<PAGE>
Table of Contents
<TABLE>
<S> <C>
Letter to Shareholders ...................... 1
Fund at a Glance ............................ 2
Portfolio Manager Interview ................. 3
Financial Highlights ........................ 5
Schedule of Investments ..................... 8
Statement of Assets and Liabilities ......... 13
Statement of Operations ..................... 14
Statements of Changes in Net Assets ......... 15
Notes to Financial Statements ............... 16
Additional Information ...................... 20
</TABLE>
- --------------------------------------------------------------------------------
Evergreen Funds
Evergreen Funds is one of the nation's fastest growing investment companies
with more than $45 billion in assets under management.
With 85 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 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.
<TABLE>
<S> <C> <C>
Mutual Funds: ARE NOT FDIC INSURED May lose value o Are not bank guaranteed
</TABLE>
Evergreen Funds Distributor, Inc.
<PAGE>
Letter to Shareholders
----------------------
March 1998
(Photo) Dear Shareholders:
High yield bonds continued their trend of
generating attractive total returns over the
past six months. Favorable economic and interest
rate climates - as well as a rising stock market
William M. Ennis - set the stage for high yield companies to
Managing Director improve their creditworthiness. This atmosphere
proved beneficial to high yield bond
investors and issuers alike.
Your Fund's carefully crafted and implemented strategies thrived in this
environment. Over the past six months, your Fund's Class B shares returned
7.80%, unadjusted for any sales charge, comparing favorably with both the
Lehman Aggregate Bond Index of 4.90%, and the Chase High Yield Index of 6.70%,
during the same period. The Lehman Aggregate Bond Index is an unmanaged, broad
index of U.S. corporate, government, and mortgage securities. The Chase High
Yield Index is an unmanaged selection of high yield bonds that measures the
performance of that sector of the fixed-income market. We were particularly
pleased with your Fund's performance versus these indices, since unlike a
mutual fund, an index incurs no operating expenses.
The high yield bond market has grown vigorously over the past few years, as
these securities gained acceptance from non-traditional investors and
recognition as an independent asset class. As of the end of 1997, the high yield
bond market had grown to $452 billion, 26% of which was represented by mutual
funds. A record $21.5 billion of cash poured into high yield bond mutual funds
over the past year, easily surpassing the previous high of $15.9 billion set in
19961. Investors sought the higher yields available in this low interest rate
environment and undoubtedly felt more comfortable assuming added credit risk,
given the healthy economy.
This increased demand was met with growing supply. During the last year, 667
issues totaling $126 billion came to market, soaring past the $73.6 billion
issued in 1996. Also, with new issues averaging $189 million in size last year,
liquidity has improved considerably.
We believe high yield bonds will continue to provide opportunity in the coming
months. Forging ahead in the eighth year of an expansion, the economy appears
to be on track for solid growth, while experiencing few inflationary pressures.
We expect this background, along with access to the capital markets and
consolidation within selected industries, to benefit high yield bond investors.
Combined with the attractive income streams available in this sector, we think
high yield bonds should provide solid total returns in the future.
Thank you for your investment in Evergreen Funds. If you have any questions
regarding your investments, we encourage you to consult your financial advisor
or call us at 1-800-343-2898.
Sincerely,
/s/ William M. Ennis
William M. Ennis
Managing Director
- ---------
1 Source: Chase Securities, Inc.
1
<PAGE>
EVERGREEN
High Yield Bond Fund
Fund at a Glance as of January 31, 1998
We selected the bonds of
companies whose industries
we believed would benefit
from the economy's strength
and whose stock would rise
in value.
Portfolio
Management
----------------------------------------
(Photo of Prescott B. Crocker)
Prescott B. Crocker, CFA
Vice President and
Group Leader of
High Yield Bond Team
Keystone Investment
Management Company
Tenure: February 1997
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Inception Date 1/20/98 9/11/35 1/21/98
Average Annual Returns*
6 months with sales charge - 2.80% -
6 months w/o sales charge - 7.80% -
One year with sales charge - 10.23% -
One year w/o sales charge - 15.23% -
3 years - 11.29% -
5 years - 8.43% -
10 years - 7.70% -
Since Inception - 8.53% -
Maximum Sales Charge 4.75% 5.00% 1.00%
Front End CDSC CDSC
30-day SEC Yield - 6.50% -
6 month dividends per share $ 0.01 $ 0.16 $ 0.01
</TABLE>
*Adjusted for maximum applicable sales charge unless otherwise noted.
Note: Class A and Class C shares were introduced in January 1998 and do not
have historical performance to quote at this time.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
(Graph appears here. Plot points are listed in the table below.)
<TABLE>
<CAPTION>
1/88 1/90 1/92 1/94 1/96 1/98
<S> <C> <C> <C> <C> <C> <C>
Class B Shares 10000 9892 11914 17524 16526 20993
Lehman Brothers 10000 12575 15862 19211 21946 24706
Aggregate Bond Index
Consumer Price 10000 11198 12139 12848 13569 14183
Index
</TABLE>
Comparison of change in value of a $10,000 investment in Evergreen High Yield
Bond Fund Class B, the Lehman Brothers Aggregate Bond Index and the Consumer
Price Index.
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 shareholder
investing in the different classes. 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 market index. This index 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 January 31, 1998.
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE
(Graphic appears Morningstar's Style Box is based on a portfolio date as
here) of 12/31/97.
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: 1997 Morningstar, Inc.
2
<PAGE>
EVERGREEN
High Yield Bond Fund
Portfolio Manager Interview
- --------------------------------------------------------------------------------
How did the Fund perform during the
period?
For the six-month period ending January 31, 1998, the Fund's Class B
shares returned 7.80%, unadjusted for any sales charge. This compares
favorably with both the Lehman Aggregate Bond Index of 4.90%, and the
Chase High Yield Index of 6.70%, during the same period. We were
particularly pleased with your Fund's performance versus these indices,
since unlike a mutual fund, an index incurs no operating expenses.
Portfolio Characteristics
-------------------------
Total Net Assets $531,371,099
Average Credit Quality B
Average Maturity 7.5 years
Average Duration 4.4 years
- --------------------------------------------------------------------------------
What was the environment like for high
yield bonds over the past six months?
The environment - which has been extremely favorable for high yield bonds
for several years - continued to be strong. Economic growth was steady and
inflation remained low. This atmosphere, combined with rising equity
prices helped strengthen corporate balance sheets. High yield companies
also benefited from declining long-term interest rates and access to the
capital markets. As a result, companies improved from a credit standpoint,
default rates stayed at historically low levels and investors felt more
comfortable taking on additional credit risk.
Investor demand for high yield bonds was exceptionally strong, creating a
positive relationship for supply and demand. As a result, the prices of
high yield bonds rose, pushing their yields lower, relative to higher
quality bonds through the end of the summer. Investors call this a
"narrowing" of yield spreads. Yields in the high yield sector then began
to rise - and prices fell - in comparison to higher quality bonds,
particularly U.S. Treasuries. Conversely, investors call this a "widening"
of yield spreads. This occurred as investors witnessed a "flight to
quality" in response to the Asian currency crisis, as well as fluctuations
in the stock market. At that time, investors, particularly foreign
investors, sought the safety and security of higher quality U.S. bonds.
While we always like to see prices rise, we believe these higher yields
make high yield bonds more attractive on a relative basis.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION AS OF 1/31/98
(as a percentage of net assets)
(Pie chart appears here. Plot points are listed in the table below.)
Common Stock and Warrants 1%
Repurchase Agreements and other assets
and liabilities (net) 5%
Preferred Stock 5%
Foreign Corporate Bonds 8%
Corporate Bonds 81%
- --------------------------------------------------------------------------------
What strategies did you use in managing
the Fund?
We managed the Fund to increase total return. We selected the bonds of
companies whose industries we believed would benefit from the economy's
strength and whose stock would rise in value. High yield bond prices are
sensitive to credit developments; therefore, there is a strong correlation
between the performance of stocks and high yield bonds. We emphasized the
telecommunications, cable and gaming industries, all of which are
undergoing consolidation. Mergers and other positive events have been an
important force behind the strong performance of many high yield bonds. In
contrast, we limited the Fund's exposure to industries representing
commodities, such as paper, steel and forest products. These industries
underperformed when investors assumed a slowdown in worldwide demand
because of the Asian situation.
3
<PAGE>
EVERGREEN
High Yield Bond Fund
Portfolio Manager Interview
Top 5 Sectors
-------------
(as a percentage of net assets)
Telecommunication Services and Equipment 12.0%
Cable/Other Video Distribution 9.4%
Gaming 9.2%
Energy 8.1%
Publishing, Broadcasting, & Entertainment 7.5%
We were cautious regarding the Fund's international positions. We reduced
its investment in emerging markets from 15% to 2% and eliminated its 5%
holding in Asia prior to the Asian currency crisis. Although high yield
bond prices, in general, fell during that time, investments in emerging
markets and Asia were particularly sensitive. We temporarily established a
5% position in U.S. government securities with some of the proceeds. U.S.
government securities benefited more than any other U.S. fixed-income
sector during the Asian currency crisis.
We also sought to reduce risk through diversification. The portfolio
maintains a minimum of 100 issuers and we are moving toward no single bond
comprising over 2% of net assets. More than 80% of the Fund is rated "B"
or higher, which gave the portfolio an average credit rating of "B" as of
January 31, 1998. The Fund's average maturity stood at 7.5 years, also as
of that date.
- --------------------------------------------------------------------------------
AVERAGE CREDIT QUALITY
(as a percentage of portfolio assets)
(Pie chart appears here. Plot points are listed in the table below.)
CCC 2%
BB 5%
NR 13%
B 80%
- --------------------------------------------------------------------------------
What is your outlook for the high yield
bond market?
Our outlook remains positive for high yield bonds. We expect many of the
same factors that affected the high yield bond market over the past six
months to continue to shape it going forward. These include steady
economic growth accompanied by low inflation and strong technical supply
and demand factors.
We believe long-term interest rates could decline further as a result of
continued low inflation and uncertainty regarding the outcome of the Asian
situation. However, we think yield spreads could "widen" if expectations
of disinflation - the reversal of inflationary pressures, or deflation, a
decline in general price levels - already anticipated by some investors,
gain a wider following. We believe this would result in the yields of
higher quality bonds falling faster - and their prices rising faster -
than those of high yield bonds. Longer term, we look for economic growth
to resume in Asia and commodity prices to begin to rise. We believe these
factors would be positive for the high yield bond market and anticipate
continued opportunity and attractive total returns.
4
<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 January 31, 1998
(Unaudited)
<S> <C>
CLASS A SHARES
Net asset value beginning of period $ 4.52
=========
Income from investment operations
Net investment income 0.01 (b)
Net realized and unrealized gain (loss) on investments and foreign currency related
transactions 0.02
---------
Total from investment operations 0.03
---------
Less distributions from net investment income (0.01)
---------
Net asset value end of period $ 4.54
=========
Total Return (a) 0.76%
Ratios/supplemental data
Ratios to average net assets
Expenses 1.26%(c)
Expenses excluding indirectly paid expenses 1.26%(c)
Net investment income 8.87%(c)
Portfolio turnover rate 96%
Net assets end of period (thousands) $ 437,420
</TABLE>
(a) Excluding applicable sales charges.
(b) Calculation based on average shares outstanding.
(c) Annualized.
See Notes to Financial Statements.
5
<PAGE>
EVERGREEN
High Yield Bond Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July 31,
Six Months Ended
January 31, 1998
(Unaudited) 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of period $ 4.37 $ 4.10 $ 4.42 $ 4.68 $ 5.13
========= ======= ======= ======= =======
Income from investment operations
Net investment income 0.17 (b) 0.32 0.32 0.38 0.38
Net realized and unrealized gain (loss) on investments and
foreign currency related transactions 0.16 0.28 (0.27) (0.15) (0.38)
--------- ------- -------- -------- -------
Total from investment operations 0.33 0.60 0.05 0.23 0
--------- ------- -------- -------- -------
Less distributions from
Net investment income (0.16) (0.32) (0.31) (0.37) (0.38)
In excess of net investment income 0 (0.01) (0.06) (0.02) (0.07)
Tax basis return of capital 0 0 0 (0.10) 0
--------- -------- -------- -------- -------
Total distributions (0.16) (0.33) (0.37) (0.49) (0.45)
--------- -------- -------- -------- -------
Net asset value end of period $ 4.54 $ 4.37 $ 4.10 $ 4.42 $ 4.68
========= ======== ======== ======== =======
Total Return (a) 7.80% 15.32% 1.38% 5.66% (0.41%)
Ratios/supplemental data
Ratios to average net assets
Expenses 1.93%(c) 1.96% 1.94% 2.03% 1.84%
Expenses excluding indirectly paid expenses 1.92%(c) 1.95% 1.93% - -
Net investment income 7.25%(c) 7.63% 7.92% 8.64% 7.57%
Portfolio turnover rate 96% 138% 116% 82% 110%
Net assets end of period (thousands) $ 93,857 $547,390 $593,681 $764,965 $766,283
</TABLE>
<TABLE>
<CAPTION>
Year Ended July 31,
1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of period $ 4.74 $ 4.19 $ 5.02 $ 6.38 $ 6.91 $ 7.66
======= ======= ======= ======== ========= =========
Income from investment operations
Net investment income 0.45 0.49 0.61 0.68 0.83 0.80
Net realized and unrealized gain (loss) on
investments and foreign currency related
transactions 0.44 0.58 (0.72) (1.18) (0.51) ( 0.71)
------- ------- -------- -------- ---------- ----------
Total from investment operations 0.89 1.07 (0.11) (0.50) 0.32 0.09
------- ------- -------- -------- ---------- ----------
Less distributions from
Net investment income (0.45) (0.50) (0.72) (0.78) (0.85) ( 0.84)
In excess of net investment income (0.05) (0.02) 0 (0.08) 0 0
Tax basis return of capital 0 0 0 0 0 0
-------- -------- -------- -------- ---------- ----------
Total distributions (0.50) (0.52) (0.72) (0.86) (0.85) ( 0.84)
-------- -------- -------- -------- ---------- ----------
Net asset value end of period $ 5.13 $ 4.74 $ 4.19 $ 5.02 $ 6.38 $ 6.91
======== ======== ======== ======== ========== ==========
Total Return (a) 20.28% 27.25% 0.03% (7.84%) 4.95% 1.66%
Ratios/supplemental data
Ratios to average net assets
Expenses 2.06% 2.17% 2.34% 2.06% 1.97% 1.82%
Expenses excluding indirectly paid expenses - - - - - -
Net investment income 9.30% 10.86% 14.64% 12.77% 12.36% 11.29%
Portfolio turnover rate 125% 94% 78% 45% 75% 81%
Net assets end of period (thousands) $972,164 $841,757 $710,590 $820,940 $1,188,660 $1,274,673
</TABLE>
(a) Excluding applicable sales charges.
(b) Calculation based on average shares outstanding.
(c) Annualized.
See Notes to Financial Statements.
6
<PAGE>
EVERGREEN
Financial Highlights
Financial Highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
January 21, 1998
(Commencement of
Class Operations)
to January 31, 1998
(Unaudited)
<S> <C>
CLASS C SHARES
Net asset value beginning of period $ 4.52
==========
Income from investment operations
Net investment income 0.01 (b)
Net realized and unrealized gain on investments and foreign currency related transactions 0.02
----------
Total from investment operations 0.03
----------
Less distributions from net investment income (0.01)
----------
Net asset value end of period $ 4.54
==========
Total Return (a) 0.72%
Ratios/supplemental data
Ratios to average net assets
Expenses 1.92%(c)
Expenses excluding indirectly paid expenses 1.91%(c)
Net investment income 8.82%(c)
Portfolio turnover rate 96%
Net assets end of period (thousands) $ 95
</TABLE>
(a) Excluding applicable sales charges.
(b) Calculation based on average shares outstanding.
(c) Annualized.
See Notes to Financial Statements.
7
<PAGE>
EVERGREEN
High Yield Bond Fund
Schedule of Investments
January 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS - 81.2%
Aerospace &
Defense - 0.5%
$ 2,725,000 Kitty Hawk,
Incorporated,
Sr. Secd. Notes (f),
9.95%, 11/15/04 ... $ 2,847,625
------------
Automotive Equipment
&
Manufacturing - 2.2%
2,000,000 JPS Automotive
Products,
Corporation,
Sr. Notes,
11.13%, 6/15/01 ... 2,230,000
3,000,000 Motors and Gears,
Incorporated,
Sr. Notes, Series B,
10.75%, 11/15/06 .. 3,270,000
2,000,000 Oxford Automotive,
Incorporated,
Sr. Notes (Subord.),
10.13%, 6/15/07 ... 2,130,000
4,000,000 Walbro Corporation,
Sr. Notes (f),
10.13%, 12/15/07 .. 4,110,000
------------
11,740,000
------------
Cable / Other Video Distribution - 7.6%
Adelphia
Communications
Corporation,
Sr. Notes:
5,710,000 9.88%, 3/1/07 .... 6,252,450
750,000 10.50%, 7/15/04 .. 830,625
3,125,000 Cablevision Systems
Corporation,
Sr. Deb. (Subord.),
10.50%, 5/15/16 ... 3,718,750
5,000,000 Charter
Communications, South
Eastern Capital
Limited
Partnership,
Sr. Notes, Series B,
11.25%, 3/15/06 ... 5,575,000
Diamond Cable
Communications
Company,
Sr. Disc. Notes, Step
Bond:
3,000,000 (Eff. Yield 10.48%)
(c),
0.00%, 2/15/07, ... 2,070,000
6,000,000 (Eff. Yield 11.14%)
(c),
0.00%, 9/30/04, ... 5,415,000
2,750,000 Frontiervision,
Sr. Notes (Subord.),
11.00%, 10/15/06 .. 3,080,000
4,825,000 Fundy Cable Limited,
Sr. Secd. 2nd
Priority Notes,
11.00%, 11/15/05 .. 5,355,750
6,000,000 Marcus Cable
Operations Limited
Partnership,
Gtd. Sr. Disc. Notes
(Subord.), Step
Bond, (Eff. Yield
11.95%) (c),
0.00%, 8/1/04 ..... 5,670,000
1,625,000 TCI Satellite
Entertainment,
Incorporated,
Sr. Disc. Notes
(Subord.), Step Bond,
(Eff. Yield 11.98%)
(c) (f),
0.00%, 2/15/07 .... 1,125,313
2,000,000 Telewest
Communications PLC,
Sr. Disc. Deb., Step
Bond,
(Eff. Yield 9.86%)
(c),
0.00%, 10/1/07 .... 1,580,000
------------
40,672,888
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS - continued
Chemical &
Agricultural
Products - 2.1%
$ 1,500,000 Lanesborough
Corporation,
Sr. Secd. Notes (a)
(d),
10.00%, 4/15/00 ... $ 1,102,500
4,375,000 PCI Chemical Canada,
Incorporated,
Sr. Secd. Notes (f),
9.25%, 10/15/07 ... 4,396,875
Texas Petrochemical
Corporation
Sr. Notes (Subord.):
3,100,000 11.13%, 7/1/06 ... 3,394,500
2,000,000 Series B,
11.13%, 7/1/06 .... 2,220,000
------------
11,113,875
------------
Communication Systems &
Services - 0.6%
2,750,000 Concentric Network Corporation,
Unit,
12.75%, 12/15/07 ... 2,997,500
------------
Consumer Products &
Services - 5.1%
1,750,000 Consumers
International,
Incorporated,
Sr. Secd. Notes (f),
10.25%, 4/1/05 .... 1,942,500
2,950,000 Dryper's Corporation,
Sr. Notes, Series B,
10.25%, 6/15/07 ... 3,060,625
2,000,000 Dyncorp,
Incorporated,
Sr. Notes (Subord.),
9.50%, 3/1/07 ..... 2,060,000
5,833,000 Exide Corporation,
Sr. Notes (Subord.)
(f),
2.90%, 12/15/05 ... 3,818,573
McLeod, Incorporated:
6,750,000 Sr. Disc. Notes,
Step Bond,
(Eff. Yield 9.88%)
(c),
0.00%, 3/1/07 ..... 5,130,000
3,000,000 Sr. Notes
9.25%, 7/15/07 .... 3,217,500
10,935,000 Revlon Worldwide
Corporation,
Sr. Secd. Disc.
Notes, Step Bond,
Series B, (Eff. Yield
9.82%) (c),
0.00%, 3/15/01 .... 8,037,225
------------
27,266,423
------------
Diversified
Companies - 2.0%
Affinity Group,
Incorporated:
4,000,000 Sr. Notes
11.00%, 4/1/07 .... 4,320,000
1,000,000 Sr. Notes (Subord.)
11.50%, 10/15/03 .. 1,071,250
5,000,000 Cinemark USA, Incorporated,
Sr. Notes (Subord.), Series B,
9.63%, 8/1/08 .... 5,275,000
------------
10,666,250
------------
Energy - 8.1%
5,050,000 Anker Coal Group,
Incorporated,
Sr. Notes (f),
9.75%, 10/1/07 .... 5,201,500
5,000,000 Clark USA,
Incorporated,
Sr. Notes, Series B,
10.88%, 12/1/05 ... 5,462,500
</TABLE>
8
<PAGE>
EVERGREEN
High Yield Bond Fund
Schedule of Investments (continued)
January 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS - continued
Energy - continued
$ 5,000,000 Crown Central Petroleum
Corporation,
Sr. Notes,
10.88%, 2/1/05 ....... $5,250,000
4,750,000 Energy Corporation of
America,
Sr. Notes (Subord.),
Series A,
9.50%, 5/15/07 ....... 4,797,500
2,700,000 HS Resources,
Incorporated,
Sr. Notes (Subord.),
9.25%, 11/15/06 ...... 2,727,000
3,500,000 Petsec Energy,
Incorporated,
Sr. Notes (Subord.),
Series B,
9.50%, 6/15/07 ....... 3,552,500
4,940,000 Rutherford Moran Oil
Corporation,
Sr. Notes (Subord.) (f),
10.75%, 10/1/04 ...... 5,261,100
5,000,000 Transamerican Energy
Corporation,
Sr. Secd. Notes, Series
B,
11.50%, 6/15/02 ...... 5,093,750
5,500,000 Transamerican Refining
Corporation,
1st Mtge. Notes,
16.00%, 6/30/03 ...... 5,720,000
----------
43,065,850
----------
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 ........ 5,118,750
----------
Finance &
Insurance - 1.1%
5,750,000 Pamida, Incorporated,
Sr. Notes (Subord.),
11.75%, 3/15/03 ...... 5,865,000
----------
Food & Beverage
Products - 3.1%
5,000,000 Aurora Foods,
Incorporated,
Sr. Notes (Subord.),
Series D,
9.88%, 2/15/07 ....... 5,325,000
2,000,000 Chiquita Brands
International,
Incorporated,
Sr. Notes,
9.63%, 1/15/04 ....... 2,115,000
3,500,000 FRD Acquisition Company,
Sr. Notes, Series B,
12.50%, 7/15/04 ...... 3,902,500
4,910,000 Iowa Select Farms,
Sr. Notes (Subord.) (f),
10.75%, 12/1/05 ...... 4,934,550
----------
16,277,050
----------
Forest Products - 2.8%
2,000,000 Iron Mountain,
Incorporated,
Sr. Notes (Subord.),
10.13%, 10/1/06 ...... 2,185,000
3,150,000 Printpack, Incorporated,
Sr. Notes (Subord.),
Series B,
10.63%, 8/15/06 ...... 3,370,500
5,000,000 Riverwood International
Corporation,
Sr. Notes,
10.25%, 4/1/06 ....... 5,162,500
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS - continued
Forest Products - continued
$ 4,000,000 Stone Container
Corporation,
Sr. Notes,
9.88%, 2/1/01 ........ $4,080,000
----------
14,798,000
----------
Gaming - 8.6%
2,000,000 Ameristar Casinos,
Incorporated,
Sr. Notes (Subord.),
10.50%, 8/1/04 ....... 2,100,000
Boyd Gaming Corporation:
1,250,000 Sr. Notes
9.25%, 10/1/03 ....... 1,350,000
6,000,000 Sr. Notes (Subord.)
9.50%, 7/15/07 ....... 6,480,000
5,750,000 Horseshoe Gaming,
Sr. Notes, Series B,
9.38%, 6/15/07 ....... 6,195,625
2,000,000 Livingwell,
Incorporated,
Sr. Deb. (Subord.)
(a)(b)(d),
13.13%, 4/15/01 ...... 20
5,500,000 Lodgenet Entertainment
Corporation,
Sr. Notes, Series D,
10.25%, 12/15/06 ..... 5,644,375
5,000,000 Majestic Star Casino
LLC,
Sr. Notes,
12.75%, 5/15/03 ...... 5,400,000
Prime Hospitality
Corporation:
2,500,000 1st Mtge. Notes
9.25%, 1/15/06 ....... 2,662,500
2,000,000 Sr. Notes (Subord.),
Series B
9.75%, 4/1/07 ........ 2,170,000
5,000,000 Showboat, Incorporated,
Sr. Notes (Subord.),
13.00%, 8/1/09 ....... 6,087,500
2,150,000 Six Flags Theme Parks,
Incorporated,
Sr. Notes (Subord.),
Step Bond,
(Eff. Yield 10.70%) (c),
12.25%, 6/15/05 ...... 2,335,438
5,000,000 Sun World International,
Incorporated,
1st Mtge. Notes, Series B,
11.25%, 4/15/04 ...... 5,462,500
----------
45,887,958
----------
Healthcare Products
& Services - 1.6%
4,000,000 Genesis Health,
Sr. Notes (Subord.),
9.75%, 6/15/05 ....... 4,260,000
Paragon Health Network,
Incorporated:
3,000,000 Sr. Disc. Notes
(Subord.), Step Bond,
(Eff.Yield 9.98%) (c)
(f)
0.00%, 11/1/07 ....... 1,995,000
2,175,000 Sr. Notes (Subord.) (f)
9.50%, 11/1/07 ....... 2,272,875
----------
8,527,875
----------
Manufacturing/Distributing - 2.8%
5,460,000 Delta Mills,
Incorporated,
Sr. Notes (f),
9.63%, 9/1/07 ........ 5,637,450
</TABLE>
9
<PAGE>
EVERGREEN
High Yield Bond Fund
Schedule of Investments (continued)
January 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS - continued
Manufacturing/Distributing - continued
$ 3,100,000 Polymer Group, Incorporated,
Sr. Notes (Subord.), Series B,
9.00%, 7/1/07 ..................... $3,204,625
5,000,000 Unisys Corporation,
Sr. Notes,
11.75%, 10/15/04 .................. 5,806,250
----------
14,648,325
----------
Metal Products & Services - 1.1%
5,000,000 Algoma Steel, Incorporated,
1st Mtge. Notes,
12.38%, 7/15/05 ................... 5,900,000
----------
Publishing, Broadcasting &
Entertainment - 7.0%
5,000,000 American Lawyer Media,
Incorporated,
Sr. Notes (Subord.) (f),
9.75%, 12/15/07 ................... 5,250,000
4,000,000 Big Flower Press Holdings,
Incorporated,
Sr. Notes (Subord.),
8.88%, 7/1/07 ..................... 4,170,000
6,925,000 Capstar Broadcasting Partners,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 8.92%) (c) (f),
0.00%, 2/1/09 ..................... 5,055,250
3,150,000 Echostar DBS Corporation,
Sr. Secd. Notes,
12.50%, 7/1/02 .................... 3,504,375
1,750,000 Echostar Satellite Broadcast
Corporation,
Sr. Secd. Disc. Notes, Step Bond,
(Eff. Yield 10.05%) (c),
0.00%, 3/15/04 .................... 1,540,000
4,000,000 Hollywood Park, Incorporated,
Sr. Notes (Subord.) (f),
9.50%, 8/1/07 ..................... 4,280,000
Nextel Communications,
Incorporated,
Sr. Disc. Notes, Step Bond:
5,000,000 (Eff. Yield 10.04%) (c),
0.00%, 9/15/07 .................... 3,343,750
4,700,000 (Eff. Yield 9.25%) (c)
0.00%, 10/31/07 ................... 3,055,000
3,000,000 SFX Broadcasting, Incorporated,
Sr. Notes (Subord.), Series B,
10.75%, 5/15/06 ................... 3,345,000
3,500,000 Sinclair Broadcast Group,
Incorporated,
Sr. Notes (Subord.),
9.00%, 7/15/07 .................... 3,657,500
----------
37,200,875
----------
Retailing & Wholesale - 3.6%
2,000,000 Finlay Enterprises,
Sr. Disc. Deb., Step Bond,
(Eff. Yield 9.11%) (c),
0.00%, 5/1/05 ..................... 1,970,000
4,500,000 French Fragrances, Incorporated,
Sr. Notes, Series B,
10.38%, 5/15/07 ................... 4,747,500
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS - continued
Retailing & Wholesale - continued
$ 7,000,000 Jitney Jungle Stores America,
Incorporated,
Sr. Notes (Subord.),
10.38%, 9/15/07 ................... $7,402,500
5,000,000 Perkins Family Restaurant,
Sr. Notes (f),
10.13%, 12/15/07 .................. 5,250,000
----------
19,370,000
----------
Telecommunication Services &
Equipment - 12.0%
5,500,000 Acme Television,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 10.49%) (c) (f),
0.00%, 9/30/04 .................... 4,317,500
4,350,000 AFC Enterprises, Incorporated,
Sr. Notes (Subord.),
10.25%, 5/15/07 ................... 4,583,813
7,000,000 Benedek Communications
Corporation,
Sr. Disc. Notes (Subord.), Step Bond,
(Eff. Yield 11.79%) (c),
0.00%, 5/15/06 .................... 5,530,000
7,000,000 Brooks Fiber Properties,
Incorporated,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 11.10%) (c),
0.00%, 11/1/06 .................... 5,705,000
2,250,000 BTI Telecom Corporation,
Sr. Notes (f),
10.50%, 9/15/07 ................... 2,390,625
4,000,000 Econophone, Incorporated,
Sr. Notes,
13.50%, 7/15/07 ................... 4,420,000
5,250,000 Galaxy Telecom,
Sr. Notes (Subord.),
12.38%, 10/1/05 ................... 5,827,500
2,000,000 GST Telecommunications,
Incorporated,
Sr. Notes (Subord.),
12.75%, 11/15/07 .................. 2,280,000
3,500,000 GST USA, Incorporated,
Sr. Disc. Exchg. Notes, Step Bond,
(Eff. Yield 10.45%) (c),
0.00%, 12/15/05 ................... 2,905,000
2,000,000 Hyperion Telecommunications,
Incorporated,
Sr. Secd. Notes, Series B,
12.25%, 9/1/04 .................... 2,290,000
2,500,000 Jordan Telecommunication
Products,
Sr. Notes, Series B,
9.88%, 8/1/07 ..................... 2,650,000
750,000 Metronet Communications
Corporation,
Sr. Notes,
12.00%, 8/15/07 ................... 870,000
3,000,000 Nextlink Communications,
Incorporated,
Sr. Notes,
9.63%, 10/1/07 .................... 3,202,500
2,000,000 Pegasus Communications,
Sr. Notes,
9.63%, 10/15/05 ..........................................
2,090,000
</TABLE>
10
<PAGE>
EVERGREEN
High Yield Bond Fund
Schedule of Investments (continued)
January 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS - continued
Telecommunication Services &
Equipment - continued
$ 5,000,000 RCN Corporation,
Sr. Notes (f),
10.00%, 10/15/07 ................... $ 5,337,500
4,000,000 Star Choice Communications,
Incorporated,
Sr. Secd. Notes,
13.00%, 12/15/05 ................... 4,180,000
4,525,000 Talton Holdings, Incorporated,
Sr. Notes (f),
11.00%, 6/30/07 .................... 4,943,562
-----------
63,523,000
-----------
Transportation - 1.8%
5,000,000 Transport World Airlines,
Incorporated,
Sr. Secd. Notes (f),
11.50%, 12/15/04 ................... 5,150,000
4,250,000 Pegasus Shipping Hellas Limited,
Sr. Notes (f),
11.88%, 11/15/04 ................... 4,207,500
-----------
9,357,500
-----------
Wireless Communications - 6.5%
5,000,000 Centennial Cellular Corporation,
Sr. Notes,
8.88%, 11/1/01 ..................... 5,175,000
2,000,000 Comcast Cellular Holdings,
Incorporated,
Sr. Notes, Series B,
9.50%, 5/1/07 ...................... 2,107,500
5,000,000 Iridium LLC Capital Corporation,
Sr. Notes (f),
11.25%, 7/15/05 .................... 5,112,500
6,980,000 Pagemart Nationwide,
Incorporated,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 10.80%) (c),
0.00%, 2/1/05 ...................... 6,072,600
7,500,000 Price Communications Cellular,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 12.45%) (c),
0.00%, 8/1/07 ...................... 5,006,250
5,750,000 Pricecellular Wireless
Corporation,
Sr. Disc. Notes (Subord.), Step Bond,
(Eff. Yield 10.64%) (c),
0.00%, 10/1/03 ..................... 5,980,000
5,000,000 Vanguard Celluar Systems,
Incorporated,
Sr. Deb.,
9.38%, 4/15/06 ..................... 5,300,000
-----------
34,753,850
-----------
Total Corporate Bonds
(cost $411,338,330)................. 431,598,594
-----------
FOREIGN BONDS (U.S. DOLLARS) - 6.6%
5,000,000 Applied International Finance
Company,
10.25%, 10/1/00 .................... 4,350,000
1,675,000 Azteca Holdings SA DE CV,
Sr. Secd. Notes (f),
11.00%, 6/15/02 .................... 1,733,625
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
FOREIGN BONDS (U.S. DOLLARS) - continued
$ 2,000,000 Consorcio Ecuatoriano,
Notes, Series B,
14.00%, 5/1/02 ..................... $ 2,030,000
3,000,000 Grupo Televisa SA DE CV,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 10.61%) (c),
0.00%, 5/15/08 ..................... 2,310,000
1,150,000 Indah Kiat International Finance,
11.38%, 6/15/99 .................... 989,000
5,000,000 Intermedia Capital Partners,
Sr. Notes,
11.25%, 8/1/06 ..................... 5,625,000
10,150,000 Intermedia Communications,
Incorporated,
Sr. Disc. Notes, Step Bond, Series B,
(Eff. Yield 9.85%) (c),
0.00%, 7/15/07 .................... 7,409,500
2,900,000 Satelites Mexicanos SA DE CV,
Sr. Notes (f),
10.13%, 11/1/04 .................... 2,979,750
4,000,000 Stena AB,
Sr. Notes,
8.75%, 6/15/07 ..................... 4,100,000
3,500,000 TV Azteca SA DE CV,
Sr. Notes, Series B,
10.50%, 2/15/07 .................... 3,657,500
-----------
Total Foreign Bonds (U.S. Dollars)
(cost $32,540,586) ................. 35,184,375
-----------
FOREIGN BONDS (NON U.S. DOLLARS) - 1.5%
3,500,000 Colt Telecom Group Place,
DEM Sr. Notes,
8. 88%, 11/30/07 ................... 2,034,773
5,500,000 Microcell Telecommunications,
CAD Sr. Disc. Notes, Step Bond,
(Eff. Yield 10.45%) (c) (f),
0.00%, 10/15/07 .................... 2,304,654
5,000,000 Rogers Communications,
CAD Incorporated,
Sr. Notes,
8.75%, 7/15/07 ..................... 3,365,962
-----------
Total Foreign Bonds (Non U.S. Dollars)
(cost $8,012,709)................... 7,705,389
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares
<S> <C> <C>
COMMON STOCKS AND WARRANTS - 1.2%
Aerospace & Defense - 0.1%
76,000 CHC Helicopter Corporation,
Warrants (d) ............... 228,000
-----------
Automotive Equipment &
Manufacturing - 0.0%
9,500 Chatwins Group, Incorporated,
Warrants (d) ............... 9,500
-----------
Building, Construction &
Furnishings - 0.1%
45,000 Specialty Equipment Companies,
Incorporated,
Common Stock (d) ........... 756,562
-----------
</TABLE>
11
<PAGE>
EVERGREEN
High Yield Bond Fund
Schedule of Investments (continued)
January 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS AND WARRANTS - continued
Chemical & Agricultural Products - 0.0%
2,056 Lanesborough Corporation,
Common Stock (b) (d) ........................ $ 21
-----------
Diversified Companies - 0.3%
2,964 PM Holdings Corporation,
Common Stock (d) ............................ 1,645,020
-----------
Food & Beverage Products - 0.0%
131,250 Specialty Foods Acquisition
Corporation,
Common Stock (d) ............................ 32,813
-----------
Gaming - 0.6%
Casino America, Incorporated:
254,790 Common Stock (d) ........................... 692,710
47,778 Warrants (b) (d) ........................... 478
410,062 Colorado Gaming and Entertainment
Company,
Common Stock (d) (e) ........................ 2,562,887
10,775,000 Gold River Hotel and Casino
Corporation (b) (d) ......................... 107,750
Grand Palais Casinos,
Incorporated:
931,379 Limited Liability Interest
(8/15/94 - $0) (b) (d) ...................... 931
250,735 Series A, Warrants
(8/15/94 - $2,507) (b) (d) .................. 251
136,765 Series B, Warrants
(8/15/94 - $1,368) (b) (d) .................. 137
1,208,088 Series C, Warrants
(8/15/94 - $12,080) (b) (d) ................. 1,208
680,643 Series D, Warrants
(8/15/94 - $646) (b) (d) .................... 681
-----------
3,367,033
-----------
Publishing, Broadcasting & Entertainment - 0.1%
Nextel Communications,
Incorporated:
10,843 Common Stock (d) ........................... 296,488
9,510 Warrants (d) ............................... 13,219
-----------
309,707
-----------
Telecommunication Services & Equipment - 0.0%
4,000 Econophone, Incorporated,
Warrants (d) (f) ............................ 200,000
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS AND WARRANTS - continued
Telecommunication Services & Equipment -
continued
750 Metronet Communications
Corporation,
Warrants (d) (f) ............................ $ 1,875
-----------
201,875
-----------
Total Common Stocks and Warrants
(cost $6,029,714)............................ 6,550,531
-----------
PREFERRED STOCKS - 4.8%
Cable / Other Video Distribution - 1.8%
28,500 Adelphia Communications
Corporation,
Series B, 13.00% ............................ 3,291,750
55,799 Cablevision Systems Corporation,
Series M, 11.13% ............................ 6,416,916
-----------
9,708,666
-----------
Finance & Insurance - 2.6%
24,562 Ampex Corporation (b) (d) ................... 12,452,934
12,800 Sinclair Capital ............................ 1,420,800
-----------
13,873,734
-----------
Publishing, Broadcasting & Entertainment - 0.4%
20,000 Primedia, Incorporated,
Series E (d) (f) ............................ 2,060,000
-----------
Total Preferred Stocks
(cost $34,820,332)........................... 25,642,400
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
<S> <C> <C> <C>
REPURCHASE AGREEMENT - 3.2%
(cost $16,873,000)
$16,873,000 Keystone Joint Repurchase
Agreement (Investments in
repurchase agreements, in a joint
trading, account, dated 1/30/98,
maturity value $16,880,893) (g),
5.61%, 2/2/98 ................... 16,873,000
----------
Total Investments -
(cost $509,614,671)..... 98.5% 523,554,289
Other Assets and
Liabilities-Net ........ 1.5 7,816,810
----- -----------
Net Assets ............. 100.0% $531,371,099
===== ============
</TABLE>
(a) Securities which have defaulted on payment of interest and/or principal.
The Fund has stopped accruing income on those so identified. At January 31,
1998, the face value of these securities was $1,102,520 (0.21% of the
Fund's net asset value).
(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. The date of acquisition and costs are set forth
in parentheses after the title of each restricted security. On the date of
acquisition there were no market quotations on similar securities and the
above securities were valued at acquisition cost. At January 31, 1998, the
fair value of restricted securities was $3,208 (0.00% 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) Non-income-producing security.
(e) 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 January 31, 1998, the Fund owned $410,062 principal amount of this
security at a cost of $1,864,123 with a fair value of $2,562,887 (0.48% of
the Fund's net assets). For the six months ended January 31, 1998, the Fund
earned no income from this investment.
(f) 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.
(g) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at January 31,1998.
Legend of Portfolio Abbreviations:
CAD Canadian Dollar
DEM German Deutsche Mark
See Notes to Financial Statements.
12
<PAGE>
EVERGREEN
High Yield Bond Fund
Statement of Assets and Liabilities
January 31, 1998 (Unaudited)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------ --------------
Assets
Investments at market value (identified cost - $509,614,671)............................. $ 523,554,289
Cash .................................................................................... 231
Foreign currency, at value (identified cost $16,209)..................................... 16,170
Interest receivable ..................................................................... 8,801,405
Receivable for investments sold ......................................................... 5,965,059
Receivable for Fund shares sold ......................................................... 240,513
Prepaid expenses and other assets ....................................................... 136,750
- ------------------------------------------------------------------------------------------ --------------
Total assets ........................................................................... 538,714,417
- ------------------------------------------------------------------------------------------ --------------
Liabilities
Payable for investments purchased ....................................................... 4,012,597
Distributions to shareholders ........................................................... 1,479,452
Payable for Fund shares redeemed ........................................................ 1,136,738
Distribution fee payable ................................................................ 342,929
Due to related parties .................................................................. 273,129
Accrued expenses and other liabilities .................................................. 98,473
- ------------------------------------------------------------------------------------------ --------------
Total liabilities ...................................................................... 7,343,318
- ------------------------------------------------------------------------------------------ --------------
Net assets ............................................................................... $ 531,371,099
========================================================================================== ==============
Net assets represented by
Paid-in capital ......................................................................... $ 976,494,314
Accumulated distributions in excess of net investment income ............................ (1,452,069)
Accumulated net realized loss on investments and foreign currency related transactions .. (457,609,986)
Net unrealized appreciation on investments and foreign currency related transactions .... 13,938,840
- ------------------------------------------------------------------------------------------ --------------
Total net assets ....................................................................... 531,371,099
========================================================================================== ==============
Net assets consist of
Class A ................................................................................. $ 437,419,963
Class B ................................................................................. 93,856,562
Class C ................................................................................. 94,574
- ------------------------------------------------------------------------------------------ --------------
$ 531,371,099
========================================================================================== ==============
Shares outstanding
Class A ................................................................................. 96,343,104
Class B ................................................................................. 20,673,012
Class C ................................................................................. 20,836
- ------------------------------------------------------------------------------------------ --------------
Net asset value per share
Class A ................................................................................. $ 4.54
========================================================================================== ==============
Class A - Offering price (based on sales charge of 4.75%) ............................... $ 4.77
========================================================================================== ==============
Class B ................................................................................. $ 4.54
========================================================================================== ==============
Class C ................................................................................. $ 4.54
========================================================================================== ==============
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
EVERGREEN
High Yield Bond Fund
Statement of Operations
Six Months Ended January 31, 1998 (Unaudited)
<TABLE>
<S> <C>
Investment income
Interest income (Net of foreign withholding taxes of $15,678)............................ $24,669,930
Dividend income ......................................................................... 230,683
Other income ............................................................................ 57,236
- ------------------------------------------------------------------------------------------ ------------
Total income ........................................................................... 24,957,849
- ------------------------------------------------------------------------------------------ ------------
Expenses
Distribution Plan expenses .............................................................. 2,588,903
Management fee .......................................................................... 1,548,428
Transfer agent fees ..................................................................... 657,702
Administrative services fees ............................................................ 52,473
Trustees' fees and expenses ............................................................. 28,471
Other ................................................................................... 246,782
- ------------------------------------------------------------------------------------------ ------------
Total expenses ......................................................................... 5,122,759
Less: Expenses paid indirectly .......................................................... (24,469)
- ------------------------------------------------------------------------------------------ ------------
Net expenses ........................................................................... 5,098,290
- ------------------------------------------------------------------------------------------ ------------
Net investment income ................................................................... 19,859,559
========================================================================================== ============
Net realized and unrealized gain on investments and foreign currency related transactions
Realized gain on:
Investments ............................................................................ 5,808,509
Foreign currency related transactions .................................................. 10,085
- ------------------------------------------------------------------------------------------ ------------
Net realized gain on investments and foreign currency related transactions .............. 5,818,594
- ------------------------------------------------------------------------------------------ ------------
Net change in unrealized appreciation (depreciation) on:
Investments ............................................................................ 14,994,985
Foreign currency related transactions .................................................. (788)
- ------------------------------------------------------------------------------------------ ------------
Net change in unrealized appreciation on investments and foreign currency related 14,994,197
- ------------------------------------------------------------------------------------------ ------------
transactions
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign currency related 20,812,791
- ------------------------------------------------------------------------------------------ ------------
transactions
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations .................................... $40,672,350
========================================================================================== ============
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
EVERGREEN
High Yield Bond Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Ended
January 31, 1998 Year Ended
(Unaudited) July 31, 1997
------------------ ----------------
<S> <C> <C>
Operations
Net investment income ................................................................ $ 19,859,559 $ 43,434,059
Net realized gain on investments and foreign currency related transactions ........... 5,818,594 3,963,269
Net change in unrealized appreciation (depreciation) on investments and foreign
currency related transactions ........................................................ 14,994,197 33,119,281
- --------------------------------------------------------------------------------------- ------------- --------------
Net increase in net assets resulting from operations ................................ 40,672,350 80,516,609
- --------------------------------------------------------------------------------------- ------------- --------------
Distributions to shareholders from
Net investment income
Class A ............................................................................. (1,280,155) 0
Class B ............................................................................. (18,563,059) (43,434,060)
Class C ............................................................................. (195) 0
In excess of net investment income
Class A ............................................................................. 0 0
Class B ............................................................................. 0 (1,323,000)
Class C ............................................................................. 0 0
- --------------------------------------------------------------------------------------- ------------- --------------
Total distributions to shareholders ............................................... (19,843,409) (44,757,060)
- --------------------------------------------------------------------------------------- ------------- --------------
Capital share transactions
Proceeds from shares sold ............................................................ 36,943,179 136,045,881
Payments for shares redeemed ......................................................... (85,074,694) (243,407,877)
Proceeds from reinvestment of distributions .......................................... 11,283,672 25,311,702
- --------------------------------------------------------------------------------------- ------------- --------------
Net decrease in net assets resulting from capital share transactions ................ (36,847,843) (82,050,294)
- --------------------------------------------------------------------------------------- ------------- --------------
Total decrease in net assets ...................................................... (16,018,902) (46,290,745)
- --------------------------------------------------------------------------------------- ------------- --------------
Net assets
Beginning of period .................................................................. 547,390,001 593,680,746
- --------------------------------------------------------------------------------------- ------------- --------------
End of period [Including accumulated distributions in excess of net investment income
as follows: 1998 - ($1,452,069) and 1997-($1,468,219)]............................... $ 531,371,099 $ 547,390,001
======================================================================================= ============= ==============
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
Notes to Financial Statements (Unaudited)
1. ORGANIZATION
The Evergreen High Yield Bond Fund (the "Fund") (formerly, Keystone High Income
Bond Fund (B-4)) 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 investment company registered under the Investment Company Act
of 1940, as amended (the "1940 Act").
Effective January 9, 1998, the Fund added two classes of shares designated as
Class A and Class C and designated its existing class of shares as Class B.
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 higher
ongoing distribution fees 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 C shares are sold
subject to a contingent deferred sales charge payable on shares redeemed within
one year after the month of purchase. Shareholders of the Fund who, on January
16, 1998, held Class B shares acquired 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 Fund in the preparation of its 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 Fund 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. Securities for which 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
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
The Fund may invest in repurchase agreements. Securities pledged as collateral
for repurchase agreements are held by the custodian on the Fund's behalf. The
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. The 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, the 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. Foreign Currency
The books and records of the Fund 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 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 foreign currency related
transactions.
16
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
D. Security Transactions and Investment Income
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premiums. Dividend income is recorded on the
ex-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.
E. Federal Taxes
The Fund has qualified and intends to continue to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Fund will not incur any federal income tax liability since
it is expected to distribute all of its net investment company taxable income
and net capital gains, if any, to its shareholders. The Fund also intends 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
the Fund's policy not to distribute such gains.
F. Distributions
Distributions from net investment income for the 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
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 the expiration of
capital loss carryovers.
G. Class Allocations
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the
relative net assets of each class. Currently, class specific expenses are
limited to expenses incurred under the Distribution Plans for each class.
3. CAPITAL SHARE TRANSACTIONS
The Fund has an unlimited number of shares of beneficial interest authorized
with a par value of $.001. Shares of beneficial interest of the Fund are
currently divided into Class A, Class B and Class C. Transactions in shares of
the Fund were as follows:
<TABLE>
<S> <C> <C>
January 20, 1998
(Commencement of Class
operations)
Through
January 31, 1998
-------------------------------
Shares Amount
---------- -------
Class A
Shares sold ................................... 182,953 $ 829,981
Automatic conversion of Class B shares ........ 96,655,555 436,706,228
Shares redeemed ............................... (832,241) (3,771,239)
Shares issued in reinvestment of distributions 336,837 1,529,239
- ----------------------------------------------- ----------- --------------
Net increase .................................. 96,343,104 $435,294,209
=============================================== =========== ==============
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Six Months Ended Year Ended
January 31, 1998 July 31, 1997
---------------------------------- -----------------------------------
Shares Amount Shares Amount
------------ -------- ----------- -------
Class B
Shares sold ..................................... 8,144,067 $ 36,019,125 32,280,201 $ 136,045,881
Automatic conversion of shares to Class A shares (96,655,555) (436,706,228) 0 0
Shares redeemed ................................. (18,420,392) (81,303,455) (57,681,924) (243,407,877)
Shares issued in reinvestment of distributions .. 2,214,126 9,754,216 5,995,434 25,311,702
- ------------------------------------------------- -------------- --------------- -------------- ---------------
Net decrease .................................... (104,717,754) $ (472,236,342) (19,406,289) $ (82,050,294)
================================================= ============== =============== ============== ===============
</TABLE>
17
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
<TABLE>
<S> <C> <C>
January 21, 1998
(Commencement of
Class operations)
Through
January 31, 1998
--------------------
Shares Amoun t
------ -----
Class C
Shares sold ................................... 20,788 $94,073
Shares redeemed ............................... 0 0
Shares issued in reinvestment of distributions 48 217
- ----------------------------------------------- ------- --------
Net increase .................................. 20,836 $94,290
=============================================== ======= ========
</TABLE>
4. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) were as follows for the six months ended January 31,
1998:
<TABLE>
<S> <C> <C>
Cost of Proceed s
Purchase s from Sales
- ------------------------------- ------------ ---------------
Non-U.S. government ......... $483,187,953 $535,940,284
U.S. government ............. 15,154,688 15,525,000
</TABLE>
As of July 31, 1997, the Fund had capital loss carryovers for federal income
tax purposes of approximately $457,110,000 which expire as follows: $93,048,000
- - 1998, $91,150,000 - 1999, $122,350,000 - 2000, $44,605,000 - 2002,
$105,957,000 - 2003.
5. DISTRIBUTION PLANS
Evergreen Distributor, Inc. ("EDI") (formerly, Evergreen Keystone Distributor,
Inc.), a wholly-owned subsidiary of The BISYS Group Inc. ("BISYS"), serves as
principal underwriter to the Fund.
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 currently
pays a service fee equal to 0.25% of the average daily net assets of the class.
Class B and Class C also pay distribution fees equal to 0.75% of the average
daily net assets of the class. Distribution Plan expenses are calculated daily
and paid monthly.
During the six months ended January 31, 1998, amounts paid to EDI pursuant to
the Fund's Class A, Class B and Class C Distribution Plans were $35,904,
$2,552,979 and $20, respectively.
With respect to Class B and Class C shares, the principal underwriter may pay
distribution fees greater than the allowable annual amounts the Fund is
permitted to pay under the Distribution Plans. The Fund may reimburse the
principal underwriter for such excess amounts in later years with annual
interest at prime plus 1.00%. EDI intends to seek full payment of such
distribution costs from the Fund at such time in the future as, and to the
extent that, payment thereof by the Class B or Class C shares would be within
permitted limits.
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, 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 advisor for the Fund.
In return for providing investment management and administrative services to
the Fund, the Fund pays 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 Fund.
Evergreen Investment Services ("EIS") (formerly, Evergreen Keystone Investment
Services, Inc.), a subsidiary of First Union National Bank, serves as the
administrator to the Fund. BISYS Fund Services is sub-administrator to the Fund
and is paid by Keystone for its services. As sub-administrator to the Fund,
BISYS Fund Services provides the officers of the Fund.
18
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
Evergreen Service Company ("ESC") (formerly, Evergreen Keystone Service
Company), a wholly-owned subsidiary of Keystone, serves as the transfer and
dividend disbursing agent for the Fund.
Officers of the Fund and affiliated Trustees receive no compensation directly
from the Fund.
7. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an expense offset arrangement with its custodian. The
assets deposited with the custodian under this expense offset arrangement could
have been invested in income-producing assets.
8. FINANCING AGREEMENT
On December 22, 1997, a financing agreement among 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 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 Fund for temporary or emergency purposes only
and is subject to the 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 six months ended January 31, 1998, the Fund had no borrowings under
this agreement.
19
<PAGE>
ADDITIONAL INFORMATION (Unaudited)
On December 15, 1997, a special meeting of shareholders for the Fund was held
to consider a number of proposals. On October 16, 1997, the record date for the
meeting, the Fund had the following shares outstanding and number of shares
represented at the meeting:
<TABLE>
<CAPTION>
<S> <C>
Record Date Shares Outstanding ............................ 121,742,236
Shares represented at meeting ............................. 74,687,170
Percentage of record date shares represented at meeting ... 61.35%
</TABLE>
The votes recorded at the meeting, by proposal, were as follows:
<TABLE>
<S> <C>
Proposal 1 - The proposed reorganization of
the Fund as a series of the Evergreen Fixed Income
Trust,
a Delaware business trust:
Shares voted "For" ............ 68,781,387
Shares voted "Against" ........ 1,283,451
Shares voted "Abstain" ........ 4,622,332
Proposal 2 - Reclassification as
non-fundamental investment objective of this Fund whose
investment objective is currently classified
as fundamental:
Shares voted "For" ............ 67,540,248
Shares voted "Against" ........ 1,992,391
Shares voted "Abstain" ........ 5,154,531
Proposal 3 - Changes to Fundamental investment
restrictions:
Proposal 3A - To amend the Fundamental
restriction concerning diversification of investments:
Shares voted "For" ............ 67,262,913
Shares voted "Against" ........ 1,709,950
Shares voted "Abstain" ........ 5,714,307
Proposal 3B - To amend the Fundamental
restriction concerning concentration of a Fund's assets
in a particular industry:
Shares voted "For" ............ 67,251,038
Shares voted "Against" ........ 1,721,825
Shares voted "Abstain" ........ 5,714,307
Proposal 3C - To amend the Fundamental
restriction concerning the issuance of senior
securities:
Shares voted "For" ............ 67,249,303
Shares voted "Against" ........ 1,723,560
Shares voted "Abstain" ........ 5,714,307
Proposal 3D - To amend the Fundamental
restriction concerning borrowing:
Shares voted "For" ............ 67,245,705
Shares voted "Against" ........ 1,727,158
Shares voted "Abstain" ........ 5,714,307
Proposal 3E - To amend the Fundamental
restriction concerning underwriting:
Shares voted "For" ............ 67,257,922
Shares voted "Against" ........ 1,714,941
Shares voted "Abstain" ........ 5,714,307
Proposal 3F - To amend the Fundamental
restriction concerning investments in Real Estate:
Shares voted "For" ............ 67,256,371
Shares voted "Against" ........ 1,716,492
Shares voted "Abstain" ........ 5,714,307
Proposal 3G - To amend the Fundamental
restriction concerning commodities:
Shares voted "For" ............ 67,247,728
Shares voted "Against" ........ 1,725,135
Shares voted "Abstain" ........ 5,714,307
Proposal 3H - To amend the Fundamental
restriction concerning lending:
Shares voted "For" ............ 67,248,731
Shares voted "Against" ........ 1,724,132
Shares voted "Abstain" ........ 5,714,307
Proposal 3J(9) - To amend the Fundamental
restriction concerning unseasoned issuers:
Shares voted "For" ............ 67,217,376
Shares voted "Against" ........ 1,745,955
Shares voted "Abstain" ........ 5,723,839
</TABLE>
20
<PAGE>
ADDITIONAL INFORMATION (Unaudited) (continued)
<TABLE>
<S> <C>
Proposal 3J(10) - To amend the Fundamental
restriction concerning margin purchases:
Shares voted "For" ............. 67,207,387
Shares voted "Against" ......... 1,755,944
Shares voted "Abstain" ......... 5,723,839
Proposal 3J(11) - To amend the Fundamental
restriction concerning short sales:
Shares voted "For" ............. 67,204,171
Shares voted "Against" ......... 1,747,302
Shares voted "Abstain" ......... 5,735,697
Proposal 3J(12) - To amend the Fundamental
restriction concerning margin purchases:
Shares voted "For" ............. 67,202,073
Shares voted "Against" ......... 1,747,302
Shares voted "Abstain" ......... 5,737,795
Proposal 3J(13) - To amend the Fundamental
restriction concerning other investment
companies:
Shares voted "For" ............. 67,234,939
Shares voted "Against" ......... 1,746,768
Shares voted "Abstain" ......... 5,705,463
</TABLE>
21
<PAGE>
66573 541893 RV01
3/98
BULK RATE
U.S. POSTAGE
PAID
CHARLOTTE, NC
PERMIT NO. 136
201 S. College St.
Charlotte, NC 28288
