FIRST UNION FUNDS/, N-30D, 1995-08-29

FIRST UNION FUNDS/
N-30D, 1995-08-29

Previous: FIRST UNION FUNDS/, N-30D, 1995-08-29

Next: FIRST UNION FUNDS/, N-30D, 1995-08-29

<PAGE>
EVERGREEN INCOME FUNDS
(FORMERLY FIRST UNION INCOME FUNDS)
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
President's Message....................................................... 1
A Review of 1st Half
and Prospects for Remainder of 1995....................................... 2
(Picture of a Building) FIXED INCOME A Report From Your Portfolio Manager...................................... 4
FUND Results to Date........................................................... 5
Statement of Investments.................................................. 6
Statement of Assets and Liabilities....................................... 8
Statement of Operations................................................... 9
Statement of Changes in Net Assets........................................ 10
Financial Highlights...................................................... 11
(Picture of a Coin) MANAGED BOND A Report From Your Portfolio Manager...................................... 14
FUND Results to Date........................................................... 15
Statement of Investments.................................................. 16
Statement of Assets and Liabilities....................................... 18
Statement of Operations................................................... 19
Statement of Changes in Net Assets........................................ 20
Financial Highlights...................................................... 21
(Picture of a Capitol Building) U.S. GOVERNMENT A Report From Your Portfolio Manager...................................... 22
FUND Results to Date........................................................... 23
Statement of Investments.................................................. 24
Statement of Assets and Liabilities....................................... 25
Statement of Operations................................................... 26
Statement of Changes in Net Assets........................................ 27
Financial Highlights...................................................... 28
Combined Notes to Financial Statements.................................... 29
Independent Auditors' Report.............................................. 35
Trustees and Officers..................................................... IBC
</TABLE>

<PAGE>
EVERGREEN INCOME FUNDS
(FORMERLY FIRST UNION INCOME FUNDS)
PRESIDENT'S MESSAGE
BY JOHN J. PILEGGI
Dear Valued Shareholder:
I am pleased to present you with the Annual Report (Photo of John J.
for the Evergreen Income Funds (formerly the First Union Pileggi appears
Income Funds) for the six-month period ended June 30, here)
1995. This Report contains complete financial
information -- including
the Investment Reviews and Statements of Investments for the Evergreen Fixed
Income Fund, Evergreen Managed Bond Fund, and Evergreen U.S. Government Fund.
As you can see, this Report features our new family of the Evergreen Funds.
This is the result of the First Union Funds combining with and taking the name
of the Evergreen Funds effective July 7, 1995. In addition, we have completed
the acquisition of the ABT Funds, which added two new funds to our expanding
fund family, Florida High Income Municipal Bond and Aggressive Growth funds. The
Evergreen Family of Funds now consists of more than 30 funds, each carefully
designed to help meet specific objectives.
We are excited about the creation of one COMBINED fund family, since it
offers our shareholders a wider range of mutual fund options to help achieve a
broad spectrum of investment needs.
The combination of funds and the acquisition of two new funds provides you
with the following benefits:
(Bullet) a wider array of fund options, many with outstanding track records
(Bullet) free exchanges among all funds*
(Bullet) the investment expertise of two experienced investment
advisors -- Evergreen Asset Management Corp. and First Union
National Bank of North Carolina's Capital Management Group
If you wish to receive more complete information about any of the Evergreen
Funds, please call 1-800-807-2940 to speak with a First Union Brokerage
Services' registered representative. We'll be glad to send you a prospectus
describing the fund choices and their objectives, fees and expenses. Please read
the prospectus carefully before you invest or send money.
I hope you're pleased with the recent growth we have experienced, and the
opportunities this growth affords you. As always, we welcome any questions,
comments, and suggestions you may have. We look forward to serving your
investment needs in the months and years to come.
Sincerely,
(Signature of John J. Pileggi)
August 15, 1995
* EXCHANGES MUST BE WITHIN THE SAME CLASS OF SHARES. SHARE EXCHANGES ARE SUBJECT
TO CERTAIN LIMITATIONS DESCRIBED IN THE PROSPECTUS.
1

<PAGE>
EVERGREEN INCOME FUNDS
(FORMERLY FIRST UNION INCOME FUNDS)
SOFT LANDING OR PERFECT LANDING?
REVIEW OF 1ST HALF AND PROSPECTS
FOR REMAINDER OF 1995
BY DICK WAGONER, CHIEF INVESTMENT OFFICER
In our last report we stated, "In our view, the (Picture of Dick
investment climate for 1995 is improving," and we Wagoner appears
looked for much improved investment returns. here)
The basis for our optimism was our belief that the
Federal Reserve's interest rate increases, designed to slow the economy and pre-
empt inflation, were, in fact, going to be effective and would permit the
economy to come in for a "soft landing" after a period of rapid growth in 1994.
In addition to the Fed's actions, we believed then as we believe now that
several powerful secular forces -- including global competition, demographics
and significant productivity gains -- are working to keep inflation in check
longer-term.
Current evidence confirms our view of moderating economic growth in 1995.
Leading economic indicators have fallen 4 out of 5 consecutive months and are
likely to fall again. Industrial production and capacity utilization have also
begun to moderate. Further confirming a slowdown were the back-to-back rises in
unemployment claims in April and May, the first such occurrence in over three
years. These increases, along with rising inventories and sluggish retail sales
assure that slower economic growth is at hand for the remainder of the year.
WHILE WE CONTINUE TO BE OPTIMISTIC ABOUT THE INVESTMENT OUTLOOK FOR 1995, WE
BELIEVE THE MARKETS MAY BE GETTING AHEAD OF THEMSELVES IN ANTICIPATION OF A
"PERFECT LANDING."
STANDING OVATION FROM WALL STREET
As the economy began to slow, interest rates fell and the markets responded
with a standing ovation to the prospects of a "soft landing" -- perhaps even
anticipating a "perfect landing" in the economy. For the six months ended
June 30, 1995, the S&P 500 Reinvested Index* was up over 20%, and the Lehman
Brothers' Intermediate Bond Index** was up over 9%. An increasing number of
investors believe the transition to a slow growth, low inflation economy will
be smooth -- providing a highly favorable investment climate.
While we continue to be optimistic about the investment outlook for 1995, we
believe the markets may be getting ahead of themselves in anticipation of a
"perfect landing" rather than a slowdown which is likely to be characterized by
modestly higher inflation, a choppy and subdued pattern of economic growth, and
less favorable corporate earnings comparisons.
BOND MARKETS POST NEAR-RECORD RETURNS
Once it became clear that inflation would be constrained by slower growth,
bond markets reacted forcefully. Yields on 10-year Treasury notes plummeted 1.5%
during the half which provided total returns in excess of 15%. This yield
decline provided bonds with their fourth strongest half-year returns on record.
Strong performances from the Treasury and Corporate bond sectors led the taxable
market's charge toward lower yields. Buoyed by strong corporate earnings and
improved credit quality, corporate bonds outpaced all taxable bond sectors for
the half. By June, however, increased concern about slowing economic growth gave
pause to their outperformance.
Mortgage backed securities began to underperform as the rally ensued. Since
homeowners tend to refinance mortgages as interest rates decline, mortgage
securities tend to shorten their maturities during lower interest rate
environments, reducing gains versus securities with set maturity dates.
Currently, mortgage bonds have weakened to levels not seen since the 1993 bond
rally, and provide better value.
* THE S&P 500 IS A REINVESTED UNMANAGED COMPOSITE INDEX OF 425 INDUSTRIAL, 20
TRANSPORTATION, AND 55 PUBLIC UTILITY COMMON STOCKS.
** UNMANAGED INDICIES OF SELECTED SECURITIES.
2

<PAGE>
EVERGREEN INCOME FUNDS
(FORMERLY FIRST UNION INCOME FUNDS)
REVIEW OF 1ST HALF AND PROSPECTS
FOR REMAINDER OF 1995 -- (CONTINUED)
At mid-year, with 30-year Treasuries yielding approximately 6.5%, and with
the prospect of 3%-3.5% inflation, bonds provide a 3% return over and above
inflation. This is in line with historic averages and represents fair value for
the investor.
SECOND HALF OUTLOOK
The investment climate for the balance of 1995 is likely to require a more
cautious stance on the part of investors.
The first half of the year witnessed a rapid run-up in equity prices, powered
by declining interest rates and improved corporate profit performance. Interest
rate declines reflected the moderation in economic growth brought on by the
Federal Reserve's actions in 1994 to slow the increasing momentum of the economy
and relieve potential inflationary pressures. By mid-year 1995, tangible
evidence was available to indicate that those policies had been successful, and
the Fed signaled a moderation of its stance. This indicates that further
substantial interest rate declines from current levels are less likely, removing
one of the driving forces behind higher stock prices.
Unexpectedly, strong earnings were an additional factor in lifting stock
prices. For the balance of 1995 and into 1996, we believe profit comparisons
will be less robust related to the moderation in the economy and more difficult
year-over-year comparisons. In the absence of a further slowdown in the economy,
profits should continue to grow, but at a more measured pace.
Valuations on stocks are high reflecting the aforementioned variables. While
this in and of itself is not a reason for stocks to fall, it indicates that a
reasonable degree of caution is appropriate.
At this point, it appears that the economic recovery is intact and that
inflation is under control. U.S. manufacturing competitiveness is high related
to corporate restructuring and the level of the dollar in world markets.
Productivity gains have had a powerful impact on our ability to keep inflation
under control.
Business capital spending remains high, which bodes well for a continuation
of these trends. Nonetheless, we are approaching the sixth year of the economic
recovery and one must be more cognizant of risks to the outlook given that we
are in the mature phase.
The fixed income markets have also reached levels where further reductions
will be more moderate and will require further evidence that the economy is not
going to repeat its strong second half performance of 1994. We believe that
interest rates may move upward moderately (7% bond yield) as economic data
reflects more growth after three months of very weak growth. However, we do not
expect a recurrence of 4% plus growth, and we believe interest rates will
decline.
Actions on the political front may be the wildcard looking forward. Over the
next 18 months, the issues of tax reform, deficit reduction and Presidential
election politics will all be on the front pages. Positive action on the deficit
could have very positive implications for the financial markets.
3

<PAGE>
EVERGREEN FIXED INCOME FUND
(Picture of a Building) (FORMERLY FIRST UNION FIXED INCOME PORTFOLIO)
A REPORT FROM YOUR
PORTFOLIO MANAGER
BY THOMAS ELLIS
Evergreen Fixed Income Fund has benefited nicely from the (Picture of
much improved climate in the first half of 1995, after having Thomas Ellis
weathered a very difficult fixed income market last year. appears here)
With interest rates down at all maturities during the first
half, the Fund's holdings appreciated and generated an
attractive level of income.
During the first half, we made several adjustments within
the portfolio in an attempt to enhance its return and position
it for the future. First, we extended maturities modestly to
take advantage of declining interest rates.

In addition, we adjusted the Fund's mix of securities.
Corporate bonds, which have performed very well over the last several months and
now offer a narrow premium versus Treasury securities, were reduced to 25% of
the Fund's net assets.
We have replaced a 5% position of short-term corporate bonds with callable
federal agency bonds, which are of higher quality and have more favorable return
projections. We have also increased our mortgage holdings to 38%, as mortgages
have become more attractive with the rapid decline in rates.
Overall, we have increased the already high credit quality of the portfolios
with 70% Government and AAA, 4% AA and 26% A. Average credit quality for the
portfolio is AA.
In the months ahead, we will view any corrections in bond prices as
opportunities to extend our maturities modestly as we view bonds as good values
given current rates and our inflation outlook.
4

<PAGE>
EVERGREEN FIXED INCOME FUND
(Picture of a Building) (FORMERLY FIRST UNION FIXED INCOME PORTFOLIO)
RESULTS TO DATE
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN FIXED INCOME FUND
The graphs below compare a $10,000 investment in the Evergreen Fixed Income
Fund (Class A, Class B, Class C and Class Y Shares) with a similar investment in
the Lehman Brothers Intermediate Government/Corporate Bond Index ("LBIG/CBI
Index").

(4 graphs appear here with the plot points listed below)

Class A Plot Points are as follows: Class B Plot Points are as follows:

Class A Fund Index Class B Fund Index
01/31/89 9,525 10,000 01/25/93 10,000 10,000
12/31/89 10,526 11,159 06/30/93 10,411 10,418
12/31/90 11,320 12,181 12/31/93 10,608 10,671
12/31/91 12,928 13,962 06/30/94 10,254 10,392
12/31/92 13,753 14,964 12/31/94 10,254 10,465
12/31/93 14,893 16,279 06/30/95 10,775 11,470
12/31/94 14,510 15,965
06/30/95 15,788 17,498

Class C Plot Points are as follows: Class Y Plot Points are as follows:

Class C Fund Index Class Y Fund Index

09/02/94 10,000 10,000 12/31/90 10,000 10,000
12/31/94 9,873 9,897 12/31/91 11,380 11,462
03/31/95 10,235 10,331 12/31/92 12,381 12,284
06/30/95 10,579 10,847 12/31/93 13,189 13,364
12/31/94 12,853 13,106
06/30/95 13,983 14,364

* Commencement of class operations.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL
FUNDS ARE NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY
INSURED.
For the purposes of the graphs and the accompanying tables, it has been
assumed that (a) the maximum sales charge of 4.75% was deducted from the initial
$10,000 investment Class A Shares; (b) the maximum applicable contingent
deferred sales charge was deducted from the value of the investment in Class B
and Class C Shares, assuming full redemption on June 30, 1995; (c) all recurring
fees (including investment advisory fees) were deducted; and (d) all dividends
and distributions were reinvested.
The LBIG/CBI Index is an unmanaged index and includes the reinvestment of
income, but does not reflect the payment of transaction costs and advisory fees
associated with an investment in the Fund.
5

<PAGE>
EVERGREEN FIXED INCOME FUND
(FORMERLY FIRST UNION FIXED INCOME PORTFOLIO)
(Picture of a Building) STATEMENT OF INVESTMENTS
JUNE 30, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
ASSET-BACKED SECURITIES -- 11.8%
$ 1,091,522 BW TR, 9.50%, 2/15/05......... $ 1,111,430
1,335,454 Chemical Grantor Trust, 8.90%,
12/15/96...................... 1,347,271
1,835,689 CIT Group Holdings,
4.70%, 6/15/18................ 1,805,178
6,278,213 FCC Grantor Trust,
9.00%, 7/15/97................ 6,377,214
6,538,712 First Bank Auto Receivable,
8.30%, 1/15/00................ 6,689,880
Fleet Financial Home Equity
Trust,
1,224,635 6.70%, 10/16/06............... 1,231,210
2,278,851 6.70%, 1/15/06................ 2,289,120
10,676,287 Fleetwood Credit Grantor Trust,
4.95%, 8/15/08................ 10,385,561
251,513 General Motors Acceptance
Corp. Grantor Trust,
5.05%, 1/15/97................ 251,307
7,500,000 Household Affinity Credit Card
Master Trust,
7.20%, 12/15/99............... 7,659,818
6,000,000 Household Credit Card Trust,
6.70%, 7/15/97................ 6,015,414
TOTAL ASSET-BACKED SECURITIES
(COST $45,161,500)............ 45,163,403
CORPORATE BONDS -- 24.9%
BANKING -- 3.8%
First Chicago Corp.,
4,000,000 9.00%, 6/15/99................ 4,328,672
2,000,000 9.20%, 12/17/01............... 2,238,722
5,000,000 First Security Corp.,
6.40%, 2/10/03................ 4,842,105
1,500,000 J.P. Morgan & Co., Inc.,
9.625%, 12/15/98.............. 1,524,823
1,000,000 National Bank of Canada,
8.125%, 8/15/04............... 1,065,780
500,000 Security Pacific Corp.,
10.45%, 5/8/01................ 587,454
14,587,556
BASIC INDUSTRY -- 2.4%
5,000,000 Hanson, PLC,
7.375%, 1/15/03............... 5,172,960
4,000,000 WMX Technologies Inc., 7.00%,
5/15/05....................... 4,046,440
9,219,400
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
<CAPTION>
CORPORATE BONDS -- CONTINUED
<C> <S> <C>
FINANCE -- 11.0%
$ 3,000,000 Bear Stearns Company, Inc.,
7.625%, 4/15/00............... $ 3,114,351
3,000,000** Cenfed Financial Corp.,
11.17%, 12/15/01.............. 3,290,997
10,000,000 Chrysler Buildings,
9.125%, 5/1/99................ 10,800,200
5,000,000 Lehman Brothers Holdings Inc.,
8.875%, 3/1/02................ 5,387,865
7,500,000 Lehman Brothers
Holdings -- WI, 7.00%,
5/15/97....................... 7,542,953
1,000,000 Morgan Stanley Group, Inc.,
9.40%, 3/5/98................. 1,067,862
Salomon Brothers, Inc.,
1,800,000 8.57%, 3/10/97................ 1,845,277
9,000,000 9.01%, 5/1/97................. 9,307,665
42,357,170
INSURANCE -- 6.0%
2,000,000** Associated P&C Holdings, Inc.,
6.75%, 7/15/03................ 1,955,000
6,000,000 First Colony Corp.,
6.625%, 8/1/03................ 5,856,012
10,000,000** Metropolitan Life Insurance
Co., 6.30%, 11/1/03........... 9,514,370
6,000,000 Progressive Corp., Ohio,
6.60%, 1/15/04................ 5,841,528
23,166,910
INTERNATIONAL INDUSTRIAL
BUILDING PRODUCTS -- 1.4%
5,000,000 Boral Limited Australia Co.,
7.90%, 11/19/99............... 5,236,415
SOVEREIGN GOVERNMENT -- .3%
900,000 New Brunswick Province CDA,
7.125%, 10/1/02............... 923,579
TOTAL CORPORATE BONDS
(COST $95,541,638)..... 95,491,030
CERTIFICATE OF DEPOSIT -- .5%
2,000,000 Bayerische Landesbank CD,
6.375%, 6/1/96 (cost
$2,000,000)................... 2,000,000
<CAPTION>
MORTGAGE-BACKED SECURITIES -- 38.1%
<C> <S> <C>
3,773,211 CMC Securities Corp., 10.00%,
7/25/23....................... 4,084,162
9,500,000 CWMBS, Inc.,
7.00%, 10/25/23............... 9,441,470
</TABLE>
6

<PAGE>
EVERGREEN FIXED INCOME FUND
(FORMERLY FIRST UNION FIXED INCOME PORTFOLIO)
(Picture of a Building) STATEMENT OF INVESTMENTS -- (CONTINUED)
JUNE 30, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
MORTGAGE-BACKED SECURITIES -- CONTINUED
<C> <S> <C>
Federal Home Loan
Mortgage Corporation,
$ 4,000,000 6.75%, 2/15/04................ $ 4,020,876
10,000,000 7.40%, 10/15/05............... 10,229,490
775,246 10.50%, 9/1/15................ 843,080
Federal Housing
Administration-Puttable
Project Loans,
5,477,067 7.43%, 7/1/22................. 5,798,954
4,184,182 7.43%, 11/1/22................ 4,438,605
10,576,515 7.43%, 1/1/24................. 11,000,527
1,609,127 7.43%, 3/1/24................. 1,705,714
6,444,335 8.43%, 2/1/20................. 6,850,496
Federal National
Mortgage Association,
5,000,000 7.00%, 7/25/20................ 4,991,945
57,775 14.00%, 6/1/11................ 66,107
3,515,956 GCC Second Mortgage Trust,
10.00%, 7/15/05............... 3,688,304
Green Tree Financial Corp.,
2,015,461 4.60%, 10/15/18............... 2,000,243
1,664,128 4.90%, 4/15/18................ 1,630,069
5,250,000 Household Finance Corp.,
6.70%, 6/15/02................ 5,222,805
2,209,312 Merrill Lynch Mortgage
Investments,
6.85%, 4/15/12................ 2,212,867
9,000,000 Prudential Home Mortgage
Securities Co.,
6.30%, 5/25/99................ 8,901,837
6,605,435 Prudential Securities Inc.,
8.12%, 2/17/25................ 6,871,409
Resolution Trust Corp.,
805,291 5.90%, 7/25/23................ 806,700
618,423 7.00%, 2/15/04................ 621,672
7,306,525 8.35%, 6/25/29................ 7,324,551
8,263,123 Saxon Mortgage Securities
Corp., 7.375%, 9/25/23........ 8,318,891
442,220 Shawmut National Trust, 9.15%,
8/15/05....................... 445,475
U.S. Department of
Veteran Affairs,
9,000,000 6.50%, 5/15/13................ 8,824,410
15,000,000 6.50%, 1/15/17................ 14,461,155
11,280,000 6.75%, 11/15/09............... 11,309,633
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
TOTAL MORTGAGE BACKED
SECURITIES (COST
$145,179,482).......... $146,111,447
<CAPTION>
U.S. AGENCY OBLIGATIONS -- 5.5%
<C> <S> <C>
$ 13,665,000 Federal Home Loan Bank,
7.00%, 7/5/00................. 13,676,205
2,000,000 Federal Home Loan Mortgage
Corporation,
6.97%, 6/16/05................ 2,010,832
2,500,000 Federal National Mortgage
Association,
7.65%, 5/4/05................. 2,574,405
3,000,000 Student Loan Marketing
Association,
8.80%, 11/15/04............... 3,038,073
TOTAL U.S. AGENCY
OBLIGATIONS (COST
$21,265,625)........... 21,299,515
<CAPTION>
U.S. TREASURY NOTES -- 19.8%
<C> <S> <C>
U.S. Treasury Notes
9,000,000 3.875%, 8/31/95............... 8,974,674
10,000,000 8.250%, 7/15/98............... 10,640,610
7,000,000 8.625%, 10/15/95.............. 7,059,052
22,000,000 8.875%, 2/15/99............... 24,117,500
25,000,000 9.50%, 11/15/95............... 25,351,525
TOTAL U.S. TREASURY NOTES
(COST $78,732,539)......... 76,143,361
<CAPTION>
*REPURCHASE AGREEMENT -- 1.7%
<C> <S> <C>
6,634,000 Donaldson, Lufkin & Jenrette
Securities Corp., 6.00%, dated
6/30/95, due 7/3/95........... 6,634,000
TOTAL INVESTMENTS -- 102.3%
(COST $394,514,784)......... 392,842,756
OTHER ASSETS AND
LIABILITIES -- NET (2.3%)... (9,002,313)
TOTAL NET ASSETS -- 100%...... $383,840,443
</TABLE>

* Fully collateralized by U.S. Government and/or agency obligations based on
market price at June 30, 1995.
** Restricted security is not registered under the Securities Act of 1993.
WI-When issued.
See accompanying notes to financial statements.
7

<PAGE>
EVERGREEN FIXED INCOME FUND
(FORMERLY FIRST UNION FIXED INCOME PORTFOLIO)
(Picture of a Building) STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1995
<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $394,514,784)........................................................... $392,842,756
Cash.......................................................................................................... 280
Interest receivable........................................................................................... 4,761,663
Receivable for Fund shares sold............................................................................... 527,455
Receivable for investment securities sold..................................................................... 12,311
Total assets............................................................................................... 398,144,465
LIABILITIES:
Payable for investment securities purchased................................................................... 13,665,000
Payable for Fund shares repurchased........................................................................... 596,753
Accrued expenses.............................................................................................. 42,269
Total liabilities.......................................................................................... 14,304,022
NET ASSETS....................................................................................................... $383,840,443
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................... $394,353,819
Accumulated net realized loss................................................................................. (9,275,364)
Undistributed net investment income........................................................................... 434,016
Net unrealized depreciation of investments.................................................................... (1,672,028)
Net assets................................................................................................. $383,840,443
CALCULATION OF NET ASSET VALUE PER SHARE:
Class A Shares ($18,897,922 (divided sign) 1,886,810 shares of beneficial interest outstanding)............... $ 10.02
Sales charge -- 4.75% of offering price....................................................................... 0.50
Maximum offering price..................................................................................... $ 10.52
Class B Shares ($17,365,613 (divided sign) 1,729,294 shares of beneficial interest outstanding)............... $ 10.04
Class C Shares ($527,144 (divided sign) 52,443 shares of beneficial interest outstanding)..................... $ 10.05
Class Y Shares ($347,049,764 (divided sign) 34,629,113 shares of beneficial interest outstanding)............. $ 10.02
</TABLE>

See accompanying notes to financial statements.
8

<PAGE>
EVERGREEN FIXED INCOME FUND
(FORMERLY FIRST UNION FIXED INCOME PORTFOLIO)
STATEMENT OF OPERATIONS
(Picture of a Building) SIX MONTHS ENDED JUNE 30, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest....................................................................................... $14,129,331
EXPENSES:
Advisory fee................................................................................... $ 961,697
Administrative personnel and services fees..................................................... 159,002
Distribution fee -- Class A Shares............................................................. 9,479
Distribution and shareholder services fees -- Class B Shares................................... 85,200
Distribution and shareholder services fees -- Class C Shares................................... 2,570
Custodian fee.................................................................................. 73,899
Transfer agent fee............................................................................. 34,071
Registration and filing fees................................................................... 18,550
Professional fees.............................................................................. 15,109
Reports and notices to shareholders............................................................ 13,090
Trustees' fees and expenses.................................................................... 2,909
Insurance...................................................................................... 1,309
Other.......................................................................................... 938
Total expenses.............................................................................. 1,377,823
Net investment income............................................................................. 12,751,508
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments............................................................... (3,254,748)
Net change in unrealized depreciation of investments........................................... 23,129,255
Net gain on investments........................................................................... 19,874,507
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............................................. $32,626,015
</TABLE>

See accompanying notes to financial statements.
9

<PAGE>
EVERGREEN FIXED INCOME FUND
(FORMERLY FIRST UNION FIXED INCOME PORTFOLIO)
(Picture of a Building) STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
1995 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income..................................................................... $ 12,751,508 $ 26,413,957
Net realized loss on investments.......................................................... (3,254,748) (6,020,616)
Net change in unrealized appreciation (depreciation) of investments....................... 23,129,255 (31,162,934)
Net increase (decrease) in net assets resulting from operation......................... 32,626,015 (10,769,593)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME:
Class A Shares............................................................................ (633,992) (1,390,210)
Class B Shares............................................................................ (489,731) (813,680)
Class C Shares............................................................................ (14,464) (6,924)
Class Y Shares............................................................................ (11,563,141) (24,026,300)
Total distributions to shareholders
from net investment income............................................................. (12,701,328) (26,237,114)
NET REALIZED GAINS:
Class A Shares............................................................................ -- (1,063)
Class B Shares............................................................................ -- (679)
Class C Shares............................................................................ -- --
Class Y Shares............................................................................ -- (17,637)
Total distributions to shareholders
from net realized gains................................................................ -- (19,379)
Total distributions to shareholders.................................................... (12,701,328) (26,256,493)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold................................................................. 68,077,630 122,135,053
Proceeds from reinvestment of dividends................................................... 11,423,985 24,252,420
Payments for shares redeemed.............................................................. (97,874,977) (135,258,457)
Net increase (decrease) from Fund share transactions................................... (18,373,362) 11,129,016
Net increase (decrease) in net assets.................................................. 1,551,325 (25,897,070)
NET ASSETS:
Beginning of period....................................................................... 382,289,118 408,186,188
End of period (including undistributed net investment income of
$434,016 and $219,997, respectively)................................................... $383,840,443 $ 382,289,118
</TABLE>

See accompanying notes to financial statements.
10

<PAGE>
EVERGREEN FIXED INCOME FUND -- CLASS A SHARES
(FORMERLY FIRST UNION FIXED INCOME PORTFOLIO)
(Picture of a Building) FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1995# 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period........................... $9.52 $10.42 $10.41 $10.54 $9.99
Income (loss) from investment operations:
Net investment income.......................................... .32 .65 .65 .71 .73
Net realized and unrealized gain (loss) on investments......... .50 (.91) .19 (.06) .60
Total from investment operations............................ .82 (.26) .84 .65 1.33
Less distributions to shareholders from:
Net investment income.......................................... (.32) (.64) (.65) (.67) (.70)
Net realized gains............................................. -- -- (.18) (.11) (.07)
In excess of net investment income............................. -- -- -- -- (.01)
Total distributions......................................... (.32) (.64) (.83) (.78) (.78)
Net asset value, end of period................................. $10.02 $9.52 $10.42 $10.41 $10.54
TOTAL RETURN(|)................................................ 8.8% (2.6%) 8.3% 6.4% 13.7%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)...................... $18,898 $19,127 $22,865 $21,488 $17,680
Ratios to average net assets:
Expenses.................................................... .77%(|)(|) .75% .93% .90% .80%(a)
Net investment income....................................... 6.58%(|)(|) 6.46% 6.15% 6.79% 7.30%(a)
Portfolio turnover rate........................................ 34% 48% 73% 66% 53%
</TABLE>

# The Fund changed its fiscal year end from December 31 to June 30.
(|) Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charge is not reflected.
(|)(|) Annualized.
(a) Net of expense waivers and reimbursements. If the Fund had borne all
expenses that were assumed or waived by the investment adviser, the
annualized ratios of expenses and net investment income to average net
assets would have been the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1991
<S> <C>
Expenses............................................................... .89%
Net investment income.................................................. 7.21%
</TABLE>

<PAGE>
EVERGREEN FIXED INCOME FUND -- CLASS B AND
CLASS C SHARES
(FORMERLY FIRST UNION FIXED INCOME PORTFOLIO)
(Picture of a Building) FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS B SHARES CLASS C SHARES
JANUARY 25, SEPTEMBER 6,
SIX MONTHS 1993* SIX MONTHS 1994*
ENDED YEAR ENDED THROUGH ENDED THROUGH
JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30, DECEMBER 31,
1995# 1994 1993 1995# 1994
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period............ $9.54 $10.44 $10.57 $9.55 $9.85
Income (loss) from investment operations:
Net investment income........................... .28 .58 .58 .26 .18
Net realized and unrealized gain (loss) on
investments.................................. .50 (.92) .05 .50 (.30)
Total from investment operations............. .78 (.34) .63 .76 (.12)
Less distributions to shareholders from:
Net investment income........................... (.28) (.56) (.58) (.26) (.18)
Net realized gains.............................. -- -- (.18) -- --
Total distributions.......................... (.28) (.56) (.76) (.26) (.18)
Net asset value, end of period.................. $10.04 $9.54 $10.44 $10.05 $9.55
TOTAL RETURN(|)................................. 8.3% (3.3%) 6.1% 8.2% (1.3%)
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted).............................. $17,366 $17,625 $8,876 $527 $512
Ratios to average net assets:
Expenses..................................... 1.67%(|)(|) 1.50% 1.57%(|)(|) 1.67%(|)(|) 1.65%(|)(|)
Net investment income........................ 5.68%(|)(|) 5.75% 5.42%(|)(|) 5.69%(|)(|) 5.87%(|)(|)
Portfolio turnover rate......................... 34% 48% 73% 34% 48%
</TABLE>

* Commencement of class operations.
# The Fund changed its fiscal year end from December 31 to June 30.
(|) Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Contingent deferred sales charges are not
reflected.
(|)(|) Annualized.
12

<PAGE>
EVERGREEN FIXED INCOME FUND -- CLASS Y SHARES
(FORMERLY FIRST UNION FIXED INCOME PORTFOLIO)
(Picture of a Building) FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS JANUARY 4, 1991*
ENDED JUNE YEAR ENDED DECEMBER 31, THROUGH
30, 1995# 1994 1993 1992 DECEMBER 31, 1991
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period............... $9.52 $10.43 $10.41 $10.54 $10.06
Income (loss) from investment operations:
Net investment income.............................. .33 .65 .69 .70 .71
Net realized and unrealized gain (loss) on
investments..................................... .49 (.91) .19 (.02) .56
Total from investment operations................ .82 (.26) .88 .68 1.27
Less distributions to shareholders from:
Net investment income.............................. (.32) (.65) (.68) (.70) (.71)
Net realized gains................................. -- -- (.18) (.11) (.07)
In excess of net investment income................. -- -- -- -- (.01)
Total distributions............................. (.32) (.65) (.86) (.81) (.79)
Net asset value, end of period..................... $10.02 $9.52 $10.43 $10.41 $10.54
TOTAL RETURN(|).................................... 8.8% (2.6%) 8.7% 6.6% 13.8%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted)................................. $347,050 $345,025 $376,445 $324,068 $256,254
Ratios to average net assets:
Expenses........................................ .67%(|)(|) .65% .66% .69% .69%(|)(|)(a)
Net investment income........................... 6.68%(|)(|) 6.56% 6.41% 6.67% 7.12%(|)(|)(a)
Portfolio turnover rate............................ 34% 48% 73% 66% 53%
</TABLE>

# The Fund changed its fiscal year end from December 31 to June 30.
* Commencement of class operations.
(|) Total return is calculated on net asset value per share for the periods
indicated and is not annualized.
(|)(|) Annualized.
(a) Net of expense waivers and reimbursements. If the Fund had borne all
expenses that were assumed or waived by the investment adviser, the
annualized ratios of expenses and net investment income to average net
assets, would have been the following:
<TABLE>
<CAPTION>
JANUARY 4, 1991
THROUGH
DECEMBER 31, 1991
<S> <C>
Expenses................................................................. .76%
Net investment income.................................................... 7.05%
</TABLE>

<PAGE>
EVERGREEN MANAGED BOND FUND
(Picture of a Coin) (FORMERLY FIRST UNION MANAGED BOND PORTFOLIO)
A REPORT FROM YOUR
PORTFOLIO MANAGER
BY GLEN INSLEY
Evergreen Managed Bond Fund experienced a very strong (Photo of Glen
performance in the first half of 1995 as a result of sharp Insley appears
declines in intermediate and long-term interest rates here)
coupled with changes within the Fund.
We anticipated slower economic growth and an improved
investment climate during the first half, thus, we
maintained the maturity structure within the portfolio to
take advantage of declining interest rates.
In addition, we increased the Fund's holdings in
mortgages and U.S. government securities while we reduced
our position in corporate bonds. Mortgages have become
increasingly attractive in the past few months. Corporate
bonds, on the other hand, have become less attractive as the normal yield
advantage they offer has narrowed substantially.
On June 30, the Fund's net assets were invested 40% in U.S. governments, 15%
in mortgage-backed securities and 42% in corporate bonds. Credit quality
increased during the quarter with 58% AAA and Government, 2% AA and 39% A and 1%
BAA.
The average maturity of the Fund was 5.03 years.
14

<PAGE>
EVERGREEN MANAGED BOND FUND
(Picture of a Coin) (FORMERLY FIRST UNION MANAGED BOND PORTFOLIO)
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN MANAGED BOND FUND
The graph below compares a $10,000 investment in the Evergreen Managed Bond
Fund (Class Y Shares) with a similar investment in the Lehman Brothers
Intermediate Government/Corporate Bond Index ("LBIG/CBI Index").

(Graph appears here plot points listed below it)

Class Y Plot Points are as follows:

Class Y Fund Index
04/01/91 10,000 10,000
12/31/91 11,163 11,181
12/31/92 11,781 11,983
12/31/93 13,041 13,036
12/31/94 12,467 12,784
06/30/95 13,866 14,012

*Commencement of operations.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. MUTUAL FUNDS ARE
NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED.
For the purposes of the graph and the accompanying table, it has been assumed
that (a) all recurring fees (including investment advisory fees) were deducted;
and (b) all dividends and distributions were reinvested.
The Adviser is currently waiving a portion of the Fund's expenses. Had
expenses not been waived, returns would have been lower.
The LBIG/CBI Index is an unmanaged index and includes the reinvestment of
income, but does not reflect the payment of transaction costs and advisory fees
associated with an investment in the Fund.
15

<PAGE>
EVERGREEN MANAGED BOND FUND
(FORMERLY FIRST UNION MANAGED BOND PORTFOLIO)
STATEMENT OF INVESTMENTS
(Picture of a Coin) JUNE 30, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- 41.2%
BANKING -- 6.6%
$ 3,000,000 Comerica, Inc.,
7.125%, 12/1/13................ $ 2,840,679
2,000,000 NationsBank Corp.,
8.125%, 6/15/02................ 2,134,616
4,975,295
CHEMICALS -- 4.1%
3,000,000 ICI Wilmington, Inc., 7.625%,
3/15/97........................ 3,072,615
DRUG -- 3.0%
2,000,000 Baxter International, Inc.,
9.25%, 12/15/99................ 2,214,546
FINANCE AND INSURANCE -- 10.2%
500,000* Cenfed Financial Corp., 11.17%,
12/15/01....................... 548,500
1,500,000 First Colony Corp.,
6.625%, 8/1/03................. 1,464,003
1,000,000* Goldman Sachs Group, 6.375%,
6/15/00........................ 973,803
1,500,000 Household Finance Corp.,
9.625%, 3/11/96................ 1,536,210
3,000,000 Lehman Brothers, Inc., 8.375%,
4/1/97......................... 3,079,068
7,601,584
FOOD AND BEVERAGE -- 2.0%
1,500,000 Grand Metro Investment Corp.,
6.50%, 9/15/99................. 1,503,699
FOREIGN -- 2.9%
2,000,000 Manitoba Province,
8.00%, 4/15/02................. 2,152,938
INDUSTRIAL -- 3.0%
2,000,000** Jet Equipment Trust,
9.41%, 6/15/10................. 2,268,880
TELE-COMMUNICATIONS -- 3.7%
3,100,000 ALLTEL Corp.,
6.50%, 11/1/13................. 2,807,946
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
UTILITIES -- 5.7%
$ 2,000,000 Carolina Power & Light Co.,
8.625%, 9/15/21................ $ 2,233,298
2,000,000 Progress Capital Holdings,
8.17%, 9/13/96................. 2,032,450
4,265,748
TOTAL CORPORATE BONDS
(COST $30,387,035)...... 30,863,251
U.S. GOVERNMENT OBLIGATIONS -- 54.2%
U.S. TREASURY BONDS -- 10.9%
1,000,000 8.75%, 5/15/17................. 1,233,750
3,550,000 8.875%, 8/15/17................ 4,435,281
2,000,000 8.875%, 2/15/19................ 2,506,872
8,175,903
U.S. TREASURY NOTES -- 23.7%
2,100,000 5.125%, 12/31/98............... 2,047,500
10,000,000 6.875%, 7/31/99................ 10,321,860
2,000,000 8.25%, 7/15/98................. 2,128,122
3,000,000 8.875%, 2/15/99................ 3,288,750
17,786,232
GOVERNMENT AGENCY -- 19.6%
3,000,000 Federal Home Loan Banks, 7.70%,
9/20/04........................ 3,262,788
Federal Home Loan
Mortgage Corp.
1,320,827 7.50%, 5/1/09.................. 1,342,283
1,419,071 7.50%, 5/1/09.................. 1,442,123
Government National Mortgage
Association
1,479,845 7.50%, 9/15/23................. 1,488,631
4,008,080 8.00%, 10/15/24................ 4,104,503
1,158,456 9.00%, 4/15/20................. 1,217,851
792,227 9.00%, 8/15/21................. 832,824
974,866 9.50%, 2/15/21................. 1,033,662
14,724,665
TOTAL U.S. GOVERNMENT
OBLIGATIONS
(COST $39,854,425)...... $40,686,800
</TABLE>

<PAGE>
EVERGREEN MANAGED BOND FUND
(FORMERLY FIRST UNION MANAGED BOND PORTFOLIO)
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Picture of a Coin) JUNE 30, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
** REPURCHASE AGREEMENT -- 2.2%
$ 1,639,000 Donaldson, Lufkin & Jenrette
Securities Corp., 6.00%, dated
6/30/95, due 7/3/95
(cost $1,639,000).............. $ 1,639,000
TOTAL INVESTMENTS -- 97.6%
(cost $71,880,460)............. 73,189,051
OTHER ASSETS AND
LIABILITIES -- NET 2.4%........ 1,770,756
TOTAL NET ASSETS -- 100%....... $74,959,807
</TABLE>

* Restricted security which is not registered under the Securities Act of 1933.
** Fully collateralized by U.S. government and/or agency obligations based on
market on June 30, 1995.
See accompanying notes to financial statements.

<PAGE>
EVERGREEN MANAGED BOND FUND
(FORMERLY FIRST UNION MANAGED BOND PORTFOLIO)
STATEMENT OF ASSETS AND LIABILITIES
(Picture of a Coin) JUNE 30, 1995
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $71,880,460)............................................................. $73,189,051
Cash........................................................................................................... 891
Interest receivable............................................................................................ 1,251,866
Receivable for Fund shares sold................................................................................ 513,116
Prepaid expenses............................................................................................... 8,800
Total assets............................................................................................. 74,963,724
LIABILITIES:
Payable for Fund shares repurchased............................................................................ 3,849
Accrued expenses............................................................................................... 68
Total liabilities........................................................................................ 3,917
NET ASSETS........................................................................................................ $74,959,807
NET ASSETS CONSIST OF:
Paid-in capital................................................................................................ $75,783,543
Accumulated net realized loss.................................................................................. (2,271,038)
Undistributed net investment income............................................................................ 138,711
Net unrealized appreciation of investments..................................................................... 1,308,591
Net assets............................................................................................... $74,959,807
Class Y Shares ($74,959,807 (divided sign) 7,457,502 shares of beneficial interest outstanding)................... $ 10.05
</TABLE>

See accompanying notes to financial statements.
18

<PAGE>
EVERGREEN MANAGED BOND FUND
(FORMERLY FIRST UNION MANAGED BOND PORTFOLIO)
STATEMENT OF OPERATIONS
(Picture of a Coin) SIX MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest........................................................................................... $3,075,084
EXPENSES:
Advisory fee....................................................................................... $203,264
Administrative personnel and services fees......................................................... 33,626
Custodian fee...................................................................................... 26,423
Registration and filing fees....................................................................... 14,170
Professional fees.................................................................................. 12,944
Reports and notices to shareholders................................................................ 12,403
Transfer agent fee................................................................................. 7,535
Insurance expense.................................................................................. 1,153
Trustees' fees and expenses........................................................................ 1,109
Other.............................................................................................. 3,236
315,863
Less: Fee waivers and expense reimbursements....................................................... (78,763)
Total expenses............................................................................... 237,100
Net investment income................................................................................. 2,837,984
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments................................................................... (830,584)
Net change in unrealized appreciation of investments............................................... 6,712,729
Net gain on investments............................................................................... 5,882,145
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................................. $8,720,129
</TABLE>

See accompanying notes to financial statements.
19

<PAGE>
EVERGREEN MANAGED BOND FUND
(FORMERLY FIRST UNION MANAGED BOND PORTFOLIO)
(Picture of a Coin) STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1995 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................................................... $ 2,837,984 $ 6,992,027
Net realized loss on investments............................................................ (830,584) (1,440,454)
Net change in unrealized appreciation (depreciation) of investments......................... 6,712,729 (10,390,618)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.......................... 8,720,129 (4,839,045)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income....................................................................... (2,778,674) (6,989,831)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold................................................................... 16,463,692 22,423,717
Proceeds from reinvestment of dividends..................................................... 2,459,099 6,700,837
Payments for shares redeemed................................................................ (40,222,694) (36,044,493)
Net decrease from Fund share transactions................................................ (21,299,903) (6,919,939)
Net decrease in net assets............................................................... (15,358,448) (18,748,815)
NET ASSETS:
Beginning of period......................................................................... 90,318,255 109,067,070
End of period (including undistributed net investment income of $138,711 and $86,211,
respectively)............................................................................. $74,959,807 $ 90,318,255
</TABLE>

See accompanying notes to financial statements.
20

<PAGE>
EVERGREEN MANAGED BOND FUND -- CLASS Y SHARES
(FORMERLY FIRST UNION MANAGED BOND PORTFOLIO)
(Picture of a Coin) FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS APRIL 1, 1991*
ENDED YEAR ENDED DECEMBER 31, THROUGH
JUNE 30, 1995# 1994 1993 1992 DECEMBER 31, 1991
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period.......... $9.35 $10.46 $10.34 $10.60 $10.00
Income (loss) from investment operations:
Net investment income......................... .34 .66 .65 .66 .49
Net realized and unrealized gain (loss) on
investments................................ .69 (1.11) .43 (.08) .63
Total from investment operations........... 1.03 (.45) 1.08 .58 1.12
Less distributions to shareholders from:
Net investment income......................... (.33) (.66) (.65) (.66) (.49)
Net realized gains............................ -- -- (.31) (.18) (.03)
Total distributions........................ (.33) (.66) (.96) (.84) (.52)
Net asset value, end of period................ $10.05 $9.35 $10.46 $10.34 $10.60
TOTAL RETURN(|)............................... 11.2% (4.4%) 10.6% 5.7% 11.6%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted)............................ $ 74,960 $90,318 $109,067 $121,655 $ 112,984
Ratios to average net assets:
Expenses................................... .58%(|)(|)(a) .70%(a) .70%(a) .70%(a) .70%(|)(|)
Net investment income...................... 6.98%(|)(|)(a) 6.68%(a) 6.02%(a) 6.30%(a) 6.57%(|)(|)
Portfolio turnover rate....................... 36% 32% 53% 56% 17%
</TABLE>

# The Fund changed its fiscal year end from December 31 to June 30.
* Commencement of operations.
(|) Total return is calculated on net asset value per share for the period
indicated and is not annualized.
(|)(|) Annualized.
(a) Net of expense waivers and reimbursements. If the Fund had borne all
expenses that were assumed or waived by the investment adviser, the
annualized ratios of expenses and net investment income to average net
assets, would have been the following:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1995 1994 1993 1992
<S> <C> <C> <C> <C>
Expenses...................................................... .78% .71% .73% .75%
Net investment income......................................... 6.78% 6.67% 5.99% 6.25%
</TABLE>

<PAGE>
EVERGREEN U.S. GOVERNMENT FUND
(Picture of a Capitol Building) (FORMERLY FIRST UNION U.S. GOVERNMENT PORTFOLIO)
A REPORT FROM YOUR
PORTFOLIO MANAGER
BY ROLLIN WILLIAMS
Evergreen U.S. Government Fund turned in a strong (Photo of Rollin
performance during the first half of 1995, as interest rates Williams appears
dropped sharply at intermediate and long maturities. here)
We anticipated slower economic growth and an improved
investment climate during the first half, thus, we
maintained the maturity structure within the portfolio to
take advantage of declining interest rates.
In addition, we increased modestly our position of the
Fund's mortgage holdings, as mortgages have become
particularly good values as a result of the rapid interest
rate decline.

The Fund continues to focus on attempting to generate a high level of current
income with an investment emphasis on obligations of the U.S. Government, its
agencies and instrumentalities. The Fund uses none of the exotic or toxic
derivatives which have raised issues in other funds.
On June 30, the Fund's net assets were 45% invested in U.S. Treasury
Securities and 54% invested in government-backed mortgage securities. The
duration of the Fund was 4.41 years.
22

<PAGE>
EVERGREEN U.S. GOVERNMENT FUND
(Picture of a Capitol Building) (FORMERLY FIRST UNION U.S. GOVERNMENT PORTFOLIO)
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN U.S. GOVERNMENT FUND
The graphs below compare a $10,000 investment in the Evergreen U.S.
Government Fund (Class A, Class B, Class C and Class Y Shares) with a similar
investment in the Lehman Brothers Intermediate Government Bond Index ("LBIGBI
Index").

(4 graphs appear here with the plot points listed below)

Class A Plot Points are as follows: Class B Plot Points are as follows:

Class A Fund Index Class B Fund Index
01/12/93 9,525 10,000 01/12/93 10,000 10,000
06/30/93 10,046 10,578 06/30/93 10,522 10,578
12/31/93 10,233 10,817 12/31/93 10,691 10,817
06/30/94 9,830 10,558 06/30/94 10,245 10,558
12/31/94 9,907 10,628 12/31/94 10,291 10,628
06/30/95 10,913 11,587 06/30/95 10,957 11,587

Class C Plot Points are as follows: Class Y Plot Points are as follows:

Class C Fund Index Class Y Fund Index
09/02/94 10,000 10,000 08/25/93 10,000 10,000
12/31/94 9,870 9,907 12/31/93 10,049 10,056
03/31/95 10,302 10,319 06/30/94 9,666 9,815
06/30/95 10,732 10,802 12/31/94 9,754 9,881
06/30/95 10,758 10,772

* Commencement of class operations.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. MUTUAL FUNDS ARE
NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED.
For the purposes of the graphs and the accompanying tables, it has been
assumed that (a) the maximum sales charge of 4.75% was deducted from the initial
$10,000 investment Class A Shares; (b) the maximum applicable contingent
deferred sales charge was deducted from the value of the investment in Class B
and Class C Shares, assuming full redemption on June 30, 1995; (c) all recurring
fees (including investment advisory fees) were deducted; and (d) all dividends
and distributions were reinvested.
The Adviser is currently waiving a portion of the Fund's expenses. Had
expenses not been waived, returns would have been lower.
The LBIGBI Index is an unmanaged index and includes the reinvestment of
income, but does not reflect the payment of transaction costs and advisory fees
associated with an investment in the Fund.
23

<PAGE>
EVERGREEN U.S. GOVERNMENT FUND
(FORMERLY FIRST UNION U.S. GOVERNMENT PORTFOLIO)
STATEMENT OF INVESTMENTS
(Picture of a Capitol Building) JUNE 30, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 53.6%
FEDERAL HOME LOAN MORTGAGE
CORPORATION -- 13.3%
$3,160,875 8.0%, 7/1/17................. $ 3,250,372
4,094,853 8.0%, 4/1/22................. 4,186,963
2,750,591 8.5%, 2/1/17................. 2,864,256
2,451,009 8.5%, 10/1/17................ 2,530,652
3,206,241 9.0%, 11/1/96................ 3,319,306
2,175,079 9.0%, 11/1/19................ 2,287,257
1,443,497 9.0%, 12/1/19................ 1,517,987
1,837,109 9.0%, 4/1/21................. 1,931,857
2,098,436 9.5%, 9/1/20................. 2,223,196
1,895,096 10.0%, 12/1/19............... 2,063,293
332,111 10.0%, 6/1/21................ 361,647
826,746 10.0%, 8/1/21................ 900,082
3,105,897 10.5%, 12/1/19............... 3,377,663
30,814,531
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 6.9%
5,788,323 6.5%, 1/1/24................. 5,571,261
7,561,145 7.5%, 7/1/23................. 7,591,859
2,746,054 9.5%, 6/1/22................. 2,885,930
16,049,050
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 33.4%
7,537,133 7.0%, 11/15/23............... 7,421,717
7,098,932 7.0%, 11/15/23............... 6,990,226
3,314,818 7.0%, 12/15/22............... 3,264,058
4,690,826 7.5%, 11/15/22............... 4,718,675
3,815,424 7.5%, 2/15/22................ 3,838,076
4,245,909 7.5%, 3/15/23................ 4,271,117
3,900,027 8.0%, 2/15/23................ 3,993,850
5,315,245 8.0%, 8/15/24................ 5,443,114
4,253,572 8.5%, 12/15/21............... 4,419,704
1,334,083 8.5%, 2/15/23................ 1,386,188
2,797,838 8.5%, 5/15/23................ 2,907,113
7,772,844 8.5%, 7/15/24................ 8,076,428
3,817,996 9.0%, 1/15/20................ 4,013,645
4,627,897 9.0%, 6/15/21................ 4,865,049
850,478 9.5%, 1/15/19................ 901,772
5,847,700 9.5%, 2/15/21................ 6,200,386
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
$ 2,795,383 9.5%, 8/15/20................ $ 2,963,978
1,766,343 10.0%, 12/15/18.............. 1,924,210
77,599,306
TOTAL U.S.
GOVERNMENTAGENCY
OBLIGATIONS (COST
$126,519,061)................ 124,462,887
U.S. TREASURY OBLIGATIONS -- 44.6%
U.S. TREASURY BONDS -- 17.7%
4,670,000 8.125%, 8/15/19.............. 5,449,306
1,750,000 8.375%, 8/15/08.............. 1,972,576
13,950,000 8.75%, 11/15/08.............. 16,068,656
14,010,000 8.875%, 8/15/17.............. 17,503,744
40,994,282
U.S. TREASURY NOTES -- 26.9%
9,870,000 7.875%, 4/15/98.............. 10,369,669
14,500,000 8.25%, 7/15/98............... 15,428,885
12,000,000 8.75%, 10/15/97.............. 12,735,000
13,700,000 9.25%, 8/15/98............... 14,975,813
8,770,000 9.375%, 4/15/96.............. 9,011,174
62,520,541
TOTAL U.S. TREASURY
OBLIGATIONS (COST
$109,320,183)................ 103,514,823
*REPURCHASE AGREEMENT -- .8%
1,885,000 Donaldson, Lufkin & Jenrette
Securities Corp., 6.00%,
dated 6/30/95, due 7/3/95
(cost $1,885,000)............ 1,885,000
TOTAL INVESTMENTS --
99.0% (COST
$237,724,244)................ 229,862,710
OTHER ASSETS AND
LIABILITIES --
NET 1.0%..................... 2,356,249
TOTAL NET
ASSETS -- 100%............... $232,218,959
</TABLE>

* Fully collateralized by U.S. government and/or agency obligations based on
marketprices at June 30, 1995.
See accompanying notes to financial statements.
24

<PAGE>
EVERGREEN U.S. GOVERNMENT FUND
(FORMERLY FIRST UNION U.S. GOVERNMENT PORTFOLIO)
STATEMENT OF ASSETS AND LIABILITIES
(Picture of a Capitol Building) JUNE 30, 1995
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $237,724,244)........................................................... $229,862,710
Cash.......................................................................................................... 7,255
Interest receivable........................................................................................... 3,325,212
Receivable for Fund shares sold............................................................................... 100,374
Deferred expenses............................................................................................. 75,948
Total assets............................................................................................ 233,371,499
LIABILITIES:
Dividends payable............................................................................................. 594,850
Payable for Fund shares redeemed.............................................................................. 383,787
Accrued expenses.............................................................................................. 173,903
Total liabilities....................................................................................... 1,152,540
NET ASSETS....................................................................................................... $232,218,959
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................... $249,611,386
Accumulated net realized loss................................................................................. (9,530,893)
Net unrealized depreciation on investments.................................................................... (7,861,534)
Net assets.............................................................................................. $232,218,959
CALCULATION OF NET ASSET VALUE PER SHARE:
Class A shares ($22,444,805 (divided sign) 2,326,841 shares of beneficial interest outstanding)............... $ 9.65
Sales charge -- 4.75% of offering price....................................................................... 0.48
Maximum offering price........................................................................................ $10.13
Class B shares ($192,490,106 (divided sign) 19,955,651 shares of beneficial interest outstanding)............. $ 9.65
Class C shares ($349,707 (divided sign) 36,254 shares of beneficial interest outstanding)..................... $ 9.65
Class Y shares ($16,934,341 (divided sign) 1,755,599 shares of beneficial interest outstanding)............... $ 9.65
</TABLE>

See accompanying notes to financial statements.
25

<PAGE>
EVERGREEN U.S. GOVERNMENT FUND
(FORMERLY FIRST UNION U.S. GOVERNMENT PORTFOLIO)
STATEMENT OF OPERATIONS
(Picture of a Capitol Building) SIX MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest....................................................................................... $ 9,332,732
EXPENSES:
Advisory fee................................................................................... $ 575,771
Administrative personnel and services fees..................................................... 95,122
Distribution fee -- Class A shares............................................................. 28,081
Distribution and shareholder services fees -- Class B Shares................................... 958,282
Distribution and shareholder services fees -- Class C Shares................................... 1,592
Transfer agent fee............................................................................. 106,337
Custodian fee.................................................................................. 57,539
Registration and filing fees................................................................... 31,831
Reports and notices to shareholders............................................................ 17,367
Professional fees.............................................................................. 14,324
Trustees' fees and expenses.................................................................... 2,461
Insurance expense.............................................................................. 1,567
Miscellaneous.................................................................................. 10,877
1,901,151
Less: Advisory fee waiver...................................................................... (7,399)
Total expenses........................................................................... 1,893,752
Net investment income............................................................................. 7,438,980
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments............................................................... (2,084,111)
Net change in unrealized depreciation of investments........................................... 16,345,873
Net gain on investments........................................................................... 14,261,762
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............................................. $21,700,742
</TABLE>

See accompanying notes to financial statements.
26

<PAGE>
EVERGREEN U.S. GOVERNMENT FUND
(FORMERLY FIRST UNION U.S. GOVERNMENT PORTFOLIO)
(Picture of a Capitol Building) STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1995 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income..................................................................... $ 7,438,980 $ 17,693,192
Net realized (loss) on investments........................................................ (2,084,111) (5,468,380)
Net change in unrealized depreciation of investments...................................... 16,345,873 (23,253,985)
Net increase (decrease) in net assets resulting from operations........................ 21,700,742 (11,029,173)
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A Shares............................................................................ (794,337) (2,207,479)
Class B Shares............................................................................ (6,054,489) (14,400,952)
Class C Shares............................................................................ (10,127) (2,793)
Class Y Shares............................................................................ (580,027) (1,081,968)
Total distributions to shareholders................................................. (7,438,980) (17,693,192)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold................................................................. 8,321,751 56,989,583
Proceeds from reinvestment of dividends................................................... 3,745,065 9,194,886
Payment of shares redeemed................................................................ (29,247,163) (92,357,668)
Net decrease from Fund share transactions.............................................. (17,180,347) (26,173,199)
Net decrease in net assets............................................................. (2,918,585) (54,895,564)
NET ASSETS:
Beginning of period....................................................................... 235,137,544 290,033,108
End of period............................................................................. $232,218,959 $235,137,544
</TABLE>

See accompanying notes to financial statements.
27

<PAGE>
EVERGREEN U.S. GOVERNMENT FUND
(FORMERLY FIRST UNION U.S. GOVERNMENT PORTFOLIO)
(Picture of a Capitol Building) FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
SIX JANUARY 11, SIX JANUARY 11, SIX SEPTEMBER 2,
MONTHS 1993* MONTHS 1993* MONTHS 1994*
ENDED YEAR ENDED THROUGH ENDED YEAR ENDED THROUGH ENDED THROUGH
JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30, DECEMBER 31,
1995 1994 1993 1995 1994 1993 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value,
beginning of period... $9.07 $10.05 $10.00 $9.07 $10.05 $10.00 $9.07 $9.39
Income from investment
operations:
Net investment income... .33 .66 .68 .29 .61 .63 .29 .20
Net realized and
unrealized gain (loss)
on
investments........... .58 (.98) .05 .58 (.98) .05 .58 (.32)
Total from investment
operations.......... .91 (.32) .73 .87 (.37) .68 .87 (.12)
Less distributions to
shareholders from net
investment income..... (.33) (.66) (.68) (.29) (.61) (.63) (.29) (.20)
Net asset value, end of
period................ $9.65 $9.07 $10.05 $9.65 $9.07 $10.05 $9.65 $9.07
TOTAL RETURN(|)........... 10.2% (3.2%) 7.4% 9.8% (3.8%) 6.9% 9.8% (1.3%)
RATIOS & SUPPLEMENTAL DATA
Net assets, end of
period (000's
omitted).............. $ 22,445 $ 23,706 $ 38,851 $192,490 $195,571 $236,696 $350 $266
Ratios to average net
assets:
Expenses (a).......... 1.04%(|)(|) .96% .68%(|)(|) 1.79%(|)(|) 1.54% 1.19%(|)(|) 1.79%(|)(|) 1.71%(|)(|)
Net investment
income (a).......... 7.07%(|)(|) 6.97% 6.93%(|)(|) 6.32%(|)(|) 6.42% 6.44%(|)(|) 6.36%(|)(|) 6.70%(|)(|)
Portfolio turnover
rate.................. 0% 19% 39% 0% 19% 39% 0% 19%
<CAPTION>
CLASS Y
SHARES
SIX SEPTEMBER 2,
MONTHS 1993*
ENDED YEAR ENDED THROUGH
JUNE 30, DECEMBER 31, DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
PER SHARE DATA
Net asset value,
beginning of period... $9.07 $10.05 $10.25
Income from investment
operations:
Net investment income... .34 .69 .25
Net realized and
unrealized gain (loss)
on
investments........... .58 (.98) (.20)
Total from investment
operations.......... .92 (.29) .05
Less distributions to
shareholders from net
investment income..... (.34) (.69) (.25)
Net asset value, end of
period................ $9.65 $9.07 $10.05
TOTAL RETURN(|)........... 10.3% (2.9%) .5%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of
period (000's
omitted).............. $16,934 $ 15,595 $ 14,486
Ratios to average net
assets:
Expenses (a).......... .79%(|)(|) .71% .48%(|)(|)
Net investment
income (a).......... 7.31% 7.27% 7.20%(|)(|)
Portfolio turnover
rate.................. 0% 19% 39%
</TABLE>

* Commencement of operations.
(|) Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charges or contingent
deferred charges are not reflected.
(|)(|) Annualized.
(a) Net of expense waivers and reimbursements. If the Fund had borne all
expenses that were assumed or waived by the investment adviser, the
annualized ratios of expenses and net investment income to average net
assets, would have been the following:
<TABLE>
<CAPTION>
CLASS C
CLASS A SHARES CLASS B SHARES SHARES
SIX SIX SIX
MONTHS JANUARY 11, MONTHS JANUARY 11, MONTHS
ENDED YEAR ENDED 1993 THROUGH ENDED YEAR ENDED 1993 THROUGH ENDED
JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1994 1993 1995 1994 1993 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Expenses.............. 1.05% 1.00% .99% 1.80% 1.58% 1.50% 1.80%
Net investment
income.............. 7.06% 6.93% 6.62% 6.31% 6.38% 6.13% 6.34%
<CAPTION>

CLASS C CLASS Y SHARES
SHARES SIX
SEPTEMBER 2, MONTHS SEPTEMBER 2,
1994 THROUGH ENDED YEAR ENDED 1993 THROUGH
DECEMBER 31, JUNE 30, DECEMBER 31, DECEMBER 31,
1994 1995 1994 1993
<S> <C> <C> <C> <C>
Expenses.............. 1.75% .80% .75% .79%
Net investment
income.............. 6.66% 7.30% 7.23% 6.89%
</TABLE>

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1995

NOTE 1 -- ORGANIZATIONS
Evergreen Investment Trust (formerly First Union Funds) (the "Trust") is a
Massachusetts business trust registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end management company. The Trust
consisted of seventeen funds at June 30, 1995. The financial statements included
herein are only those of the Evergreen Income Funds -- Evergreen Fixed Income
Fund ("Fixed Income"), Evergreen U.S. Government Fund ("U.S. Government") and
Evergreen Managed Bond Fund ("Managed Bond") collectively referred to as the
"Funds" (see Note 8).
NOTE 2 -- CHANGE IN FISCAL YEAR
On March 15, 1995, the Trustees approved a change in the Funds' fiscal year
from December 31 to June 30. These financial statements are as of and for the
six months ended June 30, 1995.
NOTE 3 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements. These policies are
in conformity with generally accepted accounting principles.
SECURITY VALUATIONS -- U.S. government obligations are generally valued at
the mean between the over-the-counter bid and asked prices as furnished by an
independent pricing service. Corporate bonds (and other fixed income and asset
backed securities) are valued at the last sale price reported on national
securities exchanges on that day, if available. Otherwise, corporate bonds (and
asset backed securities) are valued at the mean between the over-the-counter bid
and asked prices provided by an independent pricing service. Short term
securities purchased with remaining maturities of sixty days or less are stated
at amortized cost which approximates market value.
SECURITY TRANSACTIONS -- Security transactions are accounted for on the
date purchased or sold. Net realized gains or losses are determined on the
identified cost basis.
INVESTMENT INCOME AND EXPENSES -- Interest income and expenses are accrued
daily. Premiums and discounts paid on securities are amortized or accreted into
income as required by the Internal Revenue Code, as amended, (the "Code").
REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase
agreements are held by the Federal Reserve Bank and are designated as being held
on the Funds' behalf by its custodian under a book-entry system. The Funds
monitor the adequacy of the collateral on a daily basis, and can 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 Funds will only enter into repurchase agreements
with banks and other financial institutions which are deemed by the Funds'
investment adviser to be creditworthy pursuant to guidelines established by the
Trustees.
DIVIDENDS TO SHAREHOLDERS -- Dividends from net investment income for U.S.
Government are declared daily and paid monthly. Dividends from net investment
income for Fixed Income and Managed Bond are declared and paid monthly.
Dividends from net realized capital gains on investments, if any, will be
distributed at least annually. Income distributions and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts. As of June 30, 1995, a reclassification has been made for
Fixed Income and Managed Bond to increase (decrease) undistributed net
investment income by $163,839 and ($6,810) respectively, and to increase
(decrease) accumulated losses on investments by $46,246 and ($6,809)
respectively, with offsetting adjustments made to paid in capital.
INCOME TAXES -- It is each Fund's policy to meet the requirements of the
Code applicable to regulated investment companies and to distribute
substantially all of its taxable net income and net capital gains to its
shareholders. Accordingly, no provisions for federal income or excise taxes are
necessary.
29

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1995 -- CONTINUED
NOTE 3 -- SIGNIFICANT ACCOUNTING POLICIES -- continued
To the extent that realized capital gains can be offset by capital loss
carryforwards, it is the Funds' policy not to distribute such gains. At June 30,
1995, Fixed Income, U.S. Government and Managed Bond had capital loss
carryforwards of $6,020,616, $7,446,782 and $1,440,454, respectively. Pursuant
to the Code, such capital loss carryforwards will expire in the year 2002 for
Fixed Income and Managed Bond and 2001 ($1,978,402) and 2002 ($5,468,380) for
U.S. Government.
Capital losses incurred after October 31 within the Funds' fiscal year are
deemed to arise on the first business day of the following fiscal year for tax
purposes. U.S. Government and Managed Bond have incurred and will elect to defer
such capital losses of $2,084,111, and $830,584 respectively. Pending approval
of a change in Fixed Income's tax year end, the Fund will elect to defer such a
capital loss of $3,254,748.
WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Funds record
when-issued or delayed delivery transactions on the trade date and maintain
security positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a when-issued or
delayed delivery basis are marked to market daily and begin earning interest on
the settlement date.
DEFERRED EXPENSES -- The costs incurred by each Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being amortized
using the straight-line method not to exceed a period of five years from the
Fund's commencement.
NOTE 4 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AGREEMENT -- First Union National Bank of North
Carolina (the "Adviser"), each Fund's investment adviser, is entitled to a fee
of .50 of 1% of the average daily net assets of each Fund pursuant to an
investment advisory agreement. For Managed Bond, the Adviser voluntarily waived
$64,154 of its advisory fees for the six months ended June 30, 1995. The Adviser
can modify or terminate this voluntary waiver at any time.
ADMINISTRATIVE AGREEMENT -- Federated Investor Services ("FAS") provided
each Fund with certain administrative personnel and services including certain
clerical and recordkeeping services for the six-month period ended June 30, 1995
(see Note 8). In addition, certain of the Trust's officers and Trustees were
officers or directors of FAS. FAS' fee was based on the level of average net
assets of the Trust for the period, subject to a minimum fee for each Fund. FAS
voluntarily waived $14,609 of its administration fee for the six months ended
June 30, 1995.
PLAN OF DISTRIBUTION AND SHAREHOLDER SERVICING -- The Trust has adopted a
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the
terms of the Plan, the Trust compensated Federated Securities Corp. ("FSC"), the
principal distributor, from the net assets of all of the funds in the Trust to
finance activities intended to result in the sale of Class A, Class B and Class
C shares (see Note 8). The Plan provides that the Funds may incur distribution
expenses up to .75 of 1% of the average daily net assets of the Class A, Class B
and Class C shares, annually, to finance such activities. For the six-month
period ended June 30, 1995, FSC limited its fees on Class A shares to .25 of 1%
of Class A shares average daily net assets for U.S. Government and to .10 of 1%
of Class A shares average daily net assets for Fixed Income. Managed Bond does
not offer shares to which the Plan relates and therefore, no Rule 12b-1 payments
were made by Managed Bond.
Under the terms of a Shareholder Services Agreement with First Union
Brokerage Services ("FUBS"), the Fixed Income and U.S. Government will pay FUBS
up to .25 of 1% of average daily net assets of the Funds' Class B and Class C
shares for the period. This fee is designed to obtain certain services for
shareholders and to maintain the shareholder accounts.
TRANSFER AND DIVIDEND DISBURSEMENT AGENT -- Federated Services Company
("FServ") served as Transfer and Dividend Disbursing agent for the Trust for the
six-month period ended June 30, 1995 (see Note 8). FServ's fee was based on the
size, type and number of accounts and transactions made by shareholders.
30

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1995 -- CONTINUED
NOTE 4 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES -- continued
ORGANIZATIONAL EXPENSES -- Organizational expenses were borne initially by
FAS. U.S. Government had agreed to reimburse FAS for the organizational expenses
during the five-year period following December 28, 1992, the date the Fund first
became effective. Managed Bond had agreed to reimburse FAS at an annual rate of
.005 of 1% of average daily net assets, until expenses initially borne by FAS
were fully reimbursed, or the expiration of five years after January 2, 1991,
the date the Fund first became effective. Pursuant to these arrangements, for
the six months ended June 30, 1995, the Funds have paid and have a remaining
liability as follows:
<TABLE>
<CAPTION>
ORGANIZATIONAL
ORGANIZATIONAL EXPENSES
EXPENSES PAID REMAINING
<S> <C> <C>
U.S. Government............................................. $6,256 $ 46,752
Managed Bond................................................ 2,000 9,847
</TABLE>

As a result of the change in the administration agreement (see Note 8), the
Adviser purchased the remaining unreimbursed initial organizational expenses
from FAS. No change will be made to the payment schedule as a result of this
transaction.
NOTE 5 -- INVESTMENT TRANSACTIONS
The cost of purchases and proceeds from sales of investments, excluding
short-term securities, for the six months ended June 30, 1995 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
U.S. GOVERNMENT OTHER U.S. GOVERNMENT OTHER
<S> <C> <C> <C> <C>
Fixed Income............................................ $95,695,078 $61,620,890 $69,194,507 $53,663,544
U.S. Government......................................... -- -- 18,502,372 --
Managed Bond............................................ 26,815,223 -- 10,052,031 32,709,566
</TABLE>

On June 30, 1995, the composition of unrealized appreciation and
depreciation of investment securities based on the aggregate cost of investments
for federal tax purposes was as follows:
<TABLE>
<CAPTION>
APPRECIATION DEPRECIATION NET
<S> <C> <C> <C>
Fixed Income....................................................................... $5,341,287 ($7,013,315 ) ($1,672,028)
U.S. Government.................................................................... 567,214 (8,428,748 ) (7,861,534)
Managed Bond....................................................................... 2,445,916 (1,137,325 ) 1,308,591
</TABLE>

NOTE 6 -- SHARES OF BENEFICIAL INTEREST
There is an unlimited number of $.0001 par value shares of beneficial
interest authorized for Managed Bond, designated Class Y shares. For Fixed
Income and U.S. Government, shares are divided into four classes which are
designated Class A, Class B, Class C and Class Y shares. Class A shares are
offered with a front-end sales charge of 4.75%. Class B shares are offered with
a contingent deferred sales charge payable when shares are redeemed which would
decline from 5% to zero over a seven-year period (after which it is expected
that they will convert to Class A shares). Class C shares are offered with a 1%
contingent deferred sales charge on shares redeemed within the first year of
purchase. Class Y shares are sold without a sales charge and are available only
to investment advisory clients of the Adviser and its affiliates, certain
institutional investors and Class Y shareholders of record of certain other
funds managed by the Adviser and its affiliates as of December 30, 1994. All
classes have identical voting, dividend, liquidation and other rights, except
that certain classes bear different distribution expenses (see Note 4) and have
exclusive voting rights with respect to their distribution plan.
31

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1995 -- CONTINUED
NOTE 6 -- SHARES OF BENEFICIAL INTEREST -- continued
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31, 1994*
FIXED INCOME SHARES DOLLARS SHARES DOLLARS
<S> <C> <C> <C> <C>
CLASS A
Shares sold...................................................... 229,181 $ 2,246,501 496,948 $ 4,961,246
Shares issued on reinvestment of dividends....................... 51,319 500,703 116,076 1,147,740
Shares redeemed.................................................. (403,087) (3,946,036) (797,380) (7,868,277)
Net decrease..................................................... (122,587) (1,198,832) (184,356) (1,759,291)
CLASS B
Shares sold...................................................... 101,244 987,765 1,377,400 13,751,501
Shares issued on reinvestment of dividends....................... 34,321 335,572 58,604 577,589
Shares redeemed.................................................. (252,818) (2,457,608) (439,397) (4,302,673)
Net increase (decrease).......................................... (117,253) (1,134,271) 996,607 10,026,417
CLASS C
Shares sold...................................................... 2,424 23,946 54,641 531,864
Shares issued on reinvestment of dividends....................... 594 5,816 287 2,756
Shares redeemed.................................................. (4,260) (41,852) (1,243) (11,934)
Net increase (decrease).......................................... (1,242) (12,090) 53,685 522,686
CLASS Y
Shares sold...................................................... 6,633,965 64,819,418 10,329,803 102,890,442
Shares issued on reinvestment of dividends....................... 1,084,829 10,581,894 2,279,195 22,524,335
Shares redeemed.................................................. (9,328,176) (91,429,481) (12,477,326) (123,075,573)
Net increase (decrease).......................................... (1,609,382) (16,028,169) 131,672 2,339,204
Total net increase (decrease) resulting from Fund share
transactions................................................... (1,850,464) ($18,373,362) 997,608 $ 11,129,016
</TABLE>

* For Class C Shares, the Fund share transaction activity is for the period
September 6, 1994 (commencement of class operations) through December 31,
1994.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31, 1994
MANAGED BOND DOLLARS SHARES DOLLARS
SHARES
<S> <C> <C> <C> <C>
CLASS Y
Shares sold......................................................... 1,687,452 $ 16,463,692 2,292,625 $ 22,423,717
Shares issued on reinvestment of dividends.......................... 254,758 2,459,099 687,702 6,700,837
Shares redeemed..................................................... (4,141,273) (40,222,694) (3,747,274) (36,044,493)
Net decrease resulting from Fund share transactions................. (2,199,063) ($21,299,903) (766,947) ($ 6,919,939)
</TABLE>

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1995 -- CONTINUED
NOTE 6 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31, 1994*
U.S. GOVERNMENT DOLLARS SHARES DOLLARS
SHARES
<S> <C> <C> <C> <C>
CLASS A
Shares sold......................................................... 129,542 $ 1,230,340 593,469 $ 5,756,511
Shares issued on reinvestment of dividends.......................... 38,627 363,779 113,604 1,074,852
Shares redeemed..................................................... (455,148) (4,253,390) (1,959,939) (18,532,284)
Net decrease........................................................ (286,979) (2,659,271) (1,252,866) (11,700,921)
CLASS B
Shares sold......................................................... 361,937 3,402,126 4,261,379 41,201,748
Shares issued on reinvestment of dividends.......................... 310,078 2,918,499 765,338 7,211,358
Shares redeemed..................................................... (2,281,908) (21,266,740) (7,017,488) (65,776,073)
Net decrease........................................................ (1,609,893) (14,946,115) (1,990,771) (17,362,967)
CLASS C
Shares sold......................................................... 21,067 197,099 29,225 267,749
Shares issued on reinvestment of dividends.......................... 377 3,563 99 895
Shares redeemed..................................................... (14,514) (136,177) -- --
Net increase........................................................ 6,930 64,485 29,324 268,644
CLASS Y
Shares sold......................................................... 370,297 3,492,186 1,020,057 9,763,575
Shares issued on reinvestment of dividends.......................... 48,784 459,225 96,545 907,781
Shares redeemed..................................................... (383,032) (3,590,857) (838,664) (8,049,311)
Net increase........................................................ 36,049 360,554 277,938 2,622,045
Total net decrease resulting from Fund share transactions........... (1,853,893) ($17,180,347) (2,936,375) ($26,173,199)
</TABLE>

* For Class C Shares, the Fund share transaction activity is for the period
September 2, 1994 (commencement of class operations) through December 31,
1994.
NOTE 7 -- RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon
registration under federal securities laws or in transactions exempt from such
registration. The Funds' restricted securities are valued at the price provided
by dealers in the secondary market or, if no market prices are available, at the
fair value as determined by the Funds' pricing committee. Additional information
on each restricted security held at June 30, 1995 is as follows:
<TABLE>
<CAPTION>
FUND SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C> <C>
Managed Bond CenFed Financial Corp. 12/15/94 $ 500,000
Managed Bond Goldman Sachs Group 7/8/94 922,280
Managed Bond Jet Equipment Trust 12/9/94 2,000,000
Fixed Income Associated P&C Holdings, Inc. 7/15/93 1,989,220
Fixed Income Metropolitan Life Insurance Co. 10/28/93 9,973,000
Fixed Income CenFed Financial Corp. 12/15/94 3,000,000
</TABLE>

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1995 -- CONTINUED
NOTE 8 -- SUBSEQUENT EVENTS
Pursuant to a contract approved by the Trustees on April 20, 1995,
effective July 7, 1995, Evergreen Asset Management Corp. (an affiliate of the
Adviser) and Boston Financial Data Services became the Administrator and
transfer agent respectively. Evergreen Funds Distributor, Inc., a wholly owned
subsidiary of Furman Selz, Inc., became the Funds' distributor. Officers of
Furman Selz, Inc. became the Trust's officers.
Effective July 7, 1995, the First Union U.S. Government Portfolio acquired
substantially all of the net assets by a non-taxable exchange of 613,602 shares
of Evergreen U.S. Government Securities Fund for 590,505 shares of the First
Union U.S. Government Portfolio. The net assets of Evergreen U.S. Government
Securities Fund acquired included unrealized appreciation of $24,133. The
aggregate net assets of First Union U.S. Government Portfolio immediately after
the combination were $233,475,732. In addition, effective July 7, 1995, each of
the Funds changed their names as follows:
<TABLE>
<CAPTION>
FORMER NAME NEW NAME
<S> <C>
First Union Fixed Income Portfolio Evergreen Fixed Income Fund
First Union U.S. Government Portfolio Evergreen U.S. Government Fund
First Union Managed Bond Portfolio Evergreen Managed Bond Fund
</TABLE>

<PAGE>
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders of
Evergreen Fixed Income Fund
Evergreen Managed Bond Fund
Evergreen U.S. Government Fund:
We have audited the statement of assets and liabilities including the
statements of investments for the Evergreen Income Funds, listed below, as of
June 30, 1995, and the related statements of operations, changes in net assets,
and the financial highlights for each of the periods listed below:
Evergreen Fixed Income Fund (formerly First Union Fixed Income
Portfolio) -- statement of operations for the six-month period
ended June 30, 1995, statements of changes in net assets for the
six-month period ended June 30, 1995 and the year ended December
31, 1994 and the financial highlights for each of the years or
periods from January 1, 1991 through June 30, 1995.
Evergreen Managed Bond Fund (formerly First Union Managed Bond
Portfolio) -- statement of operations for the six-month period
ended June 30, 1995, statements of changes in net assets for the
six-month period ended June 30, 1995 and the year ended December
31, 1994, and the financial highlights for each of the years or
periods from April 1, 1991, (commencement of operations) through
June 30, 1995.
Evergreen U.S. Government Fund (formerly First Union U.S.
Government Portfolio) -- statement of operations for the
six-month period ended June 30, 1995, statements of changes in
net assets for the six-month period ended June 30, 1995 and the
year ended December 31, 1994, and the financial highlights for
each of the years or periods from January 1, 1993 (commencement
of operations) through June 30, 1995.
These financial statements and financial highlights are the responsibility
of the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to gain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1995, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Evergreen Fixed Income Fund, Evergreen Managed Bond Fund and Evergreen U.S.
Government Fund as of June 30, 1995, and the results of their operations,
changes in their net assets, and the financial highlights for each of the
periods listed above, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
August 16, 1995
35

<PAGE>
TRUSTEES AND OFFICERS
TRUSTEES:
Mr. James S. Howell, Chairman
Mr. Gerald M. McDonnell
Mr. Thomas L. McVerry
Mr. William W. Pettit
Mr. Russell A. Salton, III M.D.
Mr. Michael S. Scofield
OFFICERS (EFFECTIVE JULY 7, 1995):
John J. Pileggi
President and Treasurer
Joan V. Fiore
Secretary
Sheryl Hirschfeld
Assistant Secretary
Donald E. Brostrom
Assistant Treasurer
Stephen W. St. Clair
Assistant Treasurer