Evergreen
Diversified
Bond Fund
February 28, 1998
Semiannual Report
(Evergreen logo)
<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 ..................... 7
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 $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 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>
<C> <C> <S>
Mutual Funds: ARE NOT FDIC INSURED May lose value o Are not bank guaranteed
</TABLE>
Evergreen Funds Distributor, Inc.
<PAGE>
Letter to Shareholders
April 1998
Dear Shareholders:
Bond fund investors have reason to be cheered.
(Photo of William M. Ennis)
William M. Ennis Whether you look at the six-month period or the
Managing Director 12-month period that ended on February 28,
1998, it has been an excellent
time to be invested in a mutual
fund that can take full advantage of the
opportunities in the bond market. The U.S. economy has been growing at a strong
rate, while inflationary pressures have been kept under control and interest
rates - particularly long-term rates - have continued to decline, leading to
price appreciation for most fixed-income securities. In fact, the yield on the
30-year Treasury declined in the 12 months from 6.80% to 5.92%, a significant
move, particularly during healthy economic times.
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. High grade investments have tended to do
very well, while high yield investments have done even better as the strong
domestic economy has encouraged investors to seek the higher income and accept
the greater credit risk of high yield securities.
Flexible Strategy
Within this environment, the Evergreen Diversified Bond Fund, formerly Keystone
Diversified Bond Fund (B-2), has continued to excel in performance as it
pursued its flexible strategy of seeking the most attractive relative values in
the fixed income market. The Fund has been a consistent top-quartile performer
in its Lipper category (BBB-rated bonds or better) during the year by paying
careful attention to asset allocation and sector and security selection. For
the 12 months ended March 31, 1998, the Fund's Class B shares ranked 17 out of
the 101 Corporate Debt funds tracked by Lipper Analytical Services.1 This
strategy, when successfully executed, gives shareholders the potential to enjoy
the benefits of the most attractive opportunities in the bond market, with the
full benefit of diversification.
Portfolio Diversification
At Evergreen Funds, we believe most shareholders- even those seeking long-term
growth from equity-oriented investments - are well-served to have a diversified
portfolio with at least part of their holdings in fixed income investments.
While the past three-year period has been a time of extraordinary opportunity
in the equity market, portfolio diversification remains important in helping to
control risk. We believe a flexibly managed fund such as the Evergreen
Diversified Bond Fund offers diversification and opportunity not only to
income-oriented investors, but also for growth-oriented investors.
At Evergreen Funds, we are committed to providing a strong array of funds with
a variety of investment objectives to help investors pursue their goals
consistent with their needs and risk tolerances. We encourage you, if you have
any questions about this fund or any other Evergreen Fund, to consult your
financial advisor or call Evergreen Funds at 1-800-343-2898.
Thank you for your investment in Evergreen Funds.
Sincerely,
(Signature of William M.Ennis)
William M. Ennis
Managing Director
Evergreen Funds
- ---------
1 Source: 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 ending March 31, 1998, the Fund's
Class B shares ranked 30 out of 35 Corporate Debt funds. For the 10-year
period ending March 31, 1998, the Fund's Class B shares ranked 18 out of 18
Corporate Debt funds. Past performance is no guarantee of future results.
1
<PAGE>
EVERGREEN
Diversified Bond Fund
Fund at a Glance as of February 28, 1998
During the six months, we focused on structure, by investing in non-callable
bonds. We also focused on the non-tradable goods sectors in high yield
industries such as cable, media and broadcasting.
Portfolio
Management
- ----------------------------------------
(Picture of Chris Conkey)
Chris Conkey
Keystone Investment
Management Company
Tenure: January 1995
----------------------------------------------
PERFORMANCE AND RETURNS*
----------------------------------------------
<TABLE>
<CAPTION>
Class A Class B
<S> <C> <C>
Inception Date 1/20/98 9/11/35
Average Annual Returns
6 months with sales charge - 1.60%
6 months w/o sales charge - 6.60%
One year with sales charge - 6.65%
One year w/o sales charge - 11.65%
3 years - 8.93%
5 years - 6.59%
10 years - 7.40%
Since Inception 0.10 % 7.00%
Maximum Sales Charge 4.75 % 5.00%
Front End CDSC
30-day SEC Yield 6.93 % 6.18%
6 month dividends per share $ 0.13** $ 0.46
</TABLE>
*Adjusted for maximum sales charge.
**Represents dividends since inception, January 20, 1998.
---------------------------------------
LONG TERM GROWTH
---------------------------------------
Chart appears below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
2/88 2/90 2/92 2/94 2/96 2/98
Evergreen Diversified Bond $10,000 $10,654 $13,021 $16,001 $16,949 $20,422
Lehman Brothers Aggregate Bond Index $10,000 $11,034 $11,948 $12,647 $13,343 $13,957
Consumer Price Index $10,000 $11,694 $14,803 $17,503 $19,996 $23,247
</TABLE>
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).
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. The 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 February 28, 1998.
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE
Check-box graph appears below:
(Graphic)
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 bond portfolio.
Source: 1998 Morningstar, Inc.
2
<PAGE>
EVERGREEN
Diversified Bond Fund
Portfolio Manager Interview
- --------------------------------------------------------------------------------
How did the Fund perform?
The Fund had excellent performance. For the six months that ended on
February 28, 1998, the Fund's Class B had a total return of 6.60%,
compared to a return of 5.72% in the Lehman Brothers Aggregate Bond Index.
For the 12-month period ending February 28, the Fund's Class B had a
return of 11.65%, compared to a return of 10.37% for the Lehman index.
These returns are unadjusted for any sales charges.
Portfolio Characteristics
-------------------------
Total Net Assets $600,141,288
Average Credit Quality A
Average Duration 7.6 years
Average Maturity 13.0 years
- --------------------------------------------------------------------------------
What was the investment environment
like during the six months?
In general, it was a positive period for the bond market in the United
States. The economic environment was impressive, with real Gross Domestic
Product (GDP) growing at a rate of 3% - 4%, spurred by healthy consumer
spending and strong capital investment. Unemployment reached a 30-year
low, while inflation was very low, less than 2%.
During the six months, interest rates fell, with rates on longer-maturity
bonds falling more than rates on shorter-term bonds. For example, during
the six months from August 31, 1997, through February 28, the yield on the
30-year Treasury bond fell from 6.61% to 5.92%. Shorter-maturity bonds did
not fall nearly as much, with the yield on the 3-month Treasury actually
rising from 5.22% to 5.30%. This was because the Federal Reserve, in the
face of strong domestic economic growth and creeping wage inflation, was
reluctant to ease money supply and allow short-term rates to fall.
Over the course of the six months, government bonds tended to outperform
corporate bonds, which outperformed mortgage-backed securities. High yield
bonds tended to do better than government bonds and investment grade
corporate bonds, but only marginally. Within the high yield market, bonds
issued by service and other industries not directly linked to
international trade did better than bonds issued by companies in tradable
goods industries. Foreign bonds linked to the Asian or emerging market
economies did not perform well, although European bonds did well.
--------------------------------------------------------------------
PORTFOLIO COMPOSITION
(as a percentage of portfolio assets)
(Pie chart appears here. See the table below.)
Asset-Backed Securities 6%
Corporate Bonds 52%
Collateralized Mortgage Obligations 18%
Foreign Corporate Bonds 9%
Other 8%
U.S. Government & Agency Securities 7%
- --------------------------------------------------------------------------------
Were there any significant events influencing the bond market during the
period?
The Asian currency and financial crisis caused a great amount of
uncertainty in the market. The collapse of the Thai currency in July 1997
started the Asian currency crisis, which had a significant impact on
global marketplace returns during the period. As a result of this crisis
and the devaluation of currencies in several Asian countries, the cost of
commodities and tradable goods produced or manufactured in these countries
became significantly lower. This had an impact in the U.S. in the
commodity, technology and other industries that produce tradable goods.
3
<PAGE>
EVERGREEN
Diversified Bond Fund
Portfolio Manager Interview
Overall, the crisis had three significant impacts on the fixed income
market in the United States:
1. Slower economic growth, resulting from the economic contraction in Asia
which accounts for one-third of the world's economy;
2. Lower interest rates and lower inflation;
3. Potential credit quality problems in selected tradable goods
industries, such as autos, technology and commodities.
- --------------------------------------------------------------------------------
What strategies did you follow during
the period?
The key factors affecting performance in the bond market for the six months
were structure and sector. By structure, we refer to the extent to which a
bond is callable, i.e., whether it can be called back by the borrower. In a
falling interest rate environment, non-callable bonds usually outperform
callable bonds. Mortgage-backed bonds are the primary victims, which was
why corporate bonds performed better than mortgage-backed securities.
During the six months, we focused on structure, by investing in
non-callable bonds. We also focused on the non-tradable goods sectors in
high yield industries such as cable, media and broadcasting.
--------------------------------------------------------------------
PORTFOLIO CREDIT QUALITY
(as a percentage of portfolio assets)
(Pie chart appears here. See the table below.)
AAA 31%
AA 16%
A 14%
BBB 16%
BB or less 23%
Asset allocation did not change significantly, although we reduced the
Fund's emphasis on mortgage-backed securities and foreign bonds. As the
yield difference compressed between high yield and investment grade
corporate bonds, we reduced the high yield emphasis somewhat. During the
six months, the high yield portion of the portfolio declined from 26% of
net assets to 23%. Over the past 18 months, it has declined from 30% to
23%.
Average credit quality remained at A, and average weighted maturity of the
portfolio was lengthened, but not significantly, from 11.4 years to 13.0
years.
- --------------------------------------------------------------------------------
What is your outlook?
We think growth in the domestic economy will slow from a range of 3%-4% to
a range of 2%-3%, and we expect inflation to continue to be very low,
perhaps about 2% for the year. With this outlook, we see the potential for
moderate declines in interest rates, although short-term rates could fall
more than long-term rates if the Federal Reserve Board eases monetary
policy in the face of a slowdown in economic growth.
A key factor affecting the bond market will be the projected surplus in
the federal budget. As a result of this surplus, the issuance of U.S.
Treasury securities could be extremely low. The Treasury may even buy back
some existing securities, which could result in lower interest rates even
if economic growth does not slow.
Within this environment, we expect to focus on higher quality domestic
bonds, although we will continue to look for international opportunities
that have the potential to add to total return and increase
diversification. Our primary focus, however, will be to focus on better
credit quality and to emphasize sector and issue selection as opposed to
trying to anticipate major moves in interest rates.
4
<PAGE>
EVERGREEN
Diversified Bond Fund
Financial Highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
January 20, 1998
(Commencement of
Class operations) to
February 28, 1998
(Unaudited)
<S> <C>
CLASS A SHARES
Net asset value beginning of period $ 16.08
==========
Income from investment operations
Net investment income 0.12 (b)
Net realized and unrealized loss on investments and foreign currency related transactions ( 0.10)
----------
Total from investment operations 0.02
Less distributions from net investment income ( 0.13)
----------
Net asset value end of period $ 15.97
==========
Total return (a) 0.10%
Ratios/supplemental data
Ratios to average net assets
Expenses 1.02%(c)
Expenses excluding indirectly paid expenses 1.02%(c)
Net investment income 7.01%(c)
Portfolio turnover rate 81%
Net assets end of period (thousands) $ 527,501
</TABLE>
(a) Excluding applicable sales charges.
(b) Calculation based on average shares outstanding.
(c) Annualized.
See Notes to Financial Statements.
5
<PAGE>
EVERGREEN
Diversified Bond Fund
Financial Highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Six Months Ended
February 28, 1998
(Unaudited)
<S> <C>
CLASS B SHARES
Net asset value beginning of period 15.42
=======
Income from investment operations
Net investment income 0.48(b)
Net realized and unrealized gain (loss) on investments and foreign currency
related transactions 0.53
----------
Total from investment operations 1.01
----------
Less distributions from
Net investment income ( 0.46)
In excess of net investment income 0
Tax basis return of capital 0
Net realized gain on investments and foreign currency related transactions 0
----------
Total distributions ( 0.46)
----------
Net asset value end of period 15.97
==========
Total return (a) 6.60%
Ratios/supplemental data
Ratios to average net assets
Expenses 1.92%(c)
Expenses excluding indirectly paid expenses 1.92%(c)
Net investment income 5.71%(c)
Portfolio turnover rate 81%
Net assets end of period (thousands) $ 72,640
<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 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
Tax basis return of capital 0 ( 0.08) ( 0.08) 0
Net realized gain on investments and foreign currency related transactions 0 0 0 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 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)
Tax basis return of capital 0 0
Net realized gain on investments and foreign currency related
transactions 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 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
Tax basis return of capital 0 0 0 0
Net realized gain on investments and foreign currency related
transactions 0 0 0 ( 0.04)
-------- -------- ---------- --------
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) Calculation based on average shares outstanding.
(c) Annualized.
See Notes to Financial Statements.
6
<PAGE>
EVERGREEN
Diversified Bond Fund
Schedule of Investments
February 28, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS - 55.9%
Advertising & Related Services - 1.2%
$ 2,800,000 Hollinger International,
Sr. Subord. Notes,
9.25%, 2/1/06 ........................ $2,975,000
3,000,000 K-III Communications Corporation,
Sr. Notes,
8.50%, 2/1/06 ........................ 3,067,500
1,250,000 Lamar Advertising Company,
Sr. Subord. Notes,
9.63%, 12/1/06 ....................... 1,356,250
----------
7,398,750
----------
Aerospace & Defense - 1.3%
1,525,000 Kitty Hawk Incorporated,
Sr. Secd. Notes,
9.95%, 11/15/04 ...................... 1,601,250
5,000,000 Northrop Grumman Corporation,
Deb.,
9.38%, 10/15/24 ...................... 5,928,500
----------
7,529,750
----------
Automotive Equipment &
Manufacturing - 0.7%
800,000 Eagle Picher Industrial Incorporated,
Sr. Subord. Notes,
9.38%, 3/1/08 (b) .................... 806,000
2,750,000 Hertz Corporation,
Sr. Notes,
7.00%, 5/1/02 ........................ 2,807,008
750,000 Walbro Corporation,
Sr. Notes,
10.13%, 12/15/07 (b) ................. 770,625
----------
4,383,633
----------
Building, Construction &
Furnishings - 0.6%
2,800,000 H M H Properties Incorporated,
Sr. Secd. Notes,
Series B,
9.50%, 5/15/05 (f) ................... 2,975,000
750,000 MDC Holdings Incorporated,
Sr. Notes,
8.38%, 2/1/08 ........................ 750,000
----------
3,725,000
----------
Cable/Other Video Distribution - 0.3%
1,175,000 Fundy Cable Limited,
Sr. Secd. 2nd Priority Notes,
11.00%, 11/15/05 ..................... 1,310,125
650,000 Rogers Cablesystems Limited,
Sr. Secd. 2nd Priority Notes,
10.00%, 3/15/05 ...................... 728,000
----------
2,038,125
----------
Chemical & Agricultural Products - 1.5%
1,450,000 Huntsman Polymers Corporation,
Sr. Notes,
11.75%, 12/1/04 ...................... 1,620,375
2,000,000 ISP Holdings Incorporated,
Sr. Notes, Series B,
9.75%, 2/15/02 ....................... 2,135,000
1,925,000 PCI Chemicals Canada Incorporated,
Sr. Secd. Notes,
9.25%, 10/15/07 (b) .................. 1,925,000
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS - continued
Chemical & Agricultural Products - continued
$ 3,000,000 Waste Management, Incorporated,
Deb.,
7.65%, 3/15/11 ....................... $3,096,563
----------
8,776,938
----------
Communication Systems &
Services - 0.6%
1,800,000 Centennial Cellular Corporation,
Sr. Notes,
8.88%, 11/1/01 ........................ 1,854,000
1,800,000 Comcast Cellular Holdings, Incorporated,
Sr. Notes,
9.50%, 5/1/07 (b) ................... 1,890,000
----------
3,744,000
----------
Consumer Products & Services - 2.1%
Aurora Foods Incorporated,
Sr. Subord. Notes:
2,000,000 Series B,
9.88%, 2/15/07 ....................... 2,140,000
1,000,000 Series D,
9.88%, 2/15/07 ....................... 1,070,000
1,000,000 Consumers International Incorporated,
Sr. Secd. Notes,
10.25%, 4/1/05 (b) ................... 1,110,000
2,500,000 Coty Incorporated,
Sr. Subord. Notes,
10.25%, 5/1/05 ....................... 2,668,750
1,975,000 Dryper's Corporation,
Sr. Notes, Series B,
10.25%, 6/15/07 ...................... 2,058,937
3,000,000 Scotts and Sons Company,
Sr. Subord. Notes,
9.88%, 8/1/04 ........................ 3,225,000
----------
12,272,687
----------
Diversified Companies - 1.4%
2,500,000 General Electric Capital Corporation,
Deb.,
8.75%, 5/21/07 ....................... 2,941,650
5,000,000 Grand Metropolitan Investment
Corporation,
Guaranteed Sr. Notes,
7.45%, 4/15/35 ....................... 5,630,600
----------
8,572,250
----------
Finance & Insurance - 17.8%
6,000,000 ABN-Amro Bank NV,
Subord. Deb.,
7.30%, 12/1/26 ....................... 5,958,300
4,750,000 Amsouth Bancorporation,
Subord. Deb.,
6.75%, 11/1/25 ....................... 4,901,715
5,000,000 Commercial Credit Group, Incorporated,
Notes,
10.00%, 5/15/09 ...................... 6,363,950
2,000,000 International Lease Finance Corporation,
Notes,
5.75%, 1/15/03 ....................... 1,965,160
5,000,000 Jefferson Pilot Capital Trust, Series A,
8.14%, 1/15/46 (b) ................... 5,224,100
</TABLE>
7
<PAGE>
EVERGREEN
Diversified Bond Fund
Schedule of Investments (continued)
February 28, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS - continued
Finance & Insurance - continued
$5,000,000 Lehman Brothers Holdings, Incorporated,
Notes,
6.50%, 10/1/02 ...................... $ 5,023,650
4,000,000 Liberty Mutual Insurance Company,
Notes,
7.70%, 10/15/2097 (b) ............... 4,182,040
10,500,000 MBIA Incorporated,
Deb.,
9.38%, 2/15/11 ...................... 13,093,920
9,000,000 Mellon Bank Capital II,
Deb., Series B,
8.00%, 1/15/27 ...................... 9,564,030
1,500,000 National Westminster Bancorp,
Deb.,
9.38%, 11/15/03 ..................... 1,729,185
10,000,000 Nationwide CSN Trust,
Sr. Notes,
9.88%, 2/15/25 (b) .................. 11,558,400
Paine Webber Group Incorporated:
5,000,000 7.75%, 9/1/02 ...................... 5,255,450
3,000,000 Notes,
8.25%, 5/1/02 ....................... 3,199,770
6,300,000 Prudential Life Insurance Corporation,
7.13%, 7/1/07 ....................... 6,583,059
3,250,000 Reliance Group Holdings Incorporated,
Sr. Subord. Deb.,
9.75%, 11/15/03 ..................... 3,404,700
2,800,000 Southern Pacific Funding Corporation,
Sr. Notes,
11.50%, 11/1/04 ..................... 2,744,000
5,250,000 Southtrust Bank,
Subord. Notes,
6.57%, 12/15/27 ..................... 5,345,865
10,000,000 SunLife Canada, US Capital Trust I,
Capital Securities,
8.53%, 5/29/49 (b) .................. 10,969,700
-----------
107,066,994
-----------
Food & Beverage Products - 0.8%
1,750,000 AFC Enterprises Incorporated,
Sr. Subord. Notes,
10.25%, 5/15/07 (b) ................. 1,865,938
3,000,000 Philip Morris Companies, Incorporated,
Sr. Notes,
7.20%, 2/1/07 ....................... 3,100,410
-----------
4,966,348
-----------
Gaming - 1.4%
Boyd Gaming Corporation:
2,800,000 Sr. Notes
9.25%, 10/1/03 ...................... 2,985,500
500,000 Sr. Subord. Notes
9.50%, 7/15/07 (b) (f) .............. 536,250
Horseshoe Gaming:
3,000,000 Sr. Notes,
12.75%, 9/30/00 (b) ................. 3,322,500
1,250,000 Sr. Subord. Notes, Series B
9.38%, 6/15/07 ...................... 1,343,750
-----------
8,188,000
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS - continued
Healthcare Products & Services - 2.3%
$3,000,000 Bayer Corporation,
Notes,
7.13%, 10/1/15 (b) .................. $ 3,141,210
2,800,000 Genesis Health Ventures Incorporated,
Sr. Subord. Notes,
9.25%, 10/1/06 ...................... 2,919,000
5,000,000 Medpartners, Incorporated,
Sr. Subord. Notes,
6.88%, 9/1/00 ....................... 4,961,850
2,550,000 Paragon Health Network Incorporated,
Sr. Subord. Notes,
9.50%, 11/1/07 (b) .................. 2,626,500
-----------
13,648,560
-----------
Industrial Specialty Products &
Services - 0.2%
1,250,000 Polymer Group Incorporated,
Sr. Subord. Notes, Series B,
9.00%, 7/1/07 (f) ................... 1,275,000
-----------
Information Services &
Technology - 1.3%
3,500,000 Comdisco, Incorporated,
Notes,
6.13%, 1/15/03 ...................... 3,456,145
3,800,000 Unisys Corporation,
Sr. Notes,
11.75%, 10/15/04 .................... 4,408,000
-----------
7,864,145
-----------
Leisure & Tourism - 0.9%
2,500,000 Affinity Group, Incorporated,
11.50%, 10/15/03 .................... 2,656,250
2,250,000 Six Flags Theme Parks, Incorporated,
Senior Disc. Notes, Step Bond,
(Eff. Yield 11.12%) (d)
0.00%, 6/15/05 ...................... 2,486,250
-----------
5,142,500
-----------
Machinery - Diversified - 1.6%
8,850,000 John Deere Capital Corporation,
Deb.,
8.63%, 8/1/19 ....................... 9,737,566
-----------
Metal Products & Services - 0.7%
4,000,000 AK Steel Corporation,
Sr. Notes,
10.75%, 4/1/04 ...................... 4,290,000
-----------
Oil/Energy - 6.6%
4,750,000 Apache Finance Properties Limited,
Notes,
6.50%, 12/15/07 ..................... 4,690,673
2,500,000 Atlantic Richfield Company,
Deb.,
9.88%, 3/1/16 ....................... 3,353,125
2,325,000 Benton Oil and Gas Company,
Sr. Notes,
9.38%, 11/1/07 (b) .................. 2,383,125
2,250,000 Cross Timbers Oil Company,
Sr. Subord. Notes, Series B,
8.75%, 11/1/09 (b) .................. 2,300,625
500,000 Eletson Holdings, Incorporated,
1st Preferred Mtge. Notes,
9.25%, 11/15/03 ..................... 516,625
</TABLE>
8
<PAGE>
EVERGREEN
Diversified Bond Fund
Schedule of Investments (continued)
February 28, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS - continued
Oil/Energy - continued
$3,000,000 Glencore Nickel Property Limited,
Sr. Secd. Bonds,
9.00%, 12/1/14 (b) .................. $ 2,940,000
5,500,000 Global Marine, Incorporated,
Notes,
7.13%, 9/1/07 (b) ................... 5,633,203
1,050,000 HS Resources Incorporated,
Sr. Subord. Notes,
9.25%, 11/15/06 (b) (f) ............. 1,081,500
2,700,000 Hvide Marine, Incorporated,
Sr. Notes,
8.38%, 2/15/08 ...................... 2,659,500
4,500,000 Smith International, Incorporated,
Sr. Notes,
7.00%, 9/15/07 ...................... 4,620,060
2,000,000 Transamerican Energy Corporation,
Sr. Secd. Notes, Series B,
11.50%, 6/15/02 (b) ................. 2,027,500
Transocean Offshore, Incorporated:
2,500,000 Deb.
8.00%, 4/15/27 ...................... 2,845,750
4,000,000 Notes
7.45%, 4/15/27 ...................... 4,324,200
-----------
39,375,886
-----------
Publishing, Broadcasting &
Entertainment - 1.9%
2,000,000 SFX Broadcasting, Incorporated,
Sr. Subord. Notes,
10.75%, 5/15/06 ..................... 2,240,000
3,300,000 Sinclair Broadcast Group, Incorporated,
Sr. Subord. Notes,
10.00%, 9/30/05 ..................... 3,564,000
5,000,000 Time Warner, Incorporated,
Deb.,
8.05%, 1/15/16 ...................... 5,409,800
-----------
11,213,800
-----------
Retailing & Wholesale - 1.4%
3,800,000 Finlay Fine Jewelry Corporation,
Sr. Notes,
10.63%, 5/1/03 ...................... 3,980,500
2,100,000 Jitney Jungle Stores of America,
Incorporated,
Sr. Subord. Notes,
10.38%, 9/15/07 (b) (f) ............. 2,152,500
1,800,000 Sears Roebuck and Company,
Notes,
10.00%, 2/3/12 ...................... 2,384,604
-----------
8,517,604
-----------
Telecommunication Services &
Equipment - 5.2%
1,800,000 American Lawyer Media, Incorporated,
Sr. Notes,
9.75%, 12/15/07 (b) ................. 1,890,000
10,250,000 Bellsouth Capital Funding Corporation,
Deb.,
7.12%, 7/15/2097 .................... 10,720,065
1,200,000 BTI Telecom Corporation,
Sr. Notes,
10.50%, 9/15/07 (b) ................. 1,272,000
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS - continued
Telecommunication Services &
Equipment - continued
$1,800,000 Century Communications Corporation,
Sr. Disc. Notes,
(Eff. Yield 9.05%) (d)
0.00%, 1/15/08 (b) .................. $ 765,000
4,250,000 Frontier,
Putable Asset Trusts
6.25%, 12/15/99 (b) ................. 4,256,502
2,000,000 Galaxy Telecom,
Sr. Subord. Notes,
12.38%, 10/1/05 ..................... 2,230,000
2,500,000 GTE Florida Incorporated,
Deb.,
6.86%, 2/1/28 ....................... 2,537,550
2,000,000 Pacific Bell,
Notes,
6.13%, 2/15/08 ...................... 1,986,860
500,000 Pegasus Commerce,
Sr. Notes,
9.63%, 10/15/05 (b) ................. 527,500
2,000,000 Talton Holdings, Incorporated,
Sr. Notes,
11.00%, 7/6/30 ...................... 2,220,000
1,150,000 Telewest PLC,
Sr. Disc. Deb., Step Bond,
(Eff. Yield 10.57%) (d),
0.00%, 10/1/07 ...................... 920,000
2,000,000 Vanguard Cellular Systems Incorporated,
Sr. Deb.,
9.38%, 4/15/06 (f) .................. 2,110,000
-----------
31,435,477
-----------
Textile & Apparel - 0.5%
2,800,000 Delta Mills Incorporated,
Sr. Notes, Series B,
9.63%, 9/1/07 (b) ................... 2,884,000
-----------
Transportation - 3.6%
2,000,000 Airplane Pass Through Trust,
Series 1, Class D,
10.88%, 3/15/19 ..................... 2,255,460
2,000,000 Coach USA Incorporated,
Sr. Subord. Notes, Series B,
9.38%, 7/1/07 ....................... 2,090,000
7,000,000 Golden State Petroleum
Transportation Corporation,
1st Preferred Mtge. Notes,
8.04%, 2/1/19 (b) ................... 7,382,812
2,000,000 Hayes Wheels International,
Sr. Subord. Notes,
9.13%, 7/15/07 (b) (f) .............. 2,122,500
5,250,000 Norfolk Southern Corporation,
Notes,
7.05%, 5/1/37 ....................... 5,576,183
1,850,000 Sea Containers Limited,
Sr. Notes,
7.88%, 2/15/08 (b) .................. 1,831,500
-----------
21,258,455
-----------
Total Corporate Bonds
(cost $324,449,501).................. 335,305,468
-----------
</TABLE>
9
<PAGE>
EVERGREEN
Diversified Bond Fund
Schedule of Investments (continued)
February 28, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS - 21.8%
Asset Securitization Corporation:
$4,416,414 Series 1996-D3, Class A3
(Est. Maturity 2011) (a),
7.14%, 10/13/26 .................... $ 4,706,241
1,000,000 Series 1997-D4, Class A2
(Est. Maturity 2009) (a),
6.93%, 4/14/29 ..................... 1,072,813
5,000,000 Series 1997-D5, Class A3
(Est. Maturity 2012) (a),
6.37%, 2/14/41 ..................... 5,039,062
4,969,344 BA Mortgage Securities, Incorporated,
Series 1997-1, Class M,
(Est. Maturity 2007) (a),
7.50%, 7/25/26 ..................... 4,999,626
5,000,000 Credit Suisse First Boston Mortgage,
Series 1997-C1 Class A1C,
(Est. Maturity 2006) (a),
7.24%, 4/20/07 ..................... 5,265,625
6,314,489 Criimi Mae Financial Corporation,
Series 1, Class A,
(Est. Maturity 2004) (a),
7.00%, 1/1/33 ...................... 6,302,649
1,000,000 FFCA Secured Lending Corporation,
Series 1997-1, Class B1,
(Est. Maturity 2009) (a),
7.74%, 6/18/13 (b) ................. 1,060,469
FHA Charles River Mortgage:
6,723,453 (Est. Maturity 2001) (a),
9.13%, 8/1/34 ...................... 7,273,969
4,990,037 (Est. Maturity 2001) (a),
10.25%, 8/1/34 ..................... 5,311,296
5,000,000 FHLMC,
Series 47, Class A,
(Est. Maturity 2004) (a),
5.00%, 2/25/22 ..................... 4,589,844
3,037 FHLMC PC Gtd, Series 8 Class SB,
(Est. Maturity 1998) (a),
9.60%, 3/25/23 (e) ................. 2,572
2,711,745 Financial Asset Securitization
Incorporated,
(Est. Maturity 2005) (a),
7.88%, 7/25/27 ..................... 2,788,860
12,510,527 FNMA,
Series 1993-248 Class SA,
(Est. Maturity 2004) (a),
4.10%, 8/25/23 ..................... 10,597,292
5,700,000 FNMA Gtd.,
REMIC Trust Series 1993-196
Class SC,
(Est. Maturity 2004) (a),
6.54%, 10/25/08 .................... 5,366,379
10,860,031 Independent National Mortgage
Corporation,
Series 1997-A, Class A,
(Est. Maturity 2004) (a),
7.84%, 12/26/26 (b) ................ 10,916,571
1,104,408 KS Mortgage Capital, L. P.
Series 1995-1, Class A1,
(Est. Maturity 2001) (a),
7.14%, 4/20/02 (b) ................. 1,110,966
2,265,685 Marine Midland Bank,
(Est. Maturity 1998) (a),
8.00%, 11/25/24 .................... 2,276,305
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS - continued
Merrill Lynch Mortgage Investors,
Incorporated:
$5,000,000 Series 1996-C1, Class B
(Est. Maturity 2006) (a)
7.42%, 4/25/28 ..................... $ 5,262,500
3,000,000 Series 1997-C2, Class B
(Est. Maturity 2008) (a)
6.50%, 12/10/29 .................... 3,053,437
2,700,000 Merrill Lynch Trust,
Series 35, Class G,
(Est. Maturity 2001) (a),
8.45%, 11/1/18 ..................... 2,881,386
945,515 Mid State Trust,
Series 6, Class A3,
(Est. Maturity 2005) (a),
7.54%, 7/1/35 ...................... 957,353
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 ..................... 3,544,406
12,216,841 Nomura Depositor Trust,
Series 1998-STIA, Class A1,
(Est. Maturity 2003) (a),
5.91%, 1/15/03 ..................... 12,217,032
Paine Webber Mortgage Acceptance
Corporation IV:
2,815,342 Series 1993-4, Class M1
(Est. Maturity 2001) (a),
7.50%, 5/25/23 ..................... 2,841,735
346,694 Series 1993-5, Class A3
(Est. Maturity 1998) (a),
6.88%, 6/25/08 ..................... 345,918
PNC Mortgage Securities
Corporation:
7,094,004 Series 1997-4, Class 2PP3
(Est. Maturity 2000) (a),
7.50%, 7/25/27 ..................... 7,164,944
2,487,569 Series 1997-4, Class 2PP1
(Est. Maturity 2008) (a),
7.25%, 7/25/27 ..................... 2,473,608
5,000,000 Residential Asset Securitization,
Series 1996-A3, Class A-9,
(Est. Maturity 2004) (a),
7.50%, 7/25/26 ..................... 5,083,594
4,822,866 Residential Funding Mortgage
Securities I, Incorporated,
Series 1997-S7, Class A4,
(Est. Maturity 2003) (a),
7.50%, 5/25/10 ..................... 4,874,109
1,500,000 Resolution Trust Corporation,
Series 1995-1, Class A2C
(Est. Maturity 1999) (a),
7.50%, 10/25/28 .................... 1,522,266
-----------
118,317,562
-----------
Total Collateralized Mortgage
Obligations (cost $113,939,448)..... 118,317,562
-----------
ADJUSTABLE RATE MORTGAGE SECURITIES - 1.4%
FHLMC:
4,416,166 (Est. Maturity 2002) (a),
7.09%, 6/1/16, ..................... 4,514,150
1,151,058 (Est. Maturity 2002) (a),
7.86%, 4/1/22, ..................... 1,212,571
</TABLE>
10
<PAGE>
EVERGREEN
Diversified Bond Fund
Schedule of Investments (continued)
February 28, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES - continued
$ 2,660,577 FNMA,
(Est. Maturity 2002) (a),
7.74%, 1/1/31 ...................... $2,776,977
----------
Total Adjustable Rate Mortgage
Securities (cost $21,043,445)....... 21,088,963
----------
ASSET-BACKED SECURITIES - 6.1%
3,500,000 Carco Auto Loan Master Trust,
Series 1997-1, Class A,
(Est. Maturity 2004) (a),
6.69%, 8/15/04 ..................... 3,525,130
1,000,000 Contimortgage Home Equity Loan,
Series 1996 4, Class A9,
(Est. Maturity 2002) (a),
6.88%, 1/15/28 ..................... 1,010,620
3,100,000 CoreStates Home Equity Trust,
Series 1996 1, Class A4,
(Est. Maturity 2003) (a),
7.00%, 6/15/12 ..................... 3,196,131
Merrill Lynch Mortgage Investors,
Incorporated:
190 Series 1991-D, Class A
(Est. Maturity 1998) (a),
9.00%, 7/15/11 ..................... 191
1,672,248 Series 1991-G, Class B
(Est. Maturity 2000) (a),
9.15%, 10/15/11 .................... 1,682,700
3,235,779 Series 1992-B, Class B
(Est. Maturity 1999) (a),
8.50%, 4/15/12 ..................... 3,316,674
3,910,736 Series 1992-D, Class B-1
(Est. Maturity 2001) (a),
8.50%, 6/15/17 ..................... 4,146,906
Southern Pacific Secured Assets
Corporation:
3,750,000 Series 1996-3, Class A4
(Est. Maturity 2002) (a),
7.60%, 10/25/27 .................... 3,721,781
3,300,000 Series 1997-4 Class A6
(Est. Maturity 2004) (a),
6.74%, 1/25/28 ..................... 3,425,813
595,000 University Support Services,
Incorporated,
(Est. Maturity 1999) (a),
8.98%, 11/1/07 ..................... 593,140
5,000,000 Western Financial Owner Trust,
Series 1997-C, Class CTFS,
(Est. Maturity 2001) (a),
6.30%, 3/20/05 ..................... 4,971,875
2,100,000 World Omni Automobile Lease,
Securitization Trust,
Series 1997-A, Class A4,
(Est. Maturity 2001) (a),
6.90%, 6/25/03 ..................... 2,131,500
5,000,000 Zale Funding Trust,
Series 94 1 Class A2,
(Est. Maturity 1999) (a),
7.33%, 3/15/03 ..................... 5,078,125
----------
Total Asset-Backed Securities
(cost $36,121,778).................. 36,800,586
----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
FOREIGN BONDS (U.S. DOLLARS) - 2.7%
$ 2,650,000 Aztec Holdings SA DE CV,
Sr. Secd. Notes,
11.00%, 6/15/02 (b) (f) ............ $2,779,188
3,500,000 Grupo Televisa SA DE CV,
Sr. Notes Series B,
11.88%, 5/15/06 (b) (f) ............ 4,064,375
4,000,000
3,895,000
1,800,000 Rogers Communications Incorporated,
Sr. Notes,
8.88%, 7/15/07 ..................... 1,804,500
750,000 Satelites Mexicanos SA DE CV,
Sr. Notes,
10.13%, 11/1/04 .................... 765,000
2,750,000 Stena AB,
Sr. Notes,
10.50%, 12/15/05 ................... 3,014,687
----------
Total Foreign Bonds (U.S. Dollars)
(cost $15,824,707).................. 16,322,750
----------
FOREIGN BONDS (NON U.S. DOLLARS) - 6.6%
Nykredit
155,172,000 6.00%, 10/1/26 .................... 22,018,013
DKK
95,719,000 7.00%, 10/1/29 .................... 13,914,255
DKK
44,000,000 Skandinaviska Enskilda,
SEK (Eff. Yield 7.15%) (d),
0.00%, 5/26/33 ..................... 3,779,600
----------
Total Foreign Bonds (Non U.S. Dollars)
(cost $38,883,006).................. 39,711,868
----------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 8.0%
$27,550,000 U.S. Treasury Bond STRIPS,
(Eff. Yield 6.83%) (d),
0.00%, 11/15/21 .................... 6,630,183
U.S. Treasury Bonds:
17,750,000 6.38%, 8/15/27 .................... 18,792,812
20,000,000 6.13%, 11/15/27 ................... 20,362,500
U.S. Treasury Notes
500,000 6.63%, 5/15/07 (f) ................ 532,655
1,500,000 6.13%, 8/15/07 (f) ................ 1,547,115
----------
Total U.S. Government & Agency
Obligations (cost $46,957,484)...... 47,865,266
----------
MUNICIPAL BONDS - 0.8% (cost $4,693,702)
4,693,702 Los Angeles, California,
Improvement Bond Act,
Assessment District #1,
8.48%, 9/2/15 (b) .................. 5,083,866
----------
</TABLE>
11
<PAGE>
EVERGREEN
Diversified Bond Fund
Schedule of Investments (continued)
February 28, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - 0.2% (cost $2)
1,618 PM Holdings Corporation .......... $ 897,990
----------
PREFERRED STOCKS - 0.8%
16,000 Adelphia Communications
Corporation ...................... 1,880,000
100,000 California Federal Preferred Capital
Corporation ...................... 2,756,250
----------
Total Preferred Stock
(cost $4,275,000)................. 4,636,250
----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
<S> <C> <C>
REPURCHASE AGREEMENT - 0.3% (cost $1,920,000)
$ 1,920,000 Keystone Joint Repurchase
Agreement,
(Investments in repurchase
agreements, in a joint trading
account, dated 2/27/98, maturity
value $1,920,907) (c)
5.67%, 3/2/98 ................ 1,920,000
---------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C> <C>
MUTUAL FUND SHARES - 3.0%
(cost $18,013,425)
18,013,425 Navigator Prime Portfolio (g) ... $ 18,013,425
-------------
Total Investments
(cost $626,121,498)... 107.6% 645,963,994
Other Assets and
Liabilities - Net .... ( 7.6) (45,822,706)
----- -------------
Net Assets ............ 100.0% $ 600,141,288
===== =============
</TABLE>
(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) 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.
(c) The repurchase agreements are fully collateralized by US government and/or
agency obligations based on market prices at February 28, 1998.
(d) Effective yield (calculated at the date of purchase) is the yield at which
the bond accretes on an annual basis until maturity date.
(e) Inverse floater.
(f) A portion of this security is currently on loan (see Note 4).
(g) Represents investment of cash collateral received for securities on loan.
Legend of Portfolio Abbreviations:
DKK Danish Krone
FHA Federal Housing Authority
FNMA Federal National Mortgage Association
FHLMC Federal Home Loan Mortgage Corporation
REMIC Real Estate Mortgage Investment Corporation
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>
<CAPTION>
Exchange U.S. $ Value at In Exchange Net Unrealized
Date Contracts to Deliver February 28, 1998 for U.S. $ Depreciation
- ---------- ----------------------------- ------------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
4/16/98 249,696,000 Danish Krone 36,208,685 36,197,268 $(11,417)
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
EVERGREEN
Diversified Bond Fund
Statement of Assets and Liabilities
February 28, 1998 (Unaudited)
<TABLE>
<S> <C>
Assets
Investments at market value (identified cost - $626,121,498)............................. $ 645,963,994
Interest receivable ..................................................................... 9,382,199
Receivable for investments sold ......................................................... 4,208,129
Receivable for Fund shares sold ......................................................... 163,249
Prepaid expenses and other assets ....................................................... 319,541
- ----------------------------------------------------------------------------------------------------------
Total assets .......................................................................... 660,037,112
- ----------------------------------------------------------------------------------------------------------
Liabilities
Payable for investments purchased ....................................................... 22,706,767
Payable for securities on loan .......................................................... 18,013,425
Payable for reverse repurchase agreement ................................................ 15,805,793
Payable for Fund shares redeemed ........................................................ 1,435,017
Dividends payable ....................................................................... 1,329,332
Distribution fees payable ............................................................... 278,360
Due to related parties .................................................................. 252,533
Due to custodian ........................................................................ 22,368
Unrealized depreciation on forward foreign currency exchange contracts .................. 11,417
Accrued expenses and other liabilities .................................................. 40,812
- ----------------------------------------------------------------------------------------------------------
Total liabilities ..................................................................... 59,895,824
- ----------------------------------------------------------------------------------------------------------
Net assets ............................................................................... $ 600,141,288
==========================================================================================================
Net assets represented by
Paid-in capital ......................................................................... $ 730,501,437
Undistributed net investment income ..................................................... 2,801,841
Accumulated net realized loss on investments, futures contracts and foreign currency
related
transactions .......................................................................... (152,992,953)
Net unrealized appreciation on investments and foreign currency related transactions .... 19,830,963
- ----------------------------------------------------------------------------------------------------------
Total net assets ...................................................................... $ 600,141,288
==========================================================================================================
Net assets consist of
Class A ................................................................................. 527,501,378
Class B ................................................................................. 72,639,910
- ----------------------------------------------------------------------------------------------------------
600,141,288
==========================================================================================================
Shares outstanding
Class A ................................................................................. 33,034,877
Class B ................................................................................. 4,549,104
- ----------------------------------------------------------------------------------------------------------
Net asset value per share
Class A ................................................................................. $ 15.97
==========================================================================================================
Class A - Offering price (based on sales charge of 4.75%) ............................... $ 16.77
==========================================================================================================
Class B ................................................................................. $ 15.97
==========================================================================================================
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
EVERGREEN
Diversified Bond Fund
Statement of Operations
Six Months Ended February 28, 1998 (Unaudited)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------------
Investment income
Interest income ......................................................................... $ 18,203,462
Dividend income ......................................................................... 165,653
Other income ............................................................................ 64,161
- --------------------------------------------------------------------------------------------------------
Total income .......................................................................... 18,433,276
- --------------------------------------------------------------------------------------------------------
Expenses
Distribution Plan expenses .............................................................. 1,955,807
Management fee .......................................................................... 1,325,452
Transfer agent fees ..................................................................... 511,273
Custodian fees .......................................................................... 102,969
Administrative services fees ............................................................ 46,861
Trustees' fees and expenses ............................................................. 28,900
Other ................................................................................... 108,450
- --------------------------------------------------------------------------------------------------------
Total expenses ........................................................................ 4,079,712
Less: Indirectly paid expenses .......................................................... (9,600)
- --------------------------------------------------------------------------------------------------------
Net expenses .......................................................................... 4,070,112
- --------------------------------------------------------------------------------------------------------
Net investment income ................................................................. 14,363,164
========================================================================================================
Net realized and unrealized gain on investments, futures contracts
and foreign currency related transactions
Realized gain (loss) on:
Investments ........................................................................... 11,405,051
Futures contracts ..................................................................... (348,801)
Foreign currency related transactions ................................................. (3,699,218)
- --------------------------------------------------------------------------------------------------------
Net realized gain on investments, futures contracts and foreign currency related 7,357,032
transactions
- --------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments ........................................................................... 7,957,667
Foreign currency related transactions ................................................. 857,815
- --------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments and foreign currency
related transactions .................................................................. 8,815,482
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments, futures contracts and foreign currency
related transactions .................................................................. 16,172,514
- --------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations .................................... $ 30,535,678
========================================================================================================
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
EVERGREEN
Diversified Bond Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Ended
February 28, 1998 Year Ended
(Unaudited) August 31, 1997
------------------- ----------------
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Operations
Net investment income ............................................................. $ 14,363,164 $ 31,196,362
Net realized gain on investments, futures contracts and foreign currency
related transactions ............................................................ 7,357,032 15,553,471
Net change in unrealized appreciation (depreciation) on investments and foreign
currency related transactions ................................................... 8,815,482 13,350,772
- ------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations ............................ 30,535,678 60,100,605
- ------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from
Net investment income
Class A ......................................................................... (3,947,476) 0
Class B ......................................................................... (10,415,529) (31,196,362)
In excess of net investment income
Class A ......................................................................... 0 0
Class B ......................................................................... 0 (1,746,263)
- ------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders ............................................ (14,363,005) (32,942,625)
- ------------------------------------------------------------------------------------------------------------------------
Capital share transactions
Proceeds from shares sold ......................................................... 16,437,005 33,102,013
Shares issued in connection with the acquisition of
Evergreen Quality Bond Fund ..................................................... 172,832,659 0
Payments for shares redeemed ...................................................... (69,161,984) (180,458,236)
Proceeds from reinvestment of distributions ....................................... 6,160,080 18,107,160
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
capital share transactions ..................................................... 126,267,760 (129,249,063)
- ------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets ........................................ 142,440,433 (102,091,083)
- ------------------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of period ............................................................. 457,700,855 559,791,938
- ------------------------------------------------------------------------------------------------------------------------
End of period [Including undistributed net investment income
income as follows: 1998 -$2,801,841 and 1997-$2,801,682] ....................... $ 600,141,288 $ 457,700,855
========================================================================================================================
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
Notes to Financial Statements (Unaudited)
1. ORGANIZATION
The Evergreen Diversified Bond Fund (the "Fund") (formerly, Keystone
Diversified Bond Fund (B-2)) 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 a 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 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. As of February 28, 1998, Class C shares have
not commenced operations.
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.
The Fund values 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 Fund 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,
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.
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. Reverse Repurchase Agreements
To obtain short-term financing, the 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.
16
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
D. 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.
E. Futures Contracts
In order to gain exposure to or protect against changes in security values, the
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
The 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, the Fund 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 15% 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 102% 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
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
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 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.
17
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
J. 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.
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.
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 and Class B shares. Transactions in shares of
the Fund were as follows:
<TABLE>
<CAPTION>
January 20, 1998
(Commencement of Class
operations)
Through
February 28, 1998
--------------------------------
Shares Amount
--------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
Class A
Shares sold ....................................................... 155,067 $ 2,479,715
Shares issued in connection with the acquisition of Evergreen Quality Bo9,827,053 156,644,304
Automatic conversion of Class B shares ............................ 24,126,331 387,832,940
Shares redeemed ................................................... (1,142,373) (18,295,468)
Shares issued in reinvestment of distributions .................... 68,799 1,103,535
- --------------------------------------------------------------------------------------------------
Net increase ...................................................... 33,034,877 $ 529,765,026
==================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
February 28, 1998
----------------------------------
Shares Amount
----------------------------------
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Class B
Shares sold .................................................................... 878,196 $ 13,957,290
Shares issued in connection with the acquisition of Evergreen Quality Bond Fund 1,015,574 16,188,355
Automatic conversion of shares to Class A shares ............................... (24,126,331) (387,832,940)
Shares redeemed ................................................................ (3,226,201) (50,866,516)
Shares issued in reinvestment of distributions ................................. 320,549 5,056,545
- -----------------------------------------------------------------------------------------------------------------
Net decrease ................................................................... (25,138,213) $ (403,497,266)
=================================================================================================================
<CAPTION>
Year Ended
August 31, 1997
----------------------------------
Shares Amount
----------------------------------
<S> <C> <C>
Class B
Shares sold .................................................................... 2,182,629 $ 33,102,013
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 redeemed ................................................................ (11,912,272) (180,458,236)
Shares issued in reinvestment of distributions ................................. 1,195,855 18,107,160
- -----------------------------------------------------------------------------------------------------------------
Net decrease ................................................................... (8,533,788) $ (129,249,063)
=================================================================================================================
</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 February 28,
1998:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases from Sales
-------------------------------
<S> <C> <C>
Non-U.S. government ........ $340,969,128 $303,363,263
U.S. government ............ 106,683,643 103,544,405
</TABLE>
The average daily balance of reverse repurchase agreements outstanding for the
Fund during the six months ended February 28, 1998 was $4,968,812 at a weighted
average interest rate of 4.95%. The maximum amount outstanding under reverse
repurchase agreements during the six months ended February 28, 1998 was
$15,805,793 (including accrued interest). On February 28, 1998 the Fund had a
reverse repurchase agreement outstanding in the amount of $15,805,793
(including accrued interest at an annual rate of 4.40%) maturing on March 6,
1998.
The Fund loaned securities during the six months ended February 28, 1998 to
certain brokers who paid the Fund a negotiated lenders' fee. These fees are
included in interest income. At February 28, 1998, the value of securities on
loan and the value of collateral
18
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
amounted to $17,608,599 and $18,013,425, respectively. During the six months
ended February 28, 1998, the Fund earned $27,108 in income from securities
lending.
As of August 31, 1997, the Fund had capital loss carryovers for federal income
tax purposes of approximately $160,349,000 which expire as follows: $28,691,000
- - 1998, $85,002,000 - 1999, $26,644,000 - 2003, and $20,012,000 - 2004.
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 asset of the class.
Class B also pays distribution fees equal to 0.75% of its average daily net
assets. Distribution Plan expenses are calculated daily and paid monthly.
During the six months ended February 28, 1998, amounts paid to EDI pursuant to
the Fund's Class A and Class B Distribution Plans were $140,812 and $1,814,995,
respectively.
With respect to Class B shares, the principal underwriter may pay distribution
fees greater than the allowable annual amounts the Fund is permitted to pay
under the Distribution Plan. 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 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.
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. ACQUISITION
Effective on the close of business on January 23, 1998, the Fund acquired the
net assets of Evergreen Quality Bond Fund, in an exchange of shares. The net
assets were exchanged through a non-taxable exchange for 9,827,053 and
1,015,574 shares of Class A and Class B of the Fund, respectively. The acquired
net assets consisted primarily of portfolio securities with unrealized
appreciation
19
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
of $3,406,186. The aggregate net assets of the Fund and Evergreen Quality Bond
Fund immediately prior to the acquisition were $438,098,403 and $172,832,659,
respectively. The aggregate net assets of the Fund immediately after the
acquisition were $610,931,062.
9. 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 February 28, 1998, the Fund had no borrowings under
this agreement.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (Unaudited)
Shareholders of the Fund considered and acted upon the proposal listed below at
a special meeting of shareholders held on
January 6, 1998.
To approve the acquisition of all the assets and certain liabilities of the
Fund by a new fund, Evergreen Diversified Bond Fund, a series of Evergreen
Fixed Income Trust. On November 10, 1997 the record date for the meeting, the
Fund had 28,578,829 shares outstanding, of which 16,005,552 shares (56% of
record date shares) were represented at the meeting. The results of the meeting
were as follows:
<TABLE>
<S> <C>
Affirmative ......... 14,687,860
Against ............. 350,165
Abstain ............. 967,527
</TABLE>
- --------------------------------------------------------------------------------
20
<PAGE>
Evergreen Funds
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Tax Exempt
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Income
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Utility Fund
Income and Growth Fund
Fund for Total Return
Value Fund
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Domestic Growth
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Omega Fund
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Strategic Growth Fund
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Express Line
800-346-3858
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67423 543522 RV0
4/98
--------------
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--------------
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