EVERGREEN ASSET MANAGEMENT
2500 WESTCHESTER AVENUE
PURCHASE, N.Y. 10577
September 11, 1996
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C.
Attention: File Room
Re: EVERGREEEN INVESTMENT TRUST
File No. 811-4154
EVERGREEN LEXICON FUND
File No. 811-6368
Commissionioners:
Please be advised that the final Annual Report for the above
referenced Trusts which include Evergreen Intermediate-Term Bond Fund, Evergreen
Intermediate-Term Government Securities Fund, Evergreen Short-Intermediate Bond
Fund and Evergreen U.S. Government Fund were submitted to your office on
September 11, 1996, via electronic transmission (Edgar).
Any questions or comments about this documemt should be directed to the
undersigned at (914) 641-2206.
Very Truly Yours,
/s/ James P. Wallin
James P. Wallin
Vice President and
Assistant General Counsel
EVERGREEN
INCOME FUNDS
(5 photos appear here)
1996 ANNUAL REPORT
(Evergreen Funds Logo appears here)
<PAGE>
EVERGREEN INCOME FUNDS
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Economic Overview......................................................... 1
(photo appears here) INTERMEDIATE-TERM A Report From Your Portfolio Manager...................................... 3
BOND FUND Results to Date........................................................... 4
Statement of Investments.................................................. 5
Statement of Assets and Liabilities....................................... 7
Statement of Operations................................................... 8
Statement of Changes in Net Assets........................................ 9
Financial Highlights...................................................... 10
(photo appears here) INTERMEDIATE-TERM A Report From Your Portfolio Manager...................................... 11
GOVERNMENT Results to Date........................................................... 13
SECURITIES FUND Statement of Investments.................................................. 14
Statement of Assets and Liabilities....................................... 15
Statement of Operations................................................... 16
Statement of Changes in Net Assets........................................ 17
Financial Highlights...................................................... 18
(photo appears here) SHORT-INTERMEDIATE A Report From Your Portfolio Manager...................................... 19
BOND FUND Results to Date........................................................... 20
Statement of Investments.................................................. 21
Statement of Assets and Liabilities....................................... 24
Statement of Operations................................................... 25
Statement of Changes in Net Assets........................................ 26
Financial Highlights...................................................... 27
(photo appears here) U.S. GOVERNMENT A Report From Your Portfolio Manager...................................... 30
FUND Results to Date........................................................... 31
Statement of Investments.................................................. 32
Statement of Assets and Liabilities....................................... 33
Statement of Operations................................................... 34
Statement of Changes in Net Assets........................................ 35
Financial Highlights...................................................... 36
Combined Notes to Financial Statements.................................... 39
Independent Auditors' Report.............................................. 48
Trustees and Officers.........................................Inside Back Cover
</TABLE>
<PAGE>
EVERGREEN INCOME FUNDS
ECONOMIC OVERVIEW
BY STEPHEN A. LIEBER, CHAIRMAN
EVERGREEN ASSET MANAGEMENT CORP.
Throughout the first half of 1996, there has been an (photo of
increasing and unusually intense investment markets Stephen A. Lieber
preoccupation with the risk of inflation. Such concern appears here)
is, at first glance, remarkable considering that the
inflation rate, as measured by the Producer Price Index
and the Consumer Price Index, remained approximately
constant through the entire six months, and still is 2.8% on the Consumer Price
Index. Further, inflation at this approximate rate has been relatively constant
for over five years. However, a most widely held economic view is that the
economy cannot enjoy significant growth within a stable, low inflation
environment. Thus, each sign of growth, and particularly of employment and wage
strength, is viewed as a trend which implies a resurgence of inflation. This
broad apprehension is not merely the anxiety of a society which has, in the past
decades, seen the erosion of financial assets caused by inflation; it is also a
reaction to recent economic forecasts which underestimated the economy's growth
rate.
The recently published semi-annual survey of over 50 business economists by
Blue Chip Economic Indicators published by Capitol Publication in Alexandria,
Virginia, contrasts economic trends at mid-year with expectations six months
before. At the beginning of the year, most of these "blue chip" economists
anticipated a slowing of the economy with increased unemployment. The opposite
happened. Economic growth accelerated to an expected 4.2% for the June quarter,
and official unemployment statistics show that unemployment has gone from 5.6%
to 5.4%. Many influential economists expect that, as the economy approaches full
employment, a wage price spiral will ensue which will touch off inflation. The
fear of such a spiral has strongly impacted the financial markets. Consequently,
the real rate of return (the rate of return on long-term U.S. Treasury
obligations, net of the inflation rate) has risen from 3%, to a recent peak of
4.3%. Rising real returns have also accounted for a sizable strengthening of the
dollar, as compared with other currencies, up 11% on the yen and 7% on the
German mark and 9% on the pound sterling.
The jump in interest rates tended to accelerate a flight of domestic savings
into equities for growth, as the bond alternative seemed threatened by inflation
and, thus, bond prices were in a declining trend. A flood of savings into the
equity markets, stimulated by the increasing prevalence of 401K retirement plans
using mutual funds, also increased the divergence between the trajectories of
stock prices and bond prices. Several sectors of the stock market, particularly
in technology enterprises, moved to levels of valuation seldom seen and, most
infrequently, if ever, sustained. With this massive increase of public savings
participation in the stock market, it became increasingly argued that the
"wealth effect" in the rising stock market was stimulating consumer purchases
beyond expected levels, and might itself be a source of accelerating growth and,
ultimately, inflation.
In the midst of widespread debate about the impact and durability of growth
trends, press discussion began to question the theory that low unemployment
rates trigger inflation.
Recently, this questioning has been advanced to explain why the Federal
Reserve did not raise interest rates at mid-year, despite the strength of the
economy. It promises to be the subject of much public debate. But, there will
also be much debate over the sustainability of economic growth through the
balance of the year. There is now some doubt that consumer spending will be
sustained, given the fact that credit card losses have been increasing since
December. Credit card issuers, who are suffering from an extraordinary loss
rate, will have to cut back too easy credit in the interests of their own
prudent financial management. Consumer buying strength was also supported by tax
refunds in the second quarter. There will be no recurrence of this flow of funds
for the balance of the year. It is also noted that if the "wealth effect" played
a role, then any sustained fall in the stock market is likely to reduce that
source of consumer spending.
1
<PAGE>
EVERGREEN INCOME FUNDS
ECONOMIC OVERVIEW -- (CONTINUED)
On the external side, the strength of the dollar suggests both a reduction in
export competitiveness, and a decline in U.S. competitiveness against imports.
The Chairman of Chrysler Corporation has already publicly decried the rally of
the dollar, suggesting that it will increase imports and put pressure on the
pricing of domestic manufacturers. Former Federal Reserve Chairman, Paul Volker
has publicly stated that it is important that the dollar not rise further.
Finally, the fact that interest rates have risen over the first half of the year
suggests that they will be a slowing influence in the months ahead. Historical
studies indicate that it usually takes about six months for higher interest
rates to begin to dampen business and consumer borrowing. The sum of these
factors suggests that the recently improved growth rate of the economy may prove
unsustainable in the near-term.
The stock market, at this writing, has gone through its first broad scale
contraction since the beginning of the year. The major fall, to-date, was in the
shares of technology and, especially, computer related companies which
encountered a slowdown in domestic demand, together with a decline in European
demand. This caused a reappraisal of the values of many of the major companies
in the related industries. It has resulted in sizable declines, often 50% or
more, for the shares of smaller companies which had been boosted through widely
disseminated projections of extraordinarily high profits growth rates. This
setback may bring a reappraisal by individual investors and institutional
investors alike of the valuation structure of the stock market. We anticipate
that it will concentrate renewed focus on companies with well-established
franchises and well-supported growth programs, in contrast to newly competitive
and highly promotional businesses. Recognition that much of recent technological
leadership is turning into a hard fought, commodity-like competitive business,
should lead to an increasing number of mergers and combinations. With an
underlying high level of consumer income and extremely good corporate liquidity,
we expect few major corporate profits disappointments in the near-term.
Businesses which may have over-expanded in dreams of endless demand have, in
many cases, already been forced to cut back. Others, demand for whose parts or
services has been well sustained, but who are holding back on enlarged working
capital and capital investments, are already increasing their stock buy-back
programs. These factors of management restraint, high levels of liquidity,
conservative expansion planning, readiness for business combinations and
corporate buy-backs will, we believe, sustain an environment of opportunity for
equity investors in the months ahead.
The fixed income markets should benefit from these same factors. A slowed
growth trend should reduce the fear of inflation and, thus, the real return
premium over the inflation rate.
2
<PAGE>
EVERGREEN INTERMEDIATE-TERM BOND FUND
(photo appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGER
BRUCE BESECKER
The investment strategy of Evergreen Intermediate-Term Bond
Fund since last July has been to stay fully invested with a
duration close to or slightly ahead of the Fund's benchmark (photo of
index, the Lehman Brothers Intermediate-Term Bruce Besecker
Government/Corporate Bond Index. This strategy was driven by our appears here)
investment discipline of responding to confirmation, not
predictions, of trend changes in interest rates. On July 6,
1995, the Federal Reserve lowered the Fed Funds rate, after
several increases, confirming the drop in interest rates that
had occurred during the prior several months.
This investment strategy proved to be extremely effective
through the end of 1995 and into early 1996, as interest rates
continued to fall in response to steady economic growth, continued good
inflation news, and growing positive sentiment with regard to progress on the
budget deficit. While the budget package remained critical to the continued good
performance of the bond market, weaker fundamentals surfaced during the final
quarter of 1995 to lend even further support to lower yield levels. Some of the
more important factors indicating slower growth were found in employment
figures, retail sales, and foreign economies, along with cuts in foreign central
bank interest rates. Last, but not least, there was an easier Federal Reserve
policy, as on December 19, the Fed Funds rate was cut by 25 basis points for the
second time in 1995.
Our focus on maintaining portfolio durations slightly longer than the
benchmark index continued through the early part of 1996. In January, the
economic news remained weak which we felt was supportive of the prevailing yield
levels. These views were confirmed by the action of the Federal Reserve when on
January 31, in addition to cutting the Fed Funds rate by another 25 basis
points, the Federal Reserve cut the discount rate for the first time since they
began easing in July. The importance of this move was reflected in the text of
the Fed's announcement where, for the first time since they began easing, they
mentioned the "moderating" pace of economic growth; previous policy statements
had been focused on reductions in inflation and inflationary expectations. The
discount rate cut was also important to our fixed income discipline as it
confirmed the easing move that the Fed began last July, and under our discipline
the portfolio duration cannot fall below that of the benchmark index as long as
the Fed continued through this easing cycle.
Since February, however, interest rates have risen dramatically as the
economy has rebounded strongly off the slowdown incurred in the latter part of
1995. Second quarter growth, as illustrated by real Gross Domestic Product, now
appears to be near 4%, the strongest growth in two years. What is interesting
about this economic strength is that, in spite of higher interest rates, it has
been led by two important interest rate sensitive sectors of the economy in
autos and housing. The fixed income market responded to each sign of economic
strength by carrying interest rates even higher as fear of a Fed tightening
became imbedded in the forecast. Through this recent economic upturn, the
Federal Reserve left monetary policy unchanged as inflation remained moderate,
and their own expectations, as told to the press and available from the minutes
of the Federal Open Market Committee meetings, were for the economy to slow down
in the second half of the year.
During this market setback we maintained our portfolio discipline which did
not allow durations to fall below our benchmark index. Even though our
investment performance suffered along with the market, as we had negative
investment results for the six months ended June 30, 1996, we did generate
positive investment results over the twelve months ended June 30, 1996. (For
additional performance information, please see page 4.) We continue to believe
our longer term outlook, which calls for steady to slightly lower interest
rates, will prevail and, therefore, remaining fully invested in the Fund will
prove beneficial to our investors.
3
<PAGE>
EVERGREEN INTERMEDIATE-TERM BOND FUND
(photo appears here)
RESULTS TO DATE
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN INTERMEDIATE-TERM BOND FUND
The graphs below compare a $10,000 investment in the Evergreen
Intermediate-Term Bond Fund (Class A and Class Y Shares) with a similar
investment in the Lehman Brothers Intermediate Term Government/Corporate Bond
Index ("LBIG/CBI Index")
(Class A Graph appears here (Class Y Graph appears here
and its plotting points are as follows) and its plotting points are as follows)
(Class A Average Annual Total Return) (Class Y Average Annual Total Return)
ONE YEAR=0.2% ONE YEAR=3.7%
SINCE INCEPTION=3.9% SINCE INCEPTION=7.2%
- -- 5/02/95* $ -- 11/01/91* $
- -- 6/30/95 $ -- 6/30/92 $
- -- 9/30/95 $ -- 6/30/93 $
- -- 12/31/95 $ -- 6/30/94 $
- -- 3/31/96 $ -- 6/30/95 $
- -- 6/30/96 $ -- 6/30/96 $
(Legend)
- -- Evergreen Intermediate Term == Lehman Brothers Intermediate
Bond Fund Term Government/Corporate Bond Index
(footnote)
* 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 3.25% was deducted from the initial
$10,000 investment in Class A Shares; (b) all recurring fees (including
investment advisory fees) were deducted; and (c) all dividends and distributions
were reinvested.
The total return for Class B, net of maximum contingent deferred sales charge,
for the period January 30, 1996* through June 30, 1996 was (8.3%). The total
return for Class C, net of maximum contingent deferred sales charge, for the
period April 29, 1996* through June 30, 1996 was (.7%).
The investment 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.
4
<PAGE>
EVERGREEN INTERMEDIATE-TERM BOND FUND
(photo appears here)
STATEMENT OF INVESTMENTS
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<S> <C> <C>
CORPORATE BONDS -- 16.0%
BANKS -- 3.4%
$ 500 *Cenfed Financial Corp.,
11.17%, 12/15/01..................... $ 557,500
3,000 Comerica, Inc.,
7.125%, 12/1/13....................... 2,791,914
2,000 NationsBank Corp.,
8.125%, 6/15/02....................... 2,104,640
5,454,054
FINANCE & INSURANCE -- 6.4%
1,500 First Colony Corp.,
6.625%, 8/1/03........................ 1,448,997
2,500 General Electric Capital Corp.,
7.98%, 12/15/07....................... 2,524,747
1,000 *Goldman Sachs Group L.P.,
6.375%, 6/15/00...................... 980,382
1,500 Grand Metropolitan Investment Corp.,
6.50%, 9/15/99........................ 1,493,162
800 Harris Bancorp.,
9.375%, 6/1/01........................ 877,774
1,000 KFW International Finance,
8.85%, 6/15/99........................ 1,063,207
2,000 *Progress Capital Holdings,
8.17%, 9/13/96....................... 2,007,766
10,396,035
INDUSTRIAL SPECIALTY PRODUCTS & SERVICES -- 3.1%
2,000 Baxter International, Inc.,
9.25%, 12/15/99....................... 2,144,918
600 Deere & Co.,
8.95%, 6/15/19........................ 674,531
2,000 *Jet Equipment Trust,
9.41%, 6/15/10....................... 2,191,608
5,011,057
UTILITIES -- ELECTRIC -- 1.4%
2,000 Carolina Power & Light Co.,
8.625%, 9/15/21....................... 2,208,104
UTILITIES -- TELEPHONE -- 1.7%
3,100 ALLTEL Corp.,
6.50%, 11/1/13........................ 2,759,515
TOTAL CORPORATE BONDS
(COST $25,730,940).................... 25,828,765
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<S> <C> <C>
MORTGAGE-BACKED SECURITIES -- 12.0%
Federal Home Loan Mortgage Corp.,
$ 2,361 7.50%, 5/1/09......................... $ 2,373,710
1,327 8.00%, 10/1/25........................ 1,341,602
Government National Mortgage Assn.,
2,491 6.50%, 10/15/23-3/15/26............... 2,320,897
2,542 7.00%, 2/15/26-3/15/26................ 2,440,448
3,882 7.50%, 9/15/23-3/15/26................ 3,829,685
3,574 8.00%, 10/15/24....................... 3,610,073
1,535 9.00%, 4/15/20-8/15/21................ 1,607,431
795 9.50%, 2/15/21........................ 850,074
940 Paine Webber Trust P-3,
9.00%, 10/1/12........................ 957,951
TOTAL MORTGAGE-BACKED SECURITIES
(COST $19,479,675).................... 19,331,871
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 3.7%
2,500 Farm Credit Systems Financial
Assistance Co.,
8.80%, 6/10/05........................ 2,787,435
3,000 Federal Home Loan Bank,
7.70%, 9/20/04........................ 3,132,930
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $5,651,434)..................... 5,920,365
U.S. TREASURY OBLIGATIONS -- 56.6%
U.S. Treasury Bonds,
5,500 7.50%, 11/15/16....................... 5,778,438
1,400 8.75%, 5/15/17........................ 1,661,625
3,950 8.875%, 8/15/17....................... 4,741,228
U.S. Treasury Notes,
1,400 5.125%, 12/31/98...................... 1,365,000
15,700 5.75%, 8/15/03........................ 14,944,437
5,000 5.875%, 11/15/05...................... 4,710,930
6,100 6.375%, 1/15/99....................... 6,117,147
9,000 6.375%, 8/15/02....................... 8,918,424
12,500 6.50%, 5/15/05........................ 12,328,125
8,500 6.75%, 4/30/00........................ 8,592,956
10,100 6.875%, 7/31/99....................... 10,248,329
1,600 8.25%, 7/15/98........................ 1,664,000
15,500 +U.S. Treasury Strips,
2/15/03.............................. 10,075,341
TOTAL U.S. TREASURY OBLIGATIONS
(COST $92,412,756).................... 91,145,980
</TABLE>
5
<PAGE>
EVERGREEN INTERMEDIATE-TERM BOND FUND
(photo appears here)
STATEMENT OF INVESTMENTS -- (CONTINUED)
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<S> <C> <C>
YANKEE OBLIGATIONS -- 6.2%
$ 3,000 Hydro-Quebec,
8.00%, 2/1/13......................... $ 3,085,857
2,000 Manitoba Province (Canada),
8.00%, 4/15/02........................ 2,112,938
800 Petro Canada, Ltd.,
8.60%, 1/15/10........................ 914,775
Svenska Handelsbanken,
2,000 8.125%, 8/15/07....................... 2,117,652
1,000 8.35%, 7/15/04........................ 1,063,554
700 Westpac Banking,
9.125%, 8/15/01....................... 763,989
TOTAL YANKEE OBLIGATIONS
(COST $9,510,886)..................... 10,058,765
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<S> <C> <C>
REPURCHASE AGREEMENT -- 3.2%
$ 5,117 Donaldson, Lufkin & Jenrette
Securities Corp., 5.40% dated 6/28/96,
due 7/1/96 -- collateralized by
$5,020,000 U.S. Treasury Notes, 7.25%,
due 5/15/04; value, including accrued
interest $5,265,932
(COST $5,117,000)..................... $ 5,117,000
</TABLE>
<TABLE>
<S> <C> <C> <C>
TOTAL INVESTMENTS --
(COST $157,902,690)..... 97.7% 157,402,746
OTHER ASSETS AND
LIABILITIES -- NET...... 2.3 3,780,738
NET ASSETS --.............
100.0% $161,183,484
</TABLE>
* Restricted Security which is not registered under the Securities Act of 1933.
(Note 6)
+ Represents non-income producing security.
See accompanying notes to financial statements.
6
<PAGE>
EVERGREEN INTERMEDIATE-TERM BOND FUND
(photo appears here)
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $157,902,690)........................................................... $157,402,746
Interest receivable........................................................................................... 2,354,995
Receivable for Fund shares sold............................................................................... 1,788,585
Unamortized organizational expenses and other assets.......................................................... 21,241
Total assets............................................................................................... 161,567,567
LIABILITIES:
Due to custodian bank......................................................................................... 945
Payable for Fund shares purchased............................................................................. 214,318
Accrued expenses and other liabilities........................................................................ 90,949
Accrued advisory fee.......................................................................................... 68,228
Accrued administration fee.................................................................................... 9,130
Distribution fee payable...................................................................................... 513
Total liabilities.......................................................................................... 384,083
NET ASSETS....................................................................................................... $161,183,484
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................... $164,498,575
Undistributed net investment income........................................................................... 87,592
Accumulated net realized loss on investment transactions...................................................... (2,902,739)
Net unrealized depreciation of investments.................................................................... (499,944)
Net assets................................................................................................. $161,183,484
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($2,942,548/291,345 shares of beneficial interest outstanding).................................... $10.10
Sales charge -- 3.25% of offering price.......................................................................... .34
Maximum offering price..................................................................................... $10.44
Class B Shares ($402,247/39,828 shares of beneficial interest outstanding)....................................... $10.10
Class C Shares ($24,919/2,467 shares of beneficial interest outstanding)......................................... $10.10
Class Y Shares ($157,813,770/15,624,845 shares of beneficial interest outstanding)............................... $10.10
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
EVERGREEN INTERMEDIATE-TERM BOND FUND
(photo appears here)
STATEMENT OF OPERATIONS
TEN MONTHS ENDED JUNE 30, 1996*
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest........................................................................................... $6,604,737
EXPENSES:
Advisory fee....................................................................................... $600,081
Administrative personnel and services fees......................................................... 97,364
Distribution fee -- Class A Shares................................................................. 1,055
Distribution fee -- Class B Shares................................................................. 436
Shareholder services fee -- Class B Shares......................................................... 146
Distribution fee -- Class C Shares................................................................. 26
Shareholders services fee -- Class C Shares........................................................ 9
Registration and filing fees....................................................................... 55,270
Custodian fee...................................................................................... 32,217
Professional fees.................................................................................. 30,046
Transfer agent fee................................................................................. 23,496
Reports and notices to shareholders................................................................ 20,004
Amortization of organization expenses.............................................................. 2,465
Insurance.......................................................................................... 2,276
Trustees' fees and expenses........................................................................ 2,238
Miscellaneous...................................................................................... 6,499
873,628
Less: Advisory fee waiver and expense reimbursements............................................... (65,964)
Net expenses.................................................................................... 807,664
Net investment income................................................................................. 5,797,073
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investment transactions....................................................... 314,598
Net change in unrealized appreciation (depreciation) of investments................................ (3,327,986)
Net loss on investments............................................................................... (3,013,388)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................................. $2,783,685
</TABLE>
* The Fund changed it's fiscal year end from August 31 to June 30, resulting in
a ten-month period.
See accompanying notes to financial statements.
8
<PAGE>
EVERGREEN INTERMEDIATE-TERM BOND FUND
(photo appears here)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
TEN MONTHS YEAR ENDED
ENDED AUGUST 31,
JUNE 30, 1996* 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................................................... $ 5,797,073 $ 5,110,145
Net realized gain (loss) on investment transactions...................................... 314,598 (741,577)
Net change in unrealized appreciation (depreciation) of investments...................... (3,327,986) 4,454,061
Net increase in net assets resulting from operations.................................. 2,783,685 8,822,629
DISTRIBUTIONS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME:
Class A Shares........................................................................... (35,386) (2,134)
Class B Shares........................................................................... (2,841) --
Class C Shares........................................................................... (169) --
Class Y Shares........................................................................... (5,670,902) (5,105,153)
Total distributions from net investment income........................................ (5,709,298) (5,107,287)
NET REALIZED GAIN ON INVESTMENTS:
Class Y Shares........................................................................... -- (401,810)
Total distributions to shareholders................................................... (5,709,298) (5,509,097)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold................................................................ 38,531,458 16,277,483
Proceeds from shares issued in acquisition of Evergreen Managed Bond
Fund.................................................................................. 79,773,557 --
Proceeds from reinvestment of distributions.............................................. 4,544,198 4,957,099
Payment for shares redeemed.............................................................. (54,860,961) (20,151,849)
Net increase resulting from Fund share transactions................................... 67,988,252 1,082,733
Net increase in net assets............................................................ 65,062,639 4,396,265
NET ASSETS:
Beginning of period...................................................................... 96,120,845 91,724,580
End of period (including undistributed (distributions in excess of) net investment income
of $87,592 and ($183), respectively)................................................... $ 161,183,484 $96,120,845
</TABLE>
* The Fund changed it's fiscal year end from August 31 to June 30, resulting in
a ten-month period.
See accompanying notes to financial statements.
9
<PAGE>
EVERGREEN INTERMEDIATE-TERM BOND FUND
(photo appears here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Y SHARES
TEN MAY 2, JANUARY 30, APRIL 29, TEN
MONTHS 1995* 1996* 1996* MONTHS
ENDED THROUGH THROUGH THROUGH ENDED
JUNE 30, AUGUST 31, JUNE 30, JUNE 30, JUNE 30, YEAR ENDED AUGUST 31,
1996# 1995 1996# 1996# 1996# 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period....................... $10.30 $9.98 $10.68 $10.15 $10.29 $9.93 $10.99 $10.56
Income (loss) from investment
operations:
Net investment income........ .48 .18 .20 .08 .48 .56 .55 .63
Net realized and unrealized
gain (loss) on
investments................ (.20) .33 (.58) (.05) (.19) .40 (.86) .66
Total from investment
operations................. .28 .51 (.38) .03 .29 .96 (.31) 1.29
Less distributions to
shareholders from:
Net investment income........ (.48) (.19) (.20) (.08) (.48) (.56) (.55) (.64)
Net realized gains........... -- -- -- -- -- (.04) (.20) (.22)
Total distributions........ (.48) (.19) (.20) (.08) (.48) (.60) (.75) (.86)
Net asset value, end of
period....................... $10.10 $10.30 $10.10 $10.10 $10.10 $10.29 $9.93 $10.99
TOTAL RETURN+.................. 2.7% 5.2% (3.5%) .3% 2.8% 10.1% (2.9%) 12.9%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted).............. $2,943 $160 $402 $25 $157,814 $95,961 $91,724 $86,892
Ratios to average net assets:
Expenses**................... .82%++ .80%++ 1.80%++ 1.80%++ .80%++ .69% .55% .55%
Net investment income**...... 6.30%++ 5.53%++ 5.18%++ 5.30%++ 5.75%++ 5.63% 5.32% 5.93%
Portfolio turnover rate........ 52% 73% 52% 52% 52% 73% 69% 49%
<CAPTION>
NOVEMBER 1,
1991*
THROUGH
AUGUST 31,
1992
<S> <C>
PER SHARE DATA:
Net asset value, beginning of
period....................... $10.00
Income (loss) from investment
operations:
Net investment income........ .55
Net realized and unrealized
gain (loss) on
investments................ .55
Total from investment
operations................. 1.10
Less distributions to
shareholders from:
Net investment income........ (.54)
Net realized gains........... --
Total distributions........ (.54)
Net asset value, end of
period....................... $10.56
TOTAL RETURN+.................. 11.3%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted).............. $66,695
Ratios to average net assets:
Expenses**................... .55%++
Net investment income**...... 6.49%++
Portfolio turnover rate........ 65%
</TABLE>
* Commencement of class operations.
# The Fund changed it's fiscal year end from August 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 or contingent deferred
sales charges are not reflected.
++ Annualized.
** 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 B CLASS C
CLASS A SHARES SHARES SHARES CLASS Y SHARES
TEN MAY 2, JANUARY 30, APRIL 29,
MONTHS 1995* 1996* 1996* TEN MONTHS
ENDED THROUGH THROUGH THROUGH ENDED
JUNE 30, AUGUST 31, JUNE 30, JUNE 30, JUNE 30, YEAR ENDED AUGUST 31,
1996# 1995 1996# 1996# 1996# 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Expenses...................... 1.10% 1.38% 1.89% 1.88% .87% .83% .83% .83%
Net investment income......... 6.02% 4.95% 5.09% 5.22% 5.68% 5.49% 5.04% 5.65%
<CAPTION>
NOVEMBER 1,
1991*
THROUGH
AUGUST 31,
1992
<S> <C>
Expenses...................... .86%
Net investment income......... 6.18%
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
EVERGREEN INTERMEDIATE-TERM GOVERNMENT
SECURITIES FUND
(photo appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGER
L. ROBERT CHESHIRE
We are pleased to present the annual report for Evergreen (photo of L.
Intermediate-Term Government Securities Fund. The Fund's fiscal Robert Cheshire
year-end was changed from August 31, to June 30, to coincide appears here)
with those of Evergreen's other Income Funds. The Fund's 3.0%*
total return (Class Y, no-load shares) for the 10-month period
ended June 30, was slightly behind the 3.5% total return for the
Lipper Short-Intermediate U.S. Government Funds average of 88
short-intermediate U.S. Government funds tracked by Lipper
Analytical Services, Inc., during that time**. The ten-month
total return at net asset value (NAV) for the Fund's Class A
shares was 3.0%. (For additional performance information, please
see page 13.)
During the year the U.S. economy continued to move in a series of mini-cycles
driven by a self-correcting interaction between interest rates and consumer
demand. Although the economic fundamentals have remained tame, with moderate
Gross Domestic Product (GDP) growth and low inflation, interest rate movements
have been excessive as the markets alternatively anticipated a recession or
expansion beyond its non-inflationary potential.
During the first six months of this period, interest rates continued the
decline which began earlier in the year. The major factors contributing to this
positive outlook for interest rates were:
(Bullet) an economy that was slowing in both the consumer and manufacturing
sectors. By the end of the fourth quarter, concerns grew over a
possible recession.
(Bullet) continued intervention by the Federal Reserve to lower short-term rates
and boost economic activity, which were both needed as well as
justified by a low inflationary environment.
(Bullet) inflation indicators that gave no reason for concern.
(Bullet) markets that began to discount the passage by Congress of a credible
deficit reduction package.
(Bullet) foreign central banks continuing to buy U.S. Treasuries with the
dollars they acquired from current support operators.
By 1995 year-end, yields on intermediate Treasuries had declined an
additional 80 basis points and were trading with yields in the 5% range for the
first time since 1993. This contributed significantly to the strong returns on
fixed income for 1995.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
*THE FUND'S CLASS B AND C SHARES WERE NOT IN EXISTENCE FOR THE FULL 10-MONTH
PERIOD UNDER REVIEW. CLASS A SHARES ARE SUBJECT TO A MAXIMUM 3.25% FRONT END
SALES CHARGE, CLASS B SHARES ARE SUBJECT TO A MAXIMUM 5% CONTINGENT DEFERRED
SALES CHARGE, AND CLASS C SHARES ARE SUBJECT TO A 1% CONTINGENT DEFERRED SALES
CHARGE WITHIN THE FIRST YEAR OF PURCHASE. PERFORMANCE FIGURE ABOVE FOR CLASS A
SHARES DOES NOT INCLUDE APPLICABLE SALES CHARGES AND IF INCLUDED, PERFORMANCE
WOULD BE LOWER.
- -.35% WAS THE 10-MONTH TOTAL RETURN ENDED 6/30/96 FOR THE FUND'S CLASS A SHARES
WITH THE MAXIMUM 3.25% FRONT END SALES CHARGE.
PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN
DISTRIBUTIONS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. INVESTORS'
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
** SOURCE: LANA (LIPPER ANALYTICAL NEW APPLICATIONS) LIPPER ANALYTICAL SERVICES
INC., IS AN INDEPENDENT MUTUAL FUNDS PERFORMANCE MONITOR. LIPPER AVERAGE DOES
NOT INCLUDE SALES CHARGES, AND IF INCLUDED PERFORMANCE MAY BE LOWER AND THE
FUND'S PERCENTILE RANKINGS MAY BE DIFFERENT.
11
<PAGE>
EVERGREEN INTERMEDIATE-TERM GOVERNMENT
SECURITIES FUND
(photo appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
During most of the period, the Fund's discipline by policy was in a neutral
mode which was established when the Fed reversed direction and lowered the Fed
Funds rate by 25 basis points in early June, 1995. Within this context, a
favorable longer-term fundamental trend of a slowing economy and moderate
inflation, a duration of slightly longer than our benchmark index, the Lehman
Brothers Intermediate Government Index, was established and maintained. This
strategy proved to be effective during the six months through December 31, 1995.
Early February brought signs of economic strength and the realization that
any additional Fed easing would be delayed. Also, it became evident that
Congress was not going to tackle the tough issues concerning the deficit
reduction until after the 1996 election. With three of the four main factors
driving the markets no longer having a positive influence, rates rose sharply
across the entire yield curve. Initially, it was uncertain if this back-up in
rates was justified by the economic fundamentals, as the data had been distorted
by severe weather conditions and the partial government shut-down. However, as
the first quarter unfolded it became evident that the economy was in the midst
of a consumer led recovery. Growth was evident mostly in the interest rate
sensitive area of autos and housing. The expectations are now that GDP growth in
the second quarter would be in the 3 1/2% to 4% range. Yields on intermediate
treasuries rose over 100 basis points and erased half of 1995's bull market.
During this market set back, the Fund's discipline called for average
maturity and duration ranges longer than the Fund's benchmark index. In
deference to the near term negative sentiment in the market, we chose to stay
within the lower end of the range set by our discipline, which is currently
close to market neutral. Our performance suffered along with the market as we
had negative returns for the six months ended June 30. We continue to believe in
our longer term outlook which calls for a continuation of the mini-cycles with
moderate growth and low inflation. As a result, we expect a better environment
for the fixed income markets over the next six months.
12
<PAGE>
EVERGREEN INTERMEDIATE-TERM GOVERNMENT
SECURITIES FUND
(photo appears here)
RESULTS TO DATE
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
The graphs below compare a $10,000 investment in the Evergreen
Intermediate-Term Government Securities Fund (Class A and Class Y Shares) with a
similar investment in the Lehman Brothers Intermediate Term Government Bond
Index ("LBIGBI Index").
(Class A Graph appears here (Class Y Graph appears here
and its plotting points are as follows) and its plotting points are as follows)
(Class A Average Annual Total Return) (Class Y Average Annual Total Return)
ONE YEAR=0.6% ONE YEAR=4.0%
SINCE INCEPTION=3.0% SINCE INCEPTION=5.8%
- -- 5/02/95* $ -- 11/01/91* $
- -- 6/30/95 $ -- 6/30/92 $
- -- 9/30/95 $ -- 6/30/93 $
- -- 12/31/95 $ -- 6/30/94 $
- -- 3/31/96 $ -- 6/30/95 $
- -- 6/30/96 $ -- 6/30/96 $
(Legend)
- -- Evergreen Intermediate Government == Lehman Brothers Intermediate
Securities Fund Term Government Index
(footnote)
* Commencement of class operations.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE 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 3.25% was deducted from the initial
$10,000 investment in Class A Shares; (b) all recurring fees (including
investment advisory fees) were deducted; and (c) all dividends and distributions
were reinvested.
The total return for Class B, net of maximum applicable contingent deferred
sales charge, for the period February 9, 1996* through June 30, 1996 was (6.9%).
The total return for Class C, net of maximum applicable contingent deferred
sales charge, for the period April 10, 1996* through June 30, 1996 was (.1%).
The investment 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.
13
<PAGE>
EVERGREEN INTERMEDIATE-TERM GOVERNMENT
SECURITIES FUND
(photo appears here)
STATEMENT OF INVESTMENTS
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<S> <C> <C>
MORTGAGE-BACKED SECURITIES -- 11.1%
$ 5,000 Federal Home Loan Mortgage Corp.,
5.60%, 2/15/13........................ $ 4,918,245
4,000 Federal National Mortgage Assn.,
7.00%, 3/1/24......................... 3,841,316
1,000 U.S. Department of Veteran Affairs,
7.00%, 5/15/12........................ 991,250
TOTAL MORTGAGE-BACKED SECURITIES
(COST $9,827,526)..................... 9,750,811
U. S. GOVERNMENT AGENCY OBLIGATIONS -- 9.6%
1,300 Federal Home Loan Bank,
8.60%, 1/25/00........................ 1,380,917
Federal National Mortgage Assn.,
2,000 7.50%, 2/11/02........................ 2,066,594
2,000 7.875%, 2/24/05....................... 2,108,692
2,000 Tennessee Valley Authority,
6.375%, 6/15/05....................... 1,920,358
900 World Bank Global Bonds,
8.375%, 10/1/99....................... 952,435
TOTAL U. S. GOVERNMENT AGENCY
OBLIGATIONS (COST $8,287,916)......... 8,428,996
U. S. TREASURY NOTES -- 76.3%
7,000 5.50%, 2/28/99........................ 6,870,927
5,500 6.00%, 8/31/97........................ 5,505,148
5,500 6.125%, 12/31/96...................... 5,518,898
6,000 6.25%, 1/31/97........................ 6,026,250
4,000 6.375%, 7/15/99....................... 4,010,000
500 6.50%, 11/30/96....................... 502,187
2,000 6.50%, 5/15/97........................ 2,012,500
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<S> <C> <C>
U.S. TREASURY NOTES -- CONTINUED
$ 5,500 6.50%, 5/15/05........................ $ 5,424,375
4,000 7.25%, 5/15/04........................ 4,142,500
8,000 7.50%, 10/31/99....................... 8,267,488
2,000 7.50%, 5/15/02........................ 2,092,500
4,250 7.50%, 2/15/05........................ 4,470,469
1,700 7.875%, 4/15/98....................... 1,751,000
3,500 7.875%, 11/15/04...................... 3,763,589
5,200 8.00%, 1/15/97........................ 5,268,250
1,300 8.50%, 11/15/00....................... 1,400,750
TOTAL U. S. TREASURY NOTES
(COST $66,840,167).................... 67,026,831
REPURCHASE AGREEMENT -- 1.3%
1,182 Donaldson, Lufkin & Jenrette
Securities Corp., 5.40% dated 6/28/96,
due 7/1/96 -- collateralized by
$935,000 U.S. Treasury Bonds, 10.75%,
due 8/15/05; value, including accrued
interest $1,243,401
(COST $1,182,000)..................... 1,182,000
</TABLE>
<TABLE>
<S> <C> <C> <C>
TOTAL INVESTMENTS --
(COST $86,137,609)....... 98.3% 86,388,638
OTHER ASSETS AND
LIABILITIES -- NET....... 1.7 1,504,753
NET ASSETS --.............. 100.0% $87,893,391
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
EVERGREEN INTERMEDIATE-TERM GOVERNMENT
SECURITIES FUND
(photo appears here)
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $86,137,609)............................................................. $86,388,638
Cash........................................................................................................... 41
Interest receivable............................................................................................ 1,533,833
Receivable for Fund shares sold................................................................................ 102,691
Unamortized organizational expenses and other assets........................................................... 40,390
Total assets............................................................................................. 88,065,593
LIABILITIES:
Accrued expenses and other liabilities......................................................................... 116,328
Accrued advisory fee........................................................................................... 36,288
Payable for Fund shares repurchased............................................................................ 14,468
Accrued administration fee..................................................................................... 4,603
Distribution fee payable....................................................................................... 515
Total liabilities........................................................................................ 172,202
NET ASSETS........................................................................................................ $87,893,391
NET ASSETS CONSIST OF:
Paid-in capital................................................................................................ $89,806,391
Undistributed net investment income............................................................................ 17,332
Accumulated net realized loss on investment transactions....................................................... (2,181,361)
Net unrealized appreciation of investments..................................................................... 251,029
Net assets............................................................................................... $87,893,391
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($497,388/49,790 shares of beneficial interest outstanding)..................................... $ 9.99
Sales charge -- 3.25% of offering price........................................................................ .34
Maximum offering price................................................................................... $10.33
Class B Shares ($359,375/35,990 shares of beneficial interest outstanding)..................................... $ 9.99
Class C Shares ($32,490/3,253 shares of beneficial interest outstanding)....................................... $ 9.99
Class Y Shares ($87,004,138/8,709,664 shares of beneficial interest outstanding)............................... $ 9.99
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
EVERGREEN INTERMEDIATE-TERM GOVERNMENT
SECURITIES FUND
(photo appears here)
STATEMENT OF OPERATIONS
TEN MONTHS ENDED JUNE 30, 1996*
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest.......................................................................................... $ 5,281,690
EXPENSES:
Advisory fee...................................................................................... $506,065
Administrative personnel and services fees........................................................ 91,283
Distribution fee -- Class A Shares................................................................ 596
Distribution fee -- Class B Shares................................................................ 419
Shareholder services fee -- Class B Shares........................................................ 140
Distribution fee -- Class C Shares................................................................ 48
Shareholder services fee -- Class C Shares........................................................ 16
Registration and filing fees...................................................................... 52,558
Professional fees................................................................................. 27,482
Custodian fee..................................................................................... 25,873
Transfer agent fee................................................................................ 17,487
Reports and notices to shareholders............................................................... 6,401
Amortization of organization expenses............................................................. 2,588
Insurance......................................................................................... 2,399
Trustees' fees and expenses....................................................................... 2,189
Miscellaneous..................................................................................... 1,286
736,830
Less: Advisory fee waiver and expense reimbursements.............................................. (61,738)
Net expenses................................................................................... 675,092
Net investment income................................................................................ 4,606,598
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investment transactions...................................................... 11,468
Net change in unrealized appreciation (depreciation) of investments............................... (1,507,190)
Net loss on investments.............................................................................. (1,495,722)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................. $ 3,110,876
</TABLE>
* The Fund changed it's fiscal year end from August 31 to June 30, resulting in
a ten-month period.
See accompanying notes to financial statements.
16
<PAGE>
EVERGREEN INTERMEDIATE-TERM GOVERNMENT
SECURITIES FUND
(photo appears here)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
TEN MONTHS YEAR ENDED
ENDED AUGUST 31,
JUNE 30, 1996* 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................................................... $ 4,606,598 $ 5,851,118
Net realized gain (loss) on investment transactions...................................... 11,468 (1,236,390)
Net change in unrealized appreciation (depreciation) of investments...................... (1,507,190) 3,611,699
Net increase in net assets resulting from operations.................................. 3,110,876 8,226,427
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A Shares........................................................................... (23,774) (10,951)
Class B Shares........................................................................... (2,363) --
Class C Shares........................................................................... (255) --
Class Y Shares........................................................................... (4,562,840) (5,850,108)
Total distributions to shareholders................................................... (4,589,232) (5,861,059)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold................................................................ 13,828,502 19,842,837
Proceeds from reinvestment of distributions.............................................. 4,095,518 5,214,391
Payment for shares redeemed.............................................................. (34,626,524) (27,796,468)
Net decrease resulting from Fund share transactions................................... (16,702,504) (2,739,240)
Net decrease in net assets............................................................ (18,180,860) (373,872)
NET ASSETS:
Beginning of period...................................................................... 106,074,251 106,448,123
End of period (including undistributed (distributions in excess of) net investment income
of $17,332 and ($34), respectively).................................................... $ 87,893,391 $ 106,074,251
</TABLE>
* The Fund changed it's fiscal year end from August 31 to June 30, resulting in
a ten-month period.
See accompanying notes to financial statements.
17
<PAGE>
EVERGREEN INTERMEDIATE-TERM GOVERNMENT
SECURITIES FUND
(photo appears here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Y SHARES
MAY 2, FEBRUARY 9, APRIL 10
TEN MONTHS 1995* 1996* 1996* TEN MONTHS
ENDED THROUGH THROUGH THROUGH ENDED YEAR ENDED AUGUST
JUNE 30, AUGUST 31, JUNE 30, JUNE 30, JUNE 30, 31,
1996# 1995 1996# 1996# 1996# 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period...................... $10.15 $9.95 $10.38 $10.01 $10.15 $9.92 $10.61
Income (loss) from investment
operations:
Net investment income....... .46 .19 .18 .11 .46 .55 .54
Net realized and unrealized
gain (loss) on
investments............... (.16) .20 (.39) (.02) (.16) .23 (.64)
Total from investment
operations................ .30 .39 (.21) .09 .30 .78 (.10)
Less distributions to
shareholders from:
Net investment income....... (.46) (.19) (.18) (.11) (.46) (.55) (.54)
Net realized gains.......... -- -- -- -- -- -- (.05)
Total distributions....... (.46) (.19) (.18) (.11) (.46) (.55) (.59)
Net asset value, end of
period...................... $9.99 $10.15 $9.99 $9.99 $9.99 $10.15 $9.92
TOTAL RETURN+................. 3.0% 3.9% (2.0%) .9% 3.0% 8.2% (1.0%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted)............. $497 $9 $359 $32 $87,004 $106,066 $106,448
Ratios to average net assets:
Expenses**.................. .81%++ .80%++ 1.80%++ 1.80%++ .80%++ .70% .55%
Net investment income**..... 5.49%++ 5.42%++ 4.62%++ 4.47%++ 5.47%++ 5.54% 5.22%
Portfolio turnover rate....... 28% 45% 28% 28% 28% 45% 45%
<CAPTION>
NOVEMBER 1,
1991*
THROUGH
AUGUST 31,
1993 1992
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period...................... $10.41 $10.00
Income (loss) from investment
operations:
Net investment income....... .57 .48
Net realized and unrealized
gain (loss) on
investments............... .24 .40
Total from investment
operations................ .81 .88
Less distributions to
shareholders from:
Net investment income....... (.58) (.47)
Net realized gains.......... (.03) --
Total distributions....... (.61) (.47)
Net asset value, end of
period...................... $10.61 $10.41
TOTAL RETURN+................. 8.0% 9.1%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted)............. $119,172 $87,648
Ratios to average net assets:
Expenses**.................. .55% .55%++
Net investment income**..... 5.48% 5.68%++
Portfolio turnover rate....... 31% 47%
</TABLE>
* Commencement of class operations.
# The Fund changed its fiscal year end from August 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 or contingent deferred
sales charges are not reflected.
++ Annualized.
** 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 A SHARES CLASS B SHARES CLASS C SHARES CLASS Y SHARES
MAY 2, FEBRUARY 9, APRIL 10
TEN MONTHS 1995* 1996* 1996* TEN MONTHS
ENDED THROUGH THROUGH THROUGH ENDED
JUNE 30, AUGUST 31, JUNE 30, JUNE 30, JUNE 30, YEAR ENDED AUGUST 31,
1996# 1995 1996# 1996# 1996# 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Expenses......................... 1.06% 1.34% 1.91% 1.91% .87% .84% .82% .83%
Net investment income............ 5.24% 4.88% 4.51% 4.36% 5.40% 5.40% 4.95% 5.20%
<CAPTION>
NOVEMBER 1,
1991*
THROUGH
AUGUST 31,
1992
<S> <C><C>
Expenses......................... .86%
Net investment income............ 5.37%
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
EVERGREEN SHORT -- INTERMEDIATE BOND FUND
(photo appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGER
TOM ELLIS
Evergreen Short-Intermediate Bond Fund's total return
(Class Y, no-load shares) for the 12 months ended June 30, (photo of
1996, was 4.63%*. The total returns at net asset value (NAV) Tom Ellis
for the Fund's Class A shares, Class B shares and Class C appears here)
shares for the 12 months ended June 30, were 4.45%, 3.62%, and
3.51%, respectively. (For additional performance information,
please see page 20.)
For the past year, the bond market has amounted to a
continuation of the roller coaster ride that has characterized
the market since 1993. From a low yield in late 1993 of 5.6%
on ten-year Treasuries, yields rose 2.4% to 8% by late 1994,
only to drop the same 2.4% by late 1995. During the last six months
ten-year Treasury yields have risen 1.4 percentage points to 7%, rivaling the
rate of increase in rates seen in 1994.
The first quarter of 1996 saw a dramatic reversal in investor expectations
for both the economy as well as interest rates. The positive market conditions
which existed in the second half of 1995 were driven by investor concerns that
the economy could tip over into a recession. However, a growth spurt in the
economy in the first half of 1996, quickly saw the market replace fears of
recession with concerns about the underlying strength of the economy and rising
inflation. When the Fed reduced the Fed Funds rate by .25% in January of this
year, there was much discussion as to whether these actions were necessary. The
employment report of March 1996 reflecting 705,000 new jobs and other, more
recent, economic data have reinforced market fears about the underlying strength
of the economy. Throughout this period, it was our view that the economy,
despite periods of acceleration and deceleration, would continue its slow
growth, low inflation course. The Fund's solid relative performance during this
volatile period reflects our staying the course and capturing selected
opportunities as they were presented
Looking forward, we continue to believe that the market is overreacting to
what we think are economic "mini-cycles". We expect that the markets current
fears of increasing economic growth and inflation will be assuaged once recent
yield increases act to slow the economy. We remain positive on the bond market
as we look toward the end of calendar year 1996. We will continue to extend
portfolio maturities during periods of market weakness.
In the Fund, we have continued to carry reduced allocations to corporate
bonds, currently 27.7% of net assets, as yield spreads over Treasuries are near
an historic narrow. Mortgage and asset-backed securities have been increased to
41.2%. The balance of the Fund, 22.7%, is invested in U.S. Treasury and Agency
obligations. The average credit quality of the Fund is mid-AA.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
*CLASS A SHARES ARE SUBJECT TO A MAXIMUM 3.25% FRONT END SALES CHARGE, CLASS B
SHARES ARE SUBJECT TO A MAXIMUM 5% CONTINGENT DEFERRED SALES CHARGE, AND CLASS C
SHARES ARE SUBJECT TO A 1% CONTINGENT DEFERRED SALES CHARGE WITHIN THE FIRST
YEAR OF PURCHASE. SALES CHARGES ARE NOT INCLUDED IN THE PERFORMANCE FIGURES
ABOVE, AND IF INCLUDED, PERFORMANCE WOULD BE LOWER.
1.05%, -1.28%, AND 2.53% WERE THE 12-MONTH TOTAL RETURNS ENDED 6/30/96 FOR THE
FUND'S CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES, RESPECTIVELY, WITH
THE MAXIMUM SALES CHARGES RESPECTIVE TO THOSE SHARE CLASSES.
PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN
DISTRIBUTIONS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. INVESTORS'
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
19
<PAGE>
EVERGREEN SHORT -- INTERMEDIATE BOND FUND
(photo appears here)
RESULTS TO DATE
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN SHORT-INTERMEDIATE BOND FUND
The graphs below compare a $10,000 investment in the Evergreen
Short-Intermediate Bond Fund (Class A, Class B, Class C and Class Y Shares) with
a similar investment in the Lehman Brothers Intermediate Term
Government/Corporate Bond Index ("LBIG/CBI Index").
(Class A Graph appears here (Class B Graph appears here
and its plotting points are as follows) and its plotting points are as follows)
(Class A Average Annual Total Return) (Class B Average Annual Total Return)
ONE YEAR=1.1% ONE YEAR=1.3%
FIVE YEAR=6.2% SINCE INCEPTION=3.4%
SINCE INCEPTION=7.2%
- -- 1/31/89* $ -- 1/25/93* $
- -- 6/30/89 $ -- 6/30/93 $
- -- 6/30/90 $ -- 6/30/94 $
- -- 6/30/91 $ -- 6/30/95 $
- -- 6/30/92 $ -- 6/30/96 $
- -- 6/30/93 $
- -- 6/30/94 $
- -- 6/30/95 $
- -- 6/30/96 $
(Class C Graph appears here (Class Y Graph appears here
and its plotting points are as follows) and its plotting points are as follows)
(Class C Average Annual Total Return) (Class Y Average Annual Total Return)
ONE YEAR=2.5% ONE YEAR=4.6%
SINCE INCEPTION=5.7% FIVE YEAR=7.1%
SINCE INCEPTION=7.0%
- -- 9/02/94* $ -- 12/31/90* $
- -- 12/31/94 $ -- 6/30/91 $
- -- 6/30/95 $ -- 6/30/92 $
- -- 12/31/95 $ -- 6/30/93 $
- -- 6/30/96 $ -- 6/30/94 $
-- 6/30/95 $
-- 6/30/96 $
(Legend)
- -- Evergreen Short Intermediate == Lehman Brothers Intermediate
Bond Fund Term Government/Corporate Bond Index
(footnote)
* 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 3.25% was deducted from the initial
$10,000 investment in 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, 1996; (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.
20
<PAGE>
EVERGREEN SHORT -- INTERMEDIATE BOND FUND
(photo appears here)
STATEMENT OF INVESTMENTS
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<S> <C> <C>
ASSET-BACKED SECURITIES -- 14.1%
$ 795 Bank of West Trust,
9.50%, 2/15/05................... $ 805,917
1,750 Case Equipment Loan Trust, 6.45%,
9/15/02.......................... 1,701,646
911 Chemical Grantor Trust,
8.90%, 12/15/96.................. 925,817
656 CIT Group Holdings, Inc.,
4.70%, 6/15/18................... 651,818
2,000 EQCC Home Equity Loan Trust,
5.82%, 9/15/09................... 1,945,198
4,613 FCC Grantor Trust,
9.00%, 7/15/97................... 4,649,015
3,974 First Bank Auto Receivable,
8.30%, 1/15/00................... 4,045,781
6,707 First Security Auto Grantor
Trust,
6.25%, 1/15/01................... 6,734,652
1,956 Fleet Financial Home Equity
Trust,
6.70%, 1/16/06-10/16/06.......... 1,963,657
8,331 Fleetwood Credit Grantor Trust,
4.95%, 8/15/08................... 8,115,316
7,500 Household Affinity Credit Card
Master Trust,
7.20%, 12/15/99.................. 7,597,643
2,926 Jayhawk Funding Trust I,
5.925%, 9/15/99.................. 2,927,271
1,732 SCFC Recreational Vehicle Loan
Trust,
7.25%, 9/15/06................... 1,740,408
Western Financial Grantor Trust,
8,026 5.875%, 3/1/02................... 7,952,326
3,659 6.20%, 2/1/02.................... 3,644,899
TOTAL ASSET-BACKED SECURITIES
(COST $55,678,073)............... 55,401,364
CORPORATE BONDS -- 27.7%
BANKS -- 6.3%
3,400 Abbey National Plc,
6.69%, 10/17/05.................. 3,254,575
3,000 *Cenfed Financial Corp.,
11.17%, 12/15/01................ 3,345,000
First Chicago Corp.,
4,000 9.00%, 6/15/99................... 4,252,848
2,000 9.20%, 12/17/01.................. 2,189,426
5,000 First Security Corp.,
6.40%, 2/10/03................... 4,769,270
6,000 National Bank of Canada,
8.125%, 8/15/04.................. 6,250,254
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<S> <C> <C>
</TABLE>
<TABLE>
<S> <C> <C>
CORPORATE BONDS -- (CONTINUED)
BANKS -- (CONTINUED)
$ 500 Security Pacific Corp.,
10.45%, 5/8/01................... $ 567,175
24,628,548
FINANCE & INSURANCE -- 18.9%
2,000 American Express Credit Corp.,
6.25%, 8/10/05................... 1,939,434
3,000 *Associated P&C Holdings, Inc.,
6.75%, 7/15/03.................. 2,859,780
3,000 Bear Stearns Company, Inc.,
7.625%, 4/15/00.................. 3,074,427
10,000 Chrysler Buildings,
9.125%, 5/1/99................... 10,566,350
11,000 First Colony Corp.,
6.625%, 8/1/03................... 10,625,978
1,000 Horace Mann Educators Corp.,
6.625%, 1/15/06.................. 944,213
Lehman Brothers Holdings Inc.,
5,000 6.625%, 11/15/00................. 4,908,620
2,500 7.00%, 5/15/97................... 2,515,467
5,000 8.875%, 3/1/02................... 5,361,865
Metropolitan Life Insurance Co.,
5,000 *6.30%, 11/1/03.................. 4,724,850
5,000 *7.00%, 11/1/05.................. 4,853,175
1,000 Morgan Stanley Group, Inc.,
9.40%, 3/5/98.................... 1,047,733
6,000 Progressive Corp., Ohio,
6.60%, 1/15/04................... 5,762,064
Salomon Brothers, Inc.,
1,800 8.57%, 3/10/97................... 1,827,409
9,000 9.01%, 5/1/97.................... 9,189,072
4,000 Traveler's Group Inc.,
6.875%, 6/1/25................... 3,879,532
74,079,969
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES -- 1.3%
5,000 Boral Limited Australia Co.,
7.90%, 11/19/99.................. 5,175,585
INFORMATION SERVICES &
TECHNOLOGY -- 1.0%
4,000 WMX Technologies Inc.,
7.00%, 5/15/05................... 3,926,116
SOVEREIGN GOVERNMENT -- .2%
900 New Brunswick Province CDA,
7.125%, 10/1/02.................. 912,248
TOTAL CORPORATE BONDS
(COST $110,585,111).............. 108,722,466
</TABLE>
21
<PAGE>
EVERGREEN SHORT -- INTERMEDIATE BOND FUND
(photo appears here)
STATEMENT OF INVESTMENTS -- (CONTINUED)
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<S> <C> <C>
MORTGAGE-BACKED SECURITIES -- 27.1%
AFC Home Equity Loan Trust,
$ 2,067 6.60%, 10/26/26.................. $ 2,067,817
687 8.05%, 4/27/26................... 699,354
3,542 CMC Securities Corp.,
10.00%, 7/25/23.................. 3,759,500
Federal Home Loan Mortgage Corp.,
2,907 6.75%, 2/15/04................... 2,920,404
4,000 6.80%, 10/15/05.................. 4,011,996
10,000 7.40%, 10/15/05.................. 10,164,490
512 10.50%, 9/1/15................... 560,781
Federal Housing Administration-
Puttable Project Loans,
4,132 GMAC 56,
7.43%, 11/1/22................... 4,131,830
6,363 Merrill Lynch 199,
8.43%, 2/1/20.................... 6,572,817
3,019 Reilly 18,
6.875%, 4/1/15................... 3,033,718
1,590 Reilly 55,
7.43%, 3/1/24.................... 1,585,222
10,440 Reilly 64,
7.43%, 1/1/24.................... 10,372,041
5,410 USGI E1,
7.43%, 7/1/22.................... 5,393,523
Federal National Mortgage Assn.,
4,486 6.23%,12/25/25................... 4,479,867
2,100 8.00%, 11/25/06.................. 2,160,058
9,000 8.10%, 4/25/25................... 9,191,250
40 14.00%, 6/1/11................... 45,652
2,408 GCC Second Mortgage Trust,
10.00%, 7/15/05.................. 2,501,431
6,000 Government National Mortgage
Assn., WI
7.50%, 11/20/08.................. 5,919,330
5,250 Household Finance Corp., 6.70%,
6/15/02.......................... 5,179,031
9,000 Prudential Home Mortgage
Securities,
6.30%, 5/25/99................... 8,940,051
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<S> <C> <C>
MORTGAGE-BACKED SECURITIES -- (CONTINUED)
$ 5,143 Prudential Securities Secured
Financing Corp.,
8.12%, 2/17/25................... $ 5,297,367
212 Resolution Trust Corp.,
7.00%, 2/15/04................... 212,902
7,316 Saxon Mortgage Securities Corp.,
7.375%, 9/25/23.................. 7,317,138
TOTAL MORTGAGE-BACKED SECURITIES
(COST $106,577,183).............. 106,517,570
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 7.5%
Federal Home Loan Banks,
9,275 6.075%, 7/2/97................... 9,275,000
3,000 6.80%, 8/2/00.................... 2,963,871
4,850 7.125%, 7/2/99................... 4,850,000
Federal Home Loan Mortgage Corp.,
2,000 6.97%, 6/16/05................... 1,945,952
2,200 7.99%, 3/23/05................... 2,215,383
Federal National Mortgage Assn.,
1,500 5.30%, 8/25/98................... 1,462,095
500 6.00%, 12/15/00.................. 481,462
3,750 7.50%, 9/27/99................... 3,795,446
2,500 7.65%, 5/4/05.................... 2,498,017
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS (COST $29,714,914)... 29,487,226
U.S. TREASURY OBLIGATIONS -- 15.2%
U.S. Treasury Notes,
2,500 5.625%, 11/30/00................. 2,420,313
2,500 5.75%, 10/31/00.................. 2,435,153
2,000 6.25%, 8/31/00................... 1,986,872
20,500 + 6.50%, 8/15/05................... 20,198,875
2,500 7.125%, 9/30/99.................. 2,555,465
11,000 7.75%, 11/30/99.................. 11,457,171
17,400 8.875%, 2/15/99.................. 18,482,036
TOTAL U.S. TREASURY OBLIGATIONS
(COST $61,623,016)............... 59,535,885
</TABLE>
22
<PAGE>
EVERGREEN SHORT -- INTERMEDIATE BOND FUND
(photo appears here)
STATEMENT OF INVESTMENTS -- (CONTINUED)
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<S> <C> <C>
REPURCHASE AGREEMENTS -- 11.8%
$ 40,539 Donaldson, Lufkin & Jenrette
Securities Corp., 5.40% dated
6/28/96, due 7/1/96 --
collateralized by $40,849,000
U.S. Treasury Notes, 7.25%, due
11/30/96; value, including
accrued interest $41,600,970..... $ 40,539,000
6,009 State Street Bank & Trust Co.,
5.00% dated 6/28/96, due 7/1/96
-- collateralized by $6,130,000
U.S. Treasury Bonds, 9.00%, due
11/15/18; value, including
accrued interest $6,197,463...... 6,009,000
TOTAL REPURCHASE AGREEMENTS
(COST $46,548,000)............... 46,548,000
</TABLE>
<TABLE>
<S> <C> <C> <C>
TOTAL INVESTMENTS --
(COST $410,726,297)..... 103.4% $406,212,511
OTHER ASSETS AND
LIABILITIES -- NET..... (3.4) (13,326,062)
NET ASSETS --............. 100.0% $392,886,449
</TABLE>
* Restricted Security is not registered under the Securities Act of 1933. (Note
6)
WI -- When Issued
+ Segregated as collateral for Government National Mortgage Association Bond
because as of June 30, 1996 its settlement terms had yet to be determined. The
collateral has subsequently been released.
See accompanying notes to financial statements.
23
<PAGE>
EVERGREEN SHORT -- INTERMEDIATE BOND FUND
(photo appears here)
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities..................................................................................... $359,664,511
Investments in repurchase agreements.......................................................................... 46,548,000
Investments at value (identified cost $410,726,297)........................................................ 406,212,511
Cash.......................................................................................................... 1,081
Interest receivable........................................................................................... 4,852,310
Receivable for Fund shares sold............................................................................... 2,965,127
Prepaid expenses.............................................................................................. 35,042
Receivable for investment securities sold..................................................................... 20,466
Total assets............................................................................................ 414,086,537
LIABILITIES:
Payable for investment securities purchased................................................................... 20,134,375
Payable for Fund shares repurchased........................................................................... 624,672
Accrued expenses.............................................................................................. 230,562
Accrued advisory fee.......................................................................................... 158,291
Distribution fee payable...................................................................................... 30,818
Accrued administration fee.................................................................................... 21,370
Total liabilities....................................................................................... 21,200,088
NET ASSETS....................................................................................................... $392,886,449
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................... $411,292,287
Undistributed net investment income........................................................................... 98,373
Accumulated net realized loss on investment transactions...................................................... (13,990,425)
Net unrealized depreciation of investments.................................................................... (4,513,786)
Net assets................................................................................................. $392,886,449
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($18,630,254/1,897,011 shares of beneficial interest outstanding).............................. $ 9.82
Sales charge -- 3.25% of offering price....................................................................... .33
Maximum offering price.................................................................................. $ 10.15
Class B Shares ($21,005,978/2,135,598 shares of beneficial interest outstanding).............................. $ 9.84
Class C Shares ($1,154,847/117,319 shares of beneficial interest outstanding)................................. $ 9.84
Class Y Shares ($352,095,370/35,857,879 shares of beneficial interest outstanding)............................ $ 9.82
</TABLE>
See accompanying notes to financial statements.
24
<PAGE>
EVERGREEN SHORT -- INTERMEDIATE BOND FUND
(photo appears here)
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest....................................................................................... $27,850,294
EXPENSES:
Advisory fee................................................................................... $1,951,949
Administrative personnel and services fees..................................................... 205,938
Distribution fee -- Class A Shares............................................................. 18,291
Distribution fee -- Class B Shares............................................................. 143,100
Shareholder services fee -- Class B Shares..................................................... 47,700
Distribution fee -- Class C Shares............................................................. 6,662
Shareholder services fee -- Class C Shares..................................................... 2,221
Custodian fee.................................................................................. 204,591
Transfer agent fee............................................................................. 130,337
Registration and filing fees................................................................... 67,376
Professional fees.............................................................................. 53,898
Reports and notices to shareholders............................................................ 52,735
Trustees' fees and expenses.................................................................... 7,528
Miscellaneous.................................................................................. 14,382
Total expenses........................................................................... 2,906,708
Net investment income............................................................................. 24,943,586
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss on investment transactions................................................... (4,715,061)
Net change in unrealized depreciation of investments........................................... (2,841,758)
Net loss on investments........................................................................... (7,556,819)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............................................. $17,386,767
</TABLE>
See accompanying notes to financial statements.
25
<PAGE>
EVERGREEN SHORT -- INTERMEDIATE BOND FUND
(photo appears here)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1996 1995*
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income..................................................................... $ 24,943,586 $ 12,751,508
Net realized loss on investments.......................................................... (4,715,061) (3,254,748)
Net change in unrealized appreciation (depreciation) of investments....................... (2,841,758) 23,129,255
Net increase in net assets resulting from operations................................... 17,386,767 32,626,015
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A Shares......................................................................... (1,165,625) (633,992)
Class B Shares......................................................................... (1,059,184) (489,731)
Class C Shares......................................................................... (49,329) (14,464)
Class Y Shares......................................................................... (23,005,091) (11,563,141)
Total distributions to shareholders....................................................... (25,279,229) (12,701,328)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold................................................................. 170,338,605 68,077,630
Proceeds from reinvestment of distributions............................................... 18,879,027 11,423,985
Payment for shares redeemed............................................................... (172,279,164) (97,874,977)
Net increase (decrease) resulting from Fund share transactions......................... 16,938,468 (18,373,362)
Net increase in net assets............................................................. 9,046,006 1,551,325
NET ASSETS:
Beginning of period....................................................................... 383,840,443 382,289,118
End of period (including undistributed net investment income of
$98,373 and $434,016, respectively).................................................... $ 392,886,449 $383,840,443
</TABLE>
*The Fund changed its fiscal year end from December 31 to June 30, resulting in
a six-month period.
See accompanying notes to financial statements.
26
<PAGE>
EVERGREEN SHORT -- INTERMEDIATE BOND FUND --
CLASS A SHARES
(photo appears here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31,
1996 1995# 1994 1993
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.................................................... $10.02 $9.52 $10.42 $10.41
Income (loss) from investment operations:
Net investment income................................................................. .63 .32 .65 .65
Net realized and unrealized gain (loss) on investments................................ (.19 ) .50 (.91) .19
Total from investment operations.................................................... .44 .82 (.26) .84
Less distributions to shareholders from:
Net investment income................................................................. (.64 ) (.32 ) (.64) (.65)
Net realized gains.................................................................... -- -- -- (.18)
Total distributions................................................................. (.64 ) (.32 ) (.64) (.83)
Net asset value, end of period.......................................................... $9.82 $10.02 $9.52 $10.42
TOTAL RETURN+........................................................................... 4.5% 8.8% (2.6%) 8.3%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)............................................... $18,630 $18,898 $19,127 $22,865
Ratios to average net assets:
Expenses.............................................................................. .79% .77% ++ .75% .93%
Net investment income................................................................. 6.35% 6.58% ++ 6.46% 6.15%
Portfolio turnover rate................................................................. 76% 34% 48% 73%
<CAPTION>
1992
PER SHARE DATA:
Net asset value, beginning of period.................................................... $10.54
Income (loss) from investment operations: Net investment income........................ .71
Net realized and unrealized gain (loss) on investments................................ (.06)
Total from investment operations.................................................... .65
Less distributions to shareholders from:
Net investment income................................................................. (.67)
Net realized gains.................................................................... (.11)
Total distributions................................................................. (.78)
Net asset value, end of period.......................................................... $10.41
TOTAL RETURN+........................................................................... 6.4%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)............................................... $21,488
Ratios to average net assets:
Expenses.............................................................................. .90%
Net investment income................................................................. 6.79%
Portfolio turnover rate................................................................. 66%
<CAPTION>
</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.
See accompanying notes to financial statements.
27
<PAGE>
EVERGREEN SHORT -- INTERMEDIATE BOND FUND --
CLASS B AND CLASS C SHARES
(photo appears here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS B SHARES CLASS C SHARES
JANUARY 25,
YEAR SIX MONTHS 1993* YEAR SIX MONTHS
ENDED ENDED YEAR ENDED THROUGH ENDED ENDED
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1996 1995# 1994 1993 1996 1995#
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period...................... $10.04 $9.54 $10.44 $10.57 $10.05 $9.55
Income (loss) from investment operations:
Net investment income................................... .55 .28 .58 .58 .55 .26
Net realized and unrealized gain (loss) on
investments........................................... (.19 ) .50 (.92 ) .05 (.20 ) .50
Total from investment operations...................... .36 .78 (.34 ) .63 .35 .76
Less distributions to shareholders from:
Net investment income................................... (.56 ) (.28 ) (.56 ) (.58 ) (.56 ) (.26 )
Net realized gains...................................... -- -- -- (.18 ) -- --
Total distributions................................... (.56 ) (.28 ) (.56 ) (.76 ) (.56 ) (.26 )
Net asset value, end of period............................ $9.84 $10.04 $9.54 $10.44 $9.84 $10.05
TOTAL RETURN+............................................. 3.6% 8.3% (3.3% ) 6.1% 3.5% 8.2%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)................. $21,006 $17,366 $17,625 $8,876 $1,155 $527
Ratios to average net assets:
Expenses................................................ 1.69% 1.67% ++ 1.50% 1.57% ++ 1.69% 1.67% ++
Net investment income................................... 5.45% 5.68% ++ 5.75% 5.42% ++ 5.46% 5.69% ++
Portfolio turnover rate................................... 76% 34% 48% 73% 76% 34%
<CAPTION>
SEPTEMBER 6,
1994*
THROUGH
DECEMBER 31,
1994
PER SHARE DATA:
Net asset value, beginning of period...................... $9.85
Income (loss) from investment operations:
Net investment income................................... .18
Net realized and unrealized gain (loss) on
investments........................................... (.30 )
Total from investment operations...................... (.12 )
Less distributions to shareholders from:
Net investment income................................... (.18 )
Net realized gains...................................... --
Total distributions................................... (.18 )
Net asset value, end of period............................ $9.55
TOTAL RETURN+............................................. (1.3% )
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)................. $512
Ratios to average net assets:
Expenses................................................ 1.65% ++
Net investment income................................... 5.87% ++
Portfolio turnover rate................................... 48%
</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. Contingent deferred sales charges are not
reflected.
++ Annualized.
See accompanying notes to financial statements.
28
<PAGE>
EVERGREEN SHORT -- INTERMEDIATE BOND FUND --
CLASS Y SHARES
(photo appears here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31,
1996 1995# 1994 1993
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period..................................................... $10.02 $9.52 $10.43 $10.41
Income (loss) from investment operations:
Net investment income.................................................................. .64 .33 .65 .69
Net realized and unrealized gain (loss) on investments................................. (.19) .49 (.91) .19
Total from investment operations..................................................... .45 .82 (.26) .88
Less distributions to shareholders from:
Net investment income.................................................................. (.65) (.32 ) (.65) (.68)
Net realized gains..................................................................... -- -- -- (.18)
Total distributions.................................................................. (.65) (.32 ) (.65) (.86)
Net asset value, end of period........................................................... $9.82 $10.02 $9.52 $10.43
TOTAL RETURN+............................................................................ 4.6% 8.8% (2.6%) 8.7%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)................................................ $352,095 $347,050 $345,025 $376,445
Ratios to average net assets:
Expenses............................................................................... .69% .67% ++ .65% .66%
Net investment income.................................................................. 6.45% 6.68% ++ 6.56% 6.41%
Portfolio turnover rate.................................................................. 76% 34% 48% 73%
<CAPTION>
1992
PER SHARE DATA:
Net asset value, beginning of period..................................................... $10.54
Income (loss) from investment operations:
Net investment income.................................................................. .70
Net realized and unrealized gain (loss) on investments................................. (.02)
Total from investment operations..................................................... .68
Less distributions to shareholders from:
Net investment income.................................................................. (.70)
Net realized gains..................................................................... (.11)
Total distributions.................................................................. (.81)
Net asset value, end of period........................................................... $10.41
TOTAL RETURN+............................................................................ 6.6%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)................................................ $324,068
Ratios to average net assets:
Expenses............................................................................... .69%
Net investment income.................................................................. 6.67%
Portfolio turnover rate.................................................................. 66%
<CAPTION>
</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.
++ Annualized.
See accompanying notes to financial statements.
29
<PAGE>
EVERGREEN U.S. GOVERNMENT FUND
(photo appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGER
ROLLIN WILLIAMS
Evergreen U.S. Government Fund had a total return of 4.28%
for Class A shares at net asset value (NAV) and 4.54% for (photo of
Class Y, no-load shares, for the 12 months ended June 30, Rollin Williams
1996*. These returns put the Fund in the top quartile of appears here)
Lipper's General U.S. Government Funds category of the 169
general U.S. Government funds tracked by Lipper Analytical
Services during that time**. The total returns for the Fund's
Class B and Class C shares at NAV were each 3.50%, which
ranked them in the 50th percentile in the Lipper category for
that time. (For additional performance information, please see
page 31.)
The period from June 30, 1995, to June 30, 1996, provided interest rates
and market participants a continuation of the roller coaster rid witnessed in
1993 and 1994. At the end of 1994, the 30-Treasury was yielding 7.88%. By June
30, 1995 the rate had fallen to 6.62%, a decline of 126 basis points, and by the
end of 1995, a further fall to 5.95% another 67 basis points. From the December
1995 low, rates had risen steadily to a 6.89% 30-year bond at the end of June
1996.
The first quarter of 1996 saw a dramatic reversal in investor expectations
for the economy and interest rates. Bond market participants closed 1995
considering the possibility that the economy could roll-over into a recession.
By the end of the first quarter, recession concerns had been replaced by
concerns about the strength of the economic recovery and rising inflation.
Throughout this period, it was our view that the economy, despite periods of
acceleration and deceleration, would continue its slow growth, low inflation
course. The Fund's solid relative performance during this volatile period
reflects our staying the course and capturing selected opportunities as they
were presented
In January, the Federal Reserve reduced the Fed Funds rate by 25 basis points
(from 5.5% to 5.25%). There was some discussion at the time about whether this
action was necessary. With the employment report in early March reflecting
705,000 new jobs, investors discounted the likelihood of further Federal Reserve
rate reductions and shifted their focus to the underlying strength of the
economy.
Interest rates continued their rise in the second quarter of 1996 as
investors watched the economic releases and tried to anticipate the actions of
the Federal Reserve. As rates increased, the duration of the portfolio was
gradually lengthened. At June 30, the Fund's duration was 4.94 years, up from
4.54 years at December 1995.
The most recent portfolio activity was the sale of Treasuries maturing in
1997 and 1998 and purchases of higher yielding, attractively priced, seasoned
Government National Mortgage Association (GNMA) 8's. The asset allocation was
also changed slightly in the second quarter to place slightly more emphasis on
the higher yielding mortgage backed sector of the portfolio. At the end of June,
mortgages were 50.3% of the Fund's net assets versus 46.5% at March 1996.
Looking forward, we believe the economy should slow as the year progresses.
The ebb and flow pattern which we've seen year to date will, however, continue.
Interest rate increases of the magnitude which we have seen never failed to slow
the economy. On the other hand, if the economic numbers do not indicate a
slowing economy, the Federal Reserve will raise short-term interest rates to
keep economic growth at an acceptable level.
The overall strategy of the Fund continues to be to provide the investor with
a high quality portfolio that has attractive income characteristics without the
use of toxic or exotic derivative securities. Thank you for your investment in
the Fund.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
* CLASS A SHARES ARE SUBJECT TO A MAXIMUM 4.75% FRONT END SALES CHARGE, CLASS B
SHARES ARE SUBJECT TO A MAXIMUM 5% CONTINGENT DEFERRED SALES CHARGE, AND CLASS C
SHARES ARE SUBJECT TO A 1% CONTINGENT DEFERRED SALES CHARGE WITHIN THE FIRST
YEAR OF PURCHASE. SALES CHARGES ARE NOT REFLECTED IN THE PERFORMANCE FIGURES
ABOVE, AND IF REFLECTED, PERFORMANCE WOULD BE LOWER.
INCEPTION DATES: CLASS Y SHARES 9/2/93, CLASS A SHARES 1/11/93, CLASS B SHARES
1/11/93, CLASS C SHARES 9/2/94
- -.68%, -1.38%, AND 2.52% WERE THE 12-MONTH TOTAL RETURNS ENDED 6/30/96 FOR THE
FUND'S CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES, RESPECTIVELY, WITH
THE MAXIMUM SALES CHARGES RESPECTIVE TO THOSE SHARE CLASSES.
PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN
DISTRIBUTIONS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. INVESTORS'
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
** SOURCE: LANA (LIPPER ANALYTICAL NEW APPLICATIONS) LIPPER ANALYTICAL SERVICES
INC., IS AN INDEPENDENT MUTUAL FUNDS PERFORMANCE MONITOR. LIPPER AVERAGE DOES
NOT INCLUDE SALES CHARGES, AND IF INCLUDED PERFORMANCE MAY BE LOWER AND THE
FUND'S PERCENTILE RANKINGS MAY BE DIFFERENT.
30
<PAGE>
EVERGREEN U.S. GOVERNMENT FUND
(photo appears here)
RESULTS TO DATE
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 Term Government Bond Index
("LBIGBI Index").
(Class A Graph appears here (Class B Graph appears here
and its plotting points are as follows) and its plotting points are as follows)
(Class A Average Annual Total Return) (Class B Average Annual Total Return)
ONE YEAR=0.7% ONE YEAR=1.4%
SINCE INCEPTION=3.8% SINCE INCEPTION=3.9%
- -- 1/12/93* $ -- 1/12/93* $
- -- 6/30/93 $ -- 6/30/93 $
- -- 6/30/94 $ -- 6/30/94 $
- -- 6/30/95 $ -- 6/30/95 $
- -- 6/30/96 $ -- 6/30/96 $
(Class C Graph appears here (Class Y Graph appears here
and its plotting points are as follows) and its plotting points are as follows)
(Class C Average Annual Total Return) (Class Y Average Annual Total Return)
ONE YEAR=2.5% ONE YEAR=4.5%
SINCE INCEPTION=6.5% SINCE INCEPTION=4.2%
- -- 9/02/94* $ -- 8/25/93* $
- -- 12/31/94 $ -- 12/31/93 $
- -- 6/30/95 $ -- 6/30/94 $
- -- 12/31/95 $ -- 12/31/95 $
- -- 6/30/96 $ -- 6/30/96 $
(Legend)
- -- Evergreen U.S. Government == Lehman Brothers Intermediate
Bond Fund Term Government Index
(footnote)
* Commencement of class operations.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE 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 in 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, 1996; (c) all recurring
fees (including investment advisory fees) were deducted; and (d) all dividends
and distributions were reinvested.
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.
31
<PAGE>
EVERGREEN U.S. GOVERNMENT FUND
(photo appears here)
STATEMENT OF INVESTMENTS
JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<S> <C> <C>
MORTGAGE-BACKED SECURITIES -- 50.3%
FEDERAL HOME LOAN MORTGAGE CORP. -- 7.3%
$ 6,139 8.0%, 7/1/17-4/1/22.................. $ 6,237,194
4,340 8.5%, 2/1/17-10/1/17................. 4,480,326
4,709 9.0%, 11/1/96-4/1/21................. 4,928,943
1,636 9.5%, 9/1/20......................... 1,745,689
2,474 10.0%, 12/1/19-8/1/21................ 2,678,084
2,287 10.5%, 12/1/19....................... 2,505,123
22,575,359
FEDERAL NATIONAL MORTGAGE ASSN. -- 16.7%
5,381 6.5%, 1/1/24......................... 5,039,175
18,731 7.0%, 8/1/25......................... 18,046,426
13,265 7.5%, 7/1/23-7/1/25.................. 13,111,933
12,943 8.0%, 8/1/25......................... 13,066,906
2,116 9.5%, 6/1/22......................... 2,254,098
51,518,538
GOVERNMENT NATIONAL MORTGAGE
ASSN. -- 26.3%
16,047 7.0%, 12/15/22-11/15/23.............. 15,409,857
11,720 7.5%, 2/15/22-3/15/23................ 11,562,734
22,719 8.0%, 2/15/23-8/15/24................ 23,006,736
13,542 8.5%, 12/15/21-7/15/24............... 13,951,617
6,982 9.0%, 1/15/20-6/15/21................ 7,313,563
7,727 9.5%, 1/15/19-2/15/21................ 8,265,111
1,500 10.0%, 12/15/18...................... 1,636,238
81,145,856
TOTAL MORTGAGE-BACKED SECURITIES
(COST $158,407,825)................ 155,239,753
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 48.1%
UNITED STATES TREASURY BONDS -- 21.7%
$ 17,930 8.125%, 8/15/19...................... $ 20,115,219
8,100 8.50%, 2/15/20....................... 9,444,082
3,650 8.75%, 11/15/08...................... 4,056,062
3,080 8.75%, 8/15/20....................... 3,683,483
14,010 8.875%, 8/15/17...................... 16,816,357
10,300 9.25%, 2/15/16....................... 12,743,016
66,858,219
UNITED STATES TREASURY NOTES -- 26.4%
12,000 7.75%, 11/30/99...................... 12,498,732
9,800 7.75%, 1/31/00....................... 10,219,548
6,570 7.875%, 4/15/98...................... 6,767,100
21,500 7.875%, 11/15/99..................... 22,467,500
14,500 8.25%, 7/15/98....................... 15,080,000
13,700 9.25%, 8/15/98....................... 14,526,260
81,559,140
TOTAL U.S. TREASURY OBLIGATIONS
(COST 156,947,103)................. 148,417,359
REPURCHASE AGREEMENT -- .3%
1,035 Donaldson, Lufkin and Jenrette
Securities Corp., 5.40%, dated
6/28/96, due 7/1/96 collateralized by
$1,080,000 U.S. Treasury Notes,
5.125%, due 11/30/98; value,
including accrued interest --
$1,060,508
(COST $1,035,000).................... 1,035,000
</TABLE>
<TABLE>
<S> <C> <C> <C>
TOTAL INVESTMENTS --
(COST $316,389,928)........ 98.7% 304,692,112
OTHER ASSETS AND
LIABILITIES -- NET...... 1.3 3,858,632
NET ASSETS --.............. 100.0% $308,550,744
</TABLE>
See accompanying notes to financial statements.
32
<PAGE>
EVERGREEN U.S. GOVERNMENT FUND
(photo appears here)
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $316,389,928)........................................................... $304,692,112
Cash.......................................................................................................... 111
Interest receivable........................................................................................... 4,720,695
Receivable for Fund shares sold............................................................................... 448,306
Prepaid expenses.............................................................................................. 57,595
Total assets............................................................................................ $309,918,819
LIABILITIES:
Distributions payable......................................................................................... 483,100
Payable for Fund shares repurchased........................................................................... 416,877
Accrued advisory fee.......................................................................................... 249,569
Distribution fee payable...................................................................................... 113,634
Accrued expenses.............................................................................................. 75,328
Payable for administration fee................................................................................ 29,567
Total liabilities....................................................................................... 1,368,075
NET ASSETS....................................................................................................... $308,550,744
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................... $334,564,654
Accumulated net realized loss on investment transactions...................................................... (14,316,094)
Net unrealized depreciation of investments.................................................................... (11,697,816)
Net assets.............................................................................................. $308,550,744
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($20,344,622/2,159,052 shares of beneficial interest outstanding).............................. $ 9.42
Sales charge -- 4.75% of offering price....................................................................... .47
Maximum offering price..................................................................................... $ 9.89
Class B Shares ($165,987,744/17,615,107 shares of beneficial interest outstanding)............................ $ 9.42
Class C Shares ($649,482/68,918 shares of beneficial interest outstanding).................................... $ 9.42
Class Y Shares ($121,568,896/12,901,205 shares of beneficial interest outstanding)............................ $ 9.42
</TABLE>
See accompanying notes to financial statements.
33
<PAGE>
EVERGREEN U.S. GOVERNMENT FUND
(photo appears here)
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest....................................................................................... $22,884,665
EXPENSES:
Advisory fee................................................................................... $1,507,281
Administrative personnel and services fees..................................................... 159,046
Distribution fee -- Class A Shares............................................................. 53,238
Distribution fee -- Class B Shares............................................................. 1,374,856
Shareholder services fee -- Class B Shares..................................................... 458,285
Distribution fee -- Class C Shares............................................................. 3,646
Shareholder services fee -- Class C Shares..................................................... 1,215
Transfer agent fee............................................................................. 215,204
Custodian fee.................................................................................. 138,256
Registration and filing fees................................................................... 66,356
Reports and notices to shareholders............................................................ 56,306
Professional fees.............................................................................. 45,212
Trustees' fees and expenses.................................................................... 7,532
Miscellaneous.................................................................................. 31,744
Total expenses........................................................................... 4,118,177
Net investment income............................................................................. 18,766,488
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss on investment transactions................................................... (3,731,984)
Net change in unrealized depreciation of investments........................................... (3,860,415)
Net loss on investments........................................................................... (7,592,399)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............................................. $11,174,089
</TABLE>
See accompanying notes to financial statements.
34
<PAGE>
EVERGREEN U.S. GOVERNMENT FUND
(photo appears here)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1996 1995*
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income..................................................................... $ 18,766,488 $ 7,438,980
Net realized loss on investments.......................................................... (3,731,984) (2,084,111)
Net change in unrealized appreciation (depreciation) of investments....................... (3,860,415) 16,345,873
Net increase in net assets resulting from operations................................... 11,174,089 21,700,742
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A Shares......................................................................... (1,406,673) (794,337)
Class B Shares......................................................................... (10,727,964) (6,054,489)
Class C Shares......................................................................... (28,511) (10,127)
Class Y Shares......................................................................... (6,603,340) (580,027)
Total distributions to shareholders....................................................... (18,766,488) (7,438,980)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold................................................................. 138,179,343 8,321,751
Proceeds from shares issued in acquisition of Evergreen U.S. Government Securities Fund... 5,739,713 --
Proceeds from reinvestment of distributions............................................... 11,871,813 3,745,065
Payment for shares redeemed............................................................... (71,866,685) (29,247,163)
Net increase (decrease) resulting from Fund share transactions......................... 83,924,184 (17,180,347)
Net increase (decrease) in net assets.................................................. 76,331,785 (2,918,585)
NET ASSETS:
Beginning of period....................................................................... 232,218,959 235,137,544
End of period............................................................................. $308,550,744 $232,218,959
</TABLE>
*The Fund changed its fiscal year end from December 31 to June 30, resulting in
a six-month period.
See accompanying notes to financial statements.
35
<PAGE>
EVERGREEN U.S. GOVERNMENT FUND --
CLASS A SHARES
(photo appears here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31,
1996 1995# 1994
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period............................................ $9.65 $9.07 $10.05
Income (loss) from investment operations:
Net investment income......................................................... .63 .33 .66
Net realized and unrealized gain (loss) on investments........................ (.23 ) .58 (.98)
Total from investment operations............................................ .40 .91 (.32)
Less distributions to shareholders from net investment income................... (.63 ) (.33) (.66)
Net asset value, end of period.................................................. $9.42 $9.65 $9.07
TOTAL RETURN+................................................................... 4.3% 10.2% (3.2%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)....................................... $20,345 $22,445 $23,706
Ratios to average net assets:
Expenses...................................................................... .99% 1.04%++** .96%**
Net investment income......................................................... 6.61% 7.07%++** 6.97%**
Portfolio turnover rate......................................................... 23% 0% 19%
<CAPTION>
JANUARY 11,
1993*
THROUGH
DECEMBER 31,
1993
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period............................................ $10.00
Income (loss) from investment operations:
Net investment income......................................................... .68
Net realized and unrealized gain (loss) on investments........................ .05
Total from investment operations............................................ .73
Less distributions to shareholders from net investment income................... (.68)
Net asset value, end of period.................................................. $10.05
TOTAL RETURN+................................................................... 7.4%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)....................................... $38,851
Ratios to average net assets:
Expenses...................................................................... .68%++**
Net investment income......................................................... 6.93%++**
Portfolio turnover rate......................................................... 39%
</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. Initial sales charge is not reflected.
++ Annualized.
** 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
<S> <C> <C>
Expenses..................................................................................... 1.05% 1.00%
Net investment income........................................................................ 7.06% 6.93%
<CAPTION>
JANUARY 11,
1993*
THROUGH
DECEMBER 31,
1993
<S> <C>
Expenses..................................................................................... .99%
Net investment income........................................................................ 6.62%
</TABLE>
See accompanying notes to financial statements.
36
<PAGE>
EVERGREEN U.S. GOVERNMENT FUND --
CLASS B AND CLASS C SHARES
(photo appears here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS B SHARES CLASS C SHARES
JANUARY 11, SIX
YEAR SIX MONTHS 1993* YEAR MONTHS
ENDED ENDED YEAR ENDED THROUGH ENDED ENDED
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1996 1995# 1994 1993 1996 1995#
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.................... $9.65 $9.07 $10.05 $10.00 $9.65 $9.07
Income (loss) from investment operations:
Net investment income................................. .56 .29 .61 .63 .56 .29
Net realized and unrealized gain (loss) on
investments......................................... (.23) .58 (.98) .05 (.23) .58
Total from investment operations.................... .33 .87 (.37) .68 .33 .87
Less distributions to shareholders from net
investment income..................................... (.56) (.29) (.61) (.63) (.56) (.29)
Net asset value, end of period.......................... $9.42 $9.65 $9.07 $10.05 $9.42 $9.65
TOTAL RETURN+........................................... 3.5% 9.8% (3.8%) 6.9% 3.5% 9.8%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)............... $165,988 $192,490 $195,571 $236,696 $649 $350
Ratios to average net assets:
Expenses.............................................. 1.74% 1.79%++** 1.54%** 1.19%++** 1.74% 1.79%++**
Net investment income................................. 5.85% 6.32%++** 6.42%** 6.44%++** 5.87% 6.36%++**
Portoflio turnover rate................................. 23% 0% 19% 39% 23% 0%
<CAPTION>
SEPTEMBER 2,
1994*
THROUGH
DECEMBER 31,
1994
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period.................... $9.39
Income (loss) from investment operations:
Net investment income................................. .20
Net realized and unrealized gain (loss) on
investments......................................... (.32)
Total from investment operations.................... (.12)
Less distributions to shareholders from net
investment income..................................... (.20)
Net asset value, end of period.......................... $9.07
TOTAL RETURN+........................................... (1.3%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)............... $266
Ratios to average net assets:
Expenses.............................................. 1.71%++**
Net investment income................................. 6.70%++**
Portoflio turnover rate................................. 19%
</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. Contingent deferred sales charges are not
reflected.
++ Annualized.
** 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 B SHARES CLASS C
JANUARY 11, SHARES
SIX MONTHS 1993* SIX MONTHS
ENDED YEAR ENDED THROUGH ENDED
JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30,
1995# 1994 1993 1995#
<S> <C> <C> <C> <C>
Expenses................................................................ 1.80% 1.58% 1.50% 1.80%
Net investment income................................................... 6.31% 6.38% 6.13% 6.34%
<CAPTION>
SEPTEMBER 2,
1994*
THROUGH
DECEMBER 31,
1994
<S> <C>
Expenses................................................................ 1.75%
Net investment income................................................... 6.66%
</TABLE>
See accompanying notes to financial statements.
37
<PAGE>
EVERGREEN U.S. GOVERNMENT FUND --
CLASS Y SHARES
(photo appears here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31,
1996 1995# 1994
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.................................................... $9.65 $9.07 $10.05
Income (loss) from investment operations:
Net investment income................................................................. .66 .34 .69
Net realized and unrealized gain (loss) on investments................................ (.23) .58 (.98)
Total from investment operations.................................................... .43 .92 (.29)
Less distributions to shareholders from net investment income........................... (.66) (.34) (.69)
Net asset value, end of period.......................................................... $9.42 $9.65 $9.07
TOTAL RETURN+........................................................................... 4.5% 10.3% (2.9%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)............................................... $121,569 $16,934 $15,595
Ratios to average net assets:
Expenses.............................................................................. .74% .79%++** .71%**
Net investment income................................................................. 6.86% 7.31%++** 7.27%**
Portfolio turnover rate................................................................. 23% 0% 19%
<CAPTION>
SEPTEMBER 2,
1993*
THROUGH
DECEMBER 31,
1993
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period.................................................... $10.25
Income (loss) from investment operations:
Net investment income................................................................. .25
Net realized and unrealized gain (loss) on investments................................ (.20)
Total from investment operations.................................................... .05
Less distributions to shareholders from net investment income........................... (.25)
Net asset value, end of period.......................................................... $10.05
TOTAL RETURN+........................................................................... .5%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)............................................... $14,486
Ratios to average net assets:
Expenses.............................................................................. .48%++**
Net investment income................................................................. 7.20%++**
Portfolio turnover rate................................................................. 39%
</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.
** 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
<S> <C> <C>
Expenses....................................................................................... .80% .75%
Net investment income.......................................................................... 7.30% 7.23%
<CAPTION>
SEPTEMBER 2,
1993*
THROUGH
DECEMBER 31,
1993
<S> <C>
Expenses....................................................................................... .79%
Net investment income.......................................................................... 6.89%
</TABLE>
See accompanying notes to financial statements.
38
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS
The Evergreen Income Funds (the "Funds") are each a separate series of
open-end management companies registered under the Investment Company Act of
1940, as amended (the "Act"). The Evergreen Income Funds consist of Evergreen
Intermediate-Term Bond Fund ("Intermediate-Term Bond"), Evergreen
Intermediate-Term Government Securities Fund ("Intermediate-Term Government"),
Evergreen Short-Intermediate Bond Fund ("Short-Intermediate") and Evergreen U.S.
Government Fund ("U.S. Government"), collectively referred to as the Funds.
The investment objective of Intermediate-Term Bond is to maximize current
yield consistent with the preservation of capital. The investment objective of
Intermediate-Term Government is to preserve principal value and maintain a high
degree of liquidity while providing current income. Short-Intermediate's
investment objective is to attain a high level of current income, with capital
growth as a secondary objective, through investment in a broad range of
investment grade debt securities. U.S. Government's investment objective is to
achieve a high level of current income consistent with stability of principal.
Effective at the close of business on July 7, 1995, U.S. Government Fund
acquired substantially all of the net assets of Evergreen U.S. Government
Securities Fund through the issuance of 590,505 of its Class Y shares in
exchange for Evergreen U.S. Government Securities Fund's net assets valued at
$5,739,713. The aggregate net assets immediately after the acquisition was
$233,475,732. The acquired net assets, in this non-taxable transaction,
consisted primarily of portfolio securities with unrealized appreciation of
$24,133.
Effective January 1, 1996, First Union Corporation, the corporate parent of
First Union National Bank of North Carolina ("First Union"), each Fund's current
investment adviser, consummated a merger (the "Bank Merger") with First Fidelity
Bancorporation, the corporate parent of First Fidelity Bank, N.A. ("FFB"),
Intermediate-Term Bond and Intermediate-Term Government's prior investment
adviser. Effective January 19, 1996, each of the FFB Lexicon Funds, open-end
management investment companies registered under the Act, including FFB Lexicon
Fixed Income Fund and FFB Lexicon Intermediate-Term Government Securities Fund
(the "Lexicon Funds"), joined the Evergreen Funds (the "Fund Combinations"). FFB
Lexicon Fixed Income Fund was renamed Evergreen Intermediate-Term Bond Fund. FFB
Lexicon Intermediate-Term Government Securities Fund was renamed Evergreen
Intermediate-Term Government Securities Fund. Shares of each of the Lexicon
Fund's class previously known as the Institutional Class were redesignated as
each respective Fund's Class Y Shares. Shares of each of the Lexicon Fund's
class previously known as the Investor Class were redesignated as each
respective Fund's Class A Shares. See Note 5 for a description of each of the
classes.
Effective at the close of business on February 29, 1996, Intermediate-Term
Bond acquired substantially all of the net assets of Evergreen Managed Bond Fund
through the issuance of 7,674,423 of its Class Y shares in exchange for Managed
Bond's net assets valued at $79,773,557. The aggregate net assets immediately
after the acquisition was $158,097,520. The acquired net assets, in this
non-taxable transaction, consisted primarily of portfolio securities with
unrealized appreciation of $1,789,417.
Effective January 7, 1996, Short-Intermediate changed its name from
Evergreen Fixed Income Fund.
NOTE 2 -- 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 valued at the mean
between the over-the-counter bid and ask price 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
39
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- continued
and asset-backed securities are valued at the mean between the over-the-counter
bid and ask price provided by an independent pricing service. Short-term
securities when 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
interest 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 each Fund's behalf by its custodian under a book-entry system. Each Fund
monitors 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. Each Fund will only enter into repurchase agreements
with banks and other financial institutions which are deemed by the 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 are declared and paid monthly for Intermediate-Term Bond, Intermediate-
Term Government and Short-Intermediate. 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 the amounts available under
generally accepted accounting principles. To the extent these differences are
permanent in nature, such amounts are reclassified within the components of net
assets.
ALLOCATION OF EXPENSES -- Expenses specifically indentifiable to a class of
shares are charged to that class. Expenses common to a Trust as a whole are
allocated to the funds in that Trust. Investment income, net of expenses (other
than class specific expenses) and realized and unrealized gains and losses are
allocated daily to each class of shares based upon the relative proportion of
net assets of each class.
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 to its shareholders. Accordingly, no
provisions for Federal income or excise taxes are necessary. To the extent that
realized capital gains can be offset by capital loss carryforwards, it is each
Fund's policy not to distribute such gains. Capital losses incurred after
October 31 within each Funds fiscal year are deemed to arise on the first
business day of the following fiscal year for tax purposes.
At June 30, 1996, the Funds had capital loss carryforwards as follows:
<TABLE>
<CAPTION>
EXPIRATION
2001 2002 2003 2004
<S> <C> <C> <C> <C>
Intermediate-Term Bond $1,440,454 $ 788,954 $ 117,850 $ 211,288
Intermediate-Term Government -- -- 955,860 1,140,365
Short Intermediate -- 6,020,616 -- 3,372,152
U.S. Government 1,978,402 6,521,597 -- 2,973,341
</TABLE>
The Funds had post October loss deferals as follows:
<TABLE>
<S> <C> <C> <C> <C>
Intermediate-Term Bond $ --
Intermediate-Term Government --
Short Intermediate 3,921,854
U.S. Government 2,842,754
</TABLE>
40
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- continued
As a result of Fund acquisitions (See Note 1) Intermediate Term Bond and
U.S. Government acquired tax capital loss carryovers of $2,475,730 and
$1,053,217, respectively. These losses have been reclassed at June 30, 1996 from
paid in capital to accumulated net realized losses on investment transactions.
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 ORGANIZATIONAL EXPENSES -- The costs incurred with respect to
Intermediate-Term Bond's and Intermediate-Term Government's organization have
been deferred and are being amortized using the straight-line method not to
exceed a period of 60 months from each Fund's commencement of operations.
USE OF ESTIMATES -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AGREEMENT -- Prior to the Bank Merger described in Note
1, FFB served as the Lexicon Funds' investment adviser and was entitled to an
annual investment advisory fee of .60 of 1% of average daily net assets. FFB
also acted as these Funds' custodian. Fees paid to FFB for custody services were
included as part of the investment advisory fees.
Effective January 1, 1996, the date of the Bank Merger, First Union became
investment adviser. First Union is entitled to an annual fee of .60 of 1% of
average daily net assets for investment advisory services. For Intermediate-Term
Bond and Intermediate-Term Government, First Union and its predecessor FFB,
voluntarily waived $64,983 and $61,160, respectively, of their advisory fee for
the ten-month period ended June 30, 1996. First Union can modify or terminate
these voluntary waivers at any time.
Effective January 19, 1996, the date of the Fund Combinations, custody
services for Intermediate-Term Bond and Intermediate-Term Government were moved
to State Street Bank and Trust Company. Accordingly, after the date of the Fund
Combinations, custody services were billed separately and ceased to be
incorporated with the investment advisory fee.
First Union is also Short-Intermediate's and U.S. Government's investment
adviser, and is entitled to receive an annual fee of .50 of 1% of these Fund's
average daily net assets.
ADMINISTRATIVE AGREEMENT -- Through the date of the Fund Combinations, SEI
Financial Management Corporation ("SEI") served as the Lexicon Funds'
administrator. Pursuant to its administration agreement, SEI was entitled to an
annual fee of .17 of 1% of average daily net assets. SEI also served as transfer
agent for the Institutional Class of shares of the Funds. SEI's administration
fee included the amounts due for transfer agent services.
41
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES -- continued
After the date of the Fund Combinations, Evergreen Asset Management Corp.
("Evergreen Asset"), a wholly owned subsidiary of First Union, became
Intermediate-Term Bond's and Intermediate-Term Government's administrator and
Furman Selz LLC ("Furman Selz") became sub-administrator. Evergreen Asset and
Furman Selz are also administrator and sub-administrator, respectively, for
Short-Intermediate and U.S. Government. As sub-administrator, Furman Selz
provides the officers for the Funds. Evergreen Asset's and Furman Selz' fees are
based on the average daily net assets of all of the funds administered by
Evergreen Asset for which either First Union or Evergreen Asset is also the
investment adviser. This fee is calculated at the following annual rates:
<TABLE>
<CAPTION>
ADMINISTRATION FEE AVERAGE DAILY NET ASSETS
<S> <C>
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
0.010% in excess of $30 billion
<CAPTION>
SUB-ADMINISTRATION FEE AVERAGE DAILY NET ASSETS
<S> <C>
0.0100% on the first $7 billion
0.0075% on the next $3 billion
0.0050% on the next $15 billion
0.0040% in excess of $25 billion
</TABLE>
At June 30, 1996, net assets for which Evergreen Asset was the
administrator for which either Evergreen Asset or First Union was the investment
adviser totalled approximately $15.2 billion.
PLAN OF DISTRIBUTION AND SHAREHOLDER SERVICING -- Prior to the date of the
Fund Combinations, SEI Financial Services Company served as the distributor for
the Lexicon Funds. The Lexicon Funds had adopted a Distribution Plan pursuant to
Rule 12b-1 under the Act for their Investor shares pursuant to which the
Investor shares would bear distribution expenses and related service fees at the
annual rate of .50 of 1% of each Fund's Investor class assets. Prior to the date
of the Fund Combinations, all fees were waived under this plan.
Subsequent to the Fund Combinations, for their Class B and Class C shares,
Intermediate-Term Bond and Intermediate-Term Government Funds have adopted a
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan
provides that the Funds may incur distribution expenses up to an annual fee of
.75 of 1% of the average daily net assets of the Class B and Class C shares. In
addition, subsequent to the Fund Combinations, $980 and $579 for Class A rule
12b-1 fees for Intermediate-Term Bond and Intermediate-Term Government,
respectively, were waived.
Short-Intermediate and U.S. Government, for their Class A, Class B and
Class C shares, have also adopted a Distribution Plan (the "Plan") pursuant to
Rule 12b-1 under the Act. The Plan provides that the Funds may incur
distribution expenses up to an annual fee of .75 of 1% of the average daily net
assets of the Class A, Class B and Class C shares. For the year ended June 30,
1996, the payments for Class A shares were limited to .25 of 1% of Class A
shares average daily net assets for U.S. Government and .10 of 1% of Class A
shares average daily net assets for Short-Intermediate.
In connection with their Plans, the Funds have entered into distribution
agreements with Evergreen Funds Distributor, Inc. ("EFD"), a subsidiary of
Furman Selz. Under their agreements, the Funds will compensate EFD for its
services at an annual fee of .25 of 1% of Class A share's average daily net
assets and .75 of 1% of their Class B and Class C average daily net assets. For
the period ended June 30, 1996, EFD voluntarily limited its Class A distribution
fees to .10% for Intermediate-Term Bond, Intermediate-Term Government and
Short-Intermediate, respectively. Under the terms of a Shareholder Services
42
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES -- continued
Agreement with First Union Brokerage Services ("FUBS"), each of the Funds will
pay FUBS up to .25 of 1% of average daily net assets of the Funds' Class B and
Class C shares. This fee is designed to obtain certain services for shareholders
and to maintain the shareholder accounts.
EFD has advised the Funds that it has retained the following amounts from
front-end sales charges resulting from sales of Class A shares during the period
ended June 30, 1996:
<TABLE>
<CAPTION>
FRONT-END
SALES CHARGES
<S> <C>
Intermediate-Term Bond.................... $ --
Intermediate-Term Government.............. 212
Short-Intermediate........................ 26,528
U.S. Government........................... 31,583
</TABLE>
ORGANIZATIONAL EXPENSES -- U.S. Government's organizational expenses were
borne initially by a prior administrator. As a result of the change in the
administration agreement, First Union purchased the remaining unreimbursed
initial organizational expenses from the prior administrator. U.S. Government
will reimburse First Union during the five-year period following its
commencement of operations. Pursuant to these arrangements, as of and for the
year ended June 30, 1996, U.S. Government has paid and has a remaining liability
of $11,688 and $28,385, respectively.
NOTE 4 -- INVESTMENT TRANSACTIONS
The cost of purchases and proceeds from sales of investments, excluding
short-term securities, for the period ended June 30, 1996 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
U.S. GOVERNMENT OTHER U.S. GOVERNMENT OTHER
<S> <C> <C> <C> <C>
Intermediate-Term Bond.................................... $ 49,109,694 $10,010,491 $ 49,575,656 $23,405,311
Intermediate-Term Government.............................. 27,710,156 -- 43,688,187 --
Short-Intermediate........................................ 202,124,883 81,733,953 189,227,311 65,574,200
U.S. Government........................................... 151,080,199 -- 44,437,093 --
</TABLE>
On June 30, 1996, 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 TAX COST
<S> <C> <C> <C> <C>
Intermediate-Term Bond............................................. $2,462,587 $ 2,864,690 $ (402,103) $157,804,849
Intermediate-Term Government....................................... 905,766 570,180 335,586 86,053,052
Short-Intermediate................................................. 3,481,215 7,318,458 (3,837,243) 410,049,754
U.S. Government.................................................... 436,598 12,134,414 (11,697,816) 316,389,928
</TABLE>
NOTE 5 -- SHARES OF BENEFICIAL INTEREST
The Funds have an unlimited number of $0.0001 par shares authorized. Each
of the funds 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 up to 3.25% for Intermediate-Term Bond, Intermediate-Term Government
and Short-Intermediate and up to 4.75% for U.S. Government. 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 six-year period. Class C shares are
sold with a contingent deferred sales charge of 1% for shares redeemed during
the first year after purchase. Class Y shares are sold without a sales charge
and are available only to investment advisory clients of First Union and its
affiliates, certain institutional investors and Class Y shareholders of record
of other funds managed by First Union and its affiliates as of December 30,
1994. All classes have identical voting,
43
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
dividend, liquidation and other rights, except that certain classes bear
different distribution expenses (see Note 3) and have exclusive voting rights
with respect to their distribution plan.
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
TEN MONTHS ENDED YEAR ENDED
JUNE 30, 1996* AUGUST 31, 1995**
INTERMEDIATE-TERM BOND SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold...................................................... 292,734 $ 2,962,857 24,799 $ 255,892
Shares issued on reinvestment of distributions................... 3,368 34,080 209 2,134
Shares redeemed.................................................. (20,323 ) (206,789) (9,442) (96,968)
Net increase..................................................... 275,779 2,790,148 15,566 161,058
CLASS B
Shares sold...................................................... 40,844 415,640 -- --
Shares issued on reinvestment of distributions................... 228 2,296 -- --
Shares redeemed.................................................. (1,244 ) (12,553) -- --
Net increase..................................................... 39,828 405,383 -- --
CLASS C
Shares sold...................................................... 2,450 24,797 -- --
Shares issued on reinvestment of distributions................... 16 167 -- --
Net increase..................................................... 2,466 24,964 -- --
CLASS Y
Shares sold...................................................... 3,399,442 35,128,164 1,606,066 16,021,590
Shares issued in acquisition of Evergreen Managed Bond Fund...... 7,674,423 79,773,557 -- --
Shares issued on reinvestment of distributions................... 438,427 4,507,655 498,736 4,954,965
Shares redeemed.................................................. (5,208,789 ) (54,641,619) (2,018,177) (20,054,880)
Net increase..................................................... 6,303,503 64,767,757 86,625 921,675
Total net increase resulting from Fund
share transactions............................................. 6,621,576 67,988,252 102,191 1,082,733
</TABLE>
* For Class B Shares, the Fund share transaction activity reflects the period
January 30, 1996 (commencement of class operations) to June 30, 1996. For
Class C Shares, the Fund share transaction activity reflects the period April
29, 1996 (commencement of class operations) to June 30, 1996.
** For Class A Shares, the fund share transaction activity reflects the period
May 2, 1995 (commencement of class operations) to August 31, 1995.
44
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
TEN MONTHS ENDED YEAR ENDED
JUNE 30, 1996* AUGUST 31, 1995**
INTERMEDIATE-TERM GOVERNMENT SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold...................................................... 64,791 $ 663,129 879 $ 8,925
Shares issued on reinvestment of distributions................... 1,503 15,239 -- --
Shares redeemed.................................................. (17,382) (175,816) -- --
Net increase..................................................... 48,912 502,552 879 8,925
CLASS B
Shares sold...................................................... 35,925 359,696 -- --
Shares issued on reinvestment of distributiions.................. 67 666 -- --
Shares redeemed.................................................. (2) (23) -- --
Net increase..................................................... 35,990 360,339 -- --
CLASS C
Shares sold...................................................... 3,551 35,538 -- --
Shares issued on reinvestment of distributions................... 26 254 -- --
Shares redeemed.................................................. (324) (3,205) -- --
Net increase..................................................... 3,253 32,587 -- --
CLASS Y
Shares sold...................................................... 1,257,974 12,770,139 1,999,051 19,833,912
Shares issued on reinvestment of distributions................... 402,054 4,079,359 526,254 5,214,391
Shares redeemed.................................................. (3,404,763) (34,447,480) (2,799,781) (27,796,468)
Net decrease..................................................... (1,744,735) (17,597,982) (274,476) (2,748,165)
Total net decrease resulting from Fund
share transactions............................................. (1,656,580) ($16,702,504) (273,597) ($ 2,739,240)
</TABLE>
* For Class B Shares, the Fund share transaction activity reflects the period
February 9, 1996 (commencement of class operations) to June 30, 1996. For
Class C Shares, the Fund share transaction activity reflects the period April
10, 1996 (commencement of class operations) to June 30, 1996.
** For Class A Shares, the fund share transaction activity reflects the period
May 2, 1995 (commencement of class operations) to August 31, 1995.
45
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1995
SHORT-INTERMEDIATE SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold...................................................... 417,422 $ 4,161,754 229,181 $ 2,246,501
Shares issued on reinvestment of distributions................... 91,045 906,558 51,319 500,703
Shares redeemed.................................................. (498,266) (4,979,754) (403,087) (3,946,036)
Net increase (decrease)........................................ 10,201 88,558 (122,587) (1,198,832)
CLASS B
Shares sold...................................................... 844,991 8,456,439 101,244 987,765
Shares issued on reinvestment of distributions................... 74,101 739,247 34,321 335,572
Shares redeemed.................................................. (512,788) (5,128,366) (252,818) (2,457,608)
Net increase (decrease)........................................ 406,304 4,067,320 (117,253) (1,134,271)
CLASS C
Shares sold...................................................... 94,089 944,432 2,424 23,946
Shares issued on reinvestment of distributions................... 3,083 30,731 594 5,816
Shares redeemed.................................................. (32,296) (321,263) (4,260) (41,852)
Net increase (decrease)........................................ 64,876 653,900 (1,242) (12,090)
CLASS Y
Shares sold...................................................... 15,667,603 156,775,980 6,633,965 64,819,418
Shares issued on reinvestment of distributions................... 1,726,865 17,202,491 1,084,829 10,581,894
Shares redeemed.................................................. (16,165,702) (161,849,781) (9,328,176) (91,429,481)
Net increase (decrease)........................................ 1,228,766 12,128,690 (1,609,382) (16,028,169)
Total net increase (decrease) resulting from Fund
share transactions............................................. 1,710,147 $ 16,938,468 (1,850,464) ($18,373,362)
</TABLE>
46
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1995
U.S. GOVERNMENT SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold........................................................ 786,564 $ 7,560,325 129,542 $1,230,340
Shares issued on reinvestment of distributions..................... 78,565 755,991 38,627 363,779
Shares redeemed.................................................... (1,032,918) (9,892,163) (455,148) (4,253,390)
Net decrease..................................................... (167,789) (1,575,847) (286,979) (2,659,271)
CLASS B
Shares sold........................................................ 1,702,353 16,401,640 361,937 3,402,126
Shares issued on reinvestment of distributions..................... 533,686 5,138,748 310,078 2,918,499
Shares redeemed.................................................... (4,576,583) (43,960,576) (2,281,908) (21,266,740)
Net decrease..................................................... (2,340,544) (22,420,188) (1,609,893) (14,946,115)
CLASS C
Shares sold........................................................ 43,395 420,990 21,067 197,099
Shares issued on reinvestment of distributions..................... 1,437 13,783 377 3,563
Shares redeemed.................................................... (12,168) (117,297) (14,514) (136,177)
Net increase..................................................... 32,664 317,476 6,930 64,485
CLASS Y
Shares sold........................................................ 11,801,163 113,796,388 370,297 3,492,186
Shares issued in acquisition of Evergreen U.S. Government
Securities Fund.................................................. 590,505 5,739,713 -- --
Shares issued on reinvestment of distributions..................... 620,463 5,963,291 48,784 459,225
Shares redeemed.................................................... (1,866,525) (17,896,649) (383,032) (3,590,857)
Net increase..................................................... 11,145,606 107,602,743 36,049 360,554
Total net increase (decrease) resulting from Fund
share transactions............................................... 8,669,937 $ 83,924,184 (1,853,893) ($17,180,347)
</TABLE>
NOTE 6 -- 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, 1996 is as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
FUND SECURITY DATE COST
<S> <C> <C> <C>
Intermediate-Term Bond CenFed Financial Corp. 12/15/94 $ 500,000
Intermediate-Term Bond Goldman Sachs Group 7/8/94 922,280
Intermediate-Term Bond Jet Equipment Trust 12/9/94 2,000,000
Intermediate-Term Bond Progress Capital Holdings 9/6/91 1,998,060
Short-Intermediate Associated P&C Holdings, Inc. 7/15/93 2,972,350
Short-Intermediate CenFed Financial Corp. 12/15/94 3,000,000
Short-Intermediate Metropolitan Life Insurance Co. 10/28/93 4,986,800
Short-Intermediate Metropolitan Life Insurance Co. 11/8/95 4,998,400
</TABLE>
47
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE TRUSTEES AND SHAREHOLDERS OF
EVERGREEN INCOME FUNDS:
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, 1996, and the related statements of operations, changes in net assets,
and the financial highlights for each of the periods listed below:
Evergreen Intermediate-Term Bond Fund (formerly FFB Lexicon Fixed Income
Fund) -- statements of operations and changes in net assets and financial
highlights for the ten-month period ended June 30, 1996.
Evergreen Intermediate-Term Government Securities Fund (formerly FFB
Lexicon Intermediate-Term Government Securities Fund) -- statements of
operations and changes in net assets and financial highlights for the
ten-month period ended June 30, 1996.
Evergreen Short-Intermediate Bond Fund (formerly Evergreen Fixed Income
Fund) -- statement of operations for the year ended June 30, 1996,
statements of changes in net assets for the year ended June 30, 1996 and
for the six-month period ended June 30, 1995, and the financial highlights
for each of the years or periods from January 1, 1992 through June 30,
1996.
Evergreen U.S. Government Fund -- statement of operations for the year
ended June 30, 1996, statements of changes in net assets for the year ended
June 30, 1996 and the six-month period ended June 30, 1995, and the
financial highlights for each of the years or periods from January 1, 1993
(commencement of operations) through June 30, 1996.
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. The
accompanying financial statements and financial highlights of Evergreen
Intermediate-Term Bond Fund and Evergreen Intermediate-Term Government
Securities Fund for the years or periods from November 1, 1991 through August
31, 1995 were audited by other auditors whose report dated October 6, 1995
expressed an unqualified opinion on those statements and financial highlights.
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 and financial highlights. Our procedures included confirmation of
securities owned as of June 30, 1996, 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 of the
Evergreen Short-Intermediate Bond Fund and Evergreen U.S. Government Fund
referred to above and the 1996 financial statements and financial highlights of
the Evergreen Intermediate-Term Bond Fund and Evergreen Intermediate-Term
Government Securities Fund present fairly, in all material respects, the
financial position of each of the four funds constituting Evergreen Income Funds
as of June 30, 1996, and the results of their operations, changes in their net
assets, and the financial highlights for each of the periods listed in the third
preceding paragraph above, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
August 26, 1996
48
<PAGE>
TRUSTEES AND OFFICERS
TRUSTEES:
Laurence B. Ashkin*
Foster Bam*
James S. Howell, Chairman
Robert J. Jefferies*
Gerald M. McDonnell
Thomas L. McVerry
William W. Pettit
Russell A. Salton, III M.D.
Michael S. Scofield
OFFICERS:
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
*Trustees for Intermediate-Term Bond and Intermediate-Term Government only.
<PAGE>
This brochure must be preceded or
accompanied by a prospectus of an
Evergreen fund contained herein. The
prospectus contains more complete
information, including fees and expenses,
and should be read carefully before
investing or sending money.
NOT May lose value
FDIC No bank guarantee
INSURED
Evergreen Funds Distributor, Inc.
Evergreen(SM) is a Service Mark of Evergreen Asset Management
Corp. Copyright 1996, Evergreen Asset Management Corp.
44065 539224
8/96
<PAGE>
