 4.42%
- --------------------------------------------------------------------------------
6-month distributions per share $ 0.27 $ 0.23 $0.23
- --------------------------------------------------------------------------------
*Adjusted for maximum applicable sales charge.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE)
Cap Pres and Income SBr 6-Mth Treas Bill Consumer Price Index-US
07/91 10000 10000 10000
12/91 10428 10283 10140
12/92 10665 10693 10431
12/93 11111 11041 10721
12/94 11124 11522 11007
12/95 11968 12211 11279
12/96 12651 12869 11662
12/97 13368 13568 11860
12/98 13843 14284 12074
Comparison of a $10,000 investment in Evergreen Capital Preservation and Income
Fund Class B, versus a similar investment in a 6-Month Treasury Bill and the
Consumer Price Index (CPI).
3
<PAGE>
- --------------------------------------------------------------------------------
Evergreen
Capital Preservation and Income Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Evergreen Capital Preservation and Income Fund perform?
The Fund did relatively well in a difficult environment for adjustable rate
mortgage securities. For the six-month period ended on December 31, 1998, the
Fund's Class A shares had a total return of 2.10%, and Class B and Class C
shares had returns of 1.70% and 1.60%, respectively, unadjusted for applicable
sales charges. During the same six-month period, the average adjustable rate
mortgage fund had a return of 1.78%, as measured by Lipper Inc., an independent
monitor of mutual fund performance, and the Lehman Brothers Six-Month Treasury
Index had a return of 1.94%.
Portfolio
Characteristics
---------------
Total Net Assets $43,290,813
...................................................
Average Credit Quality AAA
...................................................
Average Maturity 4.3 years
...................................................
Average Duration 0.9 years
What was the investment environment like during the six months?
It was a favorable period for the government bond market, although not as
favorable for adjustable rate mortgage securities (ARMs). In general, this was
a period of rising prices and declining interest rates, especially for U.S.
Treasury securities and particularly among those with shorter maturities. To
illustrate, during the six months, the yield on the 30-year Treasury bond
declined from 5.63% to 5.09%. During the same time, the yield on the two-year
Treasury note declined from 5.48% to 4.53% and the yield of the 1-year Treasury
bill declined from 5.37% to 4.52%.
A global "flight-to-quality" sparked a rally among Treasury bonds, but this
rally did not extend to other parts of the bond market such as ARMs. Globally,
we witnessed a slowing of economic growth that had its start with the beginning
of the Asian financial crisis in August 1997. This crisis had caused the
devaluation of a number of Asian currencies and a general weakness in commodity
prices, which especially hurt commodity-producing, emerging economies. The
resulting problems peaked in late September and early October of 1998 as the
impact of the Russian government's default on part of its debt rippled through
the financial markets. A number of leveraged investors--who use borrowed money
with which to invest in bonds--had particularly severe problems. These included
hedge funds and Wall Street firms. Their problems accelerated an increase in
yield spreads between Treasury bonds and other bonds because these institutions
were forced to sell non-government bonds as the spreads widened. Only
Treasuries, the highest quality securities, rallied. Even though a U.S.
government agency mortgage-backed security is near the opposite end of the risk
spectrum from an emerging market bond, the market for ARMs was hurt in two
primary ways:
1. The reductions in interest rates increased investor fears about pre-payments
of home mortgages, undercutting the prices of ARMs.
2. Bond market traders, strapped for liquidity, were less likely to put capital
in any type of bond other than Treasuries.
The Federal Reserve stepped in to restore liquidity and confidence in the market
by cutting short-term interest rates three successive times during the fall.
After this easing of monetary policy, the value of ARMs recovered in the latter
part of 1998 as buyers returned to the mortgage-backed market.
4
<PAGE>
- --------------------------------------------------------------------------------
Evergreen
Capital Preservation and Income Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
What were your principal strategies?
In this environment, homeowners continued to pre-pay their adjustable rate
mortgages and take advantage of the low rates offered by fixed-rate mortgages.
While this was negative for ARMs in general, it also created the situation in
which the yields offered investors by ARMs became increasingly attractive
relative to other short-term securities. In addition, interest rates may have
declined to the point at which there is less incentive for homeowners to
refinance because their adjustable rate mortgages have reset to low rates. We
also believed that the actions of the Federal Reserve had restored stability to
the bond market, which ultimately would benefit ARMs.
Prior to June 30, we had increased our allocation of fixed-rate securities to
29% of net assets to dampen the impact of mortgage prepayments on the Fund.
During this six-month period, however, as the bond market began to stabilize we
started shifting assets back into the adjustable rate mortgage market to take
advantage of their relative value.
Asset Allocation
(as a percentage of net assets)
June 30, 1998 December 31, 1998
ARMs 69% 72%
Fixed-rate 29% 25%
Cash 2% 3%
Within the adjustable-rate allocation, we added to our emphasis in hybrid ARMs,
which decrease the prepayment risk by guaranteeing a fixed interest rate for a
specified period of time. The allocation increased from 7% to 10% of net
assets.
The Fund continued to have an average credit quality of AAA, because it invests
only in U.S. government or government agency securities or AAA-rated asset-
backed and mortgage securities.
What is your outlook?
We believe interest rates are likely to be stable and remain low. Continuing
international problems should encourage the Federal Reserve to keep rates down,
especially in light of very low inflation. In addition, other domestic factors
should keep rates from rising. Inflation remains low, and corporate profit
growth may start to slow, which would weaken capital spending and job growth.
These factors should serve as a brake on consumer confidence, which has been the
engine driving domestic economic growth. U.S. exports to other markets,
especially Latin America, also are likely to slow.
This is an environment in which short-term investments, such as adjustable rate
mortgage securities, should do very well. In addition, the relatively higher
yields of ARMs offer them a competitive advantage when compared to other short-
term government securities. With this outlook, we believe the Fund is very well
positioned for solid, competitive performance.
5
<PAGE>
- --------------------------------------------------------------------------------
Evergreen
Intermediate Term Bond Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of December 31, 1998
The Fund's traditional emphasis on corporate, investment grade securities held
back performance relative to the Lehman Brothers index during the six months,
when Treasury bonds were the best performers.
Portfolio
Management
- ----------
[PICTURE OF
CHRISTOPHER P. CONKEY
APPEARS HERE)
Christopher P. Conkey, CFA
Tenure: January 1988
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[ARTWORK
APPEARS
HERE]
Morningstar's Style Box is based on a portfolio date as of 12/31/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
/1/Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses paid by the
shareholders investing in each class. Historical performance for Classes B and
C prior to inception reflects that of Class A, the original class offered, the
inception date of which is 4/14/87, and includes appropriate 12b-1 fees for
Class A. If appropriate 12b-1 fees for Classes B and C were reflected, returns
for these classes would have been lower. Class Y performance includes the
historical performance of Class A, adjusted for 12b-1 fees. The investment
return and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than original cost. The LBIGCBI is an
unmanaged index and does not include transaction costs associated with buying
and selling securities nor any management fees. The CPI is a commonly used
measure of inflation and does not represent an investment return. It is not
possible to invest directly in an index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C Class Y
- --------------------------------------------------------------------------------
Average Annual Returns
- --------------------------------------------------------------------------------
6 months with sales charge 0.04% -1.83% 2.06% n/a
- --------------------------------------------------------------------------------
6 months w/o sales charge 3.45% 3.17% 3.06% 3.58%
- --------------------------------------------------------------------------------
1 year with sales charge 3.29% 1.01% 5.00% n/a
- --------------------------------------------------------------------------------
1 year w/o sales charge 6.80% 6.00% 6.00% 7.04%
- --------------------------------------------------------------------------------
3 years 5.53% 5.06% 5.92% 6.97%
- --------------------------------------------------------------------------------
5 years 5.42% 5.01% 5.31% 6.38%
- --------------------------------------------------------------------------------
10 years 7.31% 7.20% 7.19% 8.04%
- --------------------------------------------------------------------------------
Since Inception 6.46% 6.36% 6.35% 7.20%
- --------------------------------------------------------------------------------
Maximum Sales Charge 3.25% 5.00% 1.00% n/a
Front End CDSC CDSC
- --------------------------------------------------------------------------------
30-day SEC Yield 5.29% 4.54% 4.54% 5.55%
- --------------------------------------------------------------------------------
6-month distributions per share $0.27 $ 0.24 $0.23 $0.28
- --------------------------------------------------------------------------------
* Adjusted for maximum applicable sales charge.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE)
Lehman Brothers
Int Term bond Consumer Price Index - US Interm Govt/Corp
12/88 10000 10000 10000
12/89 10603 10465 11277
12/90 11228 11104 12309
12/91 13111 11444 14109
12/92 14177 11772 15121
12/93 15495 12100 16450
12/94 14994 12423 16132
12/95 17162 12730 18606
12/96 18009 13162 19360
12/97 19535 13386 20882
12/98 20860 13627 22642
Comparison of a $10,000 investment in Evergreen Intermediate Term Bond Fund
Class A, versus a similar investment in the Lehman Brothers Intermediate
Government/Corporate Bond Index (LBIGCBI) and the Consumer Price Index (CPI).
6
<PAGE>
- --------------------------------------------------------------------------------
Evergreen
Intermediate Term Bond Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform during the six-month period ended on December 31, 1998?
The Fund performed well, especially for a portfolio that focuses on corporate
bonds. For the six-month period ended on December 31, 1998, the Fund's Class A
shares had a total return of 3.45%. During the same period, the Fund's Class B
and C shares had total returns of 3.17% and 3.06%, respectively, while the Class
Y shares had a return of 3.58%. These returns are unadjusted for any applicable
sales charge. During the same six-month period, the average intermediate term
investment grade bond Fund had a return of 3.55%, according to Lipper, Inc., an
independent monitor of mutual fund performance. The Lehman Brothers
Intermediate Government/Corporate Index had a return of 4.8% during the period.
Portfolio
Characteristics
---------------
Total Net Assets $196,412,460
...................................................
Average Credit Quality A+
...................................................
Average Maturity 6.3 years
...................................................
Average Duration 4.0 years
...................................................
The Fund's traditional emphasis on corporate, investment grade securities held
back performance relative to the Lehman Brothers index during the six months,
when Treasury bonds were the best performers. The Fund's income continued to be
very attractive, and the yield was in the top-quartile among funds in the Lipper
category.
What was the investment environment like during the six months?
The U.S. economy continued to grow at a healthy pace, spurred by strong consumer
spending. The United States was, however, in Federal Reserve Chairman Alan
Greenspan's words, "an island of prosperity" amidst global economic uncertainty.
Western European economies continued to grow moderately, but problems in Russia
and Latin America and the continued recession in Asia contributed to an
environment of slowing global growth. The financial markets were less affected
by the overall economic environment than they were by specific financial events.
In August, the Russian government effectively defaulted on its external debt,
triggering a sharp decline in the prices of financial assets globally. This was
because a number of large investors, such as hedge funds, had been using
leverage--or borrowed money--to speculate in higher yielding, lower-rated
securities, including Russian bonds. Because they were using leverage, they
were hard-hit by any adverse change in prices. They were forced to start
unwinding their positions by selling securities, further contributing to a
general decline in prices. The crisis also called into question the ability of
many debt issuers to repay their debt, adding to the downward pressure on
prices.
The risk that banks and other financial institutions would be less able to lend
money grew, resulting in a credit crunch. In the U.S., the Federal Reserve
recognized this danger and reduced short-term interest rates three times in the
fall, easing the flow of money and reducing the costs of borrowing in this
country. These interest rate cuts encouraged monetary authorities in other
nations to take similar actions.
While the Federal Reserve's actions have restored some confidence in the
financial markets, problems remain. It is clear that global economic expansion
is slowing, creating a difficult environment for corporations to compete
internationally. In the financial markets, investors have flocked to the
lowest-risk assets in a "flight to quality." U.S. Treasury bonds, the highest
quality
7
<PAGE>
- --------------------------------------------------------------------------------
Evergreen
Intermediate Term Bond Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
securities, benefited the most. In the six months from June 30 through December
31, for example, the yields of five-year Treasuries declined from 5.47% to 4.54%
and prices rose. Despite the rise in Treasury bond prices, the prices of non-
government-guaranteed securities did not perform nearly as well. Yields of
investment grade corporate bonds and mortgage-backed securities tended to be
stable because of uncertainty over the economic outlook and the forced selling
of leveraged investors. Several trends affected investment performance:
. Longer-average-maturity portfolios tended to outperform shorter-maturities.
. Higher-credit-quality portfolios tended to outperform lower-credit-quality
investments.
. Bonds that offered investors call protection, and could not be called back
by their issuers prematurely, out-performed bonds without call protection.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(based on 12/31/98 net assets)
[PIE CHART APPEARS HERE]
Corporate Notes/Bonds -- 58.0%
Foreign Bonds -- 13.5%
U.S. Treasury/Agency -- 11.2%
CMO & Mortgage-Backed Securities -- 8.7%
Repurchase Agreements, other Assets and Liabilities (net) -- 4.8%
Asset-Backed Securities -- 3.8%
Within this environment, what strategies did you pursue?
We started the six-month period with a relatively long average maturity of seven
years. As interest rates came down, we shortened the average maturity to 6.3
years.
We also maintained the Fund's average credit quality at A+, but changed the
composition somewhat as we reduced the Fund's weighting in high-yield bonds from
21% of net assets to 18%. Corporate industrial bonds were increased from 51% to
58% of net assets. Among corporate bonds, including both investment grade and
high yield, we focused on defensive bonds in non-cyclical industries, including
finance, consumer goods and cable television. We emphasized the bonds of
companies whose business orientations were predominately domestic. We de-
emphasized dominant companies facing international competition or in cyclical
industries, including energy and commodity goods. The 18% high yield allocation
was exclusively invested in the better-quality part of the market, using BB- and
B-rated bonds in defensive, non-cyclical industries.
- --------------------------------------------------------------------------------
CREDIT QUALITY ALLOCATION
- --------------------------------------------------------------------------------
(based on 12/31/98 portfolio assets)
[PIE CHART APPEARS HERE]
U.S. Government/AAA -- 29%
A -- 20%
BBB -- 17%
AA -- 16%
BB -- 12%
B -- 6%
8
<PAGE>
- --------------------------------------------------------------------------------
Evergreen
Intermediate Term Bond Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
To increase the Fund's call protection and protect income, we decreased the
emphasis on mortgage-backed bonds and callable corporate bonds. We also reduced
the Fund's weighting in Danish mortgage-backed securities from 8.5% to 3.6% of
the portfolio. Among foreign investments, in general, we reduced the Fund's
currency exposure by cutting investments in non-U.S.-dollar-denominated
securities from 12% to 6%.
What is your outlook for the bond market?
We are very positive about economic growth in the United States, although we
expect it to proceed at a slower pace in 1999 than it did in 1998. The American
consumer has been spending at a rate higher than the historical average, and we
anticipate a return to more normal spending patterns. In addition, we expect
that corporations will reduce their capital spending in the face of slowing
growth and a continued decline in U.S. exports to other nations. The inflation
outlook remains positive. While we don't anticipate any further material
declines from today's already low inflation rates, neither do we anticipate any
material increases.
With slowing growth and low inflation, we expect the Federal Reserve may lower
short-term rates further. Long-term interest rates should be stable early in
the year, although they could decline further later in 1999, although not as
fast as short-term rates.
We like the current prices of corporate bonds and expect to continue to
emphasize them. The difference between the yields of corporate bonds and of
Treasury bonds is very high. In effect, corporate bonds are priced as if the
U.S. economy already was in a recession. In fact, the U.S. economy is
experiencing solid growth. We do not expect a recession any time soon. This
means that corporate bonds are cheap--they offer good investment value--with
high yields relative to their credit risk. We expect to overweight corporate
bonds, particularly BBB- and A-rated bonds, which offer good value.
Within the mortgage-backed bond sector, we expect to emphasize commercial
mortgage-backed securities because they tend to offer greater call protection
than residential mortgages and because the supply/demand relationship in the
commercial real estate market is favorable.
The investment environment should be favorable, especially for intermediate-term
corporate bonds. We expect to maintain a portfolio that provides an attractive
income stream with a relatively stable net asset value.
Note to Shareholders: Christopher Conkey, who has managed the Intermediate Term
Bond Fund since January 1988, has been named President and Chief Investment
Officer of Evergreen Investment Management Company. On January 1, 1999, David
J. Bowers, CFA, became Portfolio Manager of the Fund. Mr. Bowers holds a
Bachelor's Degree in Business Administration from Northeastern University and a
Master's Degree in Finance from Boston College. He has been serving as a fixed
income analyst, specializing in investment grade bonds, at Evergreen Investment
Management Company. He is a member of the Association for Investment Management
and Research and of the Boston Security Analysts Society.
9
<PAGE>
- --------------------------------------------------------------------------------
Evergreen
Intermediate Term Government Securities Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of December 31, 1998
In fact, our duration strategy benefited performance during the entire year as
interest rates declined steadily throughout much of the past
twelve months.
Portfolio
Management
- ----------
[PHOTO OF
L. ROBERT CHESHIRE
APPEARS HERE]
L. Robert Cheshire
Tenure: January 1994
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[ARTWORK
APPEARS
HERE]
Morningstar's Style Box is based on a portfolio date as of 12/31/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
/1/Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses paid by the
shareholders investing in each class. Historical performance for Classes A, B
and C prior to inception reflects that of Class Y, the original class offered,
the inception date of which is 11/1/91, and does not include 12b-1 fees. If such
fees were reflected, returns would have been lower. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. The LBIGBI is an unmanaged index and
does not include transaction costs associated with buying and selling securities
or any management fees. The CPI is a commonly used measure of inflation and does
not represent an investment return. It is not possible to invest directly in an
index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C Class Y
- --------------------------------------------------------------------------------
Average Annual Returns
- --------------------------------------------------------------------------------
6 months with sales charge 0.47% -1.67% 2.33% n/a
- --------------------------------------------------------------------------------
6 months w/o sales charge 3.82% 3.33% 3.33% 3.85%
- --------------------------------------------------------------------------------
1 year with sales charge 3.49% 0.96% 4.97% n/a
- --------------------------------------------------------------------------------
1 year w/o sales charge 6.95% 5.96% 5.97% 7.03%
- --------------------------------------------------------------------------------
3 years 4.38% 3.65% 4.66% 5.62%
- --------------------------------------------------------------------------------
5 years 4.69% 4.80% 4.85% 5.43%
- --------------------------------------------------------------------------------
Since Inception 5.69% 5.79% 5.82% 6.22%
- --------------------------------------------------------------------------------
Maximum Sales Charge 3.25% 5.00% 1.00% n/a
Front End CDSC CDSC
- --------------------------------------------------------------------------------
30-day SEC Yield 4.74% 3.81% 3.81% 4.81%
- --------------------------------------------------------------------------------
6-month distributions per share $0.28 $ 0.23 $0.23 $0.28
- --------------------------------------------------------------------------------
* Adjusted for maximum applicable sales charge.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Int Gov't Consumer Price Index - US Lehman Brothers Interm Govt
04/95 10000 10000 10000
12/95 10750 10098 10858
12/96 11074 10441 11300
12/97 11821 10619 12171
12/98 12643 10810 13205
Comparison of a $10,000 investment in Evergreen Intermediate Term Government
Securities Fund Class A, versus a similar investment in the Lehman Brothers
Intermediate Government Bond Index (LBIGBI) and the Consumer Price Index (CPI).
10
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Intermediate Term Government Securities Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform during the past six months?
The Evergreen Intermediate Term Government Securities Fund Class Y posted a six-
month total return of 3.85%. Class A shares returned 3.82%, while B and C
shares returned 3.33%, unadjusted for applicable sales charge. This performance
outpaced the 3.72% average return of short intermediate U.S. government funds
tracked by Lipper, Inc. an independent monitor of mutual fund performance. For
the 12 months ended December 31, 1998, the Fund's Class Y shares ranked 31 out
of 99, and Class A shares ranked 36 out of 99 funds in its Lipper peer group./1/
Portfolio
Characteristics
---------------
Total Net Assets $169,114,982
...................................................
Average Credit Quality AAA
...................................................
Effective Maturity 4.3 years
...................................................
Average Duration 3.1 years
...................................................
What type of economic environment did investors experience?
During the past six months, fixed income investors witnessed benign inflation
and lower-trending interest rates that served to boost domestic bond prices. The
yield on the bellwether 30-year Treasury Bond started the period at 5.63%, and
fell as low as 4.70% before rebounding to 5.09% by December 31, 1998. Amid the
global economic crisis, the Federal Reserve Board lowered interest rates three
times in the final four months of 1998 in an effort to insulate the U.S. economy
from overseas turmoil.
- --------------------------------------------------------------------------------
PORTFOLIO MATURITY
- --------------------------------------------------------------------------------
(based on 12/31/98 portfolio assets)
[PIE CHART APPEARS HERE]
1-5 Years -- 32.2%
5-10 Years -- 31.0%
10-20 Years -- 15.1%
20-30 Years -- 14.0%
0-1 Year -- 7.7%
How did your duration and sector strategy impact performance?
Strong performance versus the Fund's peer group can be attributed primarily to a
long duration stance. The portfolio's duration, currently at 3.1 years,
fluctuated between 100% and 105% of the benchmark for most of the six months.
In fact, our duration strategy benefited performance during the entire year as
interest rates declined steadily throughout much of the past twelve months.
From a sector standpoint, we maintained a strong mortgage weighting in an effort
to bolster the portfolio's income component. Although mortgages underperformed
U.S. Treasuries during the period, we feel this sector's inherent income-
orientation will benefit the Fund going forward. From a historical perspective,
mortgages serve to increase yield as well as enhance total return and, despite
recent underperformance, we will likely maintain this overweighting.
/1/Source: Lipper, Inc. an independent monitor of mutual fund performance. The
rankings are based on total return and do not include the effect of a sales
charge. For the 5-year period ending December 31, 1998, the Fund's Class Y
shares ranked 29 out of 51 short-intermediate U.S. government funds tracked by
Lipper, Inc. Past performance is no guarantee of future results.
11
<PAGE>
- --------------------------------------------------------------------------------
Evergreen
Intermediate Term Government Securities Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(based on 12/31/98 net assets)
[PIE CHART APPEARS HERE]
....U.S. Treasury Obligations -- 43.3%
....Mortgage Backed Securities -- 40.2%
....U.S. Agency Obligations -- 15.1%
...Repurchase agreements, other assets & liabilities (net) -- 1.4%
What is your outlook going forward?
Going forward, we are wary that the global economic crisis could continue to
filter back to the U.S. financial markets in the form of volatility. Although
we don't anticipate a recession in the United States, we do expect an economic
slowdown that will prompt the Federal Reserve Board to reduce interest rates at
some point over the next six months. The portfolio's duration will likely
remain modestly long in anticipation of yields trading within a certain range or
slightly lower in the coming quarters. Our strategy to emphasize mortgages will
bolster the Fund's yield component and provide a degree of price stability in
the event of market volatility.
12
<PAGE>
- --------------------------------------------------------------------------------
Evergreen
Short Intermediate Bond Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of December 31, 1998
Strong performance relative to the Fund's peer group can be attributed to our
duration strategy.
Portfolio
Management
- ----------
[PICTURE OF
THOMAS L. ELLIS
APPEARS HERE]
Thomas L. Ellis
Tenure: January 1989
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[ARTWORK
APPEARS
HERE]
Morningstar's Style Box is based on a portfolio date as of 12/31/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
/1/Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses paid by the
shareholders investing in each class. Historical performance for Classes B, C
and Y prior to inception reflects that of Class A, the original class offered,
the inception date of which is 1/28/89, and includes appropriate 12b-1 fees for
Class A. If appropriate fees for Class B and C were reflected, returns for
these classes would have been lower. For Class Y, if 12b-1 fees were not
reflected, returns would have been higher. The investment return and principal
value will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than original cost. The LBIGCBI is an unmanaged index and does not
include transaction costs associated with buying and selling securities nor any
management fees. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C Class Y
- --------------------------------------------------------------------------------
Average Annual Returns
- --------------------------------------------------------------------------------
6 months with sales charge 0.72% -1.40% 2.60% n/a
- --------------------------------------------------------------------------------
6 months w/o sales charge 4.08% 3.60% 3.60% 4.13%
- --------------------------------------------------------------------------------
1 year with sales charge 4.12% 1.63% 5.62% n/a
- --------------------------------------------------------------------------------
1 year w/o sales charge 7.60% 6.63% 6.62% 7.71%
- --------------------------------------------------------------------------------
3 years 4.71% 3.98% 4.88% 5.96%
- --------------------------------------------------------------------------------
5 years 4.97% 4.44% 4.88% 5.77%
- --------------------------------------------------------------------------------
Since Inception 7.19% 7.03% 7.15% 7.68%
- --------------------------------------------------------------------------------
Maximum Sales Charge 3.25% 5.00% 1.00% n/a
Front End CDSC CDSC
- --------------------------------------------------------------------------------
30-day SEC Yield 5.27% 4.37% 4.37% 5.37%
- --------------------------------------------------------------------------------
6-month distributions per share $0.29 $ 0.24 $0.24 $0.29
- --------------------------------------------------------------------------------
* Adjusted for maximum applicable sales charge.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Short Int Consumer Price Index - US Lehman Brothers Interm Govt/Corp
01/93 10000 10000 10000
12/93 10622 10224 10671
12/94 10348 10498 10465
12/95 11794 10757 12070
12/96 12263 11122 12559
12/97 13003 11311 13546
12/98 13988 11515 14688
Comparison of a $10,000 investment in Evergreen Short Intermediate Bond Fund
Class A, versus a similar investment in the Lehman Brothers Intermediate
Government/Corporate Bond Index (LBIGCBI) and the Consumer Price Index (CPI).
13
<PAGE>
- --------------------------------------------------------------------------------
Evergreen
Short Intermediate Bond Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform during the fiscal period?
The Evergreen Short Intermediate Term Bond Fund's Class Y shares' six-month
return of 4.13% modestly trailed the 4.80% total return of its benchmark, the
Lehman Brothers Intermediate Government/Corporate Index. Class A shares
returned 4.08% for the period, while Class B and C shares returned 3.60%,
unadjusted for sales charges.
For the 12 months ended December 31, 1998, the Fund's Class Y shares ranked 11,
and Class A shares ranked 15, out of 95 short intermediate investment grade
funds as measured by Lipper Inc., an independent monitor of mutual funds./1/ It
is also worth noting, that the Fund's Class A and Y shares outperformed their
peer group average for the three- and five-year periods.
Portfolio
Characteristics
---------------
Total Net Assets $401,671,611
...................................................
Average Credit Quality Aa2
...................................................
Effective Maturity 4.8 years
...................................................
Average Duration 3.8 years
...................................................
What was the market environment like during the past six months?
During the past six months, fixed income investors witnessed a continuation of
market themes from the first half of 1998: low inflation, a global economic
crisis and lower-trending interest rates. The U.S. economy's fundamental health
served to boost bond prices and allowed fixed income investments to post
positive total returns.
In fact, the yield on the bellwether 30-year Treasury Bond declined from 5.63%
to 4.98% during the first three months before inching up to 5.09% by December
31. In an effort to insulate the U.S. economy from global economic turmoil, the
Federal Reserve Board lowered the Fed Funds rate three times during the final
four months of 1998.
- --------------------------------------------------------------------------------
PORTFOLIO MATURITY
- --------------------------------------------------------------------------------
(based on 12/31/98 portfolio assets)
[PIE CHART APPEARS HERE]
1-5 Years -- 61%
5-10 Years -- 24%
0-1 Year -- 15%
How did your investment strategy impact performance?
Strong performance relative to the Fund's peer group can be attributed to our
duration strategy, which stayed at 105% to 110% of the benchmark for most of the
six months. Our forecast for continued declining interest rates, which proved
accurate, prompted us to maintain this long-duration strategy. As of December
31, duration stood at 3.8 years.
From a sector standpoint, the Fund was hampered by poor performances within the
corporate and mortgage sectors, particularly during the first three months of
the fiscal period. We felt these two areas represented strong values, however,
and increased the portfolio's weighting--from 41% to 52%--during the last three
months. As these two sectors rebounded in the past couple of months, our
increased weighting benefited performance and prompted us to significantly
outperform the average of our peer group during the past three months.
/1/Source: Lipper, Inc. an independent monitor of mutual fund performance. The
rankings are based on total return and do not include the effect of a sales
charge. For the 5-year period ending December 31, 1998, the Fund's Class A
shares ranked 23 out of 46 short-intermediate investment grade funds tracked by
Lipper, Inc; Class Y shares ranked 18 out of the 46 funds for the same period.
Past performance is no guarantee of future results.
14
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Short Intermediate Bond Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Furthermore, the corporate bonds that we did purchase typically had maturity
dates of five years or less, due to our belief that the shorter end of the yield
curve represents the greatest relative value.
- --------------------------------------------------------------------------------
PORTFOLIO QUALITY
- --------------------------------------------------------------------------------
(based on 12/31/98 portfolio assets)
[PIE CHART APPEARS HERE]
Government/Agency -- 42.7%
A -- 25.0%
Aaa -- 20.7%
Baa -- 5.0%
Aa -- 4.0%
Ba -- 2.6%
What is your outlook going into 1999?
Going forward, current fundamentals suggest U.S. economic growth will slow
markedly in the next couple of quarters. We feel the Federal Reserve Board will
keep interest rates steady in the near term, but may need to lower the rates by
mid-1999 should the economy slow too much. Amid this backdrop, we anticipate
yields to trade within a certain range in the near term, eventually settling at
the lower end of their current range.
Consequently, duration will be kept relatively long in order to take advantage
of potentially lower rates. Purchases during the next few months will focus on
the shorter end of the yield curve, securities with maturity dates in two to
four years. From a sector standpoint, we will likely continue increasing our
corporate and mortgage positions, because we anticipate an extended rebound in
these areas.
15
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Capital Preservation and Income Fund
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six
Months Year Ended
ended
September 30,
December 31, 1998 Year Ended Period Ended
- ----------------------
(Unaudited) June 30, 1998 June 30, 1997(b)
1996 1995 (a)
CLASS A SHARES
<S> <C> <C> <C>
<C> <C>
Net asset value, beginning of period $ 9.73 $ 9.80 $ 9.74 $
9.68 $ 9.51
======= ======= =======
======= =======
....................................................................................................................................
Income from investment operations
....................................................................................................................................
Net investment income 0.28 0.57 0.46
0.61+++ 0.46
....................................................................................................................................
Net realized and unrealized gains or losses on
securities (0.08) (0.07) 0.03
0.01 0.14
------- ------- -------
- ------- -------
...................................................................................................................................
Total from investment operations 0.20 0.50 0.49
0.62 0.60
------- ------- -------
- ------- -------
....................................................................................................................................
Less distributions
....................................................................................................................................
From net investment income (0.27) (0.57) (0.43)
(0.53) (0.43)
....................................................................................................................................
Returns of capital 0 0 0
(0.03) 0
------- ------- -------
- ------- -------
....................................................................................................................................
Total distributions (0.27) (0.57) (0.43)
(0.56) (0.43)
------- ------- -------
- ------- -------
....................................................................................................................................
Net asset value, end of period $ 9.66 $ 9.73 $ 9.80 $
9.74 $ 9.68
======= ======= =======
======= =======
....................................................................................................................................
Total return+ 2.10% 5.24% 5.12%
6.56% 6.36%
....................................................................................................................................
Ratios/supplemental data
....................................................................................................................................
Net assets, end of period (thousands) $15,024 $18,022 $15,751
$22,684 $19,293
...................................................................................................................................
Ratios to average net assets
....................................................................................................................................
Expenses 0.88%++ 0.87% 0.92%++
0.91% 0.86%+
....................................................................................................................................
Expenses, after fee credits 0.88%++ 0.87% 0.90%++
0.90% 0.82%+
....................................................................................................................................
Expenses, excluding fee waivers and expense
reimbursements 1.25%++ 1.29% 1.47%++
1.33% 1.27%+
....................................................................................................................................
Net investment income 5.51%++ 5.77% 6.24%++
6.31% 6.37%+
...................................................................................................................................
Portfolio turnover rate 19% 88% 52%
74% 67%
....................................................................................................................................
</TABLE>
+ Excluding applicable sales charges.
++ Annualized.
+++ Calculation based on average shares outstanding.
(a) For the period from December 30, 1994 (commencement of class operations) to
September 30, 1995.
(b) For the nine months ended June 30, 1997. The Fund changed its fiscal year
end from September 30 to June 30, effective June 30, 1997.
See Combined Notes to Financial Statements.
16
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Capital Preservation and Income Fund
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
September 30,
December 31, 1998 Year Ended Period Ended
- --------------------------------------
(Unaudited) June 30, 1998 June 30, 1997(a) 1996
1995 1994 1993
CLASS B SHARES
<S> <C> <C> <C> <C>
<C> <C> <C>
Net asset value, beginning of period $ 9.74 $ 9.81 $ 9.75 $ 9.68 $
9.62 $ 9.91 $ 9.88
======= ======= ======= =======
======= ====== ========
....................................................................................................................................
Income from investment operations
....................................................................................................................................
Net investment income 0.23 0.49 0.39 0.55+++
0.52 0.47 0.45
....................................................................................................................................
Net realized and unrealized gains or losses
on securities (0.07) (0.07) 0.04 0.01
0.03 (0.41) (0.05)
------- ------- ------- -------
- ------- ------ --------
....................................................................................................................................
Total from investment operations 0.16 0.42 0.43 0.56
0.55 0.06 0.40
------- ------- ------- -------
- ------- ------ --------
....................................................................................................................................
Less distributions
....................................................................................................................................
From net investment income (0.23) (0.49) (0.37) (0.46)
(0.49) (0.35) (0.37)
....................................................................................................................................
Returns of capital 0 0 0 (0.03)
0 0 0
------- ------- ------- ------- -------
- ------- --------
....................................................................................................................................
Total distributions (0.23) (0.49) (0.37) (0.49)
(0.49) (0.35) (0.37)
....................................................................................................................................
Net asset value, end of period $ 9.67 $ 9.74 $ 9.81 $ 9.75 $ 9.68
$ 9.62 $ 9.91
======= ======= ======= ======= =======
======= ========
....................................................................................................................................
Total return+ 1.70% 4.42% 4.53% 5.90%
5.81% 0.58% 4.16%
....................................................................................................................................
Ratios/supplemental data
....................................................................................................................................
Net assets, end of period (thousands) $24,210 $26,056 $32,694 $44,096 $62,998
$95,761 $144,725
....................................................................................................................................
Ratios to average net assets
....................................................................................................................................
Expenses 1.65%++ 1.65% 1.67%++ 1.63%
1.53% 1.50% 1.50%
....................................................................................................................................
Expenses, after fee credits 1.65%++ 1.65% 1.65%++ 1.62%
1.50% -- --
...................................................................................................................................
Expenses, excluding fee waivers and expense
reimbursements 2.01%++ 2.10% 2.23%++ 2.09%
2.09% 1.93% 1.94%
....................................................................................................................................
Net investment income 4.73%++ 5.07% 5.52%++ 5.63%
5.46% 4.05% 4.44%
....................................................................................................................................
Portfolio turnover rate 19% 88% 52% 74%
67% 34% 60%
....................................................................................................................................
</TABLE>
+ Excluding applicable sales charges.
++ Annualized.
+++ Calculation based on average shares outstanding.
(a) For the nine months ended June 30, 1997. The Fund changed its fiscal year
end from September 30 to June 30, effective June 30, 1997.
See Combined Notes to Financial Statements.
17
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Capital Preservation and Income Fund
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
September 30,
December 31, 1998 Year Ended Period Ended
- --------------------------------------
(Unaudited) June 30, 1998 June 30, 1997(b) 1996 1995
1994 1993(a)
CLASS C SHARES
<S> <C> <C> <C> <C> <C>
<C> <C>
Net asset value, beginning of period $ 9.74 $ 9.80 $ 9.74 $ 9.67 $ 9.60 $
9.90 $ 9.82
------ ------ ------ ------ ------
- ------ ------
....................................................................................................................................
Income from investment operations
....................................................................................................................................
Net investment income 0.23 0.49 0.40 0.54+++ 0.52
0.40 0.23
....................................................................................................................................
Net realized and unrealized gains or losses
on securities (0.08) (0.06) 0.03 0.02 0.04
(0.35) 0.09
------ ------ ------ ------ ------
- ------ ------
........................................................................................................................
..........
Total from investment operations 0.15 0.43 0.43 0.56 0.56
0.05 0.32
------ ------ ------ ------ ------
- ------ ------
....................................................................................................................................
Less distributions
....................................................................................................................................
From net investment income (0.23) (0.49) (0.37) (0.46) (0.49)
(0.35) (0.24)
....................................................................................................................................
Returns of capital 0 0 0 (0.03)
0 0 0
------ ------ ------ ------ ------
- ------ ------
.........................................................................................................................
..........
Total distributions (0.23) (0.49) (0.37) (0.49) (0.49)
(0.35) (0.24)
------ ------ ------ ------ ------
- ------ ------
....................................................................................................................................
Net asset value, end of period $ 9.66 $ 9.74 $ 9.80 $ 9.74 $ 9.67 $
9.60 $ 9.90
------ ------ ------ ------ ------
- ------ ------
....................................................................................................................................
Total return+ 1.60% 4.53% 4.53% 5.91% 5.93%
0.48% 3.28%
....................................................................................................................................
Ratios/supplemental data
....................................................................................................................................
Net assets, end of period (thousands) $4,057 $3,972 $4,105 $4,152 $2,755
$2,874 $2,077
...................................................................................................................................
Ratios to average net assets
....................................................................................................................................
Expenses 1.65%++ 1.65% 1.67%++ 1.64% 1.53%
1.50% 1.50%++
....................................................................................................................................
Expenses, after fee credits 1.65%++ 1.65% 1.65%++ 1.62%
1.50% -- --
....................................................................................................................................
Expenses, excluding fee waivers and
expense reimbursements 2.01%++ 2.09% 2.23%++ 2.09% 2.08%
1.94% 1.67%++
....................................................................................................................................
Net investment income 4.73%++ 5.05% 5.53%++ 5.60% 5.51%
4.08% 2.91%++
...................................................................................................................................
Portfolio turnover rate 19% 88% 52% 74%
67% 34% 60%
....................................................................................................................................
</TABLE>
+ Excluding applicable sales charges.
++ Annualized.
+++ Calculation based on average shares outstanding.
(a) For the period from February 1, 1993 (commencement of class operations) to
September 30, 1993.
(b) For the nine months ended June 30, 1997. The Fund changed its fiscal year
end from September 30 to June 30, effective June 30, 1997.
See Combined Notes to Financial Statements.
18
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Intermediate Term Bond Fund
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
July 31,
December 31, 1998 Year Ended Period Ended
- ------------------------------------
(Unaudited) June 30, 1998 June 30, 1997(a) 1996 1995
1994 1993
CLASS A SHARES
<S> <C> <C> <C> <C> <C>
<C> <C>
Net asset value, beginning of period $ 9.08 $ 8.93 $ 8.73 $ 8.88 $ 8.84
$ 9.46 $ 9.23
======== ======== ======= ======= =======
======= =======
....................................................................................................................................
Income from investment operations
....................................................................................................................................
Net investment income 0.27 0.57+++ 0.54 0.59
0.63 0.57+++ 0.70
....................................................................................................................................
Net realized and unrealized gains or
losses on securities and foreign
currency related transactions 0.04 0.20 0.18 (0.16) 0.02
(0.59) 0.18
-------- -------- ------- ------- -------
- ------- -------
....................................................................................................................................
Total from investment operations 0.31 0.77 0.72 0.43 0.65
(0.02) 0.88
-------- -------- ------- ------- -------
- ------- -------
....................................................................................................................................
Less distributions
....................................................................................................................................
From net investment income (0.27) (0.62) (0.52) (0.58) (0.61)
(0.59) (0.65)
....................................................................................................................................
Returns of capital 0 0 0 0 0
(0.01) 0
-------- -------- ------- ------- -------
- ------- -------
....................................................................................................................................
Total distributions (0.27) (0.62) (0.52) (0.58) (0.61)
(0.60) (0.65)
-------- -------- ------- ------- -------
- ------- -------
....................................................................................................................................
Net asset value, end of period $ 9.12 $ 9.08 $ 8.93 $ 8.73 $ 8.88
$ 8.84 $ 9.46
======== ======== ======= ======= =======
======= =======
....................................................................................................................................
Total return+ 3.45% 8.82% 8.40% 4.95% 7.76%
(0.29%) 9.88%
....................................................................................................................................
Ratios/supplemental data
...................................................................................................................................
Net assets, end of period
(thousands) $119,548 $123,723 $10,341 $12,958 $14,558
$16,036 $18,032
....................................................................................................................................
Ratios to average net assets
....................................................................................................................................
Expenses 1.07%++ 1.11% 1.12%++ 1.10%
1.00% 1.00% 1.52%
....................................................................................................................................
Expenses, after fee credits 1.07%++ 1.10% 1.10%++ 1.08%
- -- -- --
....................................................................................................................................
Expenses, excluding fee waivers and
expense reimbursements 1.23%++ 1.44% 1.58%++ 1.54%
1.48% 1.80% 1.99%
...................................................................................................................................
Net investment income 5.84%++ 6.00% 6.43%++ 6.57%
7.13% 6.81% 7.48%
....................................................................................................................................
Portfolio turnover rate 74% 331% 179% 231%
149% 280% 160%
...................................................................................................................................
</TABLE>
+ Excluding applicable sales charges.
++ Annualized.
+++ Calculation based on average shares outstanding.
(a) For the eleven months ended June 30, 1997. The Fund changed its fiscal year
end from July 31 to June 30, effective June 30, 1997.
See Combined Notes to Financial Statements.
19
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Intermediate Term Bond Fund
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
July 31,
December 31, 1998 Year Ended Period Ended
- -----------------------------------------
(Unaudited) June 30, 1998 June 30, 1997(b) 1996 1995
1994 1993(a)
CLASS B SHARES
<S> <C> <C> <C> <C> <C>
<C> <C>
Net asset value, beginning of period $ 9.09 $ 8.95 $ 8.74 $ 8.89 $ 8.85
$ 9.47 $ 9.35
======= ======= ======= ======= =======
======= ======
....................................................................................................................................
Income from investment operations
....................................................................................................................................
Net investment income 0.23 0.48+++ 0.47 0.52
0.56 0.49+++ 0.29
...................................................................................................................................
Net realized and unrealized gains or
losses on securities and foreign
currency related transactions 0.06 0.21 0.20 (0.16) 0.02
(0.58) 0.12
------- ------- ------- ------- -------
- ------- -------
....................................................................................................................................
Total from investment operations 0.29 0.69 0.67 0.36 0.58
(0.09) 0.41
------- ------- ------- ------- -------
- ------- -------
....................................................................................................................................
Less distributions
....................................................................................................................................
From net investment income (0.24) (0.55) (0.46) (0.51) (0.54)
(0.52) (0.29)
....................................................................................................................................
Returns of capital 0 0 0 0 0
(0.01) 0
------- ------- ------- ------- -------
- ------- -------
....................................................................................................................................
Total distributions (0.24) (0.55) (0.46) (0.51) (0.54)
(0.53) (0.29)
------- ------- ------- ------- -------
- ------- -------
....................................................................................................................................
Net asset value, end of period $ 9.14 $ 9.09 $ 8.95 $ 8.74 $ 8.89
$ 8.85 $ 9.47
======= ======= ======= ======= =======
======= =======
....................................................................................................................................
Total return+ 3.17% 7.89% 7.81% 4.10% 6.87%
(1.05%) 4.42%
....................................................................................................................................
Ratios/supplemental data
...................................................................................................................................
Net assets, end of period (thousands) $11,788 $10,763 $11,368 $16,034 $17,985
$17,819 $8,159
....................................................................................................................................
Ratios to average net assets
....................................................................................................................................
Expenses 1.82%++ 1.86% 1.87%++ 1.85%
1.75% 1.75% 1.76%++
....................................................................................................................................
Expenses, after fee credits 1.82%++ 1.85% 1.85%++ 1.83%
- -- -- --
...................................................................................................................................
Expenses, excluding fee waivers and
expense reimbursements 1.98%++ 2.22% 2.35%++ 2.32%
2.21% 2.36% 2.71%++
...................................................................................................................................
Net investment income 5.09%++ 5.28% 5.68%++ 5.82%
6.38% 5.48% 5.67%++
....................................................................................................................................
Portfolio turnover rate 74% 331% 179% 231%
149% 280% 160%
....................................................................................................................................
</TABLE>
+ Excluding applicable sales charges.
++ Annualized.
+++ Calculation based on average shares outstanding.
(a) For the period from February 1, 1993 (date of initial public offering) to
July 31, 1993.
(b) For the eleven months ended June 30, 1997. The Fund changed its fiscal year
end from July 31 to June 30, effective June 30, 1997.
See Combined Notes to Financial Statements.
20
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Intermediate Term Bond Fund
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended Year
Ended July 31,
December 31, 1998 Year Ended Period Ended
- ------------------------------------
(Unaudited) June 30, 1998 June 30, 1997(a) 1996 1995
1994 1993(a)
CLASS C SHARES
<S> <C> <C> <C> <C> <C>
<C> <C>
Net asset value, beginning of period $ 9.09 $ 8.94 $ 8.74 $ 8.89 $ 8.85
$ 9.46 $ 9.35
====== ====== ====== ====== =======
======= =======
....................................................................................................................................
Income from investment operations
....................................................................................................................................
Net investment income 0.23 0.49+++ 0.46 0.52
0.55 0.49+++ 0.29
....................................................................................................................................
Net realized and unrealized gains or losses
on securities and foreign currency
related transactions 0.05 0.21 0.20 (0.16) 0.03
(0.57) 0.11
------ ------ ------ ------ -------
- ------- -------
....................................................................................................................................
Total from investment operations 0.28 0.70 0.66 0.36 0.58
(0.08) 0.40
------ ------ ------ ------ -------
- ------- -------
...................................................................................................................................
Less distributions
....................................................................................................................................
From net investment income (0.23) (0.55) (0.46) (0.51) (0.54)
(0.52) (0.29)
....................................................................................................................................
Returns of capital 0 0 0 0 0
(0.01) 0
------ ------ ------ ------ -------
- ------- -------
...................................................................................................................................
Total distributions (0.23) (0.55) (0.46) (0.51) (0.54)
(0.53) (0.29)
------ ------ ------ ------ -------
- ------- -------
....................................................................................................................................
Net asset value, end of period $ 9.14 $ 9.09 $ 8.94 $ 8.74 $ 8.89
$ 8.85 $ 9.46
====== ====== ====== ====== =======
======= =======
....................................................................................................................................
Total return+ 3.06% 8.01% 7.70% 4.10% 6.87%
(0.95%) 4.31%
....................................................................................................................................
Ratios/supplemental data
....................................................................................................................................
Net assets, end of period (thousands) $5,386 $5,439 $7,259 $9,084 $10,185
$13,086 $ 7,522
....................................................................................................................................
Ratios to average net assets
....................................................................................................................................
Expenses 1.82%++ 1.86% 1.87%++ 1.85%
1.75% 1.75% 1.77%++
....................................................................................................................................
Expenses, after fee credits 1.82%++ 1.85% 1.85%++ 1.83%
- -- -- --
....................................................................................................................................
Expenses, excluding fee waivers and
expense reimbursements 1.98%++ 2.21% 2.35%++ 2.31%
2.23% 2.37% 2.61%++
....................................................................................................................................
Net investment income 5.09%++ 5.26% 5.68%++ 5.82%
6.37% 5.44% 5.61%++
....................................................................................................................................
Portfolio turnover rate 74% 331% 179% 231%
149% 280% 160%
....................................................................................................................................
</TABLE>
+ Excluding applicable sales charges.
++ Annualized.
+++ Calculation based on average shares outstanding.
(a) For the period from February 1, 1993 (date of initial public offering) to
July 31, 1993.
(b) For the eleven months ended June 30, 1997. The Fund changed its fiscal year
end from July 31 to June 30, effective June 30, 1997.
See Combined Notes to Financial Statements.
21
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Intermediate Term Bond Fund
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended
December 31,
1998 Period Ended
(Unaudited) June 30, 1998 (a)
CLASS Y SHARES
<S>
<C> <C>
Net asset value, beginning of period $
9.08 $ 9.09
======= =======
..................................................................................................................................
Income from investment operations
...................................................................................................................................
Net investment income
0.28 0.24++
..................................................................................................................................
Net realized and unrealized gains or losses on securities and foreign currency related transactions
0.04 (0.01)
- ------- -------
...................................................................................................................................
Total from investment operations
0.32 0.23
- ------- -------
...................................................................................................................................
Less distributions from net investment income
(0.28) (0.24)
- ------- -------
...................................................................................................................................
Net asset value, end of period $
9.12 $ 9.08
======= =======
...................................................................................................................................
Total return
3.58% 2.58%
...................................................................................................................................
Ratios/supplemental data
...................................................................................................................................
Net assets, end of period (thousands)
$59,691 $63,721
..................................................................................................................................
Ratios to average net assets
...................................................................................................................................
Expenses
0.82%+ 0.86%+
..................................................................................................................................
Expenses, after fee credits
0.82%+ 0.85%+
...................................................................................................................................
Expenses, excluding fee waivers and expense reimbursements
0.98%+ 1.10%+
...................................................................................................................................
Net investment income
6.09%+ 6.23%+
...................................................................................................................................
Portfolio turnover rate
74% 331%
...................................................................................................................................
</TABLE>
+ Annualized.
++ Calculation based on average shares outstanding.
(a) For the period from January 26, 1998 (commencement of class operations) to
June 30, 1998.
See Combined Notes to Financial Statements.
22
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Intermediate Term Government Securities Fund
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended June 30,
December 31, 1998 ------------------------- Period Ended
(Unaudited) 1998 1997 1996 (b) August 31, 1995 (a)
CLASS A SHARES
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 10.21 $ 10.02 $ 9.99 $10.15 $ 9.95
------- ------- ------ ------ ------
...........................................................................................
Income from investment
operations
............................................................................................
Net investment income 0.28 0.55 0.55 0.46 0.19
............................................................................................
Net realized and
unrealized gains or
losses on securities 0.11 0.19 0.03 (0.16) 0.20
------- ------- ------ ------ ------
............................................................................................
Total from investment
operations 0.39 0.74 0.58 0.30 0.39
------- ------- ------ ------ ------
............................................................................................
Less distributions from
net investment income (0.28) (0.55) (0.55) (0.46) (0.19)
------- ------- ------ ------ ------
............................................................................................
Net asset value, end of
period $ 10.32 $ 10.21 $10.02 $ 9.99 $10.15
------- ------- ------ ------ ------
............................................................................................
Total return+ 3.82% 7.55% 6.00% 3.00% 3.90%
............................................................................................
Ratios/supplemental data
............................................................................................
Net assets, end of
period (thousands) $75,778 $81,034 $ 571 $ 497 $ 9
............................................................................................
Ratios to average net
assets
............................................................................................
Expenses 0.90%++ 0.83% 0.86% 0.81%++ 0.80%++
............................................................................................
Expenses, after fee
credits 0.90%++ 0.83% 0.86% -- --
............................................................................................
Expenses, excluding fee
waivers and expense
reimbursements 1.09%++ 1.02% 0.94% 1.06%++ 1.34%++
............................................................................................
Net investment income 5.32%++ 5.39% 5.47% 5.49%++ 5.42%++
............................................................................................
Portfolio turnover rate 3% 45% 68% 28% 45%
............................................................................................
</TABLE>
<TABLE>
<CAPTION>
Six Months
Ended Year Ended June 30,
December 31, 1998 ------------------------
(Unaudited) 1998 1997 1996 (c)
<S> <C> <C> <C> <C>
CLASS B SHARES
Net asset value, beginning of
period $10.21 $10.02 $ 9.99 $10.38
------ ------ ------ ------
.................................................................................
Income from investment operations
.................................................................................
Net investment income 0.23 0.46 0.45 0.18
.................................................................................
Net realized and unrealized gains
or losses on securities 0.11 0.19 0.04 (0.39)
------ ------ ------ ------
.................................................................................
Total from investment operations 0.34 0.65 0.49 (0.21)
------ ------ ------ ------
.................................................................................
Less distributions from net
investment income (0.23) (0.46) (0.46) (0.18)
------ ------ ------ ------
.................................................................................
Net asset value, end of period $10.32 $10.21 $10.02 $ 9.99
------ ------ ------ ------
.................................................................................
Total return+ 3.33% 6.57% 5.03% (1.99)%
.................................................................................
Ratios/supplemental data
.................................................................................
Net assets, end of period
(thousands) $3,069 $1,052 $ 742 $ 359
.................................................................................
Ratios to average net assets
.................................................................................
Expenses 1.84%++ 1.82% 1.81% 1.80%++
.................................................................................
Expenses, after fee credits 1.84%++ 1.82% 1.81% --
.................................................................................
Expenses, excluding fee waivers
and expense reimbursements 1.84%++ 1.82% 1.89% 1.91%++
.................................................................................
Net investment income 4.37%++ 4.49% 4.53% 4.62%++
.................................................................................
Portfolio turnover rate 3% 45% 68% 28%
.................................................................................
</TABLE>
+ Excluding applicable sales charges.
++ Annualized.
(a) For the period from May 2, 1995 (commencement of class operations) to Au-
gust 31, 1995.
(b) For the ten months ended June 30, 1996. The Fund changed its fiscal year
end from August 31 to June 30, effective June 30, 1996.
(c) For the period from February 9, 1996 (commencement of class operations) to
June 30, 1996.
See Combined Notes to Financial Statements.
23
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Intermediate Term Government Securities Fund
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended Year
Ended June 30,
December 31, 1998
- ----------------------------
(Unaudited)
1998 1997 1996 (a)
<S> <C> <C>
<C> <C>
CLASS C SHARES
Net asset value, beginning of period $10.21 $10.02
$ 9.99 $10.01
====== ======
====== ======
....................................................................................................................................
Income from investment operations
....................................................................................................................................
Net investment income 0.23
0.45+++ 0.40 0.11
....................................................................................................................................
Net realized and unrealized gains or losses on securities 0.11
0.20 0.09 (0.02)
------ -------
- ------ ------
....................................................................................................................................
Total from investment operations 0.34
0.65 0.49 0.09
------ ------
- ------ ------
....................................................................................................................................
Less distributions from net investment income (0.23)
(0.46) (0.46) (0.11)
------ ------
- ------ ------
....................................................................................................................................
Net asset value, end of period $10.32 $10.21
$10.02 $ 9.99
====== ======
====== ======
....................................................................................................................................
Total return+ 3.33%
6.57% 5.03% 0.89%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data
....................................................................................................................................
Net assets, end of period (thousands) $ 209 $ 126
$ 12 $ 32
....................................................................................................................................
Ratios to average net assets
Expenses 1.84%++
1.83% 1.81% 1.80%++
...................................................................................................................................
Expenses, after fee credits 1.84%++
1.83% 1.81% --
....................................................................................................................................
Expenses, excluding fee waivers and expense reimbursements 1.84%++
1.83% 1.90% 1.91%++
....................................................................................................................................
Net investment income 4.38%++
4.54% 4.53% 4.47%++
....................................................................................................................................
Portfolio turnover rate 3%
45% 68% 28%
...................................................................................................................................
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended June 30, Year Ended
August 31,
December 31, 1998 ------------------ Period Ended
- ----------------------------
(Unaudited) 1998 1997 June 30, 1996 (b) 1995
1994 1993
CLASS Y SHARES
<S> <C> <C> <C> <C> <C>
<C> <C>
Net asset value, beginning of period $ 10.21 $ 10.02 $ 9.99 $ 10.15 $ 9.92 $
10.61 $ 10.41
======= ======= ======= ======= ======
======= =======
....................................................................................................................................
Income from investment operations
....................................................................................................................................
Net investment income 0.28 0.56 0.56 0.46 0.55
0.54 0.57
...................................................................................................................................
Net realized and unrealized gains or losses
on securities 0.11 0.19 0.03 (0.16) 0.23
(0.64) 0.24
------- ------- ------- ------- ------
- ------- -------
....................................................................................................................................
Total from investment operations 0.39 0.75 0.59 0.30 0.78
(0.10) 0.81
------- ------- ------- ------- ------
- ------- -------
Less distributions
....................................................................................................................................
From net investment income (0.28) (0.56) (0.56) (0.46) (0.55)
(0.54) (0.58)
...................................................................................................................................
From capital gains 0 0 0 0 0
(0.05) (0.03)
....................................................................................................................................
Total distributions (0.28) (0.56) (0.56) (0.46) (0.55)
(0.59) (0.61)
------- ------- ------- ------- ------
- ------- -------
....................................................................................................................................
Net asset value, end of period $ 10.32 $ 10.21 $ 10.02 $ 9.99 $10.15 $
9.92 $ 10.61
======= ======= ======= ======= ======
======= =======
Total return 3.85% 7.63% 6.08% 3.00% 8.16%
(0.99%) 8.03%
....................................................................................................................................
Ratios/supplemental data
....................................................................................................................................
Net assets, end of period (thousands) $90,058 $99,729 $71,588 $87,004 $106,066
$106,448 $119,172
....................................................................................................................................
Ratios to average net assets
Expenses 0.84%++ 0.82% 0.81% 0.80%++ 0.70%
0.55% 0.55%
...................................................................................................................................
Expenses, after fee credits 0.84%++ 0.82% 0.81% -- --
- -- --
....................................................................................................................................
Expenses, excluding fee waivers and expense
reimbursements 0.84%++ 0.82% 0.89% 0.87%++ 0.84%
0.82% 0.83%
....................................................................................................................................
Net investment income 5.38%++ 5.47% 5.52% 5.47%++ 5.54%
5.22% 5.48%
....................................................................................................................................
Portfolio turnover rate 3% 45% 68% 28% 45%
45% 31%
....................................................................................................................................
</TABLE>
+ Excluding applicable sales charges.
++ Annualized.
+++ Calculation based on average shares outstanding.
(a) For the period from April 10, 1996 (commencement of class operations) to
June 30, 1996.
(b) For the ten months ended June 30, 1996. The Fund changed its fiscal year
end from August 31 to June 30, effective June 30, 1996.
See Combined Notes to Financial Statements.
24
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Short Intermediate Bond Fund
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended
Six Months Ended Year Ended June 30, December 31,
December 31, 1998 ------------------------- Period Ended -----------------
(Unaudited) 1998 1997 1996 June 30, 1995 (a) 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Net asset value,
beginning of period $ 9.90 $ 9.83 $ 9.82 $ 10.02 $ 9.52 $ 10.42 $ 10.41
------- ------- ------- ------- ------- ------- -------
............................................................................................................
Income from investment
operations
............................................................................................................
Net investment income 0.28 0.61 0.63 0.63 0.32 0.65 0.65
...........................................................................................................
Net realized and unrealized
gains or losses on
securities 0.12 0.07 0.02 (0.19) 0.50 (0.91) 0.19
------- ------- ------- ------- ------- ------- -------
............................................................................................................
Total from investment
operations 0.40 0.68 0.65 0.44 0.82 (0.26) 0.84
------- ------- ------- ------- ------- ------- -------
............................................................................................................
Less distributions
............................................................................................................
From net investment income (0.29) (0.61) (0.64) (0.64) (0.32) (0.64) (0.65)
............................................................................................................
From capital gains 0 0 0 0 0 0 (0.18)
------- ------- ------- ------- ------- ------- -------
...........................................................................................................
Total distributions (0.29) (0.61) (0.64) (0.64) (0.32) (0.64) (0.83)
------- ------- ------- ------- ------- ------- -------
............................................................................................................
Net asset value, end of
period $ 10.01 $ 9.90 $ 9.83 $ 9.82 $ 10.02 $ 9.52 $ 10.42
------- ------- ------- ------- ------- ------- -------
............................................................................................................
Total return+ 4.08% 7.08% 6.77% 4.45% 8.77% (2.57%) 8.29%
............................................................................................................
Ratios/supplemental data
...........................................................................................................
Net assets, end of
period (thousands) $20,086 $16,848 $17,703 $18,630 $18,898 $19,127 $22,865
............................................................................................................
Ratios to average net assets
Expenses 0.84%++ 0.80% 0.72% 0.79% 0.77%++ 0.75% 0.93%
...........................................................................................................
Expenses, after fee
credits 0.83%++ 0.80% 0.72% -- -- -- --
............................................................................................................
Net investment income 5.69%++ 6.14% 6.37% 6.35% 6.58%++ 6.46% 6.15%
............................................................................................................
Portfolio turnover rate 31% 68% 45% 76% 34% 48% 73%
............................................................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended
Six Months Ended Year Ended June 30, December 31,
December 31, 1998 ------------------------- Period Ended ------------------
(Unaudited) 1998 1997 1996 June 30, 1995 (a) 1994 1993 (b)
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value,
beginning of period $ 9.92 $ 9.85 $ 9.84 $ 10.04 $ 9.54 $ 10.44 $10.57
------- ------- ------- ------- ------- ------- ------
............................................................................................................
Income from investment
operations
............................................................................................................
Net investment income 0.24 0.52 0.54 0.55 0.28 0.58 0.58
...........................................................................................................
Net realized and
unrealized gains or
losses on securities 0.11 0.07 0.01 (0.19) 0.50 (0.92) 0.05
------- ------- ------- ------- ------- ------- ------
............................................................................................................
Total from investment
operations 0.35 0.59 0.55 0.36 0.78 (0.34) 0.63
------- ------- ------- ------- ------- ------- ------
............................................................................................................
Less distributions
...........................................................................................................
From net investment
income (0.24) (0.52) (0.54) (0.56) (0.28) (0.56) (0.58)
............................................................................................................
From capital gains 0 0 0 0 0 0 (0.18)
------- ------- ------- ------- ------- ------- ------
............................................................................................................
Total distributions (0.24) (0.52) (0.54) (0.56) (0.28) (0.56) (0.76)
------- ------- ------- ------- ------- ------- ------
............................................................................................................
Net asset value, end of
period $ 10.03 $ 9.92 $ 9.85 $ 9.84 $ 10.04 $ 9.54 $10.44
------- ------- ------- ------- ------- ------- ------
............................................................................................................
Total return+ 3.60% 6.11% 5.78% 3.62% 8.31% (3.33%) 6.08%
...........................................................................................................
Ratios/supplemental data
............................................................................................................
Net assets, end of
period (thousands) $25,212 $22,689 $22,237 $21,006 $17,366 $17,625 $8,876
............................................................................................................
Ratios to average net assets
Expenses 1.74%++ 1.70% 1.62% 1.69% 1.67%++ 1.50% 1.57%++
............................................................................................................
Expenses, after fee
credits 1.73%++ 1.70% 1.62% -- -- -- --
............................................................................................................
Net investment income 4.79%++ 5.23% 5.48% 5.45% 5.68%++ 5.75% 5.42%++
...........................................................................................................
Portfolio turnover rate 31% 68% 45% 76% 34% 48% 73%
............................................................................................................
</TABLE>
+ Excluding applicable sales charges.
++ Annualized.
(a) For the six months ended June 30, 1995. The Fund changed its fiscal year
end from December 31 to June 30, effective June 30, 1995.
(b) For the period from January 25, 1993 (commencement of class operations) to
December 31, 1993.
See Combined Notes to Financial Statements.
25
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Short Intermediate Bond Fund
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended Year Ended June 30,
December 31, 1998 ---------------------- Period Ended Period Ended
(Unaudited) 1998 1997 1996 June 30, 1995 (b) December 31, 1994 (a)
<S> <C> <C> <C> <C> <C> <C>
CLASS C SHARES
Net asset value,
beginning of period $ 9.92 $ 9.85 $ 9.84 $10.05 $ 9.55 $9.85
====== ====== ====== ====== ====== =====
...........................................................................................................
Income from investment
operations
............................................................................................................
Net investment income 0.24 0.52 0.54 0.55 0.26 0.18
............................................................................................................
Net realized and
unrealized gains or
losses on securities 0.11 0.07 0.01 (0.20) 0.50 (0.30)
------ ------ ------ ------ ------ -----
............................................................................................................
Total from investment
operations 0.35 0.59 0.55 0.35 0.76 (0.12)
------ ------ ------ ------ ------ -----
...........................................................................................................
Less distributions from
net investment income (0.24) (0.52) (0.54) (0.56) (0.26) (0.18)
------ ------ ------ ------ ------ -----
Net asset value, end of
period $10.03 $ 9.92 $ 9.85 $ 9.84 $10.05 $9.55
====== ====== ====== ====== ====== =====
............................................................................................................
Total return+ 3.60% 6.11% 5.77% 3.51% 8.23% (1.27%)
............................................................................................................
Ratios/supplemental data
............................................................................................................
Net assets, end of
period (thousands) $1,546 $1,143 $1,029 $1,155 $ 527 $ 512
............................................................................................................
Ratios to average net
assets
Expenses 1.74%++ 1.70% 1.62% 1.69% 1.67%++ 1.65%++
...........................................................................................................
Expenses, after fee
credits 1.73%++ 1.70% 1.62% -- -- --
............................................................................................................
Net investment income 4.79%++ 5.25% 5.47% 5.46% 5.69%++ 5.87%++
...........................................................................................................
Portfolio turnover rate 31% 68% 45% 76% 34% 48%
............................................................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended
Six Months Ended Year Ended June 30, December 31,
December 31, 1998 ---------------------------- Period Ended -------------------
(Unaudited) 1998 1997 1996 June 30, 1995 (b) 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
Net asset value,
beginning of period $ 9.90 $ 9.83 $ 9.82 $ 10.02 $ 9.52 $ 10.43 $ 10.41
======== ======== ======== ======== ======== ======== ========
................................................................................................................
Income from investment
operations
................................................................................................................
Net investment income 0.28 0.62 0.64 0.64 0.33 0.65 0.69
................................................................................................................
Net realized and
unrealized gains or
losses on securities 0.12 0.07 0.02 (0.19) 0.49 (0.91) 0.19
-------- -------- -------- -------- -------- -------- --------
................................................................................................................
Total from investment
operations 0.40 0.69 0.66 0.45 0.82 (0.26) 0.88
-------- -------- -------- -------- -------- -------- --------
................................................................................................................
Less distributions
................................................................................................................
From net investment
income (0.29) (0.62) (0.65) (0.65) (0.32) (0.65) (0.68)
From capital gains 0 0 0 0 0 0 (0.18)
-------- -------- -------- -------- -------- -------- --------
...............................................................................................................
Total distributions (0.29) (0.62) (0.65) (0.65) (0.32) (0.65) (0.86)
-------- -------- -------- -------- -------- -------- --------
................................................................................................................
Net asset value, end of
period $ 10.01 $ 9.90 $ 9.83 $ 9.82 $ 10.02 $ 9.52 $ 10.43
-------- -------- -------- -------- -------- -------- --------
................................................................................................................
Total return 4.13% 7.19% 6.88% 4.63% 8.80% (2.55%) 8.67%
................................................................................................................
Ratios/supplemental data
...............................................................................................................
Net assets, end of
period (thousands) $354,827 $348,358 $357,706 $352,095 $347,050 $345,025 $376,445
................................................................................................................
Ratios to average net
assets
Expenses 0.74%++ 0.70% 0.62% 0.69% 0.67%++ 0.65% 0.66%
................................................................................................................
Expenses, after fee
credits 0.73%++ 0.70% 0.62% -- -- -- --
................................................................................................................
Net investment income 5.82%++ 6.25% 6.48% 6.45% 6.68%++ 6.56% 6.41%
................................................................................................................
Portfolio turnover rate 31% 68% 45% 76% 34% 48% 73%
................................................................................................................
</TABLE>
+ Excluding applicable sales charges.
++ Annualized.
(a) For the period from September 6, 1994 (commencement of class operations) to
December 31, 1994.
(b) For the six months ended June 30, 1995. The Fund changed its fiscal year
end from December 31 to June 30, effective June 30, 1995.
See Combined Notes to Financial Statements.
26
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Capital Preservation and Income Fund
- --------------------------------------------------------------------------------
Schedule of Investments
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES - 71.5%
FHLMC - 30.3%
$ 466,203 FHLMC Pool #605343, Cap 13.61%, Margin 2.75%+ WTAL,
Resets Annually,
7.33%, 3/1/19....................................... $ 483,103
1,092,680 FHLMC Pool #605386, Cap 12.87%, Margin 2.75%+ WTAL,
Resets Annually,
7.50%, 9/1/17....................................... 1,121,024
479,988 FHLMC Pool #606541, Cap 13.55%, Margin 2.79%+ WTAL,
Resets Annually,
7.29%, 3/1/21....................................... 494,537
988,259 FHLMC Pool #606679, Cap 12.08%, Margin 2.88%+ WTAL,
Resets Annually,
7.06%, 10/1/21...................................... 1,022,078
892,058 FHLMC Pool #607352, Cap 13.61%, Margin 2.75%+ WTAL,
Resets Annually,
7.50%, 4/1/22....................................... 916,732
3,023,948 FHLMC Pool #608034, Cap 14.78%, Margin 2.22%+ WTAL,
Resets Annually,
6.96%, 6/1/16....................................... 3,078,288
66,714 FHLMC Pool #645062, Cap 14.14%, Margin 2.90%+ WTAL,
Resets Annually,
7.61%, 5/1/19....................................... 68,069
279,158 FHLMC Pool #785114, Cap 13.31%, Margin 2.75%+ WTAL,
Resets Annually,
7.45%, 7/1/19....................................... 288,276
46,888 FHLMC Pool #785147, Cap 12.78%, Margin 2.75%+ WTAL,
Resets Annually,
7.35%, 5/1/20....................................... 47,577
1,163,135 FHLMC Pool #845063, Cap 12.10%, Margin 2.83%+ WTAL,
Resets Annually,
7.30%, 11/1/21...................................... 1,192,213
2,061,260 FHLMC Pool #845070, Cap 11.84%, Margin 2.78%+ WTAL,
Resets Annually,
7.38%, 1/1/22....................................... 2,128,251
1,070,644 FHLMC Pool #845082, Cap 12.58%, Margin 2.69%+ WTAL,
Resets Annually,
7.33%, 3/1/22....................................... 1,088,041
825,040 FHLMC Pool #846163, Cap 13.07%, Margin 2.71%+ WTAL,
Resets Annually,
7.28%, 7/1/30....................................... 845,154
326,690 FHLMC Pool #865220, Cap 15.08%, Margin 2.35%+ WTAL,
Resets Triennially,
7.75%, 4/1/20....................................... 336,389
-----------
13,109,732
-----------
FNMA - 41.2%
431,921 FNMA Pool #046692, Cap 12.89%, Margin 2.56%+ CMT,
Resets Annually,
6.875%, 8/1/15...................................... 434,595
235,641 FNMA Pool #062610, Cap 12.75%, Margin 2.75%+ CMT,
Resets Annually,
7.50%, 6/1/18........................................ 243,005
290,238 FNMA Pool #070033, Cap 14.31%, Margin 2.60%+ CMT,
Resets Annually,
7.05%, 10/1/17....................................... 296,316
1,128,843 FNMA Pool #070119, Cap 12.00%, Margin 2.76%+ CMT,
Resets Annually,
7.40%, 11/1/17....................................... 1,163,414
406,428 FNMA Pool #070179, Cap 12.77%, Margin 2.93%+ CMT,
Resets Annually,
7.08%, 7/1/27........................................ 414,622
245,317 FNMA Pool #070327, Cap 12.95%, Margin 2.75%+ CMT,
Resets Annually,
7.45%, 6/1/19........................................ 250,606
1,190,829 FNMA Pool #090678, Cap 13.15%, Margin 2.70%+ CMT,
Resets Annually,
7.48%, 9/1/18........................................ 1,238,271
334,875 FNMA Pool #092086, Cap 15.55%, Margin 2.75%+ CMT,
Resets Annually,
7.42%, 10/1/16....................................... 342,671
617,153 FNMA Pool #094564, Cap 15.84%, Margin 2.50%+ CMT,
Resets Annually,
7.27%, 1/1/16........................................ 631,329
788,063 FNMA Pool #095405, Cap 13.65%, Margin 2.73%+ CMT,
Resets Annually,
7.29%, 12/1/19....................................... 809,242
384,465 FNMA Pool #102905, Cap 13.11%, Margin 2.82%+ CMT,
Resets Annually,
7.33%, 7/1/20........................................ 395,818
196,268 FNMA Pool #105007, Cap 13.33%, Margin 2.75%+ CMT,
Resets Annually,
7.03%, 7/1/19........................................ 197,346
215,218 FNMA Pool #114714, Cap 12.60%, Margin 2.75%+ CMT,
Resets Annually,
7.07%, 3/1/19........................................ 219,826
723,318 FNMA Pool #124015, Cap 13.24%, Margin 2.58%+ CMT,
Resets Annually,
7.08%, 11/1/18....................................... 740,049
557,845 FNMA Pool #124204, Cap 13.51%, Margin 2.71%+ CMT,
Resets Annually,
7.36%, 1/1/22........................................ 569,526
2,292,466 FNMA Pool #124289, Cap 13.46%, Margin 2.67%+ CMT,
Resets Annually,
7.32%, 9/1/21........................................ 2,355,509
</TABLE>
27
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Capital Preservation and Income Fund
- --------------------------------------------------------------------------------
Schedule of Investments(continued)
December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
ADJUSTABLE RATE MORTGAGE SECURITIES - continued
FNMA - continued
$ 459,108 FNMA Pool #124945, Cap 12.54%, Margin 2.78%+ CMT,
Resets Annually,
7.43%, 1/1/31....................................... $ 470,659
268,172 FNMA Pool #142963, Cap 11.03%, Margin 2.63%+ CMT,
Resets Annually,
7.40%, 1/1/22....................................... 272,865
274,048 FNMA Pool #303247, Cap 11.08%, Margin 2.71%+ CMT,
Resets Annually,
7.17%, 12/1/22...................................... 280,170
1,622,021 FNMA Pool #313663, Cap 12.96%, Margin 2.81%+ CMT,
Resets Annually,
7.25%, 5/1/22....................................... 1,657,511
813,057 FNMA Pool #313994, Cap 9.83%, 2.48%+ Six Month LIBOR,
7.42%, 12/1/23...................................... 822,504
1,222,515 FNMA Pool #331526, Cap 11.17%, Margin 2.75%+ CMT,
Resets Annually,
6.11%, 5/1/36....................................... 1,231,684
106,154 FNMA Pool #391290, Cap 12.68%, Margin 2.71%+ CMT,
Resets Annually,
7.30%, 2/1/17....................................... 107,415
1,189,504 FNMA Pool #423207, Cap 11.87%, Margin 2.75%+ CMT,
Resets Annually,
5.83%, 4/1/38....................................... 1,194,708
1,496,873 FNMA Pool #449552, Cap 11.94%, Margin 2.75%+ CMT,
Resets Annually,
5.96%, 11/1/28...................................... 1,508,803
-----------
17,848,464
-----------
Total Adjustable Rate Mortgage Securities (cost
$31,148,758)........................................ 30,958,196
-----------
ASSET-BACKED SECURITIES - 10.8%
1,000,000 Carco Auto Loan Master Trust,
Series 1997-1, Class A,
6.69%, 8/15/04...................................... 1,011,490
1,355,185 CoreStates Home Equity Trust,
Series 1994-1, Class A,
6.65%, 5/15/09...................................... 1,375,458
1,626,193 Merrill Lynch Mortgage Investors, Inc., Series 1992-
B, Class B,
8.50%, 4/15/12...................................... 1,648,960
426,000 Salomon Brothers Mortgage, Inc., Series 1998-NC7,
6.70%, 1/25/29...................................... 425,534
200,000 The Money Store Home Equity Trust, Series 1997-B,
6.64%, 1/15/17...................................... 201,091
-----------
Total Asset-Backed Securities (cost $4,645,911)...... 4,662,533
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS - 4.6%
6,353 FHLMC CMO, Series 11 Class 11C, 9.50%, 4/15/19....... 6,393
859,539 FHLMC Strip, Series 20, Class F,
6.33%, 7/1/29....................................... 858,464
844,743 Nomura Depositor Trust,
Series 1998-ST1, Class A1,
5.83%, 1/15/03...................................... 818,609
289,329 Prudential Home Mortgage Securities, Series 1990-12,
Class A1,
7.94%, 11/25/20..................................... 288,459
-----------
Total Collateralized Mortgage Obligations (cost
$2,007,089)......................................... 1,971,925
-----------
FIXED RATE MORTGAGE SECURITIES - 6.1%
FHLMC - 1.4%
313,882 FHLMC Pool #B00078,
10.50%, 10/1/05..................................... 324,008
267,415 FHLMC Pool #B00475,
10.50%, 4/1/04...................................... 276,042
-----------
600,050
-----------
FNMA - 1.7%
332,975 FNMA Pool #002497,
11.00%, 1/1/16...................................... 363,866
140,492 FNMA Pool #058442,
11.00%, 1/1/18...................................... 154,878
208,488 FNMA Pool #100051,
9.50%, 4/15/05...................................... 217,805
-----------
736,549
-----------
GNMA - 3.0%
1,283,706 GNMA Pool #268164,
10.25%, 11/15/29.................................... 1,315,798
-----------
Total Fixed Rate Mortgage Securities (cost
$2,703,840)......................................... 2,652,397
-----------
U. S. GOVERNMENT AGENCY OBLIGATIONS - 1.2%
(cost $510,410)
500,000 FHLB,
5.125%, 9/15/03..................................... 499,845
-----------
U. S. TREASURY OBLIGATIONS - 2.1% (cost $923,592)
900,000 U. S. Treasury Notes,
5.50%, 5/31/03...................................... 929,250
-----------
REPURCHASE AGREEMENT - 2.5% (cost $1,081,000)
1,081,000 Evergreen Joint Repurchase Agreement, (5.02% dated
12/31/98 due 1/4/99, maturity value $1,081,603)(a).. 1,081,000
-----------
Total Investments-- (cost $43,020,600)......... 98.8% 42,755,146
Other Assets and Liabilities - net............. 1.2 535,667
----- -----------
Net Assets - .................................. 100.0% $43,290,813
===== ===========
(a) The repurchase agreement is fully collateralized by U. S. Treasury and/or
federal agency obligations based on market prices plus accrued interest at
December 31, 1998.
Summary of Abbreviations:
CMO Collateralized Mortgage Obligation
CMT 1, 3, or 5 year Constant Maturity Treasury Index
FHLB Federal Home Loan Bank
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
GNMA Government National Mortgage Association
LIBOR London Interbank Overnight Rate
WTAL 1 to 3 year Weekly Treasury Average Lookback
See Combined Notes to Financial Statements.
28
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Intermediate Term Bond Fund
- --------------------------------------------------------------------------------
Schedule of Investments
December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES - 3.8% (b)
$ 1,000,000 California Infrastructure
PG&E, Series 1997-1
Certificate, Class A4
(Est. Maturity 2000),
6.16%, 6/25/03..................................... $ 1,017,330
2,500,000 Contimortgage Home Equity
Loan Trust,
Series 1998-1 Class A6
(Est. Maturity 2003),
6.58%, 12/15/18.................................... 2,532,800
895,953 CoreStates Home Equity Trust,
Series 1994-1 Class A
(Est. Maturity 2000),
6.65%, 5/15/09..................................... 909,356
2,000,000 Salomon Brothers Mortgage, Inc.,
Series 1998-NC7
(Est. Maturity 2003),
6.70%, 1/25/29..................................... 1,997,813
1,000,000 Southern Pacific Secured Assets Corp.,
Series 1996-3 Class A4
(Est. Maturity 2002),
7.60%, 10/25/27.................................... 1,045,023
------------
Total Asset-Backed Securities
(cost $7,386,834).................................. 7,502,322
------------
CORPORATE BONDS - 58.0%
Aerospace & Defense - 4.6%
500,000 BE Aerospace, Inc.,
Sr. Sub. Notes
9.50%, 11/1/08 (a)................................. 528,750
3,675,000 Boeing, Inc., Deb.,
8.10%, 11/15/06.................................... 4,170,574
3,000,000 Lockheed Martin Corp., Notes,
7.25%, 5/15/06..................................... 3,245,730
500,000 Northrop Grumman Corp., Notes,
7.00%, 3/1/06...................................... 520,840
500,000 Sequa Corp., Sr. Notes,
8.75%, 12/15/01.................................... 511,250
------------
8,977,144
------------
Automotive Equipment & Manufacturing - 0.9%
950,000 Ford Motor Co., Deb.,
9.00%, 9/15/01..................................... 1,035,529
750,000 Hayes Lemmerz International, Inc.,
8.25%, 12/15/08.................................... 750,000
------------
1,785,529
------------
Banks - 4.0%
1,000,000 Amsouth Bancorp.,
Sub. Deb., Puttable 2005,
6.75%, 11/1/25..................................... 1,046,670
2,500,000 Bank One Texas N. A., Sub. Notes,
6.25%, 2/15/08..................................... 2,578,600
2,000,000 NationsBank Corp., Sub. Notes,
8.125%, 6/15/02.................................... 2,162,060
2,000,000 Suntrust Banks, Inc., Sr. Bond,
6.00%, 1/15/28..................................... 2,043,760
--------------
7,831,090
--------------
Building, Construction & Furnishings - 0.1%
200,000 MDC Holdings, Inc., Sr. Notes,
8.375%, 2/1/08..................................... 197,000
--------------
Business Equipment & Services - 1.3%
1,000,000 Lucent Technologies, Inc., Notes
5.50%, 11/15/08.................................... 1,010,430
500,000 Paging Network, Inc., Sr. Sub. Notes,
8.875%, 2/1/06..................................... 455,000
500,000 United Rentals, Inc., Sr. Sub. Notes,
9.25%, 1/15/09 (a)................................. 503,750
500,000 Williams Scotsman, Inc., Sr. Sub. Notes,
9.875%, 6/1/07..................................... 510,000
--------------
2,479,180
--------------
Cable/Other Video Distribution - 1.5%
750,000 Century Communications Corp.,
Sr. Notes,
9.75%, 2/15/02..................................... 806,250
1,000,000 Comcast Cable Communications I,
Sr. Notes,
6.20%, 11/15/08.................................... 1,016,600
500,000 Jones Intercable, Inc.,
Sr. Notes,
9.625%, 3/15/02.................................... 538,750
500,000 Marcus Cable Operating Co. LP,
Gtd. Sr. Sub. Disc.
Notes, Step Bond,
(Eff. Yield 7.43%) (c),
0.00%, 8/1/04...................................... 501,250
--------------
2,862,850
--------------
Chemical & Agricultural Products - 1.1%
1,164,000 Dow Chemical Co., Deb.,
8.625%, 4/1/06..................................... 1,337,273
300,000 International Specialty
Products Holdings, Inc.,
Sr. Notes, Series B,
9.00%, 10/15/03.................................... 316,500
500,000 Polymer Group, Inc.,
Sr. Sub. Notes, Series B,
9.00%, 7/1/07...................................... 495,000
--------------
2,148,773
--------------
Communication Systems & Services - 10.4%
500,000 AT&T Credit Corp.,
Series D, MTN,
9.85%, 3/15/99..................................... 509,075
2,600,000 Bell Telephone Co. of PA, Deb.,
8.35%, 12/15/30.................................... 3,384,810
950,000 Centennial Cellular Corp.,
Sr. Notes,
8.875%, 11/1/01.................................... 1,007,000
29
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Intermediate Term Bond Fund
- --------------------------------------------------------------------------------
Schedule of Investments(continued)
December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
CORPORATE BONDS - continued
Communication Systems & Services - continued
$ 500,000 Echostar Communications Corp.,
Step Bond,
(Eff. Yield 8.21%) (c)
0.00%, 6/1/04...................................... $ 515,000
5,000,000 GTE Corp.,
Deb.,
6.46%, 4/15/08..................................... 5,326,000
500,000 Jordan Telecommunication Products,
Sr. Notes,
9.875%, 8/1/07..................................... 500,000
400,000 K III Communications Corp.,
8.50%, 2/1/06...................................... 412,000
1,000,000 Lenfest Communications, Inc.,
Sr. Secd. Notes,
8.37%, 11/1/05..................................... 1,080,000
1,000,000 MCI Communications Corp.,
Puttable and Callable @100,
4/15/02 (Eff. Yield 6.23%) (c),
Notes,
6.12%, 4/15/02..................................... 1,015,220
1,560,000 MCI Worldcom, Inc.,
Notes,
7.75%, 4/1/07...................................... 1,762,254
500,000 Olympus Communications LP,
Sr. Notes,
10.625%, 11/15/06.................................. 546,250
500,000 Price Communications Wireless,
Sr. Secd. Notes,
9.125%, 12/15/06 (a)............................... 505,000
525,000 Qwest Communications
International, Inc.,
Sr. Notes,
7.50%, 11/1/08 (a) ................................ 548,625
1,000,000 Sprint Capital Corp.,
6.125%, 11/15/08................................... 1,021,830
2,000,000 TCI Communications, Inc.,
Sr. Notes,
8.00%, 8/1/05...................................... 2,251,580
------------
20,384,644
------------
Consumer Products & Services - 1.3%
800,000 American Greetings Corp.,
Notes,
6.10%, 8/1/28...................................... 820,368
1,164,000 General Mills, Inc.,
Series B, MTN,
9.00%, 12/20/02.................................... 1,310,815
500,000 Westpoint Stevens, Inc.,
Sr. Notes,
7.875%, 6/15/05.................................... 512,500
------------
2,643,683
------------
Environmental Services - 0.5%
1,000,000 Allied Waste North America,
Sr. Notes,
7.375%, 1/1/04 (a) ................................ 1,005,000
------------
Finance & Insurance - 10.5%
1,000,000 Beneficial Corp.,
Series I, MTN,
6.25%, 2/18/13..................................... 1,027,310
1,250,000 Chase Manhattan Corp.,
Sub. Notes,
9.375%, 7/1/01..................................... 1,362,475
1,000,000 CIT Group Holdings, Inc.,
MTN,
9.25%, 3/15/01..................................... 1,077,740
2,000,000 Fleet Financial Group, Inc.,
Notes,
6.50%, 3/15/08..................................... 2,105,780
2,000,000 General Electric Capital Corp.,
Deb.,
8.75%, 5/21/07..................................... 2,441,480
1,650,000 GS Escrow Corp.,
Sr. Notes,
6.75%, 8/1/01 (a).................................. 1,636,222
800,000 Harris BanCorp.,
Sub. Notes,
9.375%, 6/1/01..................................... 866,008
2,000,000 Mellon Financial Co.,
Sr. Notes,
5.75%, 11/15/03.................................... 2,010,820
875,000 Paine Webber Group, Inc.,
Sr. Notes,
8.25%, 5/1/02...................................... 927,185
500,000 Presidential Life Insurance Corp.,
Sr. Notes,
9.50%, 12/15/00.................................... 511,250
Prudential Insurance Co.:
2,000,000 Notes,
7.125%, 7/1/07..................................... 2,132,600
3,000,000 Sr. Notes,
6.375%, 7/23/06.................................... 3,069,420
Reliance Group Holdings, Inc.:
500,000 Sr. Sub. Deb.,
9.75%, 11/15/03.................................... 521,680
1,000,000 Sr. Notes,
9.00%, 11/15/00.................................... 1,041,550
------------
20,731,520
------------
Food & Beverage Products - 1.4%
250,000 Aurora Foods, Inc.,
Sr. Sub. Notes,
9.875%, 2/15/07.................................... 272,500
750,000 Chiquita Brands International, Inc.,
Sr. Notes,
9.625%, 1/15/04.................................... 776,250
1,000,000 Coca Cola Enterprises, Inc.,
Notes,
5.75%, 11/1/08..................................... 1,007,400
600,000 Fleming Companies, Inc.,
Sr. Notes,
10.625%, 12/15/01.................................. 618,000
------------
2,674,150
------------
Gaming - 0.3%
250,000 Grand Casino, Inc.,
Gtd. First Mtge. Notes,
10.125%, 12/1/03................................... 272,500
400,000 Station Casinos, Inc.,
Sr. Sub. Notes,
9.625%, 6/1/03..................................... 420,000
------------
692,500
------------
30
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Intermediate Term Bond Fund
- --------------------------------------------------------------------------------
Schedule of Investments(continued)
December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
CORPORATE BONDS - continued
Healthcare Products & Services - 0.9%
$ 1,164,000 Baxter International, Inc.,
Notes,
7.25%, 2/15/08................................... $ 1,273,439
200,000 Mariner Post Acute Network, Inc.,
Sr. Sub. Notes,
9.50%, 11/1/07................................... 161,500
250,000 Tenet Healthcare Corp.,
Sr. Notes,
7.875%, 1/15/03.................................. 255,000
------------
1,689,939
------------
Information Services & Technology - 0.1%
250,000 American Radio Systems Corp.,
9.00%, 2/1/06.................................... 271,875
------------
Iron & Steel - 1.0%
850,000 Armco, Inc.,
Sr. Notes,
9.375%, 11/1/00.................................. 860,625
350,000 Bethlehem Steel Corp.,
Sr. Notes,
10.375%, 9/1/03.................................. 367,500
750,000 Wheeling Pittsburgh Corp.,
Sr. Notes,
9.375%, 11/15/03................................. 814,688
------------
2,042,813
------------
Leisure & Tourism - 1.5%
1,000,000 Caesar's World, Inc.,
Sr. Sub. Notes,
8.875%, 8/15/02.................................. 985,000
500,000 Host Marriot Hotels Properties, Inc.,
Sr. Notes, Series B,
7.875%, 8/1/08................................... 486,875
405,000 Host Marriott Travel Plazas, Inc.,
Sr. Secd. Notes, Series B,
9.50%, 5/15/05................................... 424,238
500,000 Players International, Inc.,
Sr. Notes,
10.875%, 4/15/05................................. 540,000
500,000 Prime Hospitality Corp.,
First Mtge. Notes,
9.25%, 1/15/06................................... 520,000
------------
2,956,113
------------
Metals & Mining - 0.5%
400,000 Golden Northwest Aluminum Inc.,
12.00%, 12/15/06 (a)............................. 402,000
500,000 Kaiser Aluminum & Chemical Corp.,
Sr. Notes,
9.875%, 2/15/02.................................. 495,000
------------
897,000
------------
Machinery - Diversified - 0.1%
200,000 Eagle Picher Industries, Inc.,
Sr. Sub. Notes,
9.375%, 3/1/08................................... 189,000
------------
Manufacturing - Distributing - 0.1%
250,000 Mark IV Industries, Inc.,
Sr. Sub. Notes,
7.50%, 9/1/07.................................... 237,500
Oil/Energy - 2.1%
2,000,000 KN Energy, Inc.,
Deb.,
7.35%, 8/1/26..................................... 2,102,800
2,000,000 Transocean Offshore, Inc.,
Notes,
7.45%, 4/15/27.................................... 2,037,280
------------
4,140,080
------------
Paper & Packaging - 0.7%
500,000 Container Corp. of America,
Sr. Notes, Series A,
11.25%, 5/1/04.................................... 520,000
Stone Container Corp.:
700,000 Sr. Notes,
9.875%, 2/1/01.................................... 710,500
200,000 Sr. Sub. Notes,
11.00%, 8/15/99................................... 201,000
------------
1,431,500
------------
Printing, Publishing, Broadcasting &
Entertainment - 2.7%
Comcast Corp.,
Sr. Sub. Deb.:
1,000,000 9.375%, 5/15/05................................... 1,073,010
250,000 9.50%, 1/15/08.................................... 264,375
200,000 Hollinger International Publishing,
Sr. Sub. Notes,
9.25%, 2/1/06..................................... 210,000
2,327,000 Loews Corp.,
Notes,
6.75%, 12/15/06................................... 2,362,580
200,000 Sinclair Broadcast Group, Inc.,
Sr. Sub. Notes,
10.00%, 9/30/05................................... 212,000
1,000,000 Time Warner Entertainment, Inc.,
Notes,
9.625%, 5/1/02.................................... 1,120,040
------------
5,242,005
------------
Real Estate - 1.5%
1,900,000 EOP Operating LP,
Sr. Notes,
6.375%, 2/15/03 (a)............................... 1,875,756
1,000,000 Glenborough Properties LP,
Sr. Notes,
7.625%, 3/15/05................................... 996,110
------------
2,871,866
------------
Retailing & Wholesale - 1.5%
2,000,000 Fred Meyer, Inc.,
Notes,
7.15%, 3/1/03..................................... 2,081,200
500,000 Great Atlantic & Pacific Tea, Inc.,
Sr. Notes,
7.70%, 1/15/04.................................... 516,000
500,000 Southland Corp.,
Sr. Sub. Deb.,
5.00%, 12/15/03................................... 440,000
------------
3,037,200
------------
31
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Intermediate Term Bond Fund
- --------------------------------------------------------------------------------
Schedule of Investments(continued)
December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
CORPORATE BONDS - continued
Transportation - 2.3%
$ 2,000,000 CSX Corp.,
Notes,
6.25%, 10/15/08..................................... $ 2,029,100
1,650,000 Norfolk Southern Corp.,
Notes,
7.05%, 5/1/37....................................... 1,785,019
500,000 Sea Containers Ltd.,
Sr. Notes,
7.875%, 2/15/08 (a)................................. 480,000
200,000 U.S. Airways, Inc.,
Equipment Test Certificate
Series 88-D,
9.80%, 1/15/00...................................... 204,160
------------
4,498,279
------------
Utilities - 5.1%
1,000,000 Alabama Power Co.,
Sr. Notes,
5.375%, 10/1/08..................................... 984,945
3,000,000 Commonwealth Edison Co.,
8.00%, 5/15/08...................................... 3,400,920
1,000,000 Long Island Lighting Co.,
Deb.,
7.30%, 7/15/99...................................... 1,011,370
500,000 National Rural Utilities Cooperative Finance,
5.00%, 10/1/02...................................... 491,655
2,000,000 Oklahoma Gas & Electric Co.,
Sr. Notes,
6.65%, 7/15/27...................................... 2,188,720
2,000,000 Yorkshire Power Finance Ltd.,
6.496%, 2/25/08..................................... 2,006,180
------------
10,083,790
------------
Total Corporate Bonds
(cost $111,691,743)................................. 114,002,023
------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 8.7% (b)
500,000 Chase Commercial Mtge.
Securities Corp.,
Series 1997-1 Class B
(Est. Maturity 2007),
7.37%, 4/19/07..................................... 536,887
881,733 Criimi Mae Financial Corp.,
Series 1 Class A
(Est. Maturity 2004),
7.00%, 1/1/33...................................... 902,123
2,000,000 DLJ Commercial Mtge. Corp.,
Series 1998-CF2
(Est. Maturity 2009),
6.48%, 11/12/31.................................... 2,034,375
1,000,000 FNMA,
Series 1993-248, Class SA,
REMIC (Est. Maturity 2004),
4.77%, 8/25/23 (b)(d).............................. 944,300
1,945,704 Independent National Mtge. Corp.,
Series 1997-A Class A
(Est. Maturity 2004),
7.79%, 12/26/26 (a)................................ 1,894,629
500,000 Merrill Lynch Trust,
Series 35 Class G
(Est. Maturity 2005),
8.45%, 11/1/18..................................... 521,250
Morgan Stanley Capital I, Inc.:
650,000 Series 1998-HF2
(Est. Maturity 2009),
6.71%, 11/15/30.................................... 682,731
700,000 Series 1997-C1 Class B
(Est. Maturity 2006),
7.69%, 2/15/20..................................... 761,638
Nationslink Funding Corp.
975,000 Series 1998-2 Class C
(Est. Maturity 2009),
6.80%, 7/20/30..................................... 1,022,227
3,133,030 Series 1998-2 Class B
(Est. Maturity 2007),
6.64%, 1/20/08..................................... 3,180,025
860,998 Paine Webber Mtge. Acceptance Corp.,
Series 1993-4 Class M1
(Est. Maturity 2002),
7.50%, 5/25/23..................................... 864,496
583,773 PNC Mtge. Securities Corp.,
Series 1997-4 Class 2PP1,
REMIC (Est. Maturity 2000),
7.50%, 7/25/27..................................... 589,518
Resolution Trust Corp.:
83,418 Series 1992 C Class A1
(Est. Maturity 1999),
8.80%, 8/25/23..................................... 83,223
1,080,600 Series 1992-3 Class A2,
REMIC (Est. Maturity 1999),
7.25%, 11/1/98..................................... 1,077,190
805,384 Series 1992-3 Class A3,
REMIC (Est. Maturity 1999),
6.87%, 11/1/98..................................... 802,851
1,116,311 Series 1995-1 Class A2C
(Est. Maturity 1999),
7.50%, 10/25/28.................................... 1,120,023
-----------
Total Collateralized Mortgage Obligations
(cost $16,522,807)................................... 17,017,486
-----------
FOREIGN BONDS - (Non-US Dollar Denominated) - 5.7%
5,675,000 Canada Government,
CAD 6.00%, 6/1/08........................................ 4,019,096
10,582,000 Nykredit,
DKK Series ANN,
6.00%, 10/1/26....................................... 1,664,375
34,710,000 Realkredit Danmark,
DKK 6.00%, 10/1/26....................................... 5,452,769
-----------
Total Foreign Bonds - (Non-US Dollar Denominated)
(cost $10,402,020)................................... 11,136,240
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 3.9%
2,500,000 Farm Credit Systems
Financial Assistance Corp.,
Bonds, Series A-05,
8.80%, 6/10/05....................................... 2,974,600
FHLB:
2,860,000 5.125%, 9/15/03...................................... 2,859,113
1,000,000 5.80%, 9/2/08........................................ 1,035,000
750,000 FHLMC,
6.70%, 1/5/07........................................ 813,045
-----------
Total U.S. Government Agency Obligations
(cost $7,321,023).................................... 7,681,758
-----------
32
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Intermediate Term Bond Fund
- --------------------------------------------------------------------------------
Schedule of Investments(continued)
December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
U.S. TREASURY OBLIGATIONS - 7.3%
$ 4,350,000 U.S. Treasury Notes,
6.125%, 8/15/07.................................... $ 4,751,027
15,180,000 U.S. Treasury STRIPs,
(Eff. Yield 9.30%) (c)
0.00%, 5/15/08 .................................... 9,586,777
------------
Total U.S. Treasury Obligations
(cost $13,932,164)................................. 14,337,804
------------
YANKEE OBLIGATIONS - 7.8%
675,000 Bayerische Landesbank Girozen, New York,
Sr. Notes, Series D,
6.20%, 2/9/06...................................... 688,770
500,000 Great Central Mines Ltd.,
Sr. Notes,
8.875%, 4/1/08..................................... 498,750
1,000,000 Group Videotron Ltd.,
Sr. Notes,
10.625%, 2/15/05................................... 1,082,760
250,000 Imax Corp.,
Sr. Notes,
7.875%, 12/1/05.................................... 251,875
2,000,000 Manitoba Province, Canada,
Notes,
8.00%, 4/15/02..................................... 2,171,780
500,000 National Westminster Bancorp.,
Sub. Notes,
9.375%, 11/15/03................................... 578,495
2,000,000 Nippon Telegraph & Telephone Corp.,
Notes,
6.00%, 3/25/08..................................... 2,100,340
1,000,000 Petroleum Geo Services,
Notes,
7.50%, 3/31/07..................................... 1,035,180
1,000,000 Rogers Cablesystems Ltd.,
Notes,
9.625%, 8/1/02..................................... 1,075,000
1,000,000 Svenska Handelsbanken,
Sub. Notes,
8.35%, 7/15/04..................................... 1,112,420
2,000,000 United Utilities PLC,
Notes,
6.45%, 4/1/08...................................... 2,039,900
700,000 Westpac Banking Corp.,
Sub. Deb.,
9.125%, 8/15/01.................................... 757,162
2,000,000 YPF Sociedad Anonima,
Sr. Notes,
7.25%, 3/15/03..................................... 1,875,280
------------
Total Yankee Obligations
(cost $14,712,405)................................. 15,267,712
------------
REPURCHASE AGREEMENT - 3.1% (cost $6,043,000)
$6,043,000 Evergreen Joint Repurchase Agreement, in a joint
trading account, 5.02%, dated 12/31/98 due 1/4/99,
maturity value $6,046,371 (e)...................... 6,043,000
------------
Total Investments -(cost $188,011,996)....... 98.3% 192,988,345
Other Assets and Liabilities - net........... 1.7 3,424,115
----- ------------
Net Assets -................................. 100.0% $196,412,460
===== ============
(a) Securities that may be sold to qualified institutional buyers under Rule
144A or securities offered pursuant to Section 4(2) of the securities act
of 1933, as amended. These securities have been determined to be liquid un-
der guidelines established by the Board of Trustees.
(b) The estimated maturity of a Collateralized Mortgage Obligation or Asset
Backed Security is based on current and projected prepayment rates. Changes
in interest rates can cause the estimated maturity to differ from the
listed date.
(c) Effective yield (calculated at the time of purchase) is the yield at which
the bond accretes on an annual basis until maturity date.
(d) Inverse floater, resets monthly.
(e) The repurchase agreements are fully collateralized by U.S. Treasury and/or
federal agency obligations based on market prices plus accrued interest at
December 31, 1998.
Summary of Abbreviations
CAD Canadian Dollar
DKK Danish Krone
FHLB Federal Home Loan Bank
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
GNMA Government National Mortgage Association
MTN Medium Term Note
REMIC Real Estate Mortgage Investment Conduit
STRIPs Separate Trading of Registered Interest and Principal Securities
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Forward Foreign Currency Exchange Contracts to Sell:
<TABLE>
<CAPTION>
Exchange U.S. Value at In Exchange Unrealized
Date Contracts to Deliver December 31, 1998 for U.S. $ Appreciation
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3/15/1999 45,000,000 Danish Krone $7,084,661 $7,162,298 $77,637
===
</TABLE>
See Combined Notes to Financial Statements.
33
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Intermediate Term Government Securities Fund
- --------------------------------------------------------------------------------
Schedule of Investments
December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES - 40.2%
FHLMC:
$ 186,595 5.60%, 2/15/13..................................... $ 186,276
8,258,272 6.50%, 9/1/08...................................... 8,408,077
5,994,065 6.50%, 11/1/09..................................... 6,102,798
49,385 7.53%, 8/1/19...................................... 51,353
25,397 7.90%, 12/1/20..................................... 25,903
2,761,554 FHLMC Gold,
9.00%, 1/1/17...................................... 2,953,096
FNMA:
2,344,513 6.00%, 2/1/08...................................... 2,356,657
648,325 6.00%, 5/1/11...................................... 651,398
3,936,476 6.37%, 3/1/06...................................... 4,044,520
3,500,000 6.40%, 12/1/07..................................... 3,666,978
3,000,000 6.50%, 6/25/22..................................... 3,037,072
2,453,589 7.00%, 12/1/99..................................... 2,477,143
2,081,925 7.00%, 8/1/01...................................... 2,126,250
10,954,526 7.00%, 4/1/11...................................... 11,210,315
2,959,883 7.00%, 3/1/24...................................... 3,025,416
5,896,387 7.50%, 8/1/26...................................... 6,062,842
48,338 7.92%, 6/1/19...................................... 50,441
177,682 8.50%, 12/1/01..................................... 182,914
GNMA:
9,296,820 6.50%, 2/15/27..................................... 9,402,897
1,591,917 7.00%, 3/15/28..................................... 1,630,728
137,477 8.00%, 3/15/17..................................... 144,297
220,195 9.00%, 9/15/21..................................... 236,519
------------
Total Mortgage-Backed Securities
(cost $66,345,290)................................. 68,033,890
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 15.1%
993,000 Federal Agricultural Mortgage Corp. MTN,
7.37%, 8/1/06...................................... 1,078,940
FHLB:
5,000,000 5.50%, 4/14/00..................................... 5,032,970
1,300,000 8.60%, 1/25/00..................................... 1,348,322
8,500,000 FHLMC,
7.36%, 6/5/07...................................... 9,028,267
FNMA:
2,000,000 7.50%, 2/11/02..................................... 2,137,396
2,000,000 7.88%, 2/24/05..................................... 2,279,462
4,480,000 FNMA MTN,
6.16%, 4/3/01...................................... 4,591,471
------------
Total U.S. Government Agency Obligations
(cost $24,297,121)................................. 25,496,828
------------
U.S. TREASURY OBLIGATIONS - 43.3%
2,500,000 U.S. Treasury Bonds,
11.75%, 11/15/14................................... 3,889,845
U.S. Treasury Notes:
1,000,000 5.50%, 2/28/99..................................... 1,001,563
2,500,000 5.63%, 12/31/02.................................... 2,582,812
5,000,000 6.13%, 9/30/00..................................... 5,125,000
3,000,000 6.13%, 8/15/07..................................... 3,279,375
8,400,000 6.25%, 4/30/01..................................... 8,699,250
4,000,000 6.38%, 7/15/99..................................... 4,038,752
10,750,000 6.63%, 5/15/07..................................... 12,093,750
1,000,000 6.75%, 4/30/00..................................... 1,026,563
2,300,000 7.00%, 7/15/06..................................... 2,619,845
12,250,000 7.13%, 2/29/00..................................... 12,586,875
4,000,000 7.50%, 10/31/99.................................... 4,091,252
2,000,000 7.50%, 11/15/01.................................... 2,150,000
4,400,000 7.50%, 5/15/02..................................... 4,778,127
2,500,000 7.88%, 11/15/04.................................... 2,896,875
1,300,000 8.50%, 11/15/00.................................... 1,388,563
1,000,000 8.88%, 2/15/99..................................... 1,005,000
------------
Total U.S. Treasury Obligations
(cost $70,659,732)................................. 73,253,447
------------
REPURCHASE AGREEMENT - 1.5% (cost $2,555,877)
2,555,877 Dresdner Kleinwort Benson N.A., LLC, 4.25% dated
12/31/98, due 01/04/99, maturity value $2,557,084
(Collateralized by $2,595,000 U.S. Treasury
Inflation Index Bonds, 3.625%, due 01/15/08,
value, including accrued interest $2,610,292)...... 2,555,877
------------
Total Investments -
(cost $163,858,020)....................... 100.1% 169,340,042
Other Assets and Liabilities - net......... (0.1) (225,060)
------ ------------
Net Assets - .............................. 100.00% $169,114,982
====== ============
Summary of Abbreviations:
FHLB Federal Home Loan Bank
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
GNMA Government National Mortgage Association
MTN Medium Term Note
See Combined Notes to Financial Statements.
34
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Short Intermediate Bond Fund
- --------------------------------------------------------------------------------
Schedule of Investments
December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES - 14.7%
$ 2,885,126 Advanta Home Equity Loan Trust,
Series 1992-4, Class A1,
7.20%, 11/25/08..................................... $ 2,917,483
Amresco Residential
Securities Mtge. Loan Trust:
2,302,957 Series 1998-2, Class A1,
6.50%, 12/25/15...................................... 2,307,368
3,450,000 Series 1998-2, Class A2,
6.245%, 4/25/22...................................... 3,463,058
957,561 Associates Manufactured Hsg.,
Series 1997-1, Class A3,
6.60%, 6/15/28...................................... 963,962
4,000,000 Carco Auto Loan Master Trust,
Series 1997-1, Class A,
6.689%, 8/15/04..................................... 4,019,620
1,750,000 Case Equipment Loan Trust,
Series 1995-B, Class B,
6.45%, 9/15/02...................................... 1,753,281
1,999,985 Contimortgage Home Equity
Loan Trust,
Series 1996-1, Class A5,
6.15%, 3/15/11...................................... 2,006,415
2,472,705 Continental Airlines, Inc.,
Series 1997, Class 1B,
7.461%, 4/1/13...................................... 2,626,569
5,495,999 Empire Funding Home Loan
Owner Trust,
Series 1998-1, Class A4,
6.64%, 12/25/12..................................... 5,540,215
700,572 EQCC Home Equity Loan Trust,
Series 1996-1, Class A2,
5.82%, 9/15/09...................................... 702,341
291,624 First Bank Auto Receivables
Grantor Trust,
Series 1995-A, Class B,
8.30%, 1/15/00...................................... 292,197
631,088 First Security Auto Grantor Trust,
Series 1995-A, Class A,
6.25%, 1/15/01...................................... 632,151
4,133,050 Fleetwood Credit Corp. Grantor Trust, Series 1993- B,
Class A,
4.95%, 8/15/08...................................... 4,119,225
679,886 GCC Home Equity Trust,
Series 1990-1, Class A,
10.00%, 7/15/05..................................... 679,954
5,000,000 Iroquois Trust, Indexed
Amortization Note,
Series 1997-3, Class A,
6.68%, 11/10/03 (a)................................. 5,038,825
5,557,703 Life Financial Home Loan
Owner Trust,
Series 1997-3, Class A2,
6.79%, 10/25/11..................................... 5,577,739
2,877,294 Prudential Securities
Secured Financing Corp.,
Series 1994-4, Class A1,
8.12%, 2/15/25...................................... 2,972,547
2,500,000 Southern Pacific Secured
Assets Corp.,
Series 1998-1, Class A6,
7.08%, 3/25/28...................................... 2,601,771
Western Financial Grantor Trust:
1,794,338 Series 1995-5, Class A2,
5.875%, 3/1/02...................................... 1,802,619
774,984 Series 1995-4, Class A2,
6.20%, 2/1/02....................................... 780,327
4,500,000 WFS Financial Owner Trust,
Series 1997-D, Class A4,
6.25%, 3/20/03..................................... 4,569,143
3,681,641 Xerox Rental Equipment Trust,
Series 1996-A,
6.20%, 12/31/99 (a)................................ 3,688,544
------------
Total Asset-Backed Securities
(cost $58,415,622)................................. 59,055,354
------------
CORPORATE BONDS - 24.0%
Banks - 5.1%
3,350,000 Amsouth BanCorp.,
Sub. Deb.,
6.75%, 11/1/25..................................... 3,522,944
Bank One First Chicago NBD Corp.:
2,000,000 MTN, Series E,
9.20%, 12/17/01.................................... 2,188,804
4,000,000 Sub. Notes,
9.00%, 6/15/99..................................... 4,060,892
3,000,000 BB&T Corp.,
Sub. Notes,
6.375%, 6/30/05.................................... 3,088,815
2,000,000 Chase Manhattan Corp.,
Sub. Notes,
8.00%, 5/15/04..................................... 1,998,172
5,000,000 First Security Corp.,
MTN,
6.40%, 2/10/03..................................... 5,120,340
500,000 Security Pacific Corp.,
Notes,
10.45%, 5/8/01..................................... 550,097
------------
20,530,064
------------
Finance & Insurance - 10.3%
2,000,000 American Express Credit Corp.,
Step Bond (Eff. Yield 5.57%) (b),
6.25%, 2/10/99..................................... 2,035,902
3,000,000 Associated P&C Holdings, Inc.,
Gtd. Sr. Notes,
6.75%, 7/15/03 (a)................................. 3,024,258
3,000,000 Bear Stearns Co., Inc.,
Sr. Notes,
7.625%, 4/15/00.................................... 3,071,517
5,000,000 Case Credit Corp.,
Gtd. Notes,
6.125%, 2/15/03.................................... 4,927,505
1,500,000 Duke Capital Corp.,
Sr. Notes, Series A,
6.25%, 7/15/05..................................... 1,547,778
1,000,000 Horace Mann Educators Corp.,
Sr. Notes,
6.625%, 1/15/06.................................... 1,047,471
Lehman Brothers Holdings, Inc.:
2,500,000 MTN,
6.84%, 10/7/99...................................... 2,512,565
35
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Short Intermediate Bond Fund
- --------------------------------------------------------------------------------
Schedule of Investments(continued)
December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
CORPORATE BONDS - continued
Finance & Insurance - continued
Lehman Brothers Holdings, Inc.:
$ 5,000,000 Sr. Notes,
6.625%, 11/15/00.................................. $ 5,019,215
5,000,000 Notes,
8.875%, 3/1/02.................................... 5,340,250
5,000,000 Metropolitan Life Insurance Co.,
Surplus Notes,
7.00%, 11/1/05 (a)................................ 5,307,445
7,000,000 Salomon, Inc.,
Sr. Notes,
7.20%, 2/1/04..................................... 7,361,669
------------
41,195,575
------------
Healthcare Products & Services - 1.8%
7,500,000 Columbia/HCA Healthcare Corp.,
Notes,
6.875%, 7/15/01................................... 7,446,337
------------
Industrial Specialty Products & Services - 2.4%
5,000,000 Case Corp.,
Notes,
6.25%, 12/1/03 (a)................................ 4,997,960
4,375,000 Johnson Controls, Inc.,
Notes,
6.30%, 2/1/08..................................... 4,547,690
------------
9,545,650
------------
Telecommunication Services & Equipment - 1.9%
5,000,000 GTE Corp.,
Deb.,
10.25%, 11/1/20................................... 5,723,640
2,000,000 Worldcom, Inc.,
Sr. Notes,
6.125%, 8/15/01................................... 2,034,732
------------
7,758,372
------------
Transportation - 1.3%
5,000,000 U.S. Airways, Inc.,
Series 1998-1,
7.35%, 1/30/18.................................... 5,109,225
------------
Utilities - 1.2%
5,000,000 LG&E Capital Corp.,
MTN
5.75%, 11/1/01 (a)................................ 4,984,135
------------
Total Corporate Bonds
(cost $94,781,687)................................ 96,569,358
------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 8.4%
3,150,000 Chase Commercial Mtge.
Securities Corp.,
Series 1996-2, Class C,
6.90%, 11/19/28................................... 3,263,321
1,537,185 CMC Securities Corp.,
Series 1993-D, Class D3,
10.00%, 7/25/23................................... 1,572,214
5,000,000 Credit Suisse First Boston
Mtge. Securities Corp.,
Series 1998-C1, Class A1B,
6.48%, 5/17/08.................................... 5,176,525
FHLMC:
4,139,967 Series 1546, Class D,
5.75%, 10/15/16................................... 4,138,704
4,170,070 Series 1991, Class PA,
6.00%, 3/15/14.................................... 4,179,349
3,000,000 FNMA, REMIC,
Series 1998-W8, Class A4,
6.02%, 9/25/28.................................... 3,029,925
Potomac Gurnee Finance Corp.:
2,429,501 Series 1, Class A,
6.887%, 12/21/26 (a).............................. 2,546,979
2,500,000 Series 1, Class B,
7.003%, 12/21/26 (a).............................. 2,592,763
4,675,444 Prudential Securities
Secured Financing Corp.,
Series 1998-C1, Class A1,
6.105%, 11/15/02.................................. 4,723,578
2,502,585 RMF Commercial Mtge.,
Series 1997-1, Class A,
6.38%, 1/15/19 (a)................................ 2,525,572
------------
Total Collateralized Mortgage Obligations
(cost $33,294,716)................................ 33,748,930
------------
MORTGAGE-BACKED SECURITIES - 20.0%
2,500,000 DLJ Mtge. Acceptance Corp.,
Series 1993, Class MF7,
7.95%, 6/18/03.................................... 2,655,987
Federal Housing Administration -
Puttable Project Loans:
4,315,413 7.43%, 11/1/22.................................... 4,670,506
4,564,092 Merrill Lynch 199,
8.43%, 2/1/20..................................... 4,984,422
2,808,952 Reilly 18,
6.875%, 4/1/15.................................... 2,780,862
1,538,766 Reilly 55,
7.43%, 3/1/24..................................... 1,677,340
9,479,335 Reilly 64,
7.43%, 1/1/24..................................... 10,259,721
3,000,000 FHLB,
5.45%, 10/19/05................................... 3,039,693
FHLMC:
2,750,000 6.00%, 5/15/16.................................... 2,796,771
265,618 10.50%, 9/1/15.................................... 291,526
2,000,000 Deb.,
6.97%, 6/16/05.................................... 2,047,878
FNMA:
7,000,000 6.85%, 4/5/04..................................... 7,531,629
5,851,820 11.00%, 2/15/25................................... 6,519,699
18,694 14.00%, 6/1/11.................................... 21,658
2,952,876 Pool #252106,
6.00%, 11/1/08.................................... 2,968,172
2,100,000 REMIC Trust, Series 1992,
Class G44H,
8.00%, 11/25/06................................... 2,159,617
9,000,000 Series 1995-W1, Class A6,
8.10%, 4/25/25.................................... 9,296,815
4,000,000 Kidder Peabody Acceptance Corp.,
Series 1994-C1, Class A,
6.65%, 2/1/06..................................... 4,094,260
3,000,000 Nationslink Funding Corp.,
Commercial Mtge. Certificates,
Series 1998-C1, Class A1A1,
6.803%, 1/20/08................................... 3,014,400
2,000,000 Painewebber Mtge. Acceptance
Corp. IV, Multifamily Mtge.,
Series 1996-M1, Class E,
7.655%, 1/2/12 (a)................................ 2,071,250
36
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Short Intermediate Bond Fund
- --------------------------------------------------------------------------------
Schedule of Investments(continued)
December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES - continued
$ 4,672,867 Prudential Home Mtge. Securities,
Series 1993-39, Class A8,
6.50%, 10/25/08.................................... $ 4,695,927
2,756,457 Saxon Mtge. Securities Corp.,
Series 1993-8A, Class 1A2,
7.375%, 9/25/23.................................... 2,775,022
------------
Total Mortgage-Backed Securities
(cost $77,939,112)................................. 80,353,155
------------
MUNICIPAL BONDS - 0.8% (cost $2,885,285)
2,900,000 VA Hsg. Dev. Auth.,
Taxable Subseries A-4,
7.00%, 1/1/14...................................... 3,100,970
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 5.6%
FHLB:
3,000,000 6.043%, 4/28/03..................................... 3,008,400
4,105,000 6.07%, 8/28/08...................................... 4,163,320
Consolidated Bond:
1,780,590 6.47%, 9/16/02...................................... 1,785,576
3,300,000 6.54%, 12/12/07..................................... 3,410,606
9,035,000 FNMA,
MTN,
6.92%, 3/19/07..................................... 10,049,603
------------
Total U.S. Government Agency Obligations
(cost $22,353,969)................................. 22,417,505
------------
U.S. TREASURY OBLIGATIONS - 18.0%
U.S. Treasury Notes,
14,000,000 5.625%, 5/15/08..................................... 14,940,632
5,000,000 5.75%, 4/30/03...................................... 5,203,125
22,525,000 6.125%, 8/15/07..................................... 24,622,641
8,000,000 6.25%, 2/15/07...................................... 8,777,504
2,500,000 6.50%, 10/15/06..................................... 2,775,782
9,000,000 6.625%, 5/15/07..................................... 10,125,000
4,980,000 7.00%, 7/15/06...................................... 5,672,534
------------
Total U.S. Treasury Obligations
(cost $68,291,636)................................. 72,117,218
------------
YANKEE OBLIGATIONS - 5.9%
5,000,000 Boral Limited Australia Co.,
MTN,
7.90%, 11/19/99 (a)................................ 5,097,885
Korea Dev. Bank, Bond:
5,000,000 7.25%, 5/15/06..................................... 4,578,270
6,000,000 7.375%, 9/17/04.................................... 5,477,040
6,000,000 National Bank of Canada,
Yankee Notes,
Series B,
8.125%, 8/15/04.................................... 6,661,206
2,000,000 Ras Laffan Liquefied Natural Gas, Bond,
7.628%, 9/15/06 (a)................................ 1,816,684
------------
Total Yankee Obligations
(cost $24,450,580)................................. 23,631,085
------------
REPURCHASE AGREEMENT - 1.8% (cost $7,303,330)
7,303,330 Dresdner Kleinwort Benson N.A., LLC, 4.25%, dated
12/31/98, due 01/04/99, maturity value $7,306,779
(Collateralized by $7,410,000 U.S. Treasury
Inflation Index Bonds, 3.625%, due 01/15/08,
value, including accrued interest $7,453,667)...... 7,303,330
------------
Total Investments -
(cost $389,715,937)......................... 99.2% 398,296,905
Other Assets and
Liabilities - net........................... 0.8 3,374,706
------ ------------
Net Assets - ................................ 100.0% $401,671,611
====== ============
(a) Securities that may be sold to qualified institutional buyers under
Rule 144A or securities offered pursuant to Section 4(2) of the
Securities Act of 1933, as amended. These securities have been
determined to be liquid under guidelines established by the Board of
Trustees.
(b) Effective yield (calculated at the time of purchase) is the yield at
which the bond accretes on an annual basis until maturity date.
Summary of Abbreviations
FHLB Federal Home Loan Bank
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
GNMA Government National Mortgage Association
MTN Medium Term Note
REMIC Real Estate Mortgage Investment Conduit
STRIPs Separately Traded Registered Interest and Principal Securities
See Combined Notes to Financial Statements.
37
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Short and Intermediate Term Bond Funds
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Capital Intermediate Intermediate Short
Preservation Bond Government Intermediate
Fund Fund Fund Fund
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Investments at cost..... $43,020,600 $188,011,996 $163,858,020 $389,715,937
Net unrealized gain or
loss on securities.... (265,454) 4,976,349 5,482,022 8,580,968
- ----------------------------------------------------------------------------------
Investments at market
value.................. 42,755,146 192,988,345 169,340,042 398,296,905
Cash.................... 375 964 0 0
Receivable for
investments sold....... 0 1,006,870 0 0
Principal paydown
receivable............. 336,566 0 0 74,733
Receivable for Fund
shares sold............ 700 241,960 78,031 694,975
Interest receivable..... 322,960 2,766,415 1,818,111 4,960,134
Unrealized appreciation
on forward foreign
currency exchange
contracts.............. 0 77,637 0 0
Prepaid expenses and
other assets........... 27,363 77,045 51,133 70,467
- ----------------------------------------------------------------------------------
Total assets.......... 43,443,110 197,159,236 171,287,317 404,097,214
- ----------------------------------------------------------------------------------
Liabilities
Distributions payable... 78,315 289,861 281,788 764,606
Payable for Fund shares
redeemed............... 11,343 284,648 1,772,907 1,412,316
Advisory fees payable... 19,154 78,163 87,704 169,665
Distribution fees
payable................ 18,220 51,668 0 7,741
Due to other related
parties................ 710 2,952 6,265 8,768
Accrued expenses and
other liabilities...... 24,555 39,484 23,671 62,507
- ----------------------------------------------------------------------------------
Total liabilities..... 152,297 746,776 2,172,335 2,425,603
- ----------------------------------------------------------------------------------
Net assets.............. $43,290,813 $196,412,460 $169,114,982 $401,671,611
- ----------------------------------------------------------------------------------
Net assets represented
by
Paid-in capital......... $50,444,358 $206,936,106 $183,631,553 $412,210,374
Distributions in excess
of net investment
income................. (89,077) (416,425) (76,748) (281,479)
Accumulated net
realized loss on
securities and foreign
currency related
transactions........... (6,799,014) (15,160,813) (19,921,845) (18,838,252)
Net unrealized gain or
loss on securities and
foreign currency
related transactions... (265,454) 5,053,592 5,482,022 8,580,968
- ----------------------------------------------------------------------------------
Total net assets...... $43,290,813 $196,412,460 $169,114,982 $401,671,611
- ----------------------------------------------------------------------------------
Net assets consist of
Class A................. $15,023,835 $119,547,860 $ 75,778,446 $ 20,086,451
Class B................. 24,209,509 11,788,312 3,068,870 25,211,516
Class C................. 4,057,469 5,385,530 209,237 1,546,485
Class Y................. -- 59,690,758 90,058,429 354,827,159
- ----------------------------------------------------------------------------------
$43,290,813 $196,412,460 $169,114,982 $401,671,611
- ----------------------------------------------------------------------------------
Shares outstanding
Class A................. 1,555,333 13,105,347 7,345,948 2,005,764
Class B................. 2,504,150 1,290,310 297,492 2,512,521
Class C................. 420,036 589,527 20,283 154,112
Class Y................. -- 6,543,645 8,730,265 35,430,952
- ----------------------------------------------------------------------------------
Net asset value per
share
Class A................. $ 9.66 $ 9.12 $ 10.32 $ 10.01
- ----------------------------------------------------------------------------------
Class A -- Offering
price (based on sales
charge of 3.25%)....... $ 9.98 $ 9.43 $ 10.67 $ 10.35
- ----------------------------------------------------------------------------------
Class B................. $ 9.67 $ 9.14 $ 10.32 $ 10.03
- ----------------------------------------------------------------------------------
Class C................. $ 9.66 $ 9.14 $ 10.32 $ 10.03
- ----------------------------------------------------------------------------------
Class Y................. -- $ 9.12 $ 10.32 $ 10.01
- ----------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
38
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Short and Intermediate Term Bond Funds
- --------------------------------------------------------------------------------
Statements of Operations
Six Months Ended December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Capital Intermediate Intermediate Short
Preservation Bond Government Intermediate
Fund Fund Fund Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income
Interest (net of foreign
withholding taxes of $0,
$4,331, $0 and $0,
respectively)........... $1,453,256 $6,965,924 $5,496,877 $13,044,723
- --------------------------------------------------------------------------------
Expenses
Advisory fee............. 142,983 615,585 534,391 996,239
Distribution Plan
expenses................. 165,299 236,045 110,013 135,484
Transfer agent fees...... 35,967 219,973 114,410 307,895
Administrative services
fees..................... 3,578 15,667 23,848 53,353
Trustees' fees and
expenses................. 69 3,932 436 5,295
Shareholder reports
expense.................. 11,411 15,259 8,089 16,692
Custodian fees........... 5,971 43,477 26,796 51,200
Registration and filing
fees..................... 19,924 57,700 29,339 28,125
Professional fees........ 11,233 12,411 8,274 12,644
Other.................... 304 1,568 262 2,464
- --------------------------------------------------------------------------------
Total expenses......... 396,739 1,221,617 855,858 1,609,391
Less: Fee credits....... (832) (4,074) (604) (17,844)
Fee waivers........ (82,647) (152,814) (75,466) 0
- --------------------------------------------------------------------------------
Net expenses........... 313,260 1,064,729 779,788 1,591,547
- --------------------------------------------------------------------------------
Net investment income.... 1,139,996 5,901,195 4,717,089 11,453,176
- --------------------------------------------------------------------------------
Net realized and
unrealized gain or loss
on securities and
foreign currency related
transactions
Realized gain or loss on:
Securities............... (15,502) (268,101) 30,548 (1,896,938)
Foreign currency related
transactions.......... 0 (251,774) 0 0
- --------------------------------------------------------------------------------
Net realized gain or loss
on securities and
foreign currency related
transactions........... (15,502) (519,875) 30,548 (1,896,938)
- --------------------------------------------------------------------------------
Net change in unrealized
gain or loss on
securities and foreign
currency related
transactions........... (332,684) 1,476,045 1,894,853 6,570,094
- --------------------------------------------------------------------------------
Net realized and
unrealized gain or loss
on securities and
foreign currency related
transactions........... (348,186) 956,170 1,925,401 4,673,156
- --------------------------------------------------------------------------------
Net increase in net
assets resulting from
operations............. $ 791,810 $6,857,365 $6,642,490 $16,126,332
- --------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
39
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Short and Intermediate Term Bond Funds
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
Six Months Ended December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Capital Intermediate Intermediate Short
Preservation Bond Government Intermediate
Fund Fund Fund Fund
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income... $ 1,139,996 $ 5,901,195 $ 4,717,089 $ 11,453,176
Net realized gain or
loss on securities and
foreign currency
related transactions... (15,502) (519,875) 30,548 (1,896,938)
Net change in unrealized
gain or loss on
securities and foreign
currency related
transactions........... (332,684) 1,476,045 1,894,853 6,570,094
- -----------------------------------------------------------------------------------
Net increase in net
assets resulting from
operations............ 791,810 6,857,365 6,642,490 16,126,332
- -----------------------------------------------------------------------------------
Distributions to
shareholders from net
investment income
Class A................ (447,822) (3,601,444) (2,116,092) (526,354)
Class B................ (602,065) (286,095) (43,329) (577,788)
Class C................ (97,617) (137,551) (3,921) (33,345)
Class Y................ 0 (1,911,160) (2,588,773) (10,398,062)
- -----------------------------------------------------------------------------------
Total distributions to
shareholders.......... (1,147,504) (5,936,250) (4,752,115) (11,535,549)
- -----------------------------------------------------------------------------------
Capital share
transactions
Proceeds from shares
sold................... 4,961,984 17,686,791 21,586,506 80,372,918
Proceeds from
reinvestment of
distributions.......... 820,655 3,935,896 2,796,438 6,622,207
Payment for shares
redeemed............... (10,186,325) (29,776,692) (39,099,583) (78,929,364)
- -----------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from capital
share transactions.... (4,403,686) (8,154,005) (14,716,639) 8,065,761
- -----------------------------------------------------------------------------------
Total increase
(decrease) in net
assets............... (4,759,380) (7,232,890) (12,826,264) 12,656,544
Net assets
Beginning of period..... 48,050,193 203,645,350 181,941,246 389,015,067
- -----------------------------------------------------------------------------------
End of period........... $ 43,290,813 $196,412,460 $169,114,982 $401,671,611
===================================================================================
Distributions in excess
of net investment
income................. $ (89,077) $ (416,425) $ (76,748) $ (281,479)
===================================================================================
</TABLE>
See Combined Notes to Financial Statements.
40
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Short and Intermediate Term Bond Funds
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
Year Ended June 30, 1998
<TABLE>
<CAPTION>
Capital Intermediate Intermediate Short
Preservation Bond Government Intermediate
Fund Fund Fund Fund
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income... $ 2,568,924 $ 5,462,136 $ 6,080,301 $ 24,446,841
Net realized gain or
loss on securities and
foreign currency
related transactions... 162,335 93,422 263,411 (1,189,957)
Net change in unrealized
gain or loss on
securities and foreign
currency related
transactions........... (474,778) 518,784 1,220,668 3,858,427
- ------------------------------------------------------------------------------------
Net increase in net
assets resulting from
operations............ 2,256,481 6,074,342 7,564,380 27,115,311
- ------------------------------------------------------------------------------------
Distributions to
shareholders from net
investment income
Class A................ (887,540) (2,960,648) (1,551,596) (1,003,205)
Class B................ (1,474,326) (654,821) (35,699) (1,108,182)
Class C................ (207,058) (410,056) (5,115) (53,200)
Class Y................ 0 (1,652,096) (4,476,803) (22,216,773)
- ------------------------------------------------------------------------------------
Total distributions to
shareholders.......... (2,568,924) (5,677,621) (6,069,213) (24,381,360)
- ------------------------------------------------------------------------------------
Capital share
transactions
Proceeds from shares
sold................... 19,443,143 24,366,074 19,195,384 140,518,437
Proceeds from shares
issued in connection
with the acquisition
of:
Blanchard Short-Term
Flexible Income Fund.. 0 116,766,103 0 0
Evergreen Intermediate
Term Bond Fund II..... 0 66,213,695 0 0
Virtus U.S. Government
Securities Fund....... 0 0 133,551,466 0
Proceeds from
reinvestment of
distributions.......... 1,756,964 3,396,992 4,080,093 13,099,071
Payment for shares
redeemed............... (25,657,158) (36,461,819) (49,294,072) (166,012,044)
- ------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from capital
share transactions.... (4,457,051) 174,281,045 107,532,871 (12,394,536)
- ------------------------------------------------------------------------------------
Total increase
(decrease) in net
assets............... (4,769,494) 174,677,766 109,028,038 (9,660,585)
Net assets
Beginning of year....... 52,819,687 28,967,584 72,913,208 398,675,652
- ------------------------------------------------------------------------------------
End of year............. $ 48,050,193 $203,645,350 $181,941,246 $ 389,015,067
====================================================================================
Distributions in excess
of net investment
income................. $ (81,569) $ (381,370) $ (41,722) $ (199,106)
====================================================================================
</TABLE>
See Combined Notes to Financial Statements.
41
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Combined Notes to Financial Statements (Unaudited)
1. ORGANIZATION
The Evergreen Short and Intermediate Term Bond Funds consist of Evergreen Capi-
tal Preservation and Income Fund ("Capital Preservation Fund"), Evergreen In-
termediate Term Bond Fund ("Intermediate Bond Fund"), Evergreen Intermediate
Term Government Securities Fund ("Intermediate Government Fund") and Evergreen
Short Intermediate Bond Fund ("Short Intermediate Fund"), (collectively, the
"Funds"). Each Fund is a diversified series of Evergreen Fixed Income Trust
(the "Trust"), a Delaware business trust organized on September 18, 1997. The
Trust is an open end management investment company registered under the Invest-
ment Company Act of 1940, as amended (the "1940 Act").
The Funds offer Class A, Class B, Class C and/or Class Y shares. Class A shares
are sold with a maximum front-end sales charge of 3.25%. Class B and Class C
shares are sold without a front-end sales charge, but pay a higher ongoing dis-
tribution fee than Class A. Class B shares are sold subject to a contingent de-
ferred sales charge that is payable upon redemption and decreases depending on
how long the shares have been held. Class B shares purchased after January 1,
1997 will automatically convert to Class A shares after seven years. Class B
shares purchased prior to January 1, 1997 retain their existing conversion
rights. Class C shares are sold subject to a contingent deferred sales charge
payable on shares redeemed within one year after the month of purchase. Class Y
shares are sold at net asset value and are not subject to contingent deferred
sales charges or distribution fees. Class Y shares are sold only to investment
advisory clients of First Union Corporation ("First Union") and its affiliates,
certain institutional investors or Class Y shareholders of record of certain
other funds managed by First Union and its affiliates as of December 30, 1994.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently fol-
lowed by the Funds in the preparation of their financial statements. The poli-
cies are in conformity with generally accepted accounting principles, which re-
quire management to make estimates and assumptions that affect amounts reported
herein. Actual results could differ from these estimates.
A. Valuation of Securities
U.S. government obligations held by the Funds are valued at the mean between
the over-the-counter bid and asked prices. Corporate bonds, other fixed-income
securities, and mortgage and other asset-backed securities are valued at prices
provided by an independent pricing service. In determining value for normal in-
stitutional-size transactions, the pricing service uses methods based on market
transactions for comparable securities and analysis of various relationships
between similar securities which are generally recognized by institutional
traders. Securities for which valuations are not available from an independent
pricing service (including restricted securities) are valued at fair value as
determined in good faith according to procedures established by the Board of
Trustees.
Short-term investments with remaining maturities of 60 days or less are carried
at amortized cost, which approximates market value.
B. Repurchase Agreements
Each Fund may invest in repurchase agreements. Securities pledged as collateral
for repurchase agreements are held by the custodian on the Fund's behalf. Each
Fund monitors the adequacy of the collateral daily and will require the seller
to provide additional collateral in the event the market value of the securi-
ties pledged falls below the carrying value of the repurchase agreement, in-
cluding accrued interest. Each Fund will only enter into repurchase agreements
with banks and other financial institutions, which are deemed by the investment
advisor to be creditworthy pursuant to guidelines established by the Board of
Trustees.
Pursuant to an exemptive order issued by the Securities and Exchange Commis-
sion, the Capital Preservation Fund and Intermediate Bond Fund, along with cer-
tain other funds managed by Evergreen Investment Management Company ("EIMC"),
(formerly Keystone Investment Management Company), a subsidiary of First
42
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Combined Notes to Financial Statements (Unaudited) (continued)
Union, may transfer uninvested cash balances into a joint trading account.
These balances are invested in one or more repurchase agreements that are fully
collateralized by U.S. Treasury and/or federal agency obligations.
C. Reverse Repurchase Agreements
To obtain short-term financing, the Capital Preservation Fund and Intermediate
Bond Fund may enter into reverse repurchase agreements with qualified third-
party broker-dealers. Interest on the value of reverse repurchase agreements is
based upon competitive market rates at the time of issuance. At the time the
Fund enters into a reverse repurchase agreement, it will establish and maintain
a segregated account with the custodian containing qualifying assets having a
value not less than the repurchase price, including accrued interest. If the
counterparty to the transaction is rendered insolvent, the ultimate realization
of the securities to be repurchased by the Fund may be delayed or limited.
D. Foreign Currency
The books and records of the Funds are maintained in United States (U.S.) dol-
lars. Foreign currency amounts are translated into U.S. dollars as follows:
market value of investments, other assets and liabilities at the daily rate of
exchange; purchases and sales of investments, income and expenses at the rate
of exchange prevailing on the respective dates of such transactions. Net
unrealized foreign exchange gain (loss) resulting from changes in foreign cur-
rency exchange rates is a component of net unrealized gains or losses on in-
vestments and foreign currency related transactions. Net realized foreign cur-
rency gain or loss resulting from changes in exchange rates include foreign
currency gains and losses between trade date and settlement date on investment
securities transactions, foreign currency related transactions and the differ-
ence between the amounts of interest and dividends recorded on the books of the
Fund and the amount actually received and is included in realized gain or loss
on foreign currency related transactions. The portion of foreign currency gains
or losses related to fluctuations in exchange rates between the initial pur-
chase trade date and subsequent sale trade date is included in realized gain or
loss on foreign currency related transactions.
E. Forward Foreign Currency Exchange Contracts
The Funds may enter into forward foreign currency exchange contracts ("forward
contracts") to settle portfolio purchases and sales of securities denominated
in a foreign currency and to hedge certain foreign currency assets or liabili-
ties. Forward contracts are recorded at the forward rate and marked-to-market
daily. Realized gains and losses arising from such transactions are included in
net realized gain (loss) on foreign currency related transactions. The Fund
bears the risk of an unfavorable change in the foreign currency exchange rate
underlying the forward contract and is subject to the credit risk that the
other party will not fulfill their obligations under the contract. Forward con-
tracts involve elements of market risk in excess of the amount reflected in the
statement of assets and liabilities.
F. Securities Lending
In order to generate income and to offset expenses, the Funds may lend portfo-
lio securities to brokers, dealers and other financial organizations. The
Funds' investment advisor will monitor the creditworthiness of such borrowers.
Loans of securities may not exceed 33 1/3% of a Fund's total assets and will be
collateralized by cash, letters of credit or U.S. Government securities that
are maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities, including accrued interest. While such
securities are on loan, the borrower will pay a Fund any income accruing there-
on, and the Fund may invest the collateral in portfolio securities, thereby in-
creasing its return. A Fund will have the right to call any such loan and ob-
tain the securities loaned at any time on five days' notice. Any gain or loss
in the market price of the loaned securities, which occurs during the term of
the loan, would affect a Fund and its investors. A Fund may pay reasonable fees
in connection with such loans.
G. Security Transactions and Investment Income
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts.
43
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Combined Notes to Financial Statements (Unaudited) (continued)
H. Federal Taxes
The Funds have qualified and intend to continue to qualify as regulated invest-
ment companies under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Funds will not incur any federal income tax liability since
they are expected to distribute all of their net investment company taxable in-
come and net capital gains, if any, to their shareholders. The Funds also in-
tend to avoid any excise tax liability by making the required distributions un-
der the Code. Accordingly, no provision for federal taxes is required. To the
extent that realized capital gains can be offset by capital loss carryforwards,
it is each Fund's policy not to distribute such gains.
Capital losses incurred after October 31, within the Fund's fiscal year are
deemed to arise on the first business day of the Fund's following fiscal year.
The Short Intermediate Fund has incurred and will elect to defer post October
losses of $683,000.
I. Distributions
Distributions from net investment income for each Fund are declared daily and
paid monthly. Distributions from net realized capital gains, if any, are paid
at least annually. Distributions to shareholders are recorded at the close of
business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in accor-
dance with income tax regulations, which may differ from generally accepted ac-
counting principles. The significant differences between financial statement
amounts available for distributions and distributions made in accordance with
income tax regulations are primarily due to differing treatment for mortgage
paydown gains and losses and foreign currency related transactions. Certain
distributions paid during previous years have been reclassified to conform to
current year presentation.
J. Class Allocations
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the rela-
tive net assets of each class. Currently, class specific expenses are limited
to expenses incurred under the Distribution Plans for each class.
3. ACQUISITIONS
The Intermediate Bond Fund was organized for the purpose of combining the as-
sets of the Keystone Intermediate Term Bond Fund and Evergreen Intermediate
Term Bond Fund II (formerly, the Evergreen Intermediate Term Bond Fund).
On January 21, 1998, prior to the combination of assets into Intermediate Bond
Fund, Evergreen Intermediate Term Bond Fund II transferred substantially all of
its net assets related to its Class Y shares to Evergreen Select Core Bond
Fund, an institutional fund, through a redemption-in-kind in the amount of ap-
proximately $108,000,000.
On January 23, 1998, Intermediate Bond Fund acquired all the remaining assets
and assumed certain liabilities of Evergreen Intermediate Term Bond Fund II in
exchange for Class A, Class B, Class C and Class Y shares of the Intermediate
Bond Fund. Also, the Intermediate Bond Fund acquired all the assets and assumed
certain liabilities of the Keystone Intermediate Term Bond Fund in exchange for
Class A, Class B and Class C shares of Intermediate Bond Fund.
On February 28, 1998, Intermediate Bond Fund acquired all of the assets and as-
sumed certain liabilities of Blanchard Short-Term Flexible Income Fund, in an
exchange for Class A shares of Intermediate Bond Fund. Also, the Intermediate
Government Fund acquired all of the assets and assumed certain liabilities of
Virtus U.S. Government Securities Fund, in an exchange for Class A shares of
Intermediate Government Fund.
44
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Combined Notes to Financial Statements (Unaudited) (continued)
These acquisitions were accomplished by a tax-free exchange of the respective
shares of each Fund. The value of assets acquired, number of shares issued,
unrealized appreciation acquired and the aggregate net assets of each Fund im-
mediately after the acquisition are as follows:
<TABLE>
<CAPTION>
Value of Net Number of Unrealized Net Assets
Acquiring Fund Acquired Fund Assets Acquired Shares Issued Appreciation After
Acquisition
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Intermediate Bond Fund.. Evergreen Intermediate Term
Bond Fund II $ 66,213,695 7,287,484 $ 616,992 $ 93,235,040
Intermediate Bond Fund.. Blanchard Short-Term Flexible
Income Fund 116,766,103 12,856,531 2,511,574 211,601,433
Intermediate Government
Fund................... Virtus U.S. Government
Securities Fund 133,551,466 13,103,834 1,895,706 201,883,701
</TABLE>
4. CAPITAL SHARE TRANSACTIONS
The Funds have an unlimited number of shares of beneficial interest with $0.001
par value authorized. Shares of beneficial interest of the Funds are currently
divided into Class A, Class B, Class C and/or Class Y. Transactions in shares
of the Funds were as follows:
- --------------------------------------------------------------------------------
Capital Preservation Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
December 31, 1998 June 30, 1998
--------------------- ------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold.................. 213,243 $ 2,065,274 1,684,678 $ 16,480,670
Shares issued in reinvestment
of distributions............ 33,942 329,132 62,340 609,698
Shares redeemed.............. (543,160) (5,271,184) (1,502,907) (14,712,976)
- -------------------------------------------------------------------------------
Net increase (decrease)...... (295,975) $(2,876,778) 244,111 $ 2,377,392
- -------------------------------------------------------------------------------
Class B
Shares sold.................. 209,940 $ 2,043,260 212,637 $ 2,082,936
Shares issued in reinvestment
of distributions............ 41,886 406,325 99,464 974,126
Shares redeemed.............. (421,717) (4,094,620) (998,736) (9,785,685)
- -------------------------------------------------------------------------------
Net decrease................. (169,891) $(1,645,035) (686,635) $ (6,728,623)
- -------------------------------------------------------------------------------
Class C
Shares sold.................. 87,847 $ 853,450 89,775 $ 879,537
Shares issued in reinvestment
of distributions............ 8,790 85,198 17,696 173,140
Shares redeemed.............. (84,571) (820,521) (118,346) (1,158,497)
- -------------------------------------------------------------------------------
Net increase (decrease)...... 12,066 $ 118,127 (10,875) $ (105,820)
===============================================================================
</TABLE>
45
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Combined Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
Intermediate Bond Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
December 31, 1998 June 30, 1998
------------------------ ------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold............... 998,390 $ 9,087,057 955,523 $ 8,660,565
Shares issued in
acquisition of:
Evergreen Intermediate
Term Bond Fund II....... 0 0 349,314 3,173,762
Blanchard Short-Term
Flexible Income Fund.... 0 0 12,856,531 116,766,103
Shares issued in
reinvestment of
distributions............ 340,051 3,100,037 263,979 2,392,256
Shares redeemed........... (1,857,400) (16,907,674) (1,958,558) (17,753,140)
- --------------------------------------------------------------------------------
Net increase (decrease)... (518,959) $ (4,720,580) 12,466,789 $113,239,546
- --------------------------------------------------------------------------------
Class B
Shares sold............... 223,085 $ 2,037,724 150,439 $ 1,368,742
Shares issued in
acquisition of Evergreen
Intermediate Term Bond
Fund II.................. 0 0 129,724 1,180,255
Shares issued in
reinvestment of
distributions............ 17,514 159,921 36,150 328,759
Shares redeemed........... (133,908) (1,218,552) (403,520) (3,667,231)
- --------------------------------------------------------------------------------
Net increase (decrease)... 106,691 $ 979,093 (87,207) $ (789,475)
- --------------------------------------------------------------------------------
Class C
Shares sold............... 65,919 $ 599,865 243,096 $ 2,208,772
Shares issued in
acquisition of Evergreen
Intermediate Term Bond
Fund II.................. 0 0 5,677 51,630
Shares issued in
reinvestment of
distributions............ 10,590 96,651 30,163 274,457
Shares redeemed........... (85,199) (776,710) (492,378) (4,464,809)
- --------------------------------------------------------------------------------
Net decrease.............. (8,690) $ (80,194) (213,442) $ (1,929,950)
================================================================================
</TABLE>
<TABLE>
<CAPTION>
January 26, 1998
(Commencement of
Six Months Ended Class Operations) to
December 31, 1998 June 30, 1998
------------------------ ------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class Y
Shares sold................ 655,020 $ 5,962,145 1,335,378 $ 12,127,995
Shares issued in
acquisition of Evergreen
Intermediate Term Bond
Fund II................... 0 0 6,802,769 61,808,048
Shares issued in
reinvestment of
distributions............. 63,544 579,287 44,309 401,520
Shares redeemed............ (1,192,179) (10,873,756) (1,165,196) (10,576,639)
- -------------------------------------------------------------------------------
Net increase (decrease).... (473,615) $ (4,332,324) 7,017,260 $ 63,760,924
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Intermediate Government Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
December 31, 1998 June 30, 1998
------------------------ ------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold............... 480,061 $ 4,922,888 230,309 $ 2,342,853
Shares issued in
acquisition of Virtus
U.S. Government
Securities Fund.......... 8,857,360 90,273,998
Shares issued in
reinvestment of
distributions............ 163,681 1,689,362 118,050 1,202,780
Shares redeemed........... (1,237,190) (12,737,999) (1,323,352) (13,483,204)
- ------------------------------------------------------------------------------
Net increase (decrease)... (593,448) $ (6,125,749) 7,882,367 $ 80,336,427
- ------------------------------------------------------------------------------
Class B
Shares sold............... 256,109 $ 2,649,688 79,762 $ 811,849
Shares issued in
reinvestment of
distributions............ 2,839 29,343 2,377 24,146
Shares redeemed........... (64,542) (665,317) (53,064) (538,430)
- ------------------------------------------------------------------------------
Net increase.............. 194,406 $ 2,013,714 29,075 $ 297,565
- ------------------------------------------------------------------------------
Class C
Shares sold............... 13,871 $ 143,430 10,721 $ 108,822
Shares issued in
reinvestment of
distributions............ 294 3,039 496 5,037
Shares redeemed........... (6,276) (64,710) (30) (306)
- ------------------------------------------------------------------------------
Net increase.............. 7,889 $ 81,759 11,187 $ 113,553
- ------------------------------------------------------------------------------
Class Y
Shares sold............... 1,344,945 $ 13,870,500 1,570,425 $ 15,931,860
Shares issued in
acquisition of Virtus
U.S. Government
Securities Fund.......... 0 0 4,246,474 43,277,468
Shares issued in
reinvestment of
distributions............ 104,144 1,074,694 280,814 2,848,130
Shares redeemed........... (2,489,893) (25,631,557) (3,469,534) (35,272,132)
- ------------------------------------------------------------------------------
Net increase (decrease)... (1,040,804) $(10,686,363) 2,628,179 $ 26,785,326
==============================================================================
</TABLE>
46
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Combined Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
Short Intermediate Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
December 31, 1998 June 30, 1998
------------------------ --------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold............. 807,300 $ 8,061,670 500,922 $ 4,955,344
Shares issued in
reinvestment of
distributions.......... 41,202 411,965 76,079 752,038
Shares redeemed......... (545,059) (5,424,755) (674,862) (6,681,274)
- ------------------------------------------------------------------------------
Net increase
(decrease)............. 303,443 $ 3,048,880 (97,861) $ (973,892)
- ------------------------------------------------------------------------------
Class B
Shares sold............. 1,250,520 $ 12,509,726 1,023,010 $ 10,138,464
Shares issued in
reinvestment of
distributions.......... 41,859 419,451 78,547 778,080
Shares redeemed......... (1,067,737) (10,659,115) (1,071,136) (10,623,170)
- ------------------------------------------------------------------------------
Net increase............ 224,642 $ 2,270,062 30,421 $ 293,374
- ------------------------------------------------------------------------------
Class C
Shares sold............. 50,411 $ 504,139 64,686 $ 642,818
Shares issued in
reinvestment of
distributions.......... 2,911 29,152 4,490 44,480
Shares redeemed......... (14,483) (144,772) (58,395) (579,321)
- ------------------------------------------------------------------------------
Net increase............ 38,839 $ 388,519 10,781 $ 107,977
- ------------------------------------------------------------------------------
Class Y
Shares sold............. 5,942,460 $ 59,297,383 12,608,737 $ 124,781,811
Shares issued in
reinvestment of
distributions.......... 576,419 5,761,639 1,165,985 11,524,473
Shares redeemed......... (6,283,422) (62,700,722) (14,971,442) (148,128,279)
- ------------------------------------------------------------------------------
Net increase
(decrease)............. 235,457 $ 2,358,300 (1,196,720) $ (11,821,995)
==============================================================================
</TABLE>
5. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) were as follows for the six months ended December 31,
1998:
<TABLE>
<CAPTION>
Cost of Purchases Proceeds from Sales
----------------------------------- -----------------------------------
U.S. Government Non-U.S. Government U.S. Government Non-U.S. Government
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Preservation
Fund................... $ 8,043,100 $ 426,000 $ 6,672,560 $ 0
Intermediate Bond Fund.. 70,920,834 73,280,379 82,562,672 78,763,060
Intermediate Government
Fund................... 5,812,115 0 19,098,377 0
Short Intermediate
Fund................... 37,827,268 84,486,661 95,146,104 23,721,707
</TABLE>
During the six months ended December 31, 1998, the following Funds entered into
reverse repurchase agreements as follows:
<TABLE>
<CAPTION>
Average Daily
Balance Weighted Average Maximum Amount
Outstanding Interest Rate Outstanding*
---------------------------------------------
<S> <C> <C> <C>
Capital Preservation Fund..... $ 402,895 5.522% $ 500,382
Intermediate Bond Fund........ 1,015,195 5.527% 5,302,459
</TABLE>
* The Maximum Amount Outstanding under reverse repurchase agreements includes
accrued interest.
There were no reverse repurchase agreements outstanding at December 31, 1998.
As of June 30, 1998, the Funds had capital loss carryovers for federal income
tax purposes as follows:
<TABLE>
<CAPTION>
Expiration
--------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 2006
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Capital Preservation
Fund................... -- $5,685,000 $ 197,000 $ 642,000 $ 254,000 -- --
Intermediate Bond Fund.. $598,000 2,688,000 9,514,000 118,000 359,000 $1,200,000 --
Intermediate Government
Fund................... -- -- 9,743,000 2,020,000 4,450,000 3,660,000 $ 39,000
Short Intermediate
Fund................... -- -- 6,021,000 -- 4,049,000 4,374,000 1,743,000
</TABLE>
47
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Combined Notes to Financial Statements (Unaudited) (continued)
6. DISTRIBUTION PLANS
Evergreen Distributor, Inc. ("EDI"), a wholly-owned subsidiary of The BISYS
Group Inc. ("BISYS"), serves as principal underwriter to the Funds.
Each Fund has adopted Distribution Plans for each class of shares, except Class
Y, as allowed by Rule 12b-1 of the 1940 Act. Distribution plans permit a fund
to reimburse its principal underwriter for costs related to selling shares of
the fund and for various other services. These costs, which consist primarily
of commissions and service fees to broker-dealers who sell shares of the fund,
are paid by the Fund through expenses called "Distribution Plan expenses". Each
class, except Class Y, currently pays a service fee equal to 0.25% of the aver-
age daily net assets of the class. The Class A shares of the Capital Preserva-
tion Fund are currently incurring service fees at a rate of 0.23% of average
daily net assets. The service fee for Class A shares of the Short Intermediate
Fund is currently limited to 0.10% of average daily net assets. Class B and
Class C also pay distribution fees equal to 0.75% of the average daily net as-
sets of each respective class. Distribution Plan expenses are calculated daily
and paid monthly.
During the six months ended December 31, 1998, amounts accrued or paid to EDI
pursuant to each Fund's Class A, Class B and Class C Distribution Plans were as
follows:
<TABLE>
<CAPTION>
Distribution
fees accrued Distribution
------------------------- fees waived
Class A Class B Class C Class A
------------------------- ------------
<S> <C> <C> <C> <C>
Capital Preservation Fund....... $ 18,506 $126,305 $20,488 --
Intermediate Bond Fund.......... 153,159 55,963 26,923 --
Intermediate Government Fund.... 99,298 9,823 892 $75,466
Short Intermediate Fund......... 9,176 119,403 6,905 --
</TABLE>
The principal underwriter may pay distribution fees greater than the allowable
annual amounts each Fund is permitted to pay under the Distribution Plans. Each
Fund may reimburse the principal underwriter for such excess amounts in later
years with annual interest at prime plus 1.00%.
Each of the Distribution Plans may be terminated at any time by vote of the In-
dependent Trustees or by vote of a majority of the outstanding voting shares of
the respective class.
7. INVESTMENT ADVISORY AGREEMENT AND OTHER AFFILIATED TRANSACTIONS
EIMC is the investment advisor for the Capital Preservation Fund and the Inter-
mediate Bond Fund. In return for providing investment management and adminis-
trative services to the Capital Preservation Fund and the Intermediate Bond
Fund, the Funds pay EIMC a management fee that is calculated daily and paid
monthly. The management fee is computed at an annual rate of 2.00% of each
Fund's gross investment income plus an amount determined by applying percentage
rates, starting at 0.50% and declining to 0.25% per annum as net assets in-
crease, to the average daily net asset value of each Fund.
Evergreen Investment Management ("EIM"), formerly the Capital Management Group,
a division of First Union National Bank, serves as the investment advisor to
the Intermediate Government Fund and Short Intermediate Fund and is paid a man-
agement fee that is computed daily and paid monthly. For the Intermediate Gov-
ernment Fund, EIM is entitled to a fee at an annual rate of 0.60% of the Fund's
average daily net assets. For the Short Intermediate Fund, EIM is entitled to a
fee at an annual rate of 0.50% of the Fund's average daily net assets.
For the six months ended December 31, 1998, the investment advisor of the fol-
lowing Funds waived advisory fees as follows:
<TABLE>
<S> <C>
Capital Preservation Fund..................................... $ 82,647
Intermediate Bond Fund........................................ 152,814
</TABLE>
Evergreen Investment Services ("EIS"), a subsidiary of First Union, is the ad-
ministrator and BISYS is the sub-administrator to the Funds. As administrator,
EIS provides the Funds with facilities, equipment and personnel.
48
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Combined Notes to Financial Statements (Unaudited) (continued)
As sub-administrator to the Funds, BISYS provides the officers of the Funds.
Officers of the Funds and affiliated Trustees receive no compensation directly
from the Funds.
For the Intermediate Government Fund and the Short Intermediate Fund, the ad-
ministrator and sub-administrator for each Fund is entitled to an annual fee
based on the average daily net assets of the funds administered by EIS for
which First Union or its investment advisory subsidiaries are also the invest-
ment advisors. The administration fee is calculated by applying percentage
rates, which start at 0.05% and decline to 0.01% per annum as net assets in-
crease, to the average daily net asset value of each Fund. The sub-administra-
tion fee is calculated by applying percentage rates, which start at 0.01% and
decline to 0.004% per annum as net assets increase, to the average daily net
assets of each Fund.
During the six months ended December 31, 1998, the Intermediate Government Fund
and Short Intermediate Fund paid or accrued the following amounts for adminis-
trative services and sub-administration services:
<TABLE>
<CAPTION>
Administration Sub-administration
-------------- ------------------
<S> <C> <C>
Intermediate Government Fund.......... $18,968 $ 4,880
Short Intermediate Fund............... 42,381 10,972
</TABLE>
During the six months ended December 31, 1998, the Capital Preservation Fund
and Intermediate Bond Fund reimbursed EIMC $3,578 and $15,667, respectively,
for certain administration and accounting expenses.
Evergreen Service Company ("ESC"), an indirect, wholly owned subsidiary of
First Union, serves as the transfer and dividend disbursing agent for the
Funds. The Funds have entered into an expense offset arrangement with ESC re-
lating to certain cash balances held at First Union for benefit of the Funds.
8. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an expense offset arrangement with their custodian.
The assets deposited with the custodian under this expense offset arrangement
could have been invested in income-producing assets.
9. DEFERRED TRUSTEES' FEES
Each Independent Trustee of each Fund may defer any or all compensation related
to performance of their duties as Trustees. The Trustees' deferred balances are
allocated to deferral accounts, which are included in the accrued expenses for
the Fund. The investment performance of the deferral accounts are based on the
investment performance of certain Evergreen Funds. Any gains earned or losses
incurred in the deferral accounts are reported in the Fund's Trustees' fees and
expenses. Trustees will be paid either in one lump sum or in quarterly install-
ments for up to ten years at their election, not earlier than either the year
in which the Trustee ceases to be a member of the Board of Trustees or January
1, 2000.
10. FINANCING AGREEMENT
Certain of the Evergreen Funds, State Street and a group of banks (collective-
ly, the "Banks") entered into a financing agreement, dated December 22, 1997,
as amended on November 20, 1998. Under this agreement, the Banks provided an
unsecured credit facility in the aggregate amount of $400 million ($275 million
committed and $125 million uncommitted). The credit facility was allocated, un-
der the terms of the financing agreement, among the Banks. The credit facility
was accessed by the Funds for temporary or emergency purposes only and was sub-
ject to each Fund's borrowing restrictions. Borrowings under this facility bear
interest at 0.50% per annum above the Federal Funds rate. A commitment fee of
0.065% per annum will be incurred on the unused portion of the committed facil-
ity, which was allocated to all funds. For its assistance in arranging this fi-
nancing agreement, the Capital Market Group of First Union was paid a one-time
arrangement fee of $27,500. State Street serves as administrative agent for the
Banks, and as administrative agent is entitled to a fee of $20,000 per annum
which is allocated to all of the funds.
This agreement was amended and renewed on December 22, 1998. The amended fi-
nancing agreement became effective on December 22, 1998 among all of the Ever-
green Funds, State Street and the Bank of New York ("BONY"). Under this agree-
ment, State Street and BONY provide an unsecured credit facility in the
49
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Combined Notes to Financial Statements (Unaudited) (continued)
aggregate amount of $150 million ($125 million committed and $25 million uncom-
mitted). The remaining terms and conditions of the agreement are unaffected.
During the six months ended December 31, 1998, the Funds had no borrowings un-
der this agreement.
11. YEAR 2000
Like other investment companies, the Funds could be adversely affected if the
computer systems used by the Funds' investment advisors and the Funds' other
service providers are not able to perform their intended functions effectively
after 1999 because of the inability of computer software to distinguish the
year 2000 from the year 1900. The Funds' investment advisors are taking steps
to address this potential year 2000 problem with respect to the computer sys-
tems that they use and obtain satisfactory assurances that comparable steps are
being taken by the Funds' other major service providers. At this time, however,
there can be no assurance that these steps will be sufficient to avoid any ad-
verse impact on the Funds from this problem.
50
<PAGE>
- --------------------------------------------------------------------------------
Evergreen Funds
Money Market
Treasury Money Market Fund
Money Market Fund
Municipal Money Market Fund
Florida Municipal Money Market Fund
New Jersey Municipal Money Market Fund
Pennsylvania Municipal Money Market Fund
Tax Exempt
Short Intermediate Municipal Fund
High Grade Municipal Bond Fund
Municipal Bond Fund
California Municipal Bond Fund
Connecticut Municipal Bond Fund
Florida Municipal Bond Fund
Florida High Income Municipal Bond Fund
Georgia Municipal Bond Fund
Maryland Municipal Bond Fund
Massachusetts Municipal Bond Fund
Missouri Municipal Bond Fund
New Jersey Municipal Bond Fund
New York Municipal Bond Fund
North Carolina Municipal Bond Fund
Pennsylvania Municipal Bond Fund
South Carolina Municipal Bond Fund
Virginia Municipal Bond Fund
Income
Capital Preservation and Income Fund
Short Intermediate Bond Fund
Intermediate Term Government Securities Fund
Intermediate Term Bond Fund
U.S. Government Fund
Diversified Bond Fund
Strategic Income Fund
High Yield Bond Fund
Balanced
American Retirement Fund
Balanced Fund
Tax Strategic Foundation Fund
Foundation Fund
Growth & Income
Utility Fund
Income and Growth Fund
Fund for Total Return
Value Fund
Select Equity Index Fund
Blue Chip Fund
Growth and Income Fund
Small Cap Equity Income Fund
Domestic Growth
Tax Strategic Equity Fund
Strategic Growth Fund
Stock Selector Fund
Evergreen Fund
Masters Fund
Omega Fund
Small Company Growth Fund
Aggressive Growth Fund
Micro Cap Fund
Global International
Global Leaders Fund
International Growth Fund
Global Opportunities Fund
Precious Metals Fund
Emerging Markets Growth Fund
Latin America Fund
Express Line
800.346.3858
Investor Services
800.343.2898
Retirement Plan Services
800.247.4075
www.evergreen-funds.com
36263 541496 02/99
- --------------------------------------------------------------------------------
-------------
[LOGO OF EVERGREEN BULK RATE
FUNDS(SM) APPEARS HERE] U.S. POSTAGE
PAID
200 Berkeley Street PERMIT NO. 19
Boston, MA 02116 HUDSON, MA
-------------
<PAGE>
Evergreen U.S. Government Fund
Pro Forma Combining Financial Statements (unaudited)
Statement of Assets and Liabilities (000's)
October 31, 1998
<TABLE>
<CAPTION>
Intermediate
U.S. Government Government Pro Forma
Fund Fund Adjustments Combined
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Investments at value (cost $361,853, $166,595 and
$528,448, respectively) $373,357 $172,834 $546,191
Interest receivable 4,557 2,451 7,008
Receivable for investments sold 52 0 52
Receivable for Fund shares sold 3,466 73 3,539
Prepaid expenses and other assets 92 32 124
-----------------------------------------------------------------
Total Assets 381,524 175,390 556,914
Liabilities:
Payable for investments purchased 6,880 0 6,880
Distributions to shareholders 525 292 817
Payable for Fund shares redeemed 345 138 483
Due to related parties 214 65 279
Accrued expenses and other liabilities 108 28 136
-----------------------------------------------------------------
Total Liabilities 8,072 523 8,595
Net Assets $373,452 $174,867 $548,319
=================================================================
Net assets are comprised of:
Paid-in capital 386,577 $170,525 $557,102
Accumulated distributions in excess of net
investment income 0 (20) (20)
Accumulated net realized loss on investments (24,629) (1,877) (26,506)
Net unrealized appreciation on investments 11,504 6,239 17,743
-----------------------------------------------------------------
Net Assets $373,452 $174,867 $548,319
=================================================================
Class A Shares
Net Assets $48,945 $78,073 $127,018
Shares of Beneficial Interest Outstanding 4,937 7,536 342 a 12,815
Net Asset Value $9.91 $10.36 $9.91
Maximum Offering Price (4.75%, 3.25%
and 4.75%, respectively) $10.40 $10.71 $10.40
Class B Shares
Net Assets $132,260 $2,513 $134,773
Shares of Beneficial Interest Outstanding 13,341 243 11 a 13,595
Net Asset Value $9.91 $10.36 $9.91
Class C Shares
Net Assets $5,833 $235 $6,068
Shares of Beneficial Interest Outstanding 588 23 1 a 612
Net Asset Value $9.91 $10.36 $9.91
Class Y Shares
Net Assets $186,414 $94,046 $280,460
Shares of Beneficial Interest Outstanding 18,805 9,077 412 a 28,294
Net Asset Value $9.91 $10.36 $9.91
</TABLE>
a Reflects the impact of converting shares of the target fund into the survivor
fund.
See Notes to Pro Forma Combining Financial Statements.
<PAGE>
Evergreen U.S. Government Fund
Pro Forma Combining Financial Statements (unaudited)
Statement of Operations (000's)
October 31, 1998
<TABLE>
<CAPTION>
Intermediate
U.S. Government Government Pro Forma
Fund Fund Adjustments Combined
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Interest income $23,703 $9,154 $32,857
Expenses:
Advisory fee 1,683 881 (147)a 2,417
Administrative services fees 99 41 0 140
Distribution Plan expenses 1,496 151 0 1,647
Transfer agent fee 448 109 0 557
Custodian fee 105 45 1 b 151
Printing and postage expenses 98 35 8 b 141
Registration and filing fees 61 45 (37)c 69
Professional fees 33 19 (17)c 35
Trustees' fees 7 3 0 10
Other 25 13 (2)c 36
-----------------------------------------------------------------------
Total Expenses 4,055 1,342 (194) 5,203
Less: Fee waivers and/or reimbursements 0 (105) 105 d 0
-----------------------------------------------------------------------
Net expenses 4,055 1,237 (89) 5,203
-----------------------------------------------------------------------
Net investment income 19,648 7,917 89 27,654
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) on investments (2,263) 264 (1,999)
Net change in unrealized gain (loss) on investments 11,295 4,696 15,991
-----------------------------------------------------------------------
Net realized and unrealized loss on investments 9,032 4,960 0 13,992
Net increase in net assets resulting from operations $28,680 $12,877 $89 $41,646
=======================================================================
</TABLE>
a Reflects a decrease based on the surviving fund's fee schedule.
b Reflects a slight increase which is the result when you apply the expense
percentage to the combined assets.
c Reflects expected cost savings when the funds are combined.
d Reflects the elimination of the Distribution Fee Waiver.
See Notes to Pro Forma Combining Financial Statements.
<PAGE>
Expense Ratios
Management Fee 0.50% 0.60% 0.50%
Other 0.26% 0.21% 0.24%
Total 0.76% 0.81% 0.74%
<PAGE>
Evergreen U.S. Government Fund
Pro Forma Combining Financial Statements (unaudited)
Schedule of Investments (000s)
October 31, 1998
<TABLE>
<CAPTION>
Intermediate
U.S. Government Fund Government Fund
------------------------------------------------
Principal Market Principal Market
Coupon Maturity Amount Value Amount Value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CORPORATE BONDS (4.3%)
Cable & Other Video Distribution (0.4%)
Time Warner Entertainment Co., L.P., Sr. Debs. 7.25% 9/1/2008 $ 2,000 $ 2,177
----------
Retailing & Wholesale (2.0%)
Dayton Hudson Corp. Bonds 5.95% 12/15/1998 7,000 7,091
Kroger Co. Notes 6.00% 1/1/1999 4,000 4,040
----------
11,131
----------
Telecommunication Services & Equipment (1.9%)
Worldcom, Inc. Notes 6.40% 8/15/2005 10,000 10,409
Total Corporate Bonds (cost $23,123, $0 and $23,123, respectively) 23,717
----------
MORTGAGE-BACKED SECURITIES (46.4%)
Federal Home Loan Mortgage Corp. (13.3%)
Federal Home Loan Mortgage Corp. 5.60% 2/15/2013 - - $ 981 $ 980
Federal Home Loan Mortgage Corp. 6.50% 9/1/2008 - 4/1/2026 11,868 11,974 15,025 15,208
Federal Home Loan Mortgage Corp. 7.00% 7/1/2028 9,953 10,165 - -
Federal Home Loan Mortgage Corp. 7.50% 5/1/2027 - 8/1/2028 18,936 19,422 - -
Federal Home Loan Mortgage Corp. 7.55% 8/1/2019 - - 56 58
Federal Home Loan Mortgage Corp. 7.945% 12/1/2020 - - 25 25
Federal Home Loan Mortgage Corp. 8.00% 7/1/2017 - 4/1/2022 3,425 3,528 - -
Federal Home Loan Mortgage Corp. 8.50% 2/1/2017 - 10/1/2017 2,396 2,499 - -
Federal Home Loan Mortgage Corp. 9.00% 1/1/2017 - 4/1/2021 2,309 2,467 2,942 3,146
Federal Home Loan Mortgage Corp. 9.50% 9/1/2020 873 943 - -
Federal Home Loan Mortgage Corp. 10.00% 12/1/2019 - 8/1/2021 1,121 1,194 - -
Federal Home Loan Mortgage Corp. 10.50% 12/1/2019 1,475 1,565 - -
---------- ---------
53,757 19,417
Federal National Mortgage Assn. (17.3%)
Federal National Mortgage Assn. 5.75% 4/15/2003 10,000 10,383 - -
Federal National Mortgage Assn. 6.00% 2/25/2005 - 5/1/2011 5,323 5,337 3,126 3,145
Federal National Mortgage Assn. 6.374% 3/1/2006 - - 3,944 4,086
Federal National Mortgage Assn. 6.40% 12/1/2007 - - 3,500 3,664
Federal National Mortgage Assn. 6.50% 6/25/2022 - 1/1/2024 3,963 3,997 3,000 3,018
Federal National Mortgage Assn. 7.00% 12/1/1999 - 11/1/2026 14,067 14,391 19,981 20,375
Federal National Mortgage Assn. 7.50% 7/1/2023 - 5/1/2027 8,989 9,227 7,338 7,513
Federal National Mortgage Assn. 7.921% 6/1/2019 - - 49 51
Federal National Mortgage Assn. 8.00% 8/1/2025 7,068 7,307 - -
Federal National Mortgage Assn. 8.50% 12/1/2001 - - 194 200
Federal National Mortgage Assn. 9.50% 6/1/2022 1,098 1,172 - -
Federal National Mortgage Assn. 11.00% 1/1/2016 815 906 - -
---------- ---------
52,720 42,052
Government National Mortgage Assn. (15.8%)
Government National Mortgage Assn. 6.00% 2/20/2028 - 12/15/2099 8,492 8,445 - -
Government National Mortgage Assn. 6.50% 10/15/2025 - 5/20/2028 6,025 6,085 9,465 9,588
Government National Mortgage Assn. 7.00% 12/15/2022 - 3/15/2028 16,733 17,134 1,595 1,633
Government National Mortgage Assn. 7.50% 2/15/2022 - 8/15/2023 9,326 9,621 - -
Government National Mortgage Assn. 8.00% 9/15/2009 - 9/15/2026 15,985 16,583 138 145
Government National Mortgage Assn. 8.50% 12/15/2021 - 7/15/2024 7,951 8,418 - -
Government National Mortgage Assn. 9.00% 1/15/2020 - 9/15/2021 3,702 3,947 232 247
Government National Mortgage Assn. 9.50% 1/15/2019 - 2/15/2021 3,509 3,790 - -
Government National Mortgage Assn. 10.00% 12/15/2018 847 926 - -
---------- ---------
74,949 11,613
---------- ---------
Total Mortgage-Backed Securities (cost $178,395, $71,415 and
$249,810, respectively) 181,426 73,082
---------- ---------
<CAPTION>
Pro Forma Combined
--------------------
Principal Market
Adjustments Amount Value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (4.3%)
Cable & Other Video Distribution (0.4%)
Time Warner Entertainment Co., L.P., Sr. Debs. $ 2,000 $ 2,177
----------
Retailing & Wholesale (2.0%)
Dayton Hudson Corp. Bonds 7,000 7,091
Kroger Co. Notes 4,000 4,040
-----------
11,131
Telecommunication Services & Equipment (1.9%)
Worldcom, Inc. Notes 10,000 10,409
-----------
Total Corporate Bonds (cost $23,123, $0 and $23,123, respectively) 23,717
-----------
MORTGAGE-BACKED SECURITIES (46.4%)
Federal Home Loan Mortgage Corp. (13.3%)
Federal Home Loan Mortgage Corp. 981 980
Federal Home Loan Mortgage Corp. 26,893 27,182
Federal Home Loan Mortgage Corp. 9,953 10,165
Federal Home Loan Mortgage Corp. 18,936 19,422
Federal Home Loan Mortgage Corp. 56 58
Federal Home Loan Mortgage Corp. 25 25
Federal Home Loan Mortgage Corp. 3,425 3,528
Federal Home Loan Mortgage Corp. 2,396 2,499
Federal Home Loan Mortgage Corp. 5,251 5,613
Federal Home Loan Mortgage Corp. 873 943
Federal Home Loan Mortgage Corp. 1,121 1,194
Federal Home Loan Mortgage Corp. 1,475 1,565
----------
73,174
Federal National Mortgage Assn. (17.3%)
Federal National Mortgage Assn. 10,000 10,383
Federal National Mortgage Assn. 8,449 8,482
Federal National Mortgage Assn. 3,944 4,086
Federal National Mortgage Assn. 3,500 3,664
Federal National Mortgage Assn. 6,963 7,015
Federal National Mortgage Assn. 34,048 34,766
Federal National Mortgage Assn. 16,327 16,740
Federal National Mortgage Assn. 49 51
Federal National Mortgage Assn. 7,068 7,307
Federal National Mortgage Assn. 194 200
Federal National Mortgage Assn. 1,098 1,172
Federal National Mortgage Assn. 815 906
----------
94,772
Government National Mortgage Assn. (15.8%)
Government National Mortgage Assn. 8,492 8,445
Government National Mortgage Assn. 15,490 15,673
Government National Mortgage Assn. 18,328 18,767
Government National Mortgage Assn. 9,326 9,621
Government National Mortgage Assn. 16,123 16,728
Government National Mortgage Assn. 7,951 8,418
Government National Mortgage Assn. 3,934 4,194
Government National Mortgage Assn. 3,509 3,790
Government National Mortgage Assn. 847 926
----------
86,562
----------
Total Mortgage-Backed Securities (cost $178,395, $71,415 and
$249,810, respectively) 254,508
----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Evergreen U.S. Government Fund
Pro Forma Combining Financial Statements (unaudited)
Schedule of Investments (000s)
October 31, 1998 Intermediate
U.S. Government Fund Government Fund
-----------------------------------------------
Principal Market Principal Market
Coupon Maturity Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS (43.1%)
U.S. Treasury Bonds 5.50% 8/15/2028 $ 30,015 $ 31,610 - -
U.S. Treasury Bonds 8.25% 5/15/2005 12,000 12,641 - -
U.S. Treasury Bonds 8.50% 2/15/2020 15,100 20,999 - -
U.S. Treasury Bonds 8.75% 11/15/2008- 8/15/2020 7,650 10,029 - -
U.S. Treasury Bonds 8.875% 8/15/2017- 2/15/2019 20,010 28,392 - -
U.S. Treasury Bonds 9.25% 2/15/2016 9,300 13,427 - -
U.S. Treasury Bonds 11.75% 11/15/2014 - - $ 2,500 $ 3,931
U.S. Treasury Notes 5.50% 2/28/1999 - - 1,000 1,003
U.S. Treasury Notes 6.125% 9/30/2000- 8/15/2007 - - 8,000 8,475
U.S. Treasury Notes 6.25% 4/30/2001- 6/30/2002 14,500 15,406 8,400 8,778
U.S. Treasury Notes 6.375% 7/15/1999 - - 4,000 4,052
U.S. Treasury Notes 6.625% 5/15/2007 - - 10,750 12,195
U.S. Treasury Notes 6.75% 4/30/2000 3,000 3,103 1,000 1,034
U.S. Treasury Notes 7.00% 7/15/2006 - - 2,300 2,647
U.S. Treasury Notes 7.125% 2/29/2000 - - 12,250 12,679
U.S. Treasury Notes 7.50% 10/31/1999- 5/15/2002 - - 10,400 11,136
U.S. Treasury Notes 7.75% 11/30/1999- 1/31/2000 21,800 22,614 - -
U.S. Treasury Notes 7.875% 11/15/2004 - - 2,500 2,937
U.S. Treasury Notes 8.00% 5/15/2001 6,200 6,741 - -
U.S. Treasury Notes 8.50% 11/15/2000 - - 1,300 1,406
U.S. Treasury Notes 8.875% 2/15/1999 - - 1,000 1,012
--------- ---------
Total U.S. Treasury Obligations (cost $157,083, $68,144
and $225,227, respectively) 164,962 71,285
--------- ---------
U.S. GOVERNMENT AGENCY OBLIGATIONS (4.7%)
Federal Agricultural Mortgage Corp. MTN 7.37% 8/1/2006 - - 993 1,092
Federal Home Loan Bank 5.50% 4/14/2000 - - 5,000 5,048
Federal Home Loan Bank 8.60% 1/25/2000 - - 1,300 1,357
Federal Home Loan Mortgage Corp. 7.36% 6/5/2007 - - 8,500 9,153
Federal National Mortgage Assn. MTN 6.16% 4/3/2001 - - 4,480 4,625
Federal National Mortgage Assn. 7.50% 2/11/2002 - - 2,000 2,160
Federal National Mortgage Assn. 7.875% 2/24/2005 - - 2,000 2,294
--------- ---------
Total U.S. Government Agency Obligations (cost $0, $24,298
and $24,298, respectively) - 25,729
--------- ---------
REPURCHASE AGREEMENTS (1.1%)
Donaldson, Lufkin & Jenrette Securities
Corp., 5.40% dated 10/30/98,
maturity value $3,253 (a) 5.40% 11/2/1998 3,252 3,252 - -
Donaldson, Lufkin & Jenrette Securities
Corp., 5.40% dated
10/30/98, maturity value $2,739 (b) 5.40% 11/2/1998 - - 2,738 2,738
--------- ---------
Total Repurchase Agreements (cost $3,252, $2,738 and $5,990,
respectively) 3,252 2,738
--------- ---------
TOTAL INVESTMENTS (99.6%) (cost $361,853, $166,595 and
$528,448, respectively) 373,357 172,834
OTHER ASSETS AND LIABILITIES, NET (0.4%) 95 2,033
--------- ---------
TOTAL NET ASSETS (100.0%) $ 373,452 $ 174,867
--------- ---------
<CAPTION>
Pro Forma Combined
----------------------
Principal Market
Adjustments Amount Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS (43.1%)
U.S. Treasury Bonds $ 30,015 $ 31,610
U.S. Treasury Bonds 12,000 12,641
U.S. Treasury Bonds 15,100 20,999
U.S. Treasury Bonds 7,650 10,029
U.S. Treasury Bonds 20,010 28,392
U.S. Treasury Bonds 9,300 13,427
U.S. Treasury Bonds 2,500 3,931
U.S. Treasury Notes 1,000 1,003
U.S. Treasury Notes 8,000 8,475
U.S. Treasury Notes 22,900 24,184
U.S. Treasury Notes 4,000 4,052
U.S. Treasury Notes 10,750 12,195
U.S. Treasury Notes 4,000 4,137
U.S. Treasury Notes 2,300 2,647
U.S. Treasury Notes 12,250 12,679
U.S. Treasury Notes 10,400 11,136
U.S. Treasury Notes 21,800 22,614
U.S. Treasury Notes 2,500 2,937
U.S. Treasury Notes 6,200 6,741
U.S. Treasury Notes 1,300 1,406
U.S. Treasury Notes 1,000 1,012
---------
Total U.S. Treasury Obligations (cost $157,083, $68,144
and $225,227, respectively) 236,247
---------
U.S. GOVERNMENT AGENCY OBLIGATIONS (4.7%)
Federal Agricultural Mortgage Corp. MTN 993 1,092
Federal Home Loan Bank 5,000 5,048
Federal Home Loan Bank 1,300 1,357
Federal Home Loan Mortgage Corp. 8,500 9,153
Federal National Mortgage Assn. MTN 4,480 4,625
Federal National Mortgage Assn. 2,000 2,160
Federal National Mortgage Assn. 2,000 2,294
---------
Total U.S. Government Agency Obligations (cost $0, $24,298
and $24,298 respectively) 25,729
---------
REPURCHASE AGREEMENTS (1.1%)
Donaldson, Lufkin & Jenrette Securities
Corp., 5.40% dated 10/30/98,
maturity value $3,253 (a) 3,252 3,252
Donaldson, Lufkin & Jenrette Securities
Corp., 5.40% dated
10/30/98, maturity value $2,739 (b) 2,738 2,738
---------
Total Repurchase Agreements (cost $3,252, $2,738 and $5,990,
respectively) 5,990
---------
TOTAL INVESTMENTS (99.6%) (cost $361,853, $166,595 and
$528,448, respectively) 546,191
OTHER ASSETS AND LIABILITIES, NET (0.4%) 2,128
---------
TOTAL NET ASSETS (100.0%) $ 548,319
---------
</TABLE>
(a) Collateralized by $3,076 U.S. Treasury Notes, 6.25% due 8/31/02; value,
including accrued interest $3,318.
(b) Collateralized by $2,573 U.S. Treasury Notes, 6.375% due 8/15/02; value,
including accrued interest $2,738.
MTN Medium Term Note
See Notes to Pro Forma Combining Financial Statements.
<PAGE>
Evergreen U.S. Government Fund
Notes to Pro Forma Combining Financial Statements (Unaudited)
October 31, 1998
1. Basis of Combination - The Pro Forma Combining Statement of Assets and
Liabilities, including the Pro Forma Schedule of Investments and the
related Pro Forma Combining Statement of Operations ("Pro Forma
Statements"), reflect the accounts of Evergreen U.S. Government Fund ("U.S.
Government Fund") and Evergreen Intermediate Term Government Securities
Fund ("Intermediate Government Fund") at October 31, 1998 and for the
respective periods then ended.
The Pro Forma Statements give effect to the proposed Agreement and Plan of
Reorganization (the "Reorganization") to be submitted to shareholders of
Intermediate Government Fund. The Reorganization provides for the
acquisition of the assets and identified liabilities of Intermediate
Government Fund by U.S. Government Fund, in exchange for Class A, Class B,
Class C and Class Y shares of U.S. Government Fund. Thereafter, there will
be a distribution of Class A, Class B, Class C and Class Y shares of U.S.
Government Fund to the shareholders of Intermediate Government Fund in
liquidation and subsequent termination thereof. As a result of the
Reorganization, the shareholders of Intermediate Government Fund will
become the owners of that number of full and fractional Class A, Class B,
Class C and Class Y shares of U.S. Government Fund having an aggregate net
asset value equal to the aggregate net asset value of their shares of
Intermediate Government Fund as of the close of business immediately prior
to the date that Intermediate Government Fund net assets are exchanged for
Class A, Class B, Class C and Class Y shares of U.S. Government Fund.
The Pro Forma Statements reflect the expenses of each Fund in carrying out
its obligations under the Reorganization as though the merger occurred at
the beginning of the respective periods presented.
The information contained herein is based on the experience of each Fund
for the respective periods then ended and is designed to permit
shareholders of the consolidating mutual funds to evaluate the financial
effect of the proposed Reorganization. The expenses of Intermediate
Government Fund in connection with the Reorganization (including the cost
of any proxy soliciting agents) will be borne by First Union National Bank
of North Carolina. It is not anticipated that the securities of the
combined portfolio will be sold in significant amounts in order to comply
with the policies and investment practices of U.S. Government Fund.
The Pro Forma Statements should be read in conjunction with the historical
financial statements of each Fund incorporated by reference in the
Statement of Additional Information.
2. Shares of Beneficial Interest - The Pro Forma net asset values per share
assume the issuance of Class A, Class B, Class C and Class Y shares of U.S.
Government Fund which would have been issued at October 31, 1998 in
connection with the proposed Reorganization. Shareholders of Intermediate
Government Fund would receive Class A, Class B, Class C and Class Y shares
of U.S. Government Fund based on conversion ratios determined on
October 31, 1998. The conversion ratios are calculated by dividing the net
asset value of Intermediate Government Fund by the net asset value per
share of the respective class of U.S. Government Fund.
3. Pro Forma Operations - The Pro Forma Combining Statement of Operations
assumes similar rates of gross investment income for the investments of
each Fund. Accordingly, the combined gross investment income is equal to
the sum of each Fund's gross investment income. Pro Forma operating
expenses include the actual expenses of the Funds adjusted to reflect the
expected expenses of the combined entity. The combined pro forma expenses
were calculated by determining the expense rates based on the combined
average assets of the two funds and applying those rates to the average net
assets of the U.S. Government Fund for the twelve months ended October 31,
1998 and to the average net assets of the Intermediate Government Fund for
the twelve months ended October 31, 1998. The adjustments reflect those
amounts needed to adjust the combined expenses to these rates.
<PAGE>
PART C OTHER INFORMATION
<PAGE>
EVERGREEN FIXED INCOME TRUST
PART C
OTHER INFORMATION
Item 15. Indemnification.
The response to this item is incorporated by reference to
"Liability and Indemnification of Trustees" under the caption
"Information on Shareholders' Rights" in Part A of
this Registration Statement.
Item 16. Exhibits:
1. Declaration of Trust. Incorporated by reference to Evergreen Fixed
Income Trust Registration Statement on Form N-1A filed on October 8, 1997
Registration No. 333-37433 ("Form N-1A Registration Statement")
2. Bylaws. Incorporated by reference to the Form N-1A Registration
Statement.
3. Not applicable.
4. Agreement and Plan of Reorganization. Exhibit A to Prospectus contained
in Part A of this Registration Statement.
5. Declaration of Evergreen Fixed Income Trust Articles II., III.6(c),
IV.(3), IV.(8), V., VI., VII., and VIII and By- Laws Articles II., III. and
VIII.
6. Form of Investment Advisory Agreement between Evergreen Investment
Management and Evergreen Fixed Income Trust. Incorporated by reference to
Evergreen Fixed Income Trust's Post-Effective Amendment No. 3 filed on August
31, 1998. ("Registrant's PEA No. 3")
7(a) Principal Underwriting Agreements between the Evergreen Fixed Incom
Trust and Evergreen Distributor, Inc. Incorporated by reference to Registrant's
PEA No. 3
7(b). Form of Dealer Agreement for Class A, Class B and Class C shares used
by Evergreen Distributor, Inc. Incorporated by reference to the Fixed Income
Trust's Pre-Effective Amendment No. 1 filed on November 10, 1997. ("Registrant's
Pre-Effective Amendment No. 1")
8. Form of Deferred Compensation Plan. Incorporated by reference to the
Registrant's Pre-Effective Amendment No. 1.
9. Form of Custody Agreement between State Street Bank and Trust Company
and Evergreen Fixed Income Trust. Incorporated by reference to Registrant's PEA
No. 3.
10(a) 12b-1 Distribution Plans - Incorporated by reference to Registrant's
PEA No. 3.
10(b) Multiple Class Plan - Incorporated by reference to Registrant's
Pre-Effective Amendment No. 1
11. Opinion and consent of Sullivan & Worcester LLP. Filed herewith.
12. Tax opinion and consent of Sullivan & Worcester LLP. To be filed by
Amendment on or about May 13, 1999.
13(a). Administration Agreement between Evergreen Investment Services, Inc.
and the Registrant - Incorporated by reference to Registrant's PEA No. 3.
13(b). Transfer Agent Agreement between Evergreen Service Company and the
Registrant. Incorporated by reference to Registrant's PEA No. 3.
14(a). Consent of KPMG Peat MarwicK LLP. Filed herewith.
15. Not applicable.
16. Powers of Attorney.Incorporated by reference to Registrant's PEA No. 3.
17. Form of Proxy Card. Filed herewith.
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any
public reoffering of the securities registered through the use of
a prospectus that is a part of this Registration Statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act of 1933, the
reoffering prospectus will contain the information called for by
the applicable registration form for reofferings by persons who
may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus
that is filed under paragraph (1) above will be filed as a part
of an amendment to the Registration Statement and will not be
used until the amendment is effective, and that, in determining
any liability under the Securities Act of 1933, each post-
effective amendment shall be deemed to be a new Registration
Statement for the securities offered therein, and the offering of
the securities at that time shall be deemed to be the initial
bona fide offering of them.
SIGNATURES
As required by the Securities Act of 1933, this Registration
Statement has been signed on behalf of the Registrant, in the
City of Columbus and State of Ohio, on the 9th day of April,
1999.
EVERGREEN FIXED INCOME TRUST
By: /s/ William J. Tomko
- -----------------------
Name: William J. Tomko
Title: President
As required by the Securities Act of 1933, the following
persons have signed this Registration Statement in the capacities
indicated on the 9th day of April, 1999.
Signatures Title
- ---------- -----
/s/William J. Tomko President and
- ------------------- Treasurer
William J. Tomko
/s/Laurence B. Ashkin* Trustee
- ---------------------
Laurence B. Ashkin
/s/Charles A. Austin III* Trustee
- -------------------------
Charles A. Austin III
/s/K. Dun Gifford* Trustee
- -----------------
K. Dun Gifford
/s/James S. Howell* Trustee
- ------------------
James S. Howell
/s/Leroy Keith, Jr.* Trustee
- -------------------
Leroy Keith, Jr.
/s/Gerald M. McDonnell* Trustee
- ----------------------
Gerald M. McDonnell
/s/Thomas L. McVerry* Trustee
- --------------------
Thomas L. McVerry
/s/William Walt Pettit* Trustee
- ---------------------
William Walt Pettit
/s/David M. Richardson* Trustee
- ----------------------
David M. Richardson
/s/Russell A. Salton III* Trustee
- -------------------------
Russell A. Salton III
/s/Michael S. Scofield* Trustee
- ----------------------
Michael S. Scofield
/s/Richard J. Shima* Trustee
- -------------------
Richard J. Shima
* By: /s/ Sally Ganem
- -------------------
Attorney-in-Fact
*Sally Ganem, by signing her 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 and
included as Exhibit 16 to this Registration Statement.
INDEX TO EXHIBITS
N-14
EXHIBIT NO.
11 Opinion & Consent of Sullivan & Worcester LLP
14 Consent of KPMG Peat Markwick LLP
17 Form of Proxy
SULLIVAN & WORCESTER LLP
1025 CONNECTICUT AVENUE, N.W.
WASHINGTON, D.C. 20036
TELEPHONE: 202-775-8190
FACSIMILE: 202-293-2275
767 THIRD AVENUE ONE POST OFFICE SQUARE
NEW YORK, NEW YORK 10017 BOSTON, MASSACHUSETTS
02109
TELEPHONE: 212-486-8200 TELEPHONE: 617-338-2800
FACSIMILE: 212-758-2151 FACSIMILE: 617-338-2880
April 12, 1999
Evergreen Fixed Income Trust
200 Berkeley Street
Boston, Massachusetts 02116
Ladies and Gentlemen:
We have been requested by the Evergreen Fixed Income Trust, a Delaware
business trust with transferable shares (the "Trust") established under an
Agreement and Declaration of Trust dated September 18, 1997, as amended (the
"Declaration"), for our opinion with respect to certain matters relating to
Evergreen U.S. Government Fund (the "Acquiring Fund"), a series of the Trust. We
understand that the Trust is about to file a Registration Statement on Form N-14
for the purpose of registering shares of the Trust under the Securities Act of
1933, as amended (the "1933 Act"), in connection with the proposed acquisition
by the Acquiring Fund of all of the assets of Evergreen Intermediate Term
Government Securities Fund (the "Acquired Fund"), a series of the Trust, in
exchange solely for shares of the Acquiring Fund and the assumption by the
Acquiring Fund of the identified liabilities of the Acquired Fund pursuant to an
Agreement and Plan of Reorganization, the form of which is included in the Form
N-14 Registration Statement (the "Plan").
We have, as counsel, participated in various business and other
proceedings relating to the Trust. We have examined copies, either certified or
otherwise proved to be genuine to our satisfaction, of the Trust's Declaration
and By-Laws, and other documents relating to its organization, operation, and
proposed operation, including the proposed Plan and we have made such other
investigations as, in our judgment, are necessary or appropriate to enable us to
render the opinion expressed below.
We are admitted to the Bars of The Commonwealth of Massachusetts and the
District of Columbia and generally do not purport to be familiar with the laws
of the State of Delaware. To the extent that the conclusions based on the laws
of the State of Delaware are involved in the opinion set forth herein below, we
have relied, in rendering such opinions, upon our examination of Chapter 38 of
Title 12 of the Delaware Code Annotated, as amended, entitled "Treatment of
Delaware Business Trusts" (the "Delaware business trust law") and on our
knowledge of interpretation of analogous common law of The Commonwealth of
Massachusetts.
Based upon the foregoing, and assuming the approval by shareholders of
the Acquired Fund of certain matters scheduled for their consideration at a
meeting presently anticipated to be held on July 23, 1999, it is our opinion
that the shares of the Acquiring Fund currently being registered, when issued in
accordance with the Plan and the Trust's Declaration and By-Laws, will be
legally issued, fully paid and non-assessable by the Trust, subject to
compliance with the 1933 Act, the Investment Company Act of 1940, as amended and
applicable state laws regulating the offer and sale of securities.
We hereby consent to the filing of this opinion with and as a part of
the Registration Statement on Form N-14 and to the reference to our firm under
the caption "Legal Matters" in the Prospectus/Proxy Statement filed as part of
the Registration Statement. In giving such consent, we do not thereby admit that
we come within the category of persons whose consent is required under Section 7
of the 1933 Act or the rules and regulations promulgated thereunder.
Very truly yours,
/s/SULLIVAN & WORCESTER LLP
-------------
SULLIVAN & WORCESTER LLP
CONSENT OF INDEPENDENT AUDITORS
The Trustees and Shareholders
Evergreen Fixed Income Trust
We consent to the use of our reports, dated May 29, 1998 and July 31, 1998, for
Evergreen U.S. Government Fund and Evergreen Intermediate Term Government
Securities Fund, respectively, each a portfolio of Evergreen Fixed Income Trust,
incorporated herein by reference and to the references to our firm under the
caption "FINANCIAL STATEMENTS AND EXPERTS" in the prospectus/proxy statement.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
April 12, 1999
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH PROPOSAL.
PLEASE VOTE, SIGN, DATE AND PROMPTLY RETURN
YOUR PROXY IN THE ENCLOSED ENVELOPE TODAY!
Please detach at perforation before mailing.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
EVERGREEN INTERMEDIATE TERM GOVERNMENT SECURITIES TRUST
PROXY FOR THE MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 23, 1999
The undersigned, revoking all Proxies heretofore given, hereby appoints
Michael H. Koonce, Maureen Towle, Catherine Foley, Beth Werths and Sally Ganem
or any of them as Proxies of the undersigned, with full power of substitution,
to vote on behalf of the undersigned all shares of Evergreen Intermediate Term
Government Securities Fund, a series of Evergreen Fixed Income Trust
("Intermediate Term Fund") that the undersigned is entitled to vote at the
special meeting of shareholders of Intermediate Term Fund to be held at 2:00
p.m. on July 23, 1999 at the offices of the Evergreen Funds, 200 Berkeley
Street, 26th Floor, Boston, Massachusetts 02116 and at any adjournments thereof,
as fully as the undersigned would be entitled to vote if personally present.
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR ON THIS PROXY. If
joint owners, EITHER may sign this Proxy. When signing as attorney, executor,
administrator, trustee, guardian, or custodian for a minor, please give your
full title. When signing on behalf of a corporation or as a partner for a
partnership, please give the full corporate or partnership name and your title,
if any.
Date , 1999
----------------------------------------
----------------------------------------
Signature(s) and Title(s), if applicable
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF EVERGREEN
FIXED INCOME TRUST. THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO
THE ACTION TO BE TAKEN ON THE FOLLOWING PROPOSALS. THE SHARES REPRESENTED HEREBY
WILL BE VOTED AS INDICATED OR FOR THE PROPOSALS IF NO CHOICE IS INDICATED. THE
BOARD OF TRUSTEES OF EVERGREEN FIXED INCOME TRUST RECOMMENDS A VOTE FOR THE
PROPOSALS. PLEASE MARK YOUR VOTE BELOW IN BLUE OR BLACK INK. DO NOT USE RED INK.
EXAMPLE: X
1. To approve an Agreement and Plan of Reorganization whereby Evergreen
U.S. Government Fund, a series of Evergreen Fixed Income Trust, will (i) acquire
all of the assets of Intermediate Term Fund in exchange for shares of Evergreen
U.S. Government Fund; and (ii) assume the identified liabilities of Intermediate
Term Fund, as substantially described in the accompanying Prospectus/Proxy
Statement.
---- FOR ---- AGAINST ---- ABSTAIN
2. To consider and vote upon such other matters as may properly come
before said meeting or any adjournments thereof.
---- FOR ---- AGAINST ---- ABSTAIN
<PAGE>
