Evergreen Keystone
Short & Intermediate
Term Bond Funds
(photo of Grand Canyon)
1997 Annual Report
Evergreen Keystone
(logo) FUNDS (SM) (logo)
<PAGE>
EVERGREEN KEYSTONE
(logo
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders............................... 1
Keystone Capital Preservation and Income Fund
Fund at a Glance................................... 2
Management Report.................................. 3
</TABLE>
Evergreen Intermediate-Term Bond Fund
<TABLE>
<S> <C>
Fund at a Glance................................... 4
Management Report.................................. 5
Keystone Intermediate Term Bond Fund
Fund at a Glance................................... 6
Management Report.................................. 7
Evergreen Intermediate-Term Government Securities
Fund
Fund at a Glance................................... 8
Management Report.................................. 9
Evergreen Short-Intermediate Bond Fund
Fund at a Glance................................... 10
Management Report.................................. 11
Growth of Investments................................ 12
Financial Highlights
Keystone Capital Preservation and Income Fund...... 14
Evergreen Intermediate-Term Bond Fund.............. 16
Keystone Intermediate Term Bond Fund............... 18
Evergreen Intermediate-Term Government Securities
Fund............................................ 20
Evergreen Short-Intermediate Bond Fund............. 22
Schedule of Investments
Keystone Capital Preservation and Income Fund...... 25
Evergreen Intermediate-Term Bond Fund.............. 27
Keystone Intermediate Term Bond Fund............... 29
Evergreen Intermediate-Term Government Securities
Fund............................................ 31
Evergreen Short-Intermediate Bond Fund............. 32
Statements of Assets and Liabilities................. 34
Statements of Operations............................. 35
Statements of Changes in Net Assets.................. 37
Combined Notes to Financial Statements............... 40
Independent Auditors' Report-- KPMG Peat Marwick
LLP................................................ 49
</TABLE>
ABOUT EVERGREEN KEYSTONE
Since 1971, the Evergreen Funds have been providing investors with a proven,
value-driven approach to equity investment management. For over 60 years of
changing economic conditions, Keystone has taken pride in helping investors meet
their financial goals through a broad range of financial products and services.
Combined, Evergreen Keystone offers over 70 funds designed to meet a broad range
of objectives, including fixed-income, balanced, growth and income, and
aggressive growth. Assets under management total more than $30 billion.
<PAGE>
EVERGREEN KEYSTONE (logo)
LETTER TO SHAREHOLDERS
August 1997
(photo of William M. Ennis)
WILLIAM M. ENNIS
Dear Shareholders:
Investors in fixed income funds may sometimes feel as if they are watching all
the fun from the sidelines. Certainly, during the past year, investors in many
equity-oriented mutual funds enjoyed another year in which many funds returned
20% or more.
At times such as this, however, it is important to remind ourselves that seeking
equity-like returns is not what some funds are supposed to be doing. The five
mutual funds discussed in this annual report all have similar objectives-- to
provide regular income and to conserve principal.
We believe each of these funds did a very good job of meeting that objective
during a year which was challenging for fixed income investors. While interest
rates finished the 12-month period at about the same point at which they
started, the point-to-point comparison masked a great deal of rate fluctuations
during the year, with longer-term rates falling and then rising by almost a full
percentage point. In this environment, the short-to-intermediate term strategies
employed by each of the funds worked very well, delivering regular income and
protecting principal. By the end of the 12-month period, each of the funds
provided handsome real returns, especially when measured against the low rate of
inflation we have been enjoying. And they provided these returns without taking
the significant credit risks of high yield bonds or the market risks of
longer-maturity bonds.
These conservative investment strategies make sense for investors who are
interested in regular income, but who want to limit the risks they take with
their investment dollars. However, after the stock market's sharp ascent this
spring and summer, these strategies also make sense for growth-oriented
investors who want to reduce their overall portfolio risks by putting at least
part of their investments in conservative fixed income funds. Diversification
always is prudent, but it is especially prudent when one asset class (in this
case common stocks) has risen dramatically in relative price after a prolonged
period of above-average returns.
At Evergreen Keystone, we encourage all shareholders to consult regularly with
their financial advisers to help determine whether their mix of investments
continues to be appropriate, given current needs, tolerance for risk, and market
conditions.
I am delighted to inform you that Evergreen Keystone has successfully integrated
all service functions of Evergreen and Keystone Funds. This means that you now
have full exchange privileges among all Evergreen and Keystone America funds. In
addition, you will be receiving the top-flight service that earned Evergreen
Keystone the 1996 Dalbar Quality Tested Service Seal, the highest award for
mutual fund service presented by Dalbar, an independent mutual fund survey and
rating firm.
In the following pages, Evergreen Keystone investment professionals will give
you more detailed information about the investment environment and the
strategies employed in managing your funds. You will notice that this annual
report is a departure from past reports in format. It represents the effort of
Evergreen Keystone Funds to provide thoughtful reports and to present them in a
format that is attractive and makes information easily accessible. We are very
interested in hearing your thoughts on this new format, and we welcome your
suggestions.
Sincerely,
/s/WILLIAM M. ENNIS
WILLIAM M. ENNIS
MANAGING DIRECTOR
1
<PAGE>
KEYSTONE
(Logo and picture) CAPITAL PRESERVATION AND INCOME FUND
of capital)
FUND-AT-A-GLANCE
As of June 30, 1997
<TABLE>
<CAPTION>
ONE YEAR PERFORMANCE CLASS A CLASS B CLASS C
<S> <C> <C> <C>
One year with sales charge 3.26 % 1.04 % 5.05 %
One year w/o sales charge 6.73 % 6.04 % 6.05 %
One year dividends per share 57.1(cents) 49.4(cents) 49.4 (cents)
30-day SEC Yield
(as of 6/30/97) 5.81 % 5.22 % 5.25 %
<CAPTION>
AVERAGE
ANNUAL RETURNS** CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Three years N/A 4.59 % 5.54 %
Five years N/A 3.80 % N/A
Since Inception* 5.84 % 4.51 % 4.55 %
<CAPTION>
CUMULATIVE RETURNS** CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Nine months w/o sales charge 5.12 % 4.53 % 4.53 %
Three years N/A 14.41 % 17.55 %
Five years N/A 20.50 % N/A
Since Inception* 15.26 % 30.35 % 21.70 %
</TABLE>
* CLASS A BEGAN 12/30/94; CLASS B BEGAN 7/1/91;
CLASS C BEGAN 2/1/93.
** ALL RETURNS INCLUDE THE MAXIMUM APPLICABLE SALES CHARGE.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
<S> <C> <C> <C>
Total Net Assets (all classes) $52.8 million
Average Credit Quality AAA
Average Maturity 4.92 years
Average Duration 0.75 years
</TABLE>
PORTFOLIO ALLOCATIONS JUNE 30, 1997
(AS A PERCENTAGE OF NET ASSETS)
(A PIE GRAPH APPEARS HERE. SEE TABLE BELOW FOR PLOT POINTS.)
U.S. Treasuries 3.7%
Fixed rate mortgages 2.2%
Repurchase agreements & other net assets 2.8%
Adjustable-rate mortgages 91.3%
PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE.
OBJECTIVE
Keystone Capital Preservation and Income Fund seeks high current income
consistent with low volatility of principal by investing in adjustable-rate
mortgage-backed securities and loan pools. The Fund may be appropriate for
investors seeking monthly dividends, an investment in a fund composed 100% of
government securities and therefore of the highest credit quality, and the
potential for less share price fluctuation than intermediate and longer-term
bond funds.
STRATEGY
The Fund invests primarily in adjustable-rate mortgage securities issued by the
U.S. Government, its agencies or instrumentalities. Adjustable-rate mortgage
securities (ARMS) are pools of residential mortgage loans on which the interest
rate is periodically adjusted to reflect the current interest rate environment.
By investing in ARMS, the Fund seeks to minimize fluctuations in its share price
relative to other bond funds. However, unlike money market funds, the Fund does
not seek to maintain a completely stable share price.
PORTFOLIO MANAGER
(picture of
Gary Pzegeo) Gary Pzegeo, a Vice President and Portfolio Manager in the
Fixed Income Group of Keystone Investment Management Company,
is Portfolio Manager of Keystone Capital Preservation and
Income Fund. An investment professional with seven years'
experience, Mr. Pzegeo also is manager of Keystone
Institutional Adjustable Rate Fund. Mr. Pzegeo joined Keystone
in 1990. He has several years' experience in analysis of
mortgage-backed securities. A Chartered Financial Analyst, Mr.
Pzegeo is a member of the Boston Securities Analysts Society,
the Government Bond Club of New England, and the Association
of Investment Management and Research. He holds a B.A. in
business administration from the University of Massachusetts.
2
<PAGE>
KEYSTONE (logo and picture
CAPITAL PRESERVATION AND INCOME FUND of capital)
MANAGEMENT REPORT
August 1997
Dear Shareholder:
We are pleased to report to you on the Keystone Capital Preservation and Income
Fund for the fiscal period that ended on June 30, 1997. This report is an annual
report, reflecting the new fiscal year ending date of June 30, replacing the
former fiscal year ending each September 30.
PERFORMANCE
Your Fund performed well during the past year, as the relatively high
concentration of adjustable-rate mortgage securities helped the Fund be
responsive to changes in interest rates. In addition to providing a yield
premium over money market funds, the Fund was able to protect principal by
maintaining a relatively stable net asset value. The Fund concentrated its
investments in relatively low-risk, geographically diverse adjustable-rate
securities. As an example of the Fund's price stability during the past year,
the net asset value of Class A Shares began the fiscal period at $9.74 per share
on September 30, 1996. The net asset value was $9.76 on December 31, 1996 and
$9.80 on June 30, 1997.
ENVIRONMENT
In late 1996 and the first half of 1997, the investment environment was marked
by changing attitudes about the pace of economic growth in the United States. In
the latter part of 1996 and early this year, the economy appeared to be
accelerating, primarily driven by consumer demand. Slowing retail sales and
stable housing sales began to be evident late in the first quarter, however,
signaling a slowdown in consumer activity.
In the bond market, after long-term interest rates hit a low point in November
1996, they started rising because of reports of strong growth late in 1996 and
in expectation that the Federal Reserve Board might increase short-term rates.
In fact, the Federal Reserve Board did increase short-term rates by one-quarter
of one percent in late March.
Interest rates appeared to peak in late March before gradually moving back down.
For example, the interest rate of a two-year Treasury declined from 6.41% on
March 31 to 6.06% on June 30.
STRATEGY
Starting in the second half of 1996, following reports of strong economic growth
and in anticipation of increases in interest rates, your Fund's management team
began increasing the emphasis on adjustable-rate mortgages, both as a defensive
measure to protect the net asset value and to gain the benefit of additional
interest income from higher rates. This increased emphasis continued into 1997.
Adjustable-rate mortgages, whose interest payments reset at regular intervals as
interest rates rise and fall, increased from about 85% of net assets on
September 30, 1996 to 96% by March 31, 1997. By the close of the fiscal year,
the percentage was about 91%.
Within the fixed-rate portion of the portfolio, maturities were extended
somewhat as the threat of higher rates subsided.
The overriding strategy of the Fund has been to seek a yield advantage over
other short-term investments, while providing capital protection. In pursuing
this strategy, the portfolio management team has purchased adjustable-rate
mortgages that are mature, with an average age of seven years. Mortgages of this
age historically have tended not to be refinanced as frequently as younger
mortgages. The geographical sources of these mortgages also has been
diversified, to reduce the risk that events in any one section of the country
could have a disproportionate impact on the Fund. The reset dates of the
adjustable-rate mortgages also are diversified to reduce the risk that market
interest rates at any one point could have a disproportionate impact on the
Fund.
All mortgages are backed by the U.S. government or government agencies. The
average credit rating remains AAA.
OUTLOOK
Going forward, we believe the economy may increase its growth rate in the third
quarter of 1997 after the apparent slowdown of the second, with gross domestic
product growing at an anticipated 2 1/2-to-3% during the second half of the
year. At the same time, we believe inflation can be contained within the present
2 1/2-to-3% range, and that interest rates will remain stable. We expect to
continue to manage the Fund conservatively, with a relatively high concentration
of adjustable-rate mortgages.
Thank you for your support of Keystone Capital Preservation and Income Fund.
Sincerely,
/s/ ALBERT H. ELFNER, III
ALBERT H. ELFNER, III
CHAIRMAN
Keystone Investment Management Company
/s/GARY E. PZEGEO
GARY E. PZEGEO
VICE PRESIDENT
PORTFOLIO MANAGER
3
<PAGE>
EVERGREEN
(logo and picture INTERMEDIATE-TERM BOND FUND
of a star)
FUND-AT-A-GLANCE
As of June 30, 1997
<TABLE>
<CAPTION>
ONE YEAR
PERFORMANCE CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
One year with sales
charge 3.41 % 0.91 % 4.91 % 6.97 %
One year w/o sales
charge 6.88 % 5.91 % 5.91 % 6.97 %
One year dividends per
share 60.6(cents) 51.3(cents) 51.3(cent) 61.5(cents)
30-day SEC Yield
(as of 6/30/97) 5.57 % 4.81 % 4.83 % 5.82 %
<CAPTION>
AVERAGE ANNUAL
RETURNS**
CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Three years N/A N/A N/A 7.18 %
Five years N/A N/A N/A 6.60 %
Since Inception* 5.24 % -1.15 % 5.31 % 7.13 %
<CAPTION>
CUMULATIVE
RETURNS** CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Three years N/A N/A N/A 23.14 %
Five years N/A N/A N/A 37.67 %
Since Inception* 11.71 % -1.62 % 6.26 % 47.77 %
</TABLE>
* CLASS A BEGAN 5/2/95; CLASS B BEGAN 1/30/96; CLASS C BEGAN 4/29/96; CLASS Y
BEGAN 11/1/91.
** ALL RETURNS INCLUDE THE MAXIMUM APPLICABLE SALES CHARGE.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
<S> <C>
Total Net Assets (all classes) $160.4 million
Average Credit Quality AAA
Average Maturity 8.89 years
Duration 4.61 years
</TABLE>
CREDIT QUALITY JUNE 30, 1997
(AS A PERCENTAGE OF PORTFOLIO ASSETS)
(A pie graph appears here. See table below for plot points.)
AA 6%
A 21%
AAA 73%
PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE.
OBJECTIVE
Evergreen Intermediate-Term Bond Fund seeks to preserve principal while
maximizing current yield.
STRATEGY
The Fund invests primarily in U.S. Government obligations, mortgage-backed
securities and corporate bonds and debentures. These securities typically have
average maturities of five to 10 years.
PORTFOLIO MANAGER
(photo of Bruce J. Besecker, C.F.A., a Vice President and Senior
Bruce J. Portfolio Manager of First Union Capital Management Group, is
Besecker) Portfolio Manager of Evergreen Intermediate-Term Bond Fund.
Mr. Besecker, who has more than 16 years' professional
investment experience, is manager of the Philadelphia Taxable
Fixed Income Unit of First Union Capital Management. Prior to
joining First Union, Mr. Besecker was an Assistant Vice
President in Institutional Sales at Merrill Lynch in New York,
and a Senior Trust Officer and Portfolio Manager at First
Fidelity Bank. He also has served as a Research Assistant in
the Economics Department at the Federal Reserve Bank in
Philadelphia. Mr. Besecker, a Chartered Financial Analyst, is
a member of the Philadelphia Financial Analysts Society. He is
a graduate of the University of Pennsylvania and holds an
M.B.A. from The Wharton School.
4
<PAGE>
EVERGREEN (logo and picture
INTERMEDIATE-TERM BOND FUND of a star)
MANAGEMENT REPORT
August 1997
Dear Shareholders:
We are pleased to report to you on the Evergreen Intermediate-Term Bond Fund for
the 12-month fiscal year that ended on June 30, 1997.
PERFORMANCE
Your Fund performed very well during the past fiscal year, buoyed by the
addition of higher yielding securities that increased yield and total return,
and by the decision to maintain a fully invested position.
ENVIRONMENT
During the 12-month fiscal year, the U.S. economy grew at an exceptional pace.
As this growth persisted, often in defiance of predictions of an economic
slowdown, bond market participants became increasingly concerned that the
strength of the economy could provoke an increase in inflation. In response to
these concerns, interest rates rose dramatically during the early months of
1997. Conversely, during the second quarter of 1997, investors' fears receded as
economic data indicated slower economic growth and little inflationary pressure.
This resulted in a steady decline in interest rates, reversing most of the first
quarter's increase. However, the financial markets are keeping a wary eye on
each new economic report, searching for any signs of inflationary pressure that
could prompt the Federal Reserve Board to raise the Federal Funds rate beyond
the 0.25% increase of March 25.
STRATEGY
The fluctuating interest rate environment and seemingly trendless market over
the past 12 months have made portfolio management increasingly challenging.
During this period, duration was maintained in a range of 90% to 110% of the
Fund's benchmark, the Lehman Brothers Intermediate Government Corporate Bond
Index. As of June 30, the duration was at the lower end of this range. We
anticipate maintaining our shorter relative duration as we believe rates may
modestly rise in the coming months. At the end of the fiscal year, duration was
4.61 years and average maturity was 8.89 years.
In addition, your Fund's Treasury position has been reduced and the allocations
to both corporate bonds and mortgage-backed securities have been increased both
to increase yield and to improve total return opportunities. We also adjusted
the maturity structure of the portfolio by underweighting the intermediate
position and overweighting both short-term and longer-term securities. This
strategy is being pursued to enhance returns as yield spreads narrow between
short-term and long-term maturities.
MATURITY AS OF JUNE 30, 1997
(AS A PERCENTAGE OF PORTFOLIO ASSETS)
(A pie graph appears here. See table below for plot points.)
0-1 Year 21%
1-3 Years 10%
3-5 Years 15%
5-10 Years 8%
10-20 Years 25%
20+ Years 21%
PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE.
OUTLOOK
We enter the second half of 1997 with a degree of caution. The principal concern
in the bond market remains the inflation "wildcard," as investors try to
determine whether interest rates can continue their bullish run in this economic
environment. According to traditional analysis, this cannot continue. Our
primary concern is that strong economic growth ultimately brings inflationary
pressures, which in turn would push the Federal Reserve Board to raise interest
rates. With this uncertainty in the market, we plan to keep portfolio structure
and duration relatively neutral. We also will continue to look for opportunities
to increase yield through the addition of attractive mortgage-backed securities
and other higher yielding instruments.
Thank you for your investment in Evergreen Intermediate-Term Bond Fund.
Sincerely,
/s/RICHARD K. WAGONER
RICHARD K. WAGONER
EXECUTIVE VICE PRESIDENT
CHIEF INVESTMENT OFFICER
First Union Capital Management Group
/s/BRUCE J. BESECKER
BRUCE J. BESECKER
VICE PRESIDENT
SENIOR PORTFOLIO MANAGER
5
<PAGE>
KEYSTONE
INTERMEDIATE TERM BOND FUND
(logo and picture of stars)
FUND-AT-A-GLANCE
As of June 30, 1997
<TABLE>
<CAPTION>
ONE YEAR PERFORMANCE CLASS A CLASS B CLASS C
<S> <C> <C> <C>
One year with sales charge 5.30 % 3.17 % 7.06 %
One year w/o sales charge 8.83 % 8.17 % 8.06 %
One year dividends per share 52.0 (cents) 46.3(cents) 46.3 (cents)
30-day SEC Yield
(as of 6/30/97) 5.82 % 5.25 % 5.26 %
<CAPTION>
AVERAGE
ANNUAL RETURNS** CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Three years 6.34 % 5.82 % 6.67 %
Five years 5.89 % N/A N/A
Ten years 6.56 % N/A N/A
Since Inception* N/A 4.61 % 4.96 %
<CAPTION>
CUMULATIVE RETURNS** CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Eleven months w/o sales charge 8.40 % 7.81 % 7.70 %
Three years 20.24 % 18.51 % 21.38 %
Five years 33.11 % N/A N/A
Ten years 88.72 % N/A N/A
Since Inception* N/A 22.01 % 23.80 %
</TABLE>
* CLASSES B AND C BEGAN 2/1/93.
** ALL RETURNS INCLUDE THE MAXIMUM APPLICABLE SALES CHARGE. FOR CLASSES WITH
MORE THAN A 10-YEAR HISTORY, THE 10-YEAR HISTORY IS PRESENTED.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
<S> <C>
Total Net Assets (all classes) $29.0 million
Average Credit Quality AA-
Average Maturity 6.3 years
Duration 4.6 years
</TABLE>
PORTFOLIO QUALITY JUNE 30, 1997
(AS A PERCENTAGE OF PORTFOLIO ASSETS)
(A pie graph appears here. See table below for plot points.)
BBB 18%
A 32%
AAA 38%
AA 12%
PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE.
OBJECTIVE
Keystone Intermediate Term Bond Fund seeks current income and, secondarily,
capital preservation from investments in investment grade and high quality
bonds.
STRATEGY
The Fund is designed to balance the benefits of short-and long-term bonds, by
providing more income than short-term bonds and greater price stability than
long-term bonds. The Fund invests primarily in government and corporate bonds
and mortgage-backed securities with maturities of less than 10 years.
PORTFOLIO MANAGER
(photo of Christopher P. Conkey, Senior Vice President and Chief
Christopher Investment Officer, Fixed Income, of Keystone Investment
P. Conkey) Management Company, is Portfolio Manager of Keystone
Intermediate Term Bond Fund. An investment professional with
more than 14 years' experience, Mr. Conkey also is Portfolio
Manager of Keystone Diversified Bond Fund (B-2). Mr. Conkey
joined Keystone in 1988 from Constitution Capital, where he
was a Vice President. A Chartered Financial Analyst, Mr.
Conkey is a member of the Government Bond Club of New England
and the Bond Analysts Society of Boston. He is a graduate of
Clark University and received his M.B.A. from Boston
University.
6
<PAGE>
KEYSTONE
INTERMEDIATE TERM BOND FUND (logo and picture
of stars)
MANAGEMENT REPORT
August 1997
Dear Shareholder:
We are pleased to report to you on the Keystone Intermediate Term Bond Fund for
the fiscal period that ended on June 30, 1997. This report is an annual report,
reflecting the new fiscal year ending date of June 30, replacing the former
fiscal year ending each July 31.
PERFORMANCE
Your Fund performed very well during the past year. In an environment of
moderate economic growth, modest inflation, and relatively stable interest
rates, your Fund was able to take advantage of opportunities among better
quality corporate bonds and mortgage-backed securities to provide generous
income consistent with limited price fluctuation.
ENVIRONMENT
During the past year, the U.S. economy enjoyed healthy economic growth and low
inflation. If one were to look at interest rates at the beginning and end of the
year, despite some near-term volatility one would see remarkable stability in
rates. For example, the yield on a 30-year Treasury bond was 6.78% on June 30,
just slightly below the 6.97% of July 31, 1996. This was an environment in which
corporate bonds tended to do very well, as credit risk was low because of the
overall strength of the economy.
STRATEGY
In the relatively stable interest rate environment of the past year, your Fund
did not try to manage the portfolio maturities significantly in an effort to
anticipate the direction of interest rate movements. Rather, the portfolio
management team has searched for relative value among the various sectors in
which the Fund invests.
Your Fund took advantage of the strong economy to increase its emphasis on high
grade and investment grade corporate bonds and mortgage-backed securities, while
de-emphasizing U.S. Treasuries. Between December 31, 1996 and June 30, 1997, for
example, the allocation to U.S. government bonds in the portfolio was reduced
from 21% to 9% of net assets, while the allocation to industrial bonds was
increased from 13% to 16% and the allocation to collateralized mortgage
obligations was increased from 21% to 28%.
The Fund also has increased its allocation to foreign securities from 9% on
December 31, 1996 to approximately 24% at the end of the fiscal year. The
foreign emphasis was increased to take advantage of the yield advantage of
foreign bonds and to give the portfolio greater diversification. The Fund, which
has hedged all foreign securities back into the U.S. dollar to protect against
currency fluctuations, has invested in government bonds issued in Canada,
Denmark and Germany. All three countries are enjoying low inflation and
benefiting from sound fiscal policies.
PORTFOLIO COMPOSITION JUNE 30, 1997
(AS A PERCENTAGE OF NET ASSETS)
(A pie graph appears here. See table below for plot points)
Repurchase agreements and other net assets 2.2%
U.S Government 8.8%
Financial Corp. 15.3%
Industrial Corp. 15.9%
International/U.S.$ 15.4%
International/non-U.S.$* 8.8%
Mortgage-backed 27.5%
Asset-backed 6.1%
* NON-U.S.-DOLLAR-DENOMINATED BONDS WERE FULLY HEDGED BACK INTO U.S. CURRENCY.
PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE.
OUTLOOK
We believe the economy may increase its growth rate in the third quarter of 1997
after the apparent slowdown of the second, with gross domestic product growing
at an anticipated annualized rate of 2 1/2-to-3% during the second half of the
year. At the same time, we believe inflation can be contained within the present
2 1/2-to-3% range, and that interest rates will remain stable. We will continue,
however, to monitor wage costs very closely to watch for early signs of
inflation. With this favorable outlook, we anticipate a continued emphasis on
corporate and mortgage-backed securities for at least the next several months.
Thank you for your support of Keystone Intermediate Term Bond Fund.
Sincerely,
/s/ALBERT H. ELFNER, III
ALBERT H. ELFNER, III
CHAIRMAN
Keystone Investment Management Company
/s/CHRISTOPHER P. CONKEY
CHRISTOPHER P. CONKEY
SENIOR VICE PRESIDENT
CHIEF INVESTMENT OFFICER, FIXED INCOME
7
<PAGE>
EVERGREEN
(logo and photo of George Washington)
INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
FUND-AT-A-GLANCE
As of June 30, 1997
<TABLE>
<CAPTION>
ONE YEAR PERFORMANCE CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
One year with sales
charge 2.55 % 0.03 % 4.03 % 6.08 %
One year w/o sales
charge 6.00 % 5.03 % 5.03 % 6.08 %
One year dividends per
share 55.4(cents) 46.3(cents) 46.3(cents) 56.2 (cents)
30-day SEC Yield
(as of 6/30/97) 5.25 % 4.44 % 4.17 % 5.49 %
<CAPTION>
AVERAGE ANNUAL
RETURNS** CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Three years N/A N/A N/A 6.19 %
Five years N/A N/A N/A 5.38 %
Since Inception* 4.38 % -0.66 % 4.85 % 5.82 %
<CAPTION>
CUMULATIVE RETURNS** CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Three years N/A N/A N/A 19.76 %
Five years N/A N/A N/A 29.94 %
Since Inception* 9.74 % -0.92 % 5.97 % 37.82 %
</TABLE>
* CLASS A BEGAN 5/2/95; CLASS B BEGAN 2/9/96; CLASS C BEGAN 4/10/96;
CLASS Y BEGAN 11/1/91
** ALL RETURNS INCLUDE THE MAXIMUM APPLICABLE SALES CHARGE.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
<S> <C> <C> <C>
Total Net Assets (all classes) $72.9 million
Average Credit Quality AAA
Average Maturity 3.88 years
Duration 2.93 years
</TABLE>
PORTFOLIO COMPOSITION JUNE 30, 1997
(AS A PERCENTAGE OF PORTFOLIO ASSETS)
(A pie graph appears here. See tables below for plot points.)
U.S. Treasuries 71%
Mortgage-backed securities 18%
U.S. Govt. Agencies 10%
Short-term securities 1%
PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE.
OBJECTIVE
Evergreen Intermediate-Term Government Securities Fund seeks to maximize total
return and preserve principal while providing current income.
STRATEGY
The Fund invests primarily in securities issued by the U.S. Government and its
agencies. These securities typically have an average maturity of three to six
years, with a maximum maturity of ten years. The Fund seeks its objective over
full interest rate cycles, which typically last three to five years.
PORTFOLIO MANAGER
(photo of L. L. Robert Cheshire, a Vice President and Senior Portfolio
Robert Cheshire) Manager of First Union Capital Management Group, is Portfolio
Manager of Evergreen Intermediate-Term Government Securities
Fund. Mr. Cheshire also is in charge of the Newark Taxable
Fixed Income Unit of First Union. Prior to joining First
Union, Mr. Cheshire was a Vice President at Shearson Lehman
Hutton for 11 years in the Asset Management and Institutional
Government Securities Division. He was also a Vice President
of Government Securities for Charles E. Quincey and an
Assistant Vice President in the Municipal Securities
Department with Bankers Trust Co. in New York. Mr. Cheshire is
a graduate of Rutgers University and holds an M.B.A. from
Fairleigh Dickinson University.
8
<PAGE>
EVERGREEN (logo and
INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND photo of
George Washington)
MANAGEMENT REPORT
August 1997
Dear Shareholders:
We are pleased to report on Evergreen Intermediate-Term Government Securities
Fund for the 12-month fiscal year that ended on June 30, 1997.
PERFORMANCE
During the year, the Fund delivered satisfactory returns, consistent with its
objective to seek total return while preserving principal. For the first nine
months of the fiscal year, as interest rates rose, the Fund's slightly long
duration caused some underperformance against industry benchmarks. However, the
Fund outperformed its benchmark during the final three months of the year as
interest rates fell.
ENVIRONMENT
During the 12-month fiscal period, the U.S. economy experienced a pattern best
described as a series of "mini-cycles," with bonds trading within a relatively
narrow range of interest rates. Economic growth surged during the fourth quarter
of 1996 into the first quarter of 1997, subsequently causing concern over
inflationary pressure. Against this backdrop, bond market participants reviewed
each new economic report for any signs of inflation that could prompt the
Federal Reserve Board to increase interest rates. These market concerns resulted
in rising interest rates throughout the first quarter of 1997, culminating in
the March 25 decision by the Federal Reserve Board to raise the Federal Funds
rate by 0.25%. Conversely, investors' fears of inflation receded during the
second quarter of 1997 amid reports of slowing economic growth. As a result,
interest rates fell.
STRATEGY
The Fund's duration, or sensitivity to interest rate changes, was consistent
with that of the benchmark Lehman Brothers Intermediate Government Index during
the fiscal year. In implementing duration strategy, your Fund's investment
manager uses a disciplined process focusing on longer-term trends in the
economic environment. The Fund's duration was modestly shortened following the
Federal Reserve Board's decision to raise the Federal Funds rate in late March.
In response to the declining interest rate environment in the second quarter,
portfolio duration was brought back to neutral. To capture additional yield, the
Fund's emphasis on mortgage-backed securities was also increased, ending the
fiscal year at more than 18% of net assets.
Consistent with the Fund's concentration on government securities, average
credit quality was maintained at AAA.
MATURITY AS OF JUNE 30, 1997
(AS A PERCENTAGE OF PORTFOLIO ASSETS)
(A pie graph appears here. See table below for plot points.)
0-1 Year 4%
1-5 Years 45%
5-10 Years 51%
PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE.
OUTLOOK
We are continuing to monitor closely new economic reports, vigilant for any
indications of a resurgence of inflationary pressure that could cause the
Federal Reserve Board to raise the Federal Funds rate during the second half of
1997. The overall bond market continues to be characterized by near-term
interest rate fluctuations, without any over-riding trend. This environment
dictates a very cautious approach in the coming quarters, with portfolio
duration adjusted consistent with a changing market environment.
We anticipate that your Fund's relatively neutral duration and conservative
style should protect the fund from any significant fluctuations in the market.
In addition, we will continue to seek attractive opportunities by increasing the
Fund's yield through the addition of mortgage-backed securities and other
relatively higher yielding instruments.
Thank you for your investment in Evergreen Intermediate-Term Government
Securities Fund.
Sincerely,
/s/RICHARD K. WAGONER
RICHARD K. WAGONER
EXECUTIVE VICE PRESIDENT
CHIEF INVESTMENT OFFICER
First Union Capital Management Group
/s/ L. ROBERT CHESHIRE
L. ROBERT CHESHIRE
VICE PRESIDENT
SENIOR PORTFOLIO MANAGER
9
<PAGE>
EVERGREEN
(logo and photo of flag) SHORT-INTERMEDIATE BOND FUND
FUND-AT-A-GLANCE
As of June 30, 1997
<TABLE>
<CAPTION>
ONE YEAR PERFORMANCE CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
One year with sales
charge 3.30 % 0.78 % 4.77 % 6.88 %
One year w/o sales
charge 6.77 % 5.78 % 5.77 % 6.88 %
One year dividends per
share 63.5(cents) 54.5(cents) 54.5(cents) 64.6(cents)
30-day SEC Yield
(as of 6/30/97) 5.99 % 5.29 % 5.28 % 6.30 %
<CAPTION>
AVERAGE ANNUAL
RETURNS**
CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Three years 5.62 % 4.98 % N/A 6.92 %
Five years 5.05 % N/A N/A 5.92 %
Since Inception* 7.14 % 4.17 % 5.73 % 7.01 %
<CAPTION>
CUMULATIVE
RETURNS** CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Three years 17.84 % 15.68 % N/A 22.23 %
Five years 27.92 % N/A N/A 33.29 %
Since Inception* 78.78 % 19.87 % 16.99 % 55.28 %
</TABLE>
* CLASS A BEGAN 1/3/89; CLASS B BEGAN 1/25/93; CLASS C BEGAN 9/6/94; CLASS Y
BEGAN 1/4/91.
** ALL RETURNS INCLUDE THE MAXIMUM APPLICABLE SALES CHARGE.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
<S> <C> <C> <C>
Total Net Assets (all classes) $398.7 million
Average Credit Quality AA+
Average Maturity 4.06 years
Duration 2.96 years
</TABLE>
CREDIT QUALITY JUNE 30, 1997
(AS A PERCENTAGE OF PORTFOLIO ASSETS)
(A pie graph appears here. See table below for plot points.)
A 26%
AA 3%
AAA 67%
BBB 4%
PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE.
OBJECTIVE
Evergreen Short-Intermediate Bond Fund seeks to provide a high level of current
income with the potential for some capital appreciation.
STRATEGY
The Fund seeks to attain its objective by investing in a broad range of higher
quality and investment-grade debt securities. The Fund normally will invest at
least 80% of its assets in debt securities. The Fund also intends to maintain an
average maturity of five years or less to control price fluctuations.
PORTFOLIO MANAGER
(photo of Thomas L. Ellis, a Vice President and Senior Portfolio Manager
Thomas L. Ellis) of First Union Capital Management Group, is Portfolio Manager
of Evergreen Short-Intermediate Bond Fund. At First Union, Mr.
Ellis is responsible for managing more than $1 billion in
fixed income portfolios, including the Fixed Income Fund, a
common trust fund. Prior to joining First Union, Mr. Ellis
served in the Bond Department of First Tennessee Bank. He is a
graduate of the University of Baltimore and holds an M.B.A.
from Morgan State University.
10
<PAGE>
EVERGREEN
SHORT-INTERMEDIATE BOND FUND (logo and a photo
of flag)
MANAGEMENT REPORT
August 1997
Dear Shareholders:
We are pleased to report to you on the Evergreen Short-Intermediate Bond Fund
for the 12-month fiscal year that ended on June 30, 1997.
PERFORMANCE
During the fiscal year, concentrations in corporate bonds and mortgage-backed
securities helped the Fund deliver strong performance, consistent with its
objective. At the same time, the Fund's relatively short duration gave the Fund
a relative advantage over the first nine months of the year, although it held
back performance during the final three months when interest rates declined.
ENVIRONMENT
Throughout the fiscal year, the U.S. economy experienced strong growth
accompanied by relatively low levels of inflation. During this period, the bond
market was characterized by near-term interest rate volatility. For example, the
yield on the 10-year U.S. Treasury fell from 6.80% to 6.10% during the final six
months of 1996, only to rise back to 7.0% by April 1997, then to fall again to
6.5% by June of 1997. We believe this volatility mirrors changes in the
underlying economy. While Gross Domestic Product (GDP) grew at a 2.5% rate in
1996, real GDP surged by a 5.9% annualized rate during the first quarter 1997.
This led the Federal Reserve Board to increase the Federal Funds rate by 0.25%
in March, with many observers anticipating that further rate increases would
follow. However, growth slowed during the second quarter to an annualized rate
of 2.0%. This, coupled with surprisingly low inflation, led the bond market to
rally amid optimistic expectations.
STRATEGY
As a result of our belief that interest rates may rise during the remainder of
1997, at this writing we are maintaining a portfolio duration of 2.9 years,
slightly less than the short-intermediate benchmark.
We will continue to slightly overweight the Fund's focus on corporate bonds and
mortgage-backed securities. Although the "spread," or yield differential, that
corporates and mortgages enjoy over U.S. Treasuries has narrowed, we have a
positive fundamental outlook for both these sectors and expect to maintain an
emphasis on them to increase the Fund's yield.
The Fund's portfolio maintains an average credit quality of AA+.
MATURITY JUNE 30, 1997
(AS A PERCENTAGE OF PORTFOLIO ASSETS)
(A pie graph appears here. See table below for plot points.)
0-1 Year 22%
1-3 Years 44%
3-5 Years 18%
5-10 Years 16%
PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE.
OUTLOOK
For the final half of 1997, we anticipate that economic growth, spurred by
increased consumer spending, may increase to an annualized rate of about 3.0%.
We believe that with unemployment rates approaching 25-year lows, tight labor
markets could eventually be reflected in upward pressure on prices. This
potential for increased inflation, combined with the possibility of a fall-off
in optimism in the bond market, could lead to rising interest rates during the
second half of 1997. In response to the possibility of increased inflationary
pressure, we expect that the Federal Reserve Board may again tighten monetary
policy, increasing the Federal Funds rate by 0.25% to 0.50% before the end of
the year.
Thank you for your investment in Evergreen Short-Intermediate Bond Fund.
Sincerely,
/s/RICHARD K. WAGONER
RICHARD K. WAGONER
EXECUTIVE VICE PRESIDENT
CHIEF INVESTMENT OFFICER
First Union Capital Management Corp.
/s/THOMAS L. ELLIS
THOMAS L. ELLIS
VICE PRESIDENT
SENIOR PORTFOLIO MANAGER
11
<PAGE>
EVERGREEN KEYSTONE
(logo)
GROWTH OF INVESTMENTS
<TABLE>
<S> <C>
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
Comparison of a $10,000 investment in Keystone Capital Preservation and Income
Fund, Class B sharess, versus a similar investment in a 6-Month Treasury Bill
and the Consumer Price Index (CPI).
In Thousands
7/91 6/92 6/93 6/94 6/95 6/96 6/97
Class B Shares (CUSTOMER: PLEASE FILL IN) $13,124
CPI $13,034
6-Month T-Bill $11,786
Average Annual Total Returns
1 Year 5 Year Life of Class
Class A 3.26% N/A 5.84%
Class B 1.04% 3.80% 4.51%
Class C 5.05% N/A 4.55%
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in different classes. The 6-Month Treasuty Bill is an unmanaged market
index. The index does not include transaction costs assciated with buying and
selling securities nor any management fees. The Consumer Price Index, a measure
of inflation, is through June 30, 1997.
EVERGREEN INTERMEDIATE-TERM BOND FUND
Comparison of a $10,000 investment in Evergreen Intermediate-Term Bond Fund,
Class A shares, versus a similar investment in the Lehman Brothers Intermediate
Government/Corporate Bond Index and the Consumer Price Index (CPI).
In Thousands
5/95 6/96 12/95 6/96 12/96 6/97
CPI (CUSTOMER: PLEASE FILL IN) $11,171
LBIGCBI $10,554
Class A Shares $11,817
Average Annual Total Returns
1 Year 5 Year Life of Class
Class A 3.41% N/A 5.24%
Class B 0.91% N/A -1.15%
Class C 4.91% N/A 5.31%
Class Y 6.97% 6.60% 7.13%
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in different classes. The Lehman Brothers Intermediate
Government/Corporate Bond Index is an unmanaged market index. The index does not
include transaction costs assciated with buying and selling securities nor any
management fees. The Consumer Price Index, a measure of inflation, is through
June 30, 1997.
KEYSTONE INTERMEDIATE TERM BOND FUND
Comparison of a $10,000 investment in Keystone Intermediate Term Bond Fund,
Class A shares, versus a similar investment in the Lehman Brothers Intermediate
Government/Corporate Bond Index and the Consumer Price Index (CPI).
In Thousands
6/87 6/88 6/89 6/90 6/91 6/92 6/93 6/94 6/95 6/96 6/97
CPI (CUSTOMER: PLEASE FILL IN) $18,870
LBIGCBI $14,118
Class A Shares $22,184
Average Annual Total Returns
1 Year 5 Year 10 Year Life of Class
Class A 5.30% 5.89% 6.56% N/A
Class B 3.17% N/A N/A 4.61%
Class C 7.06% N/A N/A 4.96%
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in different classes. The Lehman Brothers Intermediate
Government/Corporate Bond Index is an unmanaged market index. The index does not
include transaction costs assciated with buying and selling securities nor any
management fees. The Consumer Price Index, a measure of inflation, is through
June 30, 1997.
EVERGREEN INTERMEDIATE-TERM
GOVERNMENT SECURITIES FUND
Comparison of a $10,000 investment in Evergreen Intermediate-Term Government
Securities Fund, Class A shares, versus a similar investment in the
Lehman Brothers Intermediate Government Bond Index and the Consumer Price Index
(CPI).
5/95 6/95 12/95 6/96 12/96 6/97
CPI (CUSTOMER: PLEASE FILL IN) $10,974
LBIGBI $10,554
Class A Shares $11,661
In Thousands
Average Annual Total Returns
1 Year 5 Year Life of Class
Class A 2.55% N/A 4.38%
Class B 0.03% N/A -0.66%
Class C 4.03% N/A 4.85%
Class Y 6.08% 5.28% 5.82%
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in different classes. The Lehman Brothers Intermediate Government Bond
Index is an unmanaged market index. The index does not include transaction costs
assciated with buying and selling securities nor any management fees. The
Consumer Price Index, a measure of inflation, is through June 30, 1997.
12
<PAGE>
EVERGREEN KEYSTONE
(logo)
GROWTH OF INVESTMENTS (CONTINUED)
EVERGREEN SHORT-INTERMEDIATE BOND FUND
Comparison of a $10,000 investment in Evergreen Short-Intermediate Bond Fund,
Class A shares, versus a similar investment in the Lehman Brothers Intermediate
Government/Corporate Bond Index and the Consumer Price Index (CPI).
1/89 6/89 6/90 6/91 6/92 6/93 6/94 6/95 6/96 6/97
CPI (CUSTOMER: PLEASE FILL IN) $17,879
LBIGCBI $13,235
Class A Shares $19,937
In Thousands
Average Annual Total Returns
1 Year 5 Year Life of Class
Class A 3.30% 5.05% 7.14%
Class B 0.78% N/A 4.17%
Class C 4.77% N/A 5.73%
Class Y 6.88% 5.92% 7.01%
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in different classes. The Lehman Brothers Intermediate
Government/Corporate Bond Index is an unmanaged market index. The index does not
include transaction costs assciated with buying and selling securities nor any
management fees. The Consumer Price Index, a measure of inflation, is through
June 30, 1997.
13
<PAGE>
(logo and a photo KEYSTONE
of capital) CAPITAL PRESERVATION AND INCOME FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 30, 1994
YEAR ENDED (COMMENCEMENT OF
NINE MONTHS ENDED SEPTEMBER 30, CLASS OPERATIONS) TO
JUNE 30, 1997 (D) 1996 (C) SEPTEMBER 30, 1995
<S> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING OF PERIOD................................. $ 9.74 $ 9.68 $ 9.51
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................................... 0.46 0.61 0.46
Net realized and unrealized gain on investments..................... 0.03 0.01 0.14
Total from investment operations.................................... 0.49 0.62 0.60
LESS DISTRIBUTIONS FROM:
Net investment income............................................... (0.42) (0.53) (0.42)
In excess of net investment income.................................. (0.01) 0 (0.01)
Tax basis return of capital......................................... 0 (0.03) 0
Total distributions................................................. (0.43) (0.56) (0.43)
NET ASSET VALUE END OF PERIOD....................................... $ 9.80 $ 9.74 $ 9.68
Total return (b).................................................... 5.12% 6.56% 6.36%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.................................................... 0.92%(a) 0.91% 0.86%(a)
Total expenses excluding indirectly paid expenses................. 0.90%(a) 0.90% 0.82%(a)
Total expenses excluding waivers and reimbursements............... 1.47%(a) 1.33% 1.27%(a)
Net investment income............................................. 6.24%(a) 6.31% 6.37%(a)
Portfolio turnover rate............................................. 52% 74% 67%
NET ASSETS END OF PERIOD (THOUSANDS)................................ $15,751 $22,684 $ 19,293
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30,
JUNE 30, 1997 (D) 1996 (C) 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING OF
PERIOD........................ $ 9.75 $ 9.68 $ 9.62 $ 9.91 $ 9.88 $ 10.06
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........... 0.39 0.55 0.52 0.47 0.45 0.58
Net realized and unrealized gain
(loss) on investments......... 0.04 0.01 0.03 (0.41) (0.05) (0.21)
Total from investment
operations.................... 0.43 0.56 0.55 0.06 0.40 0.37
LESS DISTRIBUTIONS FROM:
Net investment income........... (0.36) (0.46) (0.48) (0.34) (0.37) (0.55)
In excess of net investment
income........................ (0.01) 0 (0.01) (0.01) 0 0
Tax basis return of capital..... 0 (0.03) 0 0 0 0
Total distributions............. (0.37) (0.49) (0.49) (0.35) (0.37) (0.55)
NET ASSET VALUE END OF PERIOD... $ 9.81 $ 9.75 $ 9.68 $ 9.62 $ 9.91 $ 9.88
Total return (b)................ 4.53% 5.90% 5.81% 0.58% 4.16% 3.71%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses................ 1.67%(a) 1.63% 1.53% 1.50% 1.50% 1.36%
Total expenses excluding
indirectly paid expenses.... 1.65%(a) 1.62% 1.50% -- -- --
Total expenses excluding
waivers and
reimbursements.............. 2.23%(a) 2.09% 2.09% 1.93% 1.94% 2.03%
Net investment income......... 5.52%(a) 5.63% 5.46% 4.05% 4.44% 5.50%
Portfolio turnover rate......... 52% 74% 67% 34% 60% 41%
NET ASSETS END OF PERIOD
(THOUSANDS)................... $32,964 $ 44,096 $62,998 $95,761 $144,725 $186,742
<CAPTION>
JULY 1, 1991
(COMMENCEMENT OF
CLASS OPERATIONS) TO
SEPTEMBER 30, 1991
<S> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING OF
PERIOD........................ $ 10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........... 0.18
Net realized and unrealized gain
(loss) on investments......... 0.06
Total from investment
operations.................... 0.24
LESS DISTRIBUTIONS FROM:
Net investment income........... (0.18)
In excess of net investment
income........................ 0
Tax basis return of capital..... 0
Total distributions............. (0.18)
NET ASSET VALUE END OF PERIOD... $ 10.06
Total return (b)................ 2.43%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses................ 1.19%(a)
Total expenses excluding
indirectly paid expenses.... --
Total expenses excluding
waivers and
reimbursements.............. 3.19%(a)
Net investment income......... 6.42%(a)
Portfolio turnover rate......... 2%
NET ASSETS END OF PERIOD
(THOUSANDS)................... $ 25,769
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Calculation based on average shares outstanding.
(d) The Fund changed its fiscal year end from September 30 to June 30.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
KEYSTONE (logo and photo of
CAPITAL PRESERVATION AND INCOME FUND capital)
FINANCIAL HIGHLIGHTS (CONTINUED)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FEBRUARY 1, 1993
YEAR ENDED (COMMENCEMENT OF
NINE MONTHS ENDED SEPTEMBER 30, CLASS OPERATIONS) TO
JUNE 30, 1997 (D) 1996 (C) 1995 1994 SEPTEMBER 30, 1993
<S> <C> <C> <C> <C> <C>
CLASS C SHARES
NET ASSET VALUE BEGINNING OF PERIOD..................... $ 9.74 $ 9.67 $ 9.60 $ 9.90 $ 9.82
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................... 0.40 0.54 0.52 0.40 0.23
Net realized and unrealized gain (loss) on
investments........................................... 0.03 0.02 0.04 (0.35) 0.09
Total from investment operations........................ 0.43 0.56 0.56 0.05 0.32
LESS DISTRIBUTIONS FROM:
Net investment income................................... (0.36) (0.46) (0.48) (0.34) (0.24)
In excess of net investment income...................... (0.01) 0 (0.01) (0.01) 0
Tax basis return of capital............................. 0 (0.03) 0 0 0
Total distributions..................................... (0.37) (0.49) (0.49) (0.35) (0.24)
NET ASSET VALUE END OF PERIOD........................... $ 9.80 $ 9.74 $ 9.67 $ 9.60 $ 9.90
Total return (b)........................................ 4.53% 5.91% 5.93% 0.48% 3.28%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses........................................ 1.67%(a) 1.64% 1.53% 1.50% 1.50%(a)
Total expenses excluding indirectly paid expenses..... 1.65%(a) 1.62% 1.50% -- --
Total expenses excluding waivers and reimbursements... 2.23%(a) 2.09% 2.08% 1.94% 1.67%(a)
Net investment income................................. 5.53%(a) 5.60% 5.51% 4.08% 2.91%(a)
Portfolio turnover rate................................. 52% 74% 67% 34% 60%
NET ASSETS END OF PERIOD (THOUSANDS).................... $ 4,105 $4,152 $2,755 $2,874 $2,077
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Calculation based on average shares outstanding.
(d) The Fund changed its fiscal year end from September 30 to June 30.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
EVERGREEN
INTERMEDIATE-TERM BOND FUND
(logo and photo of a star)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1996 (C)
<S> <C> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING OF PERIOD.................................... $ 10.10 $10.30
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................................................. 0.60 0.48
Net realized and unrealized gain (loss) on investments................. 0.08 (0.20)
Total from investment operations....................................... 0.68 0.28
LESS DISTRIBUTIONS FROM:
Net investment income.................................................. (0.59) (0.48)
Tax basis return of capital............................................ (0.02) 0
Total distributions.................................................... (0.61) (0.48)
NET ASSET VALUE END OF PERIOD.......................................... $ 10.17 $10.10
Total return (b)....................................................... 6.88% 2.72%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses....................................................... 0.85% 0.82%(a)
Total expenses excluding indirectly paid expenses.................... 0.85% --
Total expenses excluding waivers and reimbursements.................. 1.04% 1.10%(a)
Net investment income................................................ 5.92% 6.30%(a)
Portfolio turnover rate................................................ 86% 52%
NET ASSETS END OF PERIOD (THOUSANDS)................................... $ 3,038 $2,943
<CAPTION>
MAY 2, 1995
(COMMENCEMENT OF
CLASS OPERATIONS)
THROUGH
AUGUST 31, 1995
<S> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING OF PERIOD.................................... $ 9.98
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................................................. 0.18
Net realized and unrealized gain (loss) on investments................. 0.33
Total from investment operations....................................... 0.51
LESS DISTRIBUTIONS FROM:
Net investment income.................................................. (0.19)
Tax basis return of capital............................................ 0
Total distributions.................................................... (0.19)
NET ASSET VALUE END OF PERIOD.......................................... $10.30
Total return (b)....................................................... 5.17%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses....................................................... 0.80%(a)
Total expenses excluding indirectly paid expenses.................... --
Total expenses excluding waivers and reimbursements.................. 1.38%(a)
Net investment income................................................ 5.53%(a)
Portfolio turnover rate................................................ 73%
NET ASSETS END OF PERIOD (THOUSANDS)................................... $160
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) The Fund changed its fiscal year end from August 31 to June 30.
<TABLE>
<CAPTION>
JANUARY 30, 1996
(COMMENCEMENT
OF CLASS OPERATIONS)
YEAR ENDED THROUGH
JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING OF PERIOD....................................................... $ 10.10 $10.68
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................................................... 0.50 0.20
Net realized and unrealized gain (loss) on investments.................................... 0.08 (0.58)
Total from investment operations.......................................................... 0.58 (0.38)
LESS DISTRIBUTIONS FROM:
Net investment income..................................................................... (0.49) (0.20)
Tax basis return of capital............................................................... (0.02) 0
Total distributions....................................................................... (0.51) (0.20)
NET ASSET VALUE END OF PERIOD............................................................. $ 10.17 $10.10
Total return (b).......................................................................... 5.91% (3.52%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.......................................................................... 1.81% 1.80%(a)
Total expenses excluding indirectly paid expenses....................................... 1.81% --
Total expenses excluding waivers and reimbursements..................................... 1.81% 1.89%(a)
Net investment income................................................................... 5.00% 5.18%(a)
Portfolio turnover rate................................................................... 86% 52%
NET ASSETS END OF PERIOD (THOUSANDS)...................................................... $ 1,013 $402
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
EVERGREEN (logo and photo of a star)
INTERMEDIATE-TERM BOND FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
APRIL 29, 1996
(COMMENCEMENT
OF CLASS OPERATIONS)
YEAR ENDED THROUGH
JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C>
CLASS C SHARES
NET ASSET VALUE BEGINNING OF PERIOD....................................................... $ 10.10 $10.15
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................................................... 0.51 0.08
Net realized and unrealized gain (loss) on investments.................................... 0.07 (0.05)
Total from investment operations.......................................................... 0.58 0.03
LESS DISTRIBUTIONS FROM:
Net investment income..................................................................... (0.49) (0.08)
Tax basis return of capital............................................................... (0.02) 0
Total distributions....................................................................... (0.51) (0.08)
NET ASSET VALUE END OF PERIOD............................................................. $ 10.17 $10.10
Total return (b).......................................................................... 5.91% 0.33%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.......................................................................... 1.80% 1.80%(a)
Total expenses excluding indirectly paid expenses....................................... 1.80% --
Total expenses excluding waivers and reimbursements..................................... 1.80% 1.88%(a)
Net investment income................................................................... 4.97% 5.30%(a)
Portfolio turnover rate................................................................... 86% 52%
NET ASSETS END OF PERIOD (THOUSANDS)...................................................... $29 $25
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED YEAR ENDED AUGUST 31,
JUNE 30, 1997 JUNE 30, 1996 (b) 1995 1994 1993
<S> <C> <C> <C> <C> <C>
CLASS Y SHARES
NET ASSET VALUE BEGINNING OF PERIOD...... $ 10.10 $ 10.29 $ 9.93 $ 10.99 $ 10.56
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................... 0.61 0.48 0.56 0.55 0.63
Net realized and unrealized gain (loss)
on investments......................... 0.08 (0.19) 0.40 (0.86) 0.66
Total from investment operations......... 0.69 0.29 0.96 (0.31) 1.29
LESS DISTRIBUTIONS FROM:
Net investment income.................... (0.60) (0.48) (0.56) (0.55) (0.64)
Net realized gains on investments........ 0 0 (0.04) (0.20) (0.22)
Tax basis return of capital.............. (0.02) 0 0 0 0
Total distributions...................... (0.62) (0.48) (0.60) (0.75) (0.86)
NET ASSET VALUE END OF PERIOD............ $ 10.17 $ 10.10 $ 10.29 $ 9.93 $ 10.99
Total return............................. 6.97% 2.82% 10.13% (2.91%) 12.90%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses......................... 0.81% 0.80%(a) 0.69% 0.55% 0.55%
Total expenses excluding indirectly
paid expenses........................ 0.81% -- -- -- --
Total expenses excluding waivers and
reimbursements....................... 0.81% 0.87%(a) 0.83% 0.83% 0.83%
Net investment income.................. 5.97% 5.75%(a) 5.63% 5.32% 5.93%
Portfolio turnover rate.................. 86% 52% 73% 69% 49%
NET ASSETS END OF PERIOD (THOUSANDS)..... $ 156,346 $ 157,814 $95,961 $91,724 $86,892
<CAPTION>
NOVEMBER 1, 1991
(COMMENCEMENT
OF CLASS OPERATIONS)
THROUGH
AUGUST 31, 1992
<S> <C>
CLASS Y SHARES
NET ASSET VALUE BEGINNING OF PERIOD...... $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................... 0.55
Net realized and unrealized gain (loss)
on investments......................... 0.55
Total from investment operations......... 1.10
LESS DISTRIBUTIONS FROM:
Net investment income.................... (0.54)
Net realized gains on investments........ 0
Tax basis return of capital.............. 0
Total distributions...................... (0.54)
NET ASSET VALUE END OF PERIOD............ $ 10.56
Total return............................. 11.29%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses......................... 0.55%(a)
Total expenses excluding indirectly
paid expenses........................ --
Total expenses excluding waivers and
reimbursements....................... 0.86%(a)
Net investment income.................. 6.49%(a)
Portfolio turnover rate.................. 65%
NET ASSETS END OF PERIOD (THOUSANDS)..... $ 66,695
</TABLE>
(a) Annualized.
(b) The Fund changed its fiscal year from August 31 to June 30.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
(logo and picture KEYSTONE
of stars) INTERMEDIATE TERM BOND FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED JULY 31,
JUNE 30, 1997 (e) 1996 1995 1994 (c)
<S> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING OF PERIOD................................. $ 8.73 $ 8.88 $ 8.84 $ 9.46
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................................... 0.54 0.59 0.63 0.57
Net realized and unrealized gain (loss) on investments, closed
futures contracts and foreign currency related transactions....... 0.18 (0.16) 0.02 (0.59 )
Total from investment operations.................................... 0.72 0.43 0.65 (0.02 )
LESS DISTRIBUTIONS FROM:
Net investment income............................................... (0.52) (0.58) (0.57) (0.57 )
In excess of net investment income.................................. 0 0 (0.04) (0.02 )
Tax basis return of capital......................................... 0 0 0 (0.01 )
Total distributions................................................. (0.52) (0.58) (0.61) (0.60 )
NET ASSET VALUE END OF PERIOD....................................... $ 8.93 $ 8.73 $ 8.88 $ 8.84
Total return (b).................................................... 8.40% 4.95% 7.76% (0.29%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.................................................... 1.12%(a) 1.10% 1.00% 1.00%
Total expenses excluding indirectly paid expenses................. 1.10%(a) 1.08% -- --
Total expenses excluding waivers and reimbursements............... 1.58%(a) 1.54% 1.48% 1.80%
Net investment income............................................. 6.43%(a) 6.57% 7.13% 6.81%
Portfolio turnover rate............................................. 179% 231% 149% 280%
NET ASSETS END OF PERIOD (THOUSANDS)................................ $10,341 $12,958 $14,558 $16,036
<CAPTION>
1993
<S> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING OF PERIOD................................. $ 9.23
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................................... 0.70
Net realized and unrealized gain (loss) on investments, closed
futures contracts and foreign currency related transactions....... 0.18
Total from investment operations.................................... 0.88
LESS DISTRIBUTIONS FROM:
Net investment income............................................... (0.65)
In excess of net investment income.................................. 0
Tax basis return of capital......................................... 0
Total distributions................................................. (0.65)
NET ASSET VALUE END OF PERIOD....................................... $ 9.46
Total return (b).................................................... 9.88%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.................................................... 1.52%
Total expenses excluding indirectly paid expenses................. --
Total expenses excluding waivers and reimbursements............... 1.99%
Net investment income............................................. 7.48%
Portfolio turnover rate............................................. 160%
NET ASSETS END OF PERIOD (THOUSANDS)................................ $18,032
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C>
CLASS A SHARES (CONTINUED)
NET ASSET VALUE BEGINNING OF PERIOD....................... $ 8.64 $ 8.60 $ 9.11 $ 9.05 $ 9.61
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................... 0.71 0.72 0.67 0.69 0.72
Net realized and unrealized gain (loss) on investments,
closed futures contracts and foreign currency related
transactions............................................ 0.60 0.05 (0.45) 0.10 (0.45)
Total from investment operations.......................... 1.31 0.77 0.22 0.79 0.27
LESS DISTRIBUTIONS FROM:
Net investment income..................................... (0.71) (0.72) (0.70) (0.73) (0.83)
In excess of net investment income........................ (0.01) (0.01) (0.03) 0 0
Total distributions....................................... (0.72) (0.73) (0.73) (0.73) (0.83)
NET ASSET VALUE END OF PERIOD............................. $ 9.23 $ 8.64 $ 8.60 $ 9.11 $ 9.05
Total return (b).......................................... 15.65% 9.42% 2.71% 9.13% 2.95%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.......................................... 1.88% 2.00% 2.00% 1.92% 1.30%
Total expenses excluding indirectly paid expenses....... -- -- -- -- --
Total expenses excluding waivers and reimbursements..... 1.88% 2.06% 2.33% 2.19% 2.65%
Net investment income................................... 7.85% 8.42% 7.90% 7.88% 7.48%
Portfolio turnover rate................................... 90% 76% 107% 148% 208%
NET ASSETS END OF PERIOD (THOUSANDS)...................... $19,288 $20,227 $23,694 $30,337 $38,615
<CAPTION>
FEBRUARY 13, 1987
(COMMENCEMENT
OF OPERATIONS)
THROUGH
JULY 31, 1987
<S> <C>
CLASS A SHARES (CONTINUED)
NET ASSET VALUE BEGINNING OF PERIOD....................... $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................... 0.17
Net realized and unrealized gain (loss) on investments,
closed futures contracts and foreign currency related
transactions............................................ (0.42)
Total from investment operations.......................... (0.25)
LESS DISTRIBUTIONS FROM:
Net investment income..................................... (0.14)
In excess of net investment income........................ 0
Total distributions....................................... (0.14)
NET ASSET VALUE END OF PERIOD............................. $ 9.61
Total return (b).......................................... (2.50%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.......................................... 1.00%(d)
Total expenses excluding indirectly paid expenses....... --
Total expenses excluding waivers and reimbursements..... 12.47%(d)
Net investment income................................... 6.86%(d)
Portfolio turnover rate................................... 14%
NET ASSETS END OF PERIOD (THOUSANDS)...................... $ 1,679
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Calculation based on average shares outstanding.
(d) Annualized for the period April 14, 1987 (Commencement of Investment
Operations) to July 31, 1987.
(e) The Fund changed its fiscal year end from July 31 to June 30.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
KEYSTONE (logo and picture
INTERMEDIATE TERM BOND FUND of stars)
FINANCIAL HIGHLIGHTS (CONTINUED)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED JULY 31,
JUNE 30, 1997 (d) 1996 1995 1994 (c)
<S> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING OF PERIOD......................... $ 8.74 $ 8.89 $ 8.85 $ 9.47
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.47 0.52 0.56 0.49
Net realized and unrealized gain (loss) on investments,
closed futures contracts and foreign currency related
transactions.............................................. 0.20 (0.16) 0.02 (0.58)
Total from investment operations............................ 0.67 0.36 0.58 (0.09)
LESS DISTRIBUTIONS FROM:
Net investment income....................................... (0.46) (0.51) (0.51) (0.49)
In excess of net investment income.......................... 0 0 (0.03) (0.03)
Tax basis return of capital................................. 0 0 0 (0.01)
Total distributions......................................... (0.46) (0.51) (0.54) (0.53)
NET ASSET VALUE END OF PERIOD............................... $ 8.95 $ 8.74 $ 8.89 $ 8.85
Total return (b)............................................ 7.81% 4.10% 6.87% (1.05%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses............................................ 1.87%(a) 1.85% 1.75% 1.75%
Total expenses excluding indirectly paid expenses......... 1.85%(a) 1.83% -- --
Total expenses excluding waivers and reimbursements....... 2.35%(a) 2.32% 2.21% 2.36%
Net investment income..................................... 5.68%(a) 5.82% 6.38% 5.48%
Portfolio turnover rate..................................... 179% 231% 149% 280%
NET ASSETS END OF PERIOD (THOUSANDS)........................ $11,368 $16,034 $17,985 $ 17,819
<CAPTION>
FEBRUARY 1, 1993
(DATE OF INITIAL
PUBLIC OFFERING)
THROUGH
JULY 31, 1993
<S> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING OF PERIOD......................... $ 9.35
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.29
Net realized and unrealized gain (loss) on investments,
closed futures contracts and foreign currency related
transactions.............................................. 0.12
Total from investment operations............................ 0.41
LESS DISTRIBUTIONS FROM:
Net investment income....................................... (0.29)
In excess of net investment income.......................... 0
Tax basis return of capital................................. 0
Total distributions......................................... (0.29)
NET ASSET VALUE END OF PERIOD............................... $ 9.47
Total return (b)............................................ 4.42%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses............................................ 1.76%(a)
Total expenses excluding indirectly paid expenses......... --
Total expenses excluding waivers and reimbursements....... 2.71%(a)
Net investment income..................................... 5.67%(a)
Portfolio turnover rate..................................... 160%
NET ASSETS END OF PERIOD (THOUSANDS)........................ $8,159
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Calculation based on average shares outstanding.
(d) The Fund changed its fiscal year end from July 31 to June 30.
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED JULY 31,
JUNE 30, 1997 (d) 1996 1995 1994 (c)
<S> <C> <C> <C> <C>
CLASS C SHARES
NET ASSET VALUE BEGINNING OF PERIOD.......................... $ 8.74 $ 8.89 $ 8.85 $ 9.46
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................................ 0.46 0.52 0.55 0.49
Net realized and unrealized gain (loss) on investments,
closed futures contracts and foreign currency related
transactions............................................... 0.20 (0.16) 0.03 (0.57)
Total from investment operations............................. 0.66 0.36 0.58 (0.08)
LESS DISTRIBUTIONS FROM:
Net investment income........................................ (0.46) (0.51) (0.51) (0.49)
In excess of net investment income........................... 0 0 (0.03) (0.03)
Tax basis return of capital.................................. 0 0 0 (0.01)
Total distributions.......................................... (0.46) (0.51) (0.54) (0.53)
NET ASSET VALUE END OF PERIOD................................ $ 8.94 $ 8.74 $ 8.89 $ 8.85
Total return (b)............................................. 7.70% 4.10% 6.87% (0.95%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses............................................. 1.87%(a) 1.85% 1.75% 1.75%
Total expenses excluding indirectly paid expenses.......... 1.85%(a) 1.83% -- --
Total expenses excluding waivers and reimbursements........ 2.35%(a) 2.31% 2.23% 2.37%
Net investment income...................................... 5.68%(a) 5.82% 6.37% 5.44%
Portfolio turnover rate...................................... 179% 231% 149% 280%
NET ASSETS END OF PERIOD (THOUSANDS)......................... $ 7,259 $9,084 $10,185 $ 13,086
<CAPTION>
FEBRUARY 1, 1993
(DATE OF INITIAL
PUBLIC OFFERING)
THROUGH
JULY 31, 1993
<S> <C>
CLASS C SHARES
NET ASSET VALUE BEGINNING OF PERIOD.......................... $ 9.35
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................................ 0.29
Net realized and unrealized gain (loss) on investments,
closed futures contracts and foreign currency related
transactions............................................... 0.11
Total from investment operations............................. 0.40
LESS DISTRIBUTIONS FROM:
Net investment income........................................ (0.29)
In excess of net investment income........................... 0
Tax basis return of capital.................................. 0
Total distributions.......................................... (0.29)
NET ASSET VALUE END OF PERIOD................................ $ 9.46
Total return (b)............................................. 4.31%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses............................................. 1.77%(a)
Total expenses excluding indirectly paid expenses.......... --
Total expenses excluding waivers and reimbursements........ 2.61%(a)
Net investment income...................................... 5.61%(a)
Portfolio turnover rate...................................... 160%
NET ASSETS END OF PERIOD (THOUSANDS)......................... $7,522
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Calculation based on average shares outstanding.
(d) The Fund changed its fiscal year end from July 31 to June 30.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
(logo and picture EVERGREEN
of president) INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MAY 2, 1995
(COMMENCEMENT
TEN MONTHS OF CLASS OPERATIONS)
YEAR ENDED ENDED THROUGH
JUNE 30, 1997 JUNE 30, 1996 (c) AUGUST 31, 1995
<S> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING OF PERIOD.................................... $ 9.99 $ 10.15 $ 9.95
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................................................. 0.55 0.46 0.19
Net realized and unrealized gain (loss) on investments................. 0.03 (0.16) 0.20
Total from investment operations....................................... 0.58 0.30 0.39
LESS DISTRIBUTIONS FROM:
Net investment income.................................................. (0.55) (0.46) (0.19)
Total distributions.................................................... (0.55) (0.46) (0.19)
NET ASSET VALUE END OF PERIOD.......................................... $ 10.02 $ 9.99 $10.15
Total return (b)....................................................... 6.00% 3.00% 3.90%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses....................................................... 0.86% 0.81%(a) 0.80%(a)
Total expenses excluding indirectly paid expenses.................... 0.86% -- --
Total expenses excluding waivers and reimbursements.................. 0.94% 1.06%(a) 1.34%(a)
Net investment income................................................ 5.47% 5.49%(a) 5.42%(a)
Portfolio turnover rate................................................ 68% 28% 45%
NET ASSETS END OF PERIOD (THOUSANDS)................................... $ 571 $ 497 $ 9
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) The Fund changed its fiscal year end from August 31 to June 30.
<TABLE>
<CAPTION>
FEBRUARY 9, 1996
(COMMENCEMENT
OF CLASS OPERATIONS)
YEAR ENDED THROUGH
JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING OF PERIOD....................................................... $ 9.99 $10.38
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................................................... 0.45 0.18
Net realized and unrealized gain (loss) on investments.................................... 0.04 (0.39)
Total from investment operations.......................................................... 0.49 (0.21)
LESS DISTRIBUTIONS FROM:
Net investment income..................................................................... (0.46) (0.18)
Total distributions....................................................................... (0.46) (0.18)
NET ASSET VALUE END OF PERIOD............................................................. $ 10.02 $ 9.99
Total return (b).......................................................................... 5.03% (1.99)%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.......................................................................... 1.81% 1.80%(a)
Total expenses excluding indirectly paid expenses....................................... 1.81% --
Total expenses excluding waivers and reimbursements..................................... 1.89% 1.91%(a)
Net investment income................................................................... 4.53% 4.62%(a)
Portfolio turnover rate................................................................... 68% 28%
NET ASSETS END OF PERIOD (THOUSANDS)...................................................... $ 742 $ 359
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
EVERGREEN
INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
(logo and picture of
FINANCIAL HIGHLIGHTS (CONTINUED) George
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Washington)
<TABLE>
<CAPTION>
APRIL 10, 1996
(COMMENCEMENT
OF CLASS OPERATIONS)
YEAR ENDED THROUGH
JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C>
CLASS C SHARES
NET ASSET VALUE BEGINNING OF PERIOD....................................................... $ 9.99 $10.01
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................................................... 0.40 0.11
Net realized and unrealized gain (loss) on investments.................................... 0.09 (0.02)
Total from investment operations.......................................................... 0.49 0.09
LESS DISTRIBUTIONS FROM:
Net investment income..................................................................... (0.46) (0.11)
Total distributions....................................................................... (0.46) (0.11)
NET ASSET VALUE END OF PERIOD............................................................. $ 10.02 $ 9.99
Total return (b).......................................................................... 5.03% 0.89%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.......................................................................... 1.81% 1.80%(a)
Total expenses excluding indirectly paid expenses....................................... 1.81% --
Total expenses excluding waivers and reimbursements..................................... 1.90% 1.91%(a)
Net investment income................................................................... 4.53% 4.47%(a)
Portfolio turnover rate................................................................... 68% 28%
NET ASSETS END OF PERIOD (THOUSANDS)...................................................... $ 12 $ 32
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED YEAR ENDED AUGUST 31,
JUNE 30, 1997 JUNE 30, 1996 (b) 1995 1994 1993
<S> <C> <C> <C> <C> <C>
CLASS Y SHARES
NET ASSET VALUE BEGINNING OF PERIOD... $ 9.99 $ 10.15 $ 9.92 $ 10.61 $ 10.41
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.56 0.46 0.55 0.54 0.57
Net realized and unrealized gain
(loss) on investments............... 0.03 (0.16) 0.23 (0.64) 0.24
Total from investment operations...... 0.59 0.30 0.78 (0.10) 0.81
LESS DISTRIBUTIONS FROM:
Net investment income................. (0.56) (0.46) (0.55) (0.54) (0.58)
Net realized gains on investments..... 0 0 0 (0.05) (0.03)
Total distributions................... (0.56) (0.46) (0.55) (0.59) (0.61)
NET ASSET VALUE END OF PERIOD......... $ 10.02 $ 9.99 $ 10.15 $ 9.92 $ 10.61
Total return.......................... 6.08% 3.00% 8.16% (0.99%) 8.03%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses...................... 0.81% 0.80%(a) 0.70% 0.55% 0.55%
Total expenses excluding indirectly
paid expenses..................... 0.81% -- -- -- --
Total expenses excluding waivers and
reimbursements.................... 0.89% 0.87%(a) 0.84% 0.82% 0.83%
Net investment income............... 5.52% 5.47%(a) 5.54% 5.22% 5.48%
Portfolio turnover rate............... 68% 28% 45% 45% 31%
NET ASSETS END OF PERIOD
(THOUSANDS)......................... $71,588 $87,004 $106,066 $106,448 $119,172
<CAPTION>
NOVEMBER 1, 1991
(COMMENCEMENT
OF CLASS OPERATIONS)
THROUGH
AUGUST 31, 1992
<S> <C>
CLASS Y SHARES
NET ASSET VALUE BEGINNING OF PERIOD... $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.48
Net realized and unrealized gain
(loss) on investments............... 0.40
Total from investment operations...... 0.88
LESS DISTRIBUTIONS FROM:
Net investment income................. (0.47)
Net realized gains on investments..... 0
Total distributions................... (0.47)
NET ASSET VALUE END OF PERIOD......... $ 10.41
Total return.......................... 9.04%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses...................... 0.55%(a)
Total expenses excluding indirectly
paid expenses..................... --
Total expenses excluding waivers and
reimbursements.................... 0.86%(a)
Net investment income............... 5.68%(a)
Portfolio turnover rate............... 47%
NET ASSETS END OF PERIOD
(THOUSANDS)......................... $ 87,648
</TABLE>
(a) Annualized.
(b) The Fund changed its fiscal year end from August 31 to June 30.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
(logo and picture of EVERGREEN
flag) SHORT-INTERMEDIATE BOND FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS YEAR ENDED
JUNE 30, ENDED DECEMBER 31,
1997 1996 JUNE 30, 1995 (c) 1994 1993
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING OF PERIOD................................. $ 9.82 $ 10.02 $ 9.52 $ 10.42 $ 10.41
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................................... 0.63 0.63 0.32 0.65 0.65
Net realized and unrealized gain (loss) on investments.............. 0.02 (0.19) 0.50 (0.91) 0.19
Total from investment operations.................................... 0.65 0.44 0.82 (0.26) 0.84
LESS DISTRIBUTIONS FROM:
Net investment income............................................... (0.64) (0.64) (0.32) (0.64) (0.65)
In excess of net investment income.................................. 0 0 0 0 0
Net realized gains on investments................................... 0 0 0 0 (0.18)
Total distributions................................................. (0.64) (0.64) (0.32) (0.64) (0.83)
NET ASSET VALUE END OF PERIOD....................................... $ 9.83 $ 9.82 $ 10.02 $ 9.52 $ 10.42
Total return (b).................................................... 6.77% 4.45% 8.77% (2.57%) 8.29%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.................................................... 0.72% 0.79% 0.77%(a) 0.75% 0.93%
Total expenses excluding indirectly paid expenses................. 0.72% -- -- -- --
Total expenses excluding waivers and reimbursements............... -- -- -- -- --
Net investment income............................................. 6.37% 6.35% 6.58%(a) 6.46% 6.15%
Portfolio turnover rate............................................. 45% 76% 34% 48% 73%
NET ASSETS END OF PERIOD (THOUSANDS)................................ $17,703 $18,630 $18,898 $19,127 $22,865
</TABLE>
<TABLE>
<CAPTION>
JANUARY 28, 1989
(COMMENCEMENT OF
CLASS
YEAR ENDED NINE MONTHS OPERATIONS)
DECEMBER 31, ENDED YEAR ENDED THROUGH
1992 1991 DECEMBER 31, 1990 (d) MARCH 31, 1990 MARCH 31, 1989
<S> <C> <C> <C> <C> <C>
CLASS A SHARES (CONTINUED)
NET ASSET VALUE BEGINNING OF PERIOD.......... $ 10.54 $ 9.99 $ 9.72 $ 9.50 $ 9.70
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................ 0.71 0.73 0.55 0.79 0.10
Net realized and unrealized gain (loss) on
investments................................ (0.06) 0.60 0.24 0.20 (0.14)
Total from investment operations............. 0.65 1.33 0.79 0.99 (0.04)
LESS DISTRIBUTIONS FROM:
Net investment income........................ (0.67) (0.70) (0.52) (0.77) (0.16)
In excess of net investment income........... 0 (0.01) 0 0 0
Net realized gains on investments............ (0.11) (0.07) 0 0 0
Total distributions.......................... (0.78) (0.78) (0.52) (0.77) (0.16)
NET ASSET VALUE END OF PERIOD................ $ 10.41 $ 10.54 $ 9.99 $ 9.72 $ 9.50
Total return (b)............................. 6.39% 13.74% 8.31% 10.51% (0.31%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses............................. 0.90% 0.80% 1.01%(a) 1.00% 1.78%(a)
Total expenses excluding indirectly paid
expenses................................. -- -- -- -- --
Total expenses excluding waivers and
reimbursements........................... -- 0.89% 1.82%(a) 1.50% --
Net investment income...................... 6.79% 7.30% 7.53%(a) 7.57% 6.10%(a)
Portfolio turnover rate...................... 66% 53% 27% 32% 18%
NET ASSETS END OF PERIOD (THOUSANDS)......... $21,488 $17,680 $11,765 $6,496 $ 11,580
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) The Fund changed its fiscal year end from December 31 to June 30.
(d) The Fund changed its fiscal year end from March 31 to December 31.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
EVERGREEN
SHORT-INTERMEDIATE BOND FUND
(logo and picture
FINANCIAL HIGHLIGHTS (CONTINUED) of flag)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS YEAR ENDED
JUNE 30, ENDED DECEMBER 31,
1997 1996 JUNE 30, 1995 (c) 1994
<S> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING OF PERIOD............ $ 9.84 $ 10.04 $ 9.54 $ 10.44
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.......................... 0.54 0.55 0.28 0.58
Net realized and unrealized gain (loss) on
investments.................................. 0.01 (0.19) 0.50 (0.92)
Total from investment operations............... 0.55 0.36 0.78 (0.34)
LESS DISTRIBUTIONS FROM:
Net investment income.......................... (0.54) (0.56) (0.28) (0.56)
Net realized gains on investments.............. 0 0 0 0
Total distributions............................ (0.54) (0.56) (0.28) (0.56)
NET ASSET VALUE END OF PERIOD.................. $ 9.85 $ 9.84 $ 10.04 $ 9.54
Total return (b)............................... 5.78% 3.62% 8.31% (3.33%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses............................... 1.62% 1.69% 1.67%(a) 1.50%
Total expenses excluding indirectly paid
expenses................................... 1.62% -- -- --
Net investment income........................ 5.48% 5.45% 5.68%(a) 5.75%
Portfolio turnover rate........................ 45% 76% 34% 48%
NET ASSETS END OF PERIOD (THOUSANDS)........... $22,237 $21,006 $17,366 $17,625
<CAPTION>
JANUARY 25, 1993
(COMMENCEMENT
OF CLASS OPERATIONS)
THROUGH
DECEMBER 31, 1993
<S> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING OF PERIOD............ $10.57
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.......................... 0.58
Net realized and unrealized gain (loss) on
investments.................................. 0.05
Total from investment operations............... 0.63
LESS DISTRIBUTIONS FROM:
Net investment income.......................... (0.58)
Net realized gains on investments.............. (0.18)
Total distributions............................ (0.76)
NET ASSET VALUE END OF PERIOD.................. $10.44
Total return (b)............................... 6.08%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses............................... 1.57%(a)
Total expenses excluding indirectly paid
expenses................................... --
Net investment income........................ 5.42%(a)
Portfolio turnover rate........................ 73%
NET ASSETS END OF PERIOD (THOUSANDS)........... $8,876
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) The Fund changed its fiscal year end from December 31 to June 30.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
JUNE 30, ENDED
1997 1996 JUNE 30, 1995 (c)
<S> <C> <C> <C>
CLASS C SHARES
NET ASSET VALUE BEGINNING OF PERIOD.................................. $ 9.84 $10.05 $ 9.55
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................................ 0.54 0.55 0.26
Net realized and unrealized gain (loss) on investments............... 0.01 (0.20) 0.50
Total from investment operations..................................... 0.55 0.35 0.76
LESS DISTRIBUTIONS FROM:
Net investment income................................................ (0.54) (0.56) (0.26)
Total distributions.................................................. (0.54) (0.56) (0.26)
NET ASSET VALUE END OF PERIOD........................................ $ 9.85 $ 9.84 $ 10.05
Total return (b)..................................................... 5.77% 3.51% 8.23%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses..................................................... 1.62% 1.69% 1.67%(a)
Total expenses excluding indirectly paid expenses.................. 1.62% -- --
Net investment income.............................................. 5.47% 5.46% 5.69%(a)
Portfolio turnover rate............................................ 45% 76% 34%
NET ASSETS END OF PERIOD (THOUSANDS)................................. $1,029 $1,155 $ 527
<CAPTION>
SEPTEMBER 6, 1994
(COMMENCEMENT OF
CLASS OPERATIONS)
THROUGH
DECEMBER 31, 1994
<S> <C>
CLASS C SHARES
NET ASSET VALUE BEGINNING OF PERIOD.................................. $ 9.85
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................................ 0.18
Net realized and unrealized gain (loss) on investments............... (0.30)
Total from investment operations..................................... (0.12)
LESS DISTRIBUTIONS FROM:
Net investment income................................................ (0.18)
Total distributions.................................................. (0.18)
NET ASSET VALUE END OF PERIOD........................................ $ 9.55
Total return (b)..................................................... (1.27%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses..................................................... 1.65%(a)
Total expenses excluding indirectly paid expenses.................. --
Net investment income.............................................. 5.87%(a)
Portfolio turnover rate............................................ 48%
NET ASSETS END OF PERIOD (THOUSANDS)................................. $ 512
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) The Fund changed its fiscal year end from December 31 to June 30.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
EVERGREEN
(logo and a picture SHORT-INTERMEDIATE BOND FUND
of flag)
FINANCIAL HIGHLIGHTS (CONTINUED)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
JUNE 30, ENDED YEAR ENDED DECEMBER 31,
1997 1996 JUNE 30, 1995 (b) 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
NET ASSET VALUE BEGINNING OF PERIOD... $ 9.82 $ 10.02 $ 9.52 $ 10.43 $ 10.41 $ 10.54
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.64 0.64 0.33 0.65 0.69 0.70
Net realized and unrealized gain
(loss) on investments............... 0.02 (0.19) 0.49 (0.91) 0.19 (0.02)
Total from investment operations...... 0.66 0.45 0.82 (0.26) 0.88 0.68
LESS DISTRIBUTIONS FROM:
Net investment income................. (0.65) (0.65) (0.32) (0.65) (0.68) (0.70)
In excess of net investment income.... 0 0 0 0 0 0
Net realized gains on investments..... 0 0 0 0 (0.18) (0.11)
Total distributions................... (0.65) (0.65) (0.32) (0.65) (0.86) (0.81)
NET ASSET VALUE END OF PERIOD......... $ 9.83 $ 9.82 $ 10.02 $ 9.52 $ 10.43 $ 10.41
Total return.......................... 6.88% 4.63% 8.80% (2.55%) 8.67% 6.64%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses...................... 0.62% 0.69% 0.67%(a) 0.65% 0.66% 0.69%
Total expenses excluding indirectly
paid expenses..................... 0.62% -- -- -- -- --
Net investment income............... 6.48% 6.45% 6.68%(a) 6.56% 6.41% 6.67%
Portfolio turnover rate............... 45% 76% 34% 48% 73% 66%
NET ASSETS END OF PERIOD
(THOUSANDS)......................... $357,706 $352,095 $ 347,050 $345,025 $376,445 $324,068
<CAPTION>
JANUARY 4, 1991
(COMMENCEMENT OF
CLASS OPERATIONS)
THROUGH
DECEMBER 31, 1991
<S> <C>
CLASS Y SHARES
NET ASSET VALUE BEGINNING OF PERIOD... $ 10.06
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.71
Net realized and unrealized gain
(loss) on investments............... 0.56
Total from investment operations...... 1.27
LESS DISTRIBUTIONS FROM:
Net investment income................. (0.71)
In excess of net investment income.... (0.01)
Net realized gains on investments..... (0.07)
Total distributions................... (0.79)
NET ASSET VALUE END OF PERIOD......... $ 10.54
Total return.......................... 13.80%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses...................... 0.69%(a)
Total expenses excluding indirectly
paid expenses..................... --
Net investment income............... 7.12%(a)
Portfolio turnover rate............... 53%
NET ASSETS END OF PERIOD
(THOUSANDS)......................... $ 256,254
</TABLE>
(a) Annualized.
(b) The Fund changed its fiscal year end from December 31 to June 30.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
KEYSTONE
CAPITAL PRESERVATION AND INCOME FUND (logo and picture
of capital)
SCHEDULE OF INVESTMENTS
June 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
</TABLE>
<TABLE>
<CAPTION>
ADJUSTABLE-RATE MORTGAGE SECURITIES-- 91.3%
<C> <S> <C>
FHLMC-- 44.4%
$1,291,156 FHLMC Pool #846163, Cap 13.08%,
Margin 1.99% + WTAL, Resets
Annually
7.66%, 7/1/30...................... $ 1,349,465
1,507,099 FHLMC Pool #605386, Cap 12.89%,
Margin 2.12% + CMT, Resets Annually
7.95%, 9/1/17...................... 1,582,212
1,637,125 FHLMC Pool #605343, Cap 13.60%,
Margin 2.13% + CMT, Resets Annually
7.83%, 3/1/19...................... 1,692,341
141,104 FHLMC Pool #645062, Cap 14.11%,
Margin 2.31% + CMT, Resets Annually
8.10%, 5/1/19...................... 146,461
145,638 FHLMC Pool #785114, Cap 13.23%,
Margin 2.13% + CMT, Resets Annually
7.81%, 7/1/19...................... 153,147
587,551 FHLMC Pool #865220, Cap 15.05%,
Margin 2.35% + WTAL, Resets
Triennially
8.37%, 4/1/20...................... 606,741
69,528 FHLMC Pool #785147, Cap 12.79%,
Margin 2.02% + CMT, Resets Annually
7.68%, 5/1/20...................... 72,069
725,921 FHLMC Pool #606541, Cap 13.56%,
Margin 2.04% + CMT, Resets Annually
7.71%, 3/1/21...................... 761,084
2,257,810 FHLMC Pool #845039, Cap 12.50%,
Margin 2.09% + CMT, Resets Annually
7.82%, 10/1/21..................... 2,338,245
1,369,007 FHLMC Pool #606679, Cap 12.07%,
Margin 2.16% + CMT, Resets Annually
7.97%, 10/1/21..................... 1,437,882
1,916,889 FHLMC Pool #845063, Cap 12.05%,
Margin 2.18% + CMT, Resets Annually
7.91%, 11/1/21..................... 1,991,168
2,263,629 FHLMC Pool #845070, Cap 11.84%,
Margin 2.12% + CMT, Resets Annually
7.80%, 1/1/22...................... 2,359,834
<CAPTION>
PRINCIPAL
AMOUNT VALUE
ADJUSTABLE-RATE MORTGAGE SECURITIES-- CONTINUED
<C> <S> <C>
FHLMC-- CONTINUED
$1,088,728 FHLMC Pool #845082, Cap 12.34%,
Margin 1.98% + CMT, Resets Annually
7.58%, 3/1/22...................... $ 1,122,071
4,051,462 FHLMC Pool #607352, Cap 13.62%,
Margin 2.17% + CMT, Resets Annually
7.84%, 4/1/22...................... 4,267,972
3,452,568 FHLMC Pool #846298, Cap 13.04%,
Margin 1.85% + CMT, Resets Annually
7.44%, 8/1/22...................... 3,589,048
TOTAL FHLMC.......................... 23,469,740
FNMA-- 46.9%
1,402,664 FNMA Pool #124497, Cap 12.97%,
Margin 2.80% + CMT, Resets Annually
7.78%, 9/1/22...................... 1,477,188
1,040,611 FNMA Pool #094564, Cap 15.86%,
Margin 1.98% + CMT, Resets Annually
7.70%, 1/1/16...................... 1,088,094
448,069 FNMA Pool #092086, Cap 15.47%,
Margin 2.08% + CMT, Resets Annually
7.85%, 10/1/16..................... 466,691
739,969 FNMA Pool #070033, Cap 14.35%,
Margin 1.75% + CMT, Resets Annually
7.50%, 10/1/17..................... 768,872
3,318,250 FNMA Pool #070119, Cap 12.01%,
Margin 2.00% + CMT, Resets Annually
7.68%, 11/1/17..................... 3,450,980
302,549 FNMA Pool #062610, Cap 12.75%,
Margin 2.13% + CMT, Resets Annually
7.75%, 6/1/18...................... 316,826
2,589,728 FNMA Pool #090678, Cap 13.14%,
Margin 2.18% + CMT, Resets Annually
7.91%, 9/1/18...................... 2,732,163
1,059,213 FNMA Pool #124015, Cap 13.24%,
Margin 2.57% + CMT, Resets Annually
7.57%, 11/1/18..................... 1,100,925
</TABLE>
(CONTINUED)
25
<PAGE>
KEYSTONE
CAPITAL PRESERVATION AND INCOME FUND
(logo and picture
of capital) SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
</TABLE>
<TABLE>
<CAPTION>
ADJUSTABLE-RATE MORTGAGE SECURITIES-- CONTINUED
FNMA-- CONTINUED
$ 311,452 FNMA Pool #114714, Cap
12.62%,
Margin 1.75% + CMT, Resets
Annually
7.47%, 3/1/19.............$ 323,814
307,339 FNMA Pool #105007, Cap
13.13%,
Margin 2.03% + CMT, Resets
Annually
7.85%, 7/1/19............. 318,240
1,274,325 FNMA Pool #095405, Cap
13.70%,
Margin 2.08% + CMT, Resets
Annually
7.83%, 12/1/19............ 1,321,316
162,598 FNMA Pool #391290, Cap
12.68%,
Margin 2.72% + CMT, Resets
Annually
7.74%, 2/1/17............. 167,096
539,539 FNMA Pool #102905, Cap
13.08%,
Margin 2.00% + CMT, Resets
Annually
7.74%, 7/1/20............. 567,358
481,731 FNMA Pool #142963, Cap
11.03%,
Margin 2.63% + CMT, Resets
Annually
7.45%, 1/1/22............. 498,591
6,564,994 FNMA Pool #124289, Cap
13.44%,
Margin 2.01% + CMT, Resets
Annually
7.70%, 9/1/21............. 6,889,171
990,524 FNMA Pool #124204, Cap
13.60%,
Margin 2.01% + CMT, Resets
Annually
7.72%, 1/1/22............. 1,038,970
252,868 FNMA Pool #070327, Cap
12.95%,
Margin 2.75% + CMT, Resets
Annually
7.60%, 6/1/19............. 262,510
<CAPTION>
PRINCIPAL
AMOUNT VALUE
ADJUSTABLE-RATE MORTGAGE SECURITIES-- CONTINUED
FNMA-- CONTINUED
$1,865,470 FNMA Pool #124945, Cap
12.73%,
Margin 2.11% + CMT, Resets
Annually
7.81%, 1/1/31.............$ 1,966,914
TOTAL FNMA.................. 24,755,719
TOTAL ADJUSTABLE-RATE
MORTGAGE SECURITIES
(COST-- $47,698,037)...... 48,225,459
FIXED RATE MORTGAGE SECURITIES-- 2.2%
FHLMC-- 0.1%
24,914 FHLMC CMO, Series 11 Class 11C,
(Est. Mat. 1998) (b)
9.50%, 4/15/19............
25,771
FNMA-- 2.1%
355,662 FNMA Pool #100051
9.50%, 4/1/05............. 371,778
462,692 FNMA Pool #002497
11.00%, 1/1/16............ 510,798
230,612 FNMA Pool #058442
11.00%, 1/1/18............ 254,462
TOTAL FNMA.................. 1,137,038
TOTAL FIXED RATE MORTGAGE
SECURITIES
(COST-- $1,158,066)....... 1,162,809
U.S. TREASURY NOTES-- 3.7%
(COST-- $1,958,136)
1,950,000 U.S. Treasury Notes
6.63%, 4/30/02............ 1,967,979
REPURCHASE AGREEMENT-- 1.4% (COST-- $742,000)
742,000 Keystone Joint Repurchase
Agreement (Investments in
repurchase agreements, in
a joint trading account,
6.04% dated 6/30/97, due
7/1/97, maturity value
$742,125 (a))............. 742,000
TOTAL INVESTMENTS
(COST-- $51,556,239)...... 98.6% 52,098,247
<C> <S> <C> <C>
OTHER ASSETS AND
LIABILITIES-- NET......... 1.4 721,440
NET ASSETS--................ 100.0% $52,819,687
</TABLE>
(a) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at June 30, 1997.
(b) The estimated maturity of a Collateralized Motgage Obligation (CMO) is based
on current and projected prepayment rates. Changes in interest rates can
cause the estimated maturity to differ from the listed dates.
LEGEND OF PORTFOLIO ABBREVIATIONS
CMT-- 1, 3, or 5 year Constant Maturity Treasury Index
FHLMC-- Federal Home Loan Mortgage Corporation
FNMA-- Federal National Mortgage Association
WTAL-- 1 or 3 year Weekly Treasury Average Lookback Index
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
EVERGREEN (logo and picture
INTERMEDIATE-TERM BOND FUND of star)
SCHEDULE OF INVESTMENTS
June 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
</TABLE>
<TABLE>
<CAPTION>
CORPORATE BONDS-- 19.2%
<C> <S> <C>
BANKS-- 5.0%
$ 500,000 Cenfed Financial Corp., Senior
Debenture (a),
11.17%, 12/15/01................. $ 533,750
800,000 Harris Bancorp.,
9.38%, 6/1/01.................... 868,088
2,000,000 NationsBank Corp.,
8.13%, 6/15/02................... 2,108,780
4,000,000 NBD Bank N.A.,
Subordinated Note,
8.25%, 11/1/24................... 4,461,932
7,972,550
FINANCE & INSURANCE-- 7.8%
6,500,000 Associates Corporation North
America, Note,
5.96%, 5/15/37................... 6,514,196
2,500,000 General Electric Capital Corp.,
6.29%, 12/15/07.................. 2,473,247
1,000,000 Goldman Sachs Group L.P. (a),
6.38%, 6/15/00................... 990,333
1,500,000 Grand Metropolitan Investment
Corp.,
6.50%, 9/15/99................... 1,504,614
1,000,000 KFW International Finance,
Guaranteed Note,
8.85%, 6/15/99................... 1,046,610
12,529,000
INDUSTRIAL SPECIALTY PRODUCTS & SERVICES-- 3.2%
2,000,000 Baxter International, Inc.,
9.25%, 12/15/99.................. 2,125,250
600,000 Deere & Co.,
8.95%, 6/15/19................... 673,289
2,000,000 Jet Equipment Trust, (a)
9.41%, 6/15/10................... 2,292,488
5,091,027
UTILITIES-- 3.2%
3,100,000 ALLTEL Corp.,
6.50%, 11/1/13................... 2,857,199
2,000,000 Carolina Power & Light Co.,
8.63%, 9/15/21................... 2,272,160
5,129,359
TOTAL CORPORATE BONDS
(COST $30,200,050)............... 30,721,936
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
MORTGAGE-BACKED SECURITIES-- 20.7%
Federal Home Loan Mortgage Corp.,
$ 2,521,993 6.55%, 9/1/26...................... $ 2,593,539
2,027,061 7.50%, 5/1/09...................... 2,058,734
1,210,345 8.00%, 10/1/25..................... 1,241,776
1,293,208 Federal National Mortgage
Association,
6.69%, 12/1/25................... 1,328,618
Government National Mortgage
Association,
1,400,389 6.00%, 6/20/26..................... 1,406,241
8,356,714 6.50%, 10/15/23-- 10/20/26......... 8,362,955
3,922,487 7.00%, 9/20/25-- 3/15/26........... 3,919,730
3,087,455 7.13%, 7/20/25..................... 3,182,360
3,599,131 7.50%, 9/15/23-- 3/15/26........... 3,616,198
3,144,302 8.00%, 10/15/24.................... 3,216,030
1,209,660 9.00%, 4/15/20-- 8/15/21........... 1,278,837
563,266 9.50%, 2/15/21..................... 607,799
414,383 Paine Webber Trust P-3,
9.00%, 10/1/12................... 417,549
TOTAL MORTGAGE-BACKED SECURITIES
(COST $33,064,340)............... 33,230,366
U. S. AGENCY OBLIGATIONS-- 3.7%
2,500,000 Farm Credit Systems Financial
Assistance Co.,
8.80%, 6/10/05................... 2,814,268
3,000,000 Federal Home Loan Bank,
Consolidated Bond,
7.70%, 9/20/04................... 3,174,930
TOTAL U. S. AGENCY OBLIGATIONS
(COST $5,651,434)................ 5,989,198
<CAPTION>
U. S. TREASURY OBLIGATIONS-- 28.0%
<C> <S> <C>
U.S. Treasury Bonds:
11,450,000 6.88%, 8/15/25..................... 11,489,354
4,500,000 7.50%, 11/15/16.................... 4,810,779
1,400,000 8.75%, 5/15/17..................... 1,684,812
3,950,000 8.88%, 8/15/17..................... 4,810,357
U.S. Treasury Notes:
1,400,000 5.13%, 12/31/98.................... 1,383,812
12,900,000 5.63%, 8/31/97..................... 12,904,024
6,100,000 6.38%, 1/15/99..................... 6,138,125
1,600,000 8.25%, 7/15/98..................... 1,639,000
TOTAL U.S. TREASURY OBLIGATIONS
(COST $44,311,257)............... 44,860,263
</TABLE>
(CONTINUED)
27
<PAGE>
EVERGREEN
INTERMEDIATE-TERM BOND FUND
(logo and picture of
star) SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
</TABLE>
<TABLE>
<CAPTION>
YANKEE OBLIGATIONS-- 14.5%
Bayerische Landesbank Girozen
New York,
Tranche Sr 00001,
$2,500,000 6.38%, 8/31/00............ $2,492,183
Tranche Trust 00007,
2,000,000 6.20%, 2/9/06............. 1,907,344
3,000,000 Hydro-Quebec,
8.00%, 2/1/13........... 3,160,257
3,500,000 Japan Finance Corp. Municipal
Enterprises, Guaranteed Bond,
6.85%, 4/15/06.......... 3,504,071
2,000,000 Manitoba Province (Canada),
8.00%, 4/15/02.......... 2,109,140
800,000 Petro Canada Ltd.,
8.60%, 1/15/10.......... 907,463
5,300,000 Philips Electers N V,
Debenture,
7.13%, 5/15/25.......... 5,282,685
Svenska Handelsbanken,
2,000,000 8.13%, 8/15/07............ 2,123,682
1,000,000 8.35%, 7/15/04............ 1,075,661
700,000 Westpac Banking,
Subordinated Debenture,
9.13%, 8/15/01.......... 758,563
TOTAL YANKEE OBLIGATIONS
(COST $22,612,971)...... 23,321,049
PRINCIPAL
AMOUNT VALUE
<C> <C> <C>
REPURCHASE AGREEMENT-- 12.8%
$20,495,557 Donaldson, Lufkin &
Jenrette Securities
Corp, 5.90% dated
6/30/97, due 7/1/97,
maturity value
$20,498,916
(collateralized by
$20,553,000 U.S.
Treasury Notes, 5.00%,
due 1/31/98; value,
including accrued
interest $20,905,756)
(cost $20,495,557)...... $ 20,495,557
TOTAL INVESTMENTS--
(COST $156,335,609)..... 98.9% 158,618,369
OTHER ASSETS AND
LIABILITIES-- NET....... 1.1 1,807,246
NET ASSETS--.............. 100.0% $160,425,615
</TABLE>
(a) Securities that may be sold to qualified institutional buyers under Rule
144A or securities offered pursuant to Section 4(2) of the Securities Act of
1933, as amended. These securities have been determined to be liquid under
guidelines established by the Board of Trustees.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
KEYSTONE (logo and picture
INTERMEDIATE TERM BOND FUND of stars)
SCHEDULE OF INVESTMENTS
June 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
</TABLE>
<TABLE>
<CAPTION>
ASSET-BACKED SECURITIES-- 6.1%
<C> <S> <C>
$1,000,000 Southern Pacific Secured Assets
Corporation, Series 1996-3 Class
A4,
7.60%, 10/25/27.................... $ 1,001,875
750,000 U.S. Home Equity Loan Asset Backed,
Series 1991-2 Class B,
9.13%, 4/15/21..................... 752,812
TOTAL ASSET-BACKED SECURITIES
(COST $1,748,125).................. 1,754,687
<CAPTION>
CORPORATE BONDS-- 31.2%
<C> <S> <C>
DIVERSIFIED-- 1.7%
500,000 Belo (A. H.) Corporation,
Senior Note,
7.13%, 6/1/07...................... 495,723
FINANCE & BANKING-- 15.3%
1,000,000 Amsouth Bancorporation,
Sub Debentures Puttable 2005,
6.75%, 11/1/25..................... 977,750
1,250,000 Chase Manhattan Corporation,
Subordinated Notes,
9.38%, 7/1/01...................... 1,358,712
1,000,000 CIT Group Holdings Incorporated,
Medium Term Note, Tranche Trust
00001,
9.25%, 3/15/01..................... 1,083,480
500,000 General Mtrs Acceptance Corporation,
Note,
7.13%, 5/1/01...................... 506,015
500,000 Prudential Insurance, Note (b),
7.13%, 7/1/07...................... 499,000
4,424,957
INDUSTRIALS-- 12.5%
700,000 Ford Motor Co., Debenture,
9.00%, 9/15/01..................... 756,252
800,000 Occidental Petroleum Corporation,
Medium Term Note, Tranche Trust
00134,
8.50%, 11/9/01..................... 847,336
1,000,000 Philip Morris Cos Inc., Senior Note,
7.20%, 2/1/07...................... 986,760
1,000,000 Transocean Offshore Inc, Note,
7.45%, 4/15/27..................... 1,028,740
3,619,088
TRANSPORTATION-- 1.7%
500,000 Norfolk Southern Corporation, Note,
7.05%, 5/1/37...................... 507,470
TOTAL CORPORATE BONDS
(COST $9,126,551).................. 9,047,238
<CAPTION>
PRINCIPAL
AMOUNT VALUE
COLLATERALIZED MORTGAGE OBLIGATIONS-- 27.5%
<C> <S> <C>
$ 500,000 Chase Commercial Mortgage Security
Corporation (a),
7.37%, 6/19/29..................... $ 508,281
478,831 Chase Mortgage Finance Corporation
(a)(b),
7.87%, 11/25/25.................... 468,207
443,548 Criimi Mae Financial Corporation (a),
7.00%, 1/1/33...................... 433,984
1,000,000 Federal National Mortgage Association
Guaranteed (a)(d),
3.26%, 8/25/23..................... 758,125
653,517 GE Capital Mortgage Services
Incorporated (a),
6.50%, 3/25/24..................... 626,355
500,000 Merrill Lynch Trust (a),
8.45%, 11/1/18..................... 525,000
700,000 Morgan Stanley Capital I
Incorporated,
1997 C1 Class B (a),
7.69%, 1/15/07..................... 724,719
953,300 Paine Webber Mortgage Acceptance
Corporation (a),
7.50%, 5/25/23..................... 951,214
1,250,000 Resolution Trust Corp. (a),
7.50%, 10/25/28.................... 1,256,055
698,466 Ryland Acceptance Corporation Four
(a),
7.95%, 1/1/19...................... 709,159
996,752 Independent National Mortgage Corp. (a)(b),
7.84%, 12/26/26...................... 1,000,413
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(COST $7,870,825).................. 7,961,512
<CAPTION>
U.S. AGENCY OBLIGATIONS-- 2.6% (COST $749,062)
<C> <S> <C>
750,000 Federal Home Loan Mortgage Corp,
Global Note,
6.70%, 1/5/07...................... 745,080
<CAPTION>
U.S. TREASURY OBLIGATIONS-- 6.2% (COST $1,796,303)
<C> <S> <C>
1,810,000 U.S. Treasury Notes,
6.50%, 10/15/06.................... 1,802,362
<CAPTION>
FOREIGN BONDS-- (US DOLLAR DENOMINATED)-- 15.4%
<C> <S> <C>
500,000 Export Import Bank Korea, Note,
7.10%, 3/15/07..................... 504,570
1,250,000 Fomento Economico Mexico,
Euro-Dollars,
9.50%, 7/22/97..................... 1,250,000
500,000 Korea Electric Power Corp, Debenture,
7.00%, 2/1/27...................... 490,205
</TABLE>
(CONTINUED)
29
<PAGE>
KEYSTONE
INTERMEDIATE TERM BOND FUND
(logo and picture
of stars) SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
</TABLE>
<TABLE>
<CAPTION>
FOREIGN BONDS-- (US DOLLAR DENOMINATED)--
CONTINUED
<C> <S> <C>
$1,000,000 Southern Peru Limited,
Secured Export Note (b),
7.90%, 5/30/07.............$1,019,400
1,200,000 Telebras,
10.38%, 9/9/97............. 1,210,500
TOTAL FOREIGN BONDS--
(US DOLLAR DENOMINATED)
(COST $4,453,359).......... 4,474,675
FOREIGN BONDS-- (NON-US DOLLAR DENOMINATED)-- 8.8%
1,150,000 Canada Government,
CAD Canadian Series A79,
8.75%, 12/1/05............. 967,917
3,698,000 Denmark Kingdom,
DKK 7.00%, 11/15/07..............585,061
<CAPTION>
PRINCIPAL
AMOUNT VALUE
FOREIGN BONDS-- (NON-US DOLLAR DENOMINATED)--
CONTINUED
1,575,000 Germany Federal Republic,
DEM 6.88%, 5/12/05............... 986,125
18,000 Nykredit,
DKK 6.00%, 10/1/26............... 2,463
TOTAL FOREIGN BONDS--
(NON-US DOLLAR DENOMINATED)
(COST $2,689,307).......... 2,541,566
REPURCHASE AGREEMENT-- 0.8%
$ 243,000 Keystone Joint Repurchase
Agreement, (Investments in
repurchase agreements, in a
joint trading account,
6.04% dated 6/30/97, due
7/1/97, maturity value
$243,043(c))
(cost $243,000)............ 243,000
TOTAL INVESTMENTS--
(COST $28,676,532)......... 98.6% 28,570,120
OTHER ASSETS AND
LIABILITIES-- NET.......... 1.4 397,464
NET ASSETS--................. 100.0% $28,967,584
</TABLE>
(a) The estimated maturity of a Collateralized Mortgage Obligation ("CMO") is
based on current and projected prepayment rates. Changes in interest rates
can cause the estimated maturity to differ from the listed date.
(b) Securities that may be sold to qualified institutional buyers under Rule
144A or securities offered pursuant to Section 4(2) of the Securities Act of
1933, as amended. These securities have been determined to be liquid under
guidelines established by the Board of Trustees.
(c) The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at June 30, 1997.
(d) Inverse floater, resets monthly.
LEGEND OF PORTFOLIO ABBREVIATIONS
CAD-- Canadian Dollar
DKK-- Danish Kroner
DEM-- German Deutschemark
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
<TABLE>
<CAPTION>
NET UNREALIZED
EXCHANGE U.S. $ VALUE AT IN EXCHANGE APPRECIATION/
DATE JUNE 30, 1997 FOR U.S. $ (DEPRECIATION)
<S> <C> <C> <C> <C> <C>
Forward Foreign Currency Exchange Contracts to
Buy:
Contracts to Receive
8/12/97 1,150,000 Deutsche Marks $ 661,452 679,790 $(18,338)
Forward Foreign Currency Exchange Contracts to
Sell:
Contracts to Deliver
8/27/97 1,324,225 Canadian Dollars 962,359 970,947 8,588
8/12/97 2,860,000 Deutsche Marks 1,645,000 1,675,255 30,255
8/20/97 4,041,900 Danish Krone 610,524 627,098 16,574
$ 55,417
</TABLE>
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
EVERGREEN (logo and picture
INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND of George
Washington)
SCHEDULE OF INVESTMENTS
June 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
</TABLE>
<TABLE>
<CAPTION>
MORTGAGE-BACKED SECURITIES-- 19.4%
<C> <S> <C>
$5,000,000 Federal Home Loan Mortgage Corp.,
5.60%, 2/15/13..................... $ 4,975,120
4,250,909 Federal Home Loan Mortgage Corp.
Gold,
9.00%, 1/1/17...................... 4,552,550
3,688,718 Federal National Mortgage Assn.,
7.00%, 3/1/24...................... 3,639,285
1,000,000 U.S. Department of Veteran Affairs,
7.00%, 5/15/12..................... 1,002,350
TOTAL MORTGAGE-BACKED SECURITIES
(COST $14,039,691)................. 14,169,305
<CAPTION>
U.S. AGENCY OBLIGATIONS-- 10.4%
<C> <S> <C>
1,300,000 Federal Home Loan Bank,
8.60%, 1/25/00..................... 1,370,776
Federal National Mortgage Assn.,
2,000,000 7.50%, 2/11/02....................... 2,077,826
2,000,000 7.875%, 2/24/05...................... 2,137,652
2,000,000 Tennessee Valley Authority,
6.375%, 6/15/05.................... 1,960,340
TOTAL U.S. AGENCY OBLIGATIONS
(COST $7,352,820).................. 7,546,594
<CAPTION>
U.S. TREASURY OBLIGATIONS-- 77.9%
<C> <S> <C>
U.S. Treasury Notes:
4,500,000 5.50%, 2/28/99....................... 4,463,437
6,800,000 5.88%, 1/31/99....................... 6,787,250
500,000 6.00%, 11/30/97...................... 500,937
3,400,000 6.00%, 9/30/98....................... 3,404,250
3,500,000 6.13%, 12/31/01...................... 3,467,188
4,000,000 6.25%, 7/31/98....................... 4,018,748
4,000,000 6.38%, 7/15/99....................... 4,023,748
<CAPTION>
PRINCIPAL
AMOUNT VALUE
U.S. TREASURY OBLIGATIONS-- CONTINUED
<C> <S> <C>
U.S. Treasury Notes-- continued
$3,000,000 6.50%, 4/30/99....................... $ 3,023,436
3,000,000 6.63%, 6/30/01....................... 3,030,936
1,000,000 6.75%, 4/30/00....................... 1,013,437
4,300,000 7.00%, 7/15/06....................... 4,424,967
4,000,000 7.50%, 10/31/99...................... 4,115,000
2,000,000 7.50%, 11/15/01...................... 2,085,000
2,000,000 7.50%, 5/15/02....................... 2,093,124
3,250,000 7.50%, 2/15/05....................... 3,439,920
1,700,000 7.88%, 4/15/98....................... 1,728,155
3,500,000 7.88%, 11/15/04...................... 3,776,717
1,300,000 8.50%, 11/15/00...................... 1,386,531
TOTAL U. S. TREASURY OBLIGATIONS
(COST $56,635,374)................. 56,782,781
<CAPTION>
REPURCHASE AGREEMENT-- 1.4%
<C> <S> <C>
1,039,957 Donaldson, Lufkin & Jenrette
Securities Corp., 5.90% dated
6/30/97, due 7/1/97, maturity value
$1,040,127 (collateralized by
$347,000 U.S. Treasury Bonds,
11.25%, due 2/15/15; $540,000 U.S.
Treasury Bills, due 7/3/97; value,
including accrued interest
$1,061,419)
(cost $1,039,957).................. 1,039,957
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS--
(COST $79,067,842)......... 109.1% 79,538,637
OTHER ASSETS AND
LIABILITIES-- NET.......... (9.1) (6,625,429)
NET ASSETS--................. 100.0% $72,913,208
</TABLE>
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
31
<PAGE>
(logo and picture of EVERGREEN
a flag) SHORT-INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
June 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
</TABLE>
<TABLE>
<CAPTION>
ASSET-BACKED SECURITIES-- 12.2%
<C> <S> <C>
$ 4,334,324 Advanta Home Equity Loan Trust,
7.20%, 11/25/08.................. $ 4,379,662
541,975 Bank of West Trust,
9.50%, 2/15/05................... 547,075
1,750,000 Case Equipment Loan Trust,
6.45%, 9/15/02................... 1,719,865
2,000,000 EQCC Home Equity Loan Trust,
5.82%, 9/15/09................... 1,983,940
3,309,037 FCC Grantor Trust,
9.00%, 7/15/97................... 3,306,489
2,020,649 First Bank Auto Receivable,
8.30%, 1/15/00................... 2,051,646
3,082,064 First Security Auto Grantor Trust,
6.25%, 1/15/01................... 3,099,016
483,220 Fleet Financial Home Equity Trust,
6.70%, 1/16/06-- 10/15/06........ 485,893
6,439,643 Fleetwood Credit Grantor Trust,
4.95%, 8/15/08................... 6,334,483
7,500,000 Household Affinity Credit Card
Master Trust,
7.20%, 12/15/99.................. 7,567,650
1,259,186 SCFC Recreational Vehicle Loan
Trust,
7.25%, 9/15/06................... 1,267,887
Western Financial Grantor Trust:
4,828,859 5.88%, 3/1/02...................... 4,819,684
2,179,177 6.20%, 2/1/02...................... 2,188,155
9,000,000 Xerox Rental Equipment Trust (a),
6.20%, 12/26/05.................. 8,956,406
TOTAL ASSET-BACKED SECURITIES
(COST $48,706,732)............... 48,707,851
<CAPTION>
CORPORATE BONDS-- 24.8%
<C> <S> <C>
BANKS-- 7.5%
3,400,000 Abbey National Plc,
6.69%, 10/17/05.................. 3,330,909
3,350,000 Amsouth Bancorporation,
6.75%, 11/1/25................... 3,287,057
3,000,000 Cenfed Financial Corp. (a),
11.17%, 12/15/01................. 3,202,500
2,000,000 Chase Manhattan Corporation,
8.00%, 5/15/04................... 2,046,792
First Chicago Corp.:
4,000,000 9.00%, 6/15/99..................... 4,187,408
2,000,000 9.20%, 12/17/01.................... 2,180,510
5,000,000 First Security Corp.,
6.40%, 2/10/03................... 4,854,390
<CAPTION>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS-- CONTINUED
<C> <S> <C>
BANKS-- CONTINUED
$ 6,000,000 National Bank of Canada,
8.13%, 8/15/04................... $ 6,316,668
500,000 Security Pacific Corp.,
10.45%, 5/8/01................... 559,918
29,966,152
ENERGY-- 0.5%
2,000,000 Ras Laffan Liquefied Natural Gas
(a),
7.63%, 9/15/06................... 2,033,704
FINANCE & INSURANCE-- 13.4%
2,000,000 American Express Credit Corp.,
6.25%, 8/10/05................... 1,981,028
3,000,000 Associated P&C Holdings, Inc. (a),
6.75%, 7/15/03................... 2,893,680
3,000,000 Bear Stearns Co., Inc.,
7.63%, 4/15/00................... 3,075,390
1,000,000 Horace Mann Educators Corp.,
6.63%, 1/15/06................... 963,587
Lehman Brothers Holdings, Inc.:
5,000,000 6.63%, 11/15/00.................... 4,979,145
2,500,000 6.84%, 10/7/99..................... 2,510,392
5,000,000 8.88%, 3/1/02...................... 5,357,505
Metropolitan Life Insurance Co.
(a):
5,000,000 6.30%, 11/1/03..................... 4,800,750
5,000,000 7.00%, 11/1/05..................... 4,934,405
5,000,000 Money Store, Inc.,
7.88%, 9/15/00................... 5,090,000
6,000,000 Progressive Corp., Ohio,
6.60%, 1/15/04................... 5,870,634
7,000,000 Salomon Incorporated,
7.20%, 2/1/04.................... 6,978,097
4,000,000 Traveler's Group, Inc.,
6.88%, 6/1/25.................... 3,991,232
53,425,845
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES-- 2.7%
5,000,000 Boral Limited Australia Co.,
7.90%, 11/19/99.................. 5,151,045
5,000,000 GTE Corp.,
10.25%, 11/1/20.................. 5,720,350
10,871,395
TRANSPORTATION-- 0.7%
2,500,000 Continental Airlines, Inc. (a),
7.46%, 4/1/13.................... 2,523,495
TOTAL CORPORATE BONDS
(COST $98,853,357)............... 98,820,591
</TABLE>
(CONTINUED)
32
<PAGE>
EVERGREEN (logo and picture of
SHORT-INTERMEDIATE BOND FUND flag)
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
</TABLE>
MORTGAGE-BACKED SECURITIES-- 39.5%
AFC Home Equity Loan Trust:
$ 275,254 6.60%, 10/26/26.................... $ 274,973
153,907 8.05%, 4/27/26..................... 155,624
3,150,000 Chase Commercial Mortgage Security Corp.,
6.90%, 11/19/28.................... 3,075,455
3,139,786 CMC Securities Corp.,
10.00%, 7/25/23.................. 3,322,688
2,500,000 DLJ Mortgage Acceptance Corp.,
7.95%, 5/25/23................... 2,587,109
Federal Home Loan Mortgage Corp.:
1,126,515 6.75%, 2/15/04..................... 1,129,703
4,000,000 6.80%, 10/15/05.................... 4,023,880
2,000,000 6.97%, 6/16/05..................... 1,995,910
2,945,000 7.30%, 7/30/01..................... 2,946,832
9,833,952 7.40%, 10/15/05.................... 9,938,340
2,200,000 7.99%, 3/23/05..................... 2,217,195
391,210 10.50%, 9/1/15..................... 430,820
Federal Housing Administration-
Puttable Project Loans:
GMAC 56,
4,017,498 7.43%, 11/1/22..................... 4,057,299
Merrill Lynch 199,
4,672,669 8.43%, 12/31/99.................... 4,859,356
Reilly 18,
2,939,118 6.88%, 4/1/15...................... 2,924,422
Reilly 55,
1,571,878 7.43%, 3/1/24...................... 1,589,591
Reilly 64,
10,310,265 7.43%, 1/1/24...................... 10,421,616
USGI,
5,331,922 7.43%, 7/1/22...................... 5,394,380
Federal National Mortgage Assn.:
1,500,000 5.30%, 8/25/98..................... 1,490,037
500,000 6.00%, 12/15/00.................... 491,826
2,766,670 6.23%, 12/25/25.................... 2,772,987
12,000,000 6.60%, 2/14/02..................... 11,981,244
7,500,000 6.64%, 6/19/00..................... 7,502,768
5,000,000 7.11%, 8/7/01...................... 4,995,665
2,500,000 7.65%, 5/4/05...................... 2,515,170
2,100,000 8.00%, 11/25/06.................... 2,176,257
9,000,000 8.10%, 4/25/25..................... 9,343,260
9,518,330 11.00%, 1/1/99..................... 10,749,764
38,645 14.00%, 6/1/11..................... 44,743
5,000,000 Federal National Mortgage Assn.,
Medium Term Note,
6.02%, 4/14/00................... 4,997,500
1,521,066 GCC Second Mortgage Trust,
10.00%, 7/15/05.................. 1,551,275
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
MORTGAGE-BACKED SECURITIES-- CONTINUED
$ 5,547,633 Government National
Mortgage Assn.,
7.50%, 11/20/08..........$5,621,389
4,000,000 Kidder Peabody Acceptance
Corp.,
6.65%, 2/1/06............ 3,987,612
Potomac Gurnee Finance
Corp. (a):
2,483,287 6.89%, 12/21/26.......... 2,455,573
2,500,000 7.00%, 12/21/26.......... 2,474,625
Prudential Home Mortgage
Securities:
5,419,711 6.30%, 5/25/99............. 5,417,705
4,788,537 6.50%, 10/25/08............ 4,649,286
4,302,927 Prudential Securities
Secured Financing Corp.,
8.12%, 2/17/25........... 4,427,548
6,305,826 Saxon Mortgage Securities
Corp.,
7.38%, 9/25/23........... 6,348,265
TOTAL MORTGAGE-BACKED
SECURITIES
(COST $156,702,480) 157,339,692
U.S. GOVERNMENT AGENCY OBLIGATIONS-- 3.7%
(cost $15,000,000)
15,000,000 Federal Farm Credit Bank
Consolidated Disc. Note,
6.82%, 6/15/01........... 14,919,195
U.S. TREASURY NOTES-- 19.3%
U.S. Treasury Notes:
35,000,000 5.13%, 2/28/98.............34,868,785
9,980,000 7.00%, 7/15/06.............10,270,039
2,000,000 7.13%, 9/30/99.............2,041,874
11,000,000 7.75%, 11/30/99............11,385,000
17,400,000 8.88%, 2/15/99.............18,161,250
TOTAL U. S. TREASURY NOTES
(COST $79,099,261).......76,726,948
REPURCHASE AGREEMENT-- 0.0%
143,985 Donaldson, Lufkin &
Jenrette Securities
Corp., 5.90% dated
6/30/97, due 7/1/97,
maturity value $144,009
(Collateralized by
$98,000 U.S. Treasury
Bonds, 11.25%, due
02/15/15; value,
including accrued
interest $147,318)
(cost $143,985).......... 143,985
TOTAL INVESTMENTS--
(COST $398,505,815)...... 99.5% 396,658,262
<S> <C> <C>
OTHER ASSETS AND
LIABILITIES-- NET........ 0.5 2,017,390
NET ASSETS--............... 100.0% $398,675,652
</TABLE>
(a) Securities that may be sold to qualified institutional buyers under Rule
144A or securities offered pursuant to Section 4(2) of the Securities Act of
1933, as amended. These securities have been determined to be liquid under
guidelines established by the Board of Trustees.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
EVERGREEN KEYSTONE
(logo)
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1997
<TABLE>
<CAPTION> (picture of (picture of (picture of (picture of
capital) star) stars) George
Washington)
CAPITAL EVERGREEN KEYSTONE INTERMEDIATE
PRESERVATION INTERMEDIATE INTERMEDIATE GOVERNMENT
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
ASSETS
Investments at market value (identified
cost-- $51,556,239, $156,335,609, $28,676,532,
$79,067,842 and $398,505,815, respectively)........ $52,098,247 $158,618,369 $28,570,120 $79,538,637
Cash................................................. 16,515 283 1,758 20
Interest receivable.................................. 476,566 2,037,735 500,852 1,240,062
Receivable for investments sold...................... 135,662 0 1,388,640 0
Principal paydown receivable......................... 134,735 0 0 0
Receivable for Fund shares sold...................... 135,285 11,761 1,596 2,720
Unrealized appreciation on forward foreign currency
contracts.......................................... 0 0 55,417 0
Due from investment adviser.......................... 11,877 0 16,749 0
Prepaid expenses and other assets.................... 25,636 14,435 20,302 15,257
Total assets..................................... 53,034,523 160,682,583 30,555,434 80,796,696
LIABILITIES
Payable for investments purchased.................... 0 0 1,357,677 0
Payable for Fund shares redeemed..................... 80,751 75,274 99,777 7,807,242
Dividends payable.................................... 96,575 0 69,273 0
Distribution fee payable............................. 6,513 891 7,736 759
Due to related parties............................... 1,060 136,213 762 45,121
Unrealized depreciation on forward foreign currency
contracts.......................................... 0 0 18,338 0
Accrued expenses and other liabilities............... 29,937 44,590 34,287 30,366
Total liabilities................................ 214,836 256,968 1,587,850 7,883,488
NET ASSETS............................................. $52,819,687 $160,425,615 $28,967,584 $72,913,208
NET ASSETS REPRESENTED BY
Paid-in capital...................................... $59,369,842 $162,631,066 $32,844,616 $74,620,343
Undistributed net investment income (accumulated
distributions in excess of net investment
income)............................................ (95,813) (5,106) 242,787 (5,097)
Accumulated net realized loss on investments and
foreign currency related transactions.............. (6,996,350) (4,483,105) (4,050,016) (2,172,833)
Net unrealized appreciation (depreciation) on
investments and foreign currency related
transactions....................................... 542,008 2,282,760 (69,803) 470,795
Total net assets................................. $52,819,687 $160,425,615 $28,967,584 $72,913,208
NET ASSETS CONSIST OF
Class A.............................................. $15,751,098 $ 3,037,664 $10,340,563 $ 571,508
Class B.............................................. 32,963,820 1,012,650 11,368,453 741,650
Class C.............................................. 4,104,769 28,812 7,258,568 12,097
Class Y.............................................. -- 156,346,489 -- 71,587,953
$52,819,687 $160,425,615 $28,967,584 $72,913,208
SHARES OUTSTANDING
Class A.............................................. 1,607,197 298,775 1,157,517 57,029
Class B.............................................. 3,360,676 99,621 1,270,826 74,011
Class C.............................................. 418,845 2,834 811,659 1,207
Class Y.............................................. -- 15,380,764 -- 7,142,890
NET ASSET VALUE PER SHARE
Class A.............................................. $ 9.80 $ 10.17 $ 8.93 $ 10.02
Class A-- Offering price (based on sales charge of
3.25%)............................................. $ 10.13 $ 10.51 $ 9.23 $ 10.36
Class B.............................................. $ 9.81 $ 10.17 $ 8.95 $ 10.02
Class C.............................................. $ 9.80 $ 10.17 $ 8.94 $ 10.02
Class Y.............................................. -- $ 10.17 -- $ 10.02
<CAPTION> (picture of
flag)
SHORT-
INTERMEDIATE
FUND
<S> <C>
ASSETS
Investments at market value (identified
cost-- $51,556,239, $156,335,609, $28,676,532,
$79,067,842 and $398,505,815, respectively)........ $396,658,262
Cash................................................. 997
Interest receivable.................................. 5,731,695
Receivable for investments sold...................... 0
Principal paydown receivable......................... 0
Receivable for Fund shares sold...................... 271,580
Unrealized appreciation on forward foreign currency
contracts.......................................... 0
Due from investment adviser.......................... 0
Prepaid expenses and other assets.................... 56,168
Total assets..................................... 402,718,702
LIABILITIES
Payable for investments purchased.................... 0
Payable for Fund shares redeemed..................... 3,803,972
Dividends payable.................................... 0
Distribution fee payable............................. 16,078
Due to related parties............................... 186,244
Unrealized depreciation on forward foreign currency
contracts.......................................... 0
Accrued expenses and other liabilities............... 36,756
Total liabilities................................ 4,043,050
NET ASSETS............................................. $398,675,652
NET ASSETS REPRESENTED BY
Paid-in capital...................................... $416,539,149
Undistributed net investment income (accumulated
distributions in excess of net investment
income)............................................ (16,203)
Accumulated net realized loss on investments and
foreign currency related transactions.............. (15,999,741)
Net unrealized appreciation (depreciation) on
investments and foreign currency related
transactions....................................... (1,847,553)
Total net assets................................. $398,675,652
NET ASSETS CONSIST OF
Class A.............................................. $ 17,703,034
Class B.............................................. 22,237,190
Class C.............................................. 1,029,416
Class Y.............................................. 357,706,012
$398,675,652
SHARES OUTSTANDING
Class A.............................................. 1,800,182
Class B.............................................. 2,257,458
Class C.............................................. 104,492
Class Y.............................................. 36,392,215
NET ASSET VALUE PER SHARE
Class A.............................................. $ 9.83
Class A-- Offering price (based on sales charge of
3.25%)............................................. $ 10.16
Class B.............................................. $ 9.85
Class C.............................................. $ 9.85
Class Y.............................................. $ 9.83
</TABLE>
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
34
<PAGE>
EVERGREEN KEYSTONE
(logo)
STATEMENTS OF OPERATIONS
Period Ended June 30, 1997
<TABLE>
<CAPTION>
(picture of (picture of (picture of (picture of
capital) star) stars) George
Washington)
CAPITAL EVERGREEN KEYSTONE INTERMEDIATE
PRESERVATION INTERMEDIATE INTERMEDIATE GOVERNMENT
FUND* FUND*** FUND** FUND***
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest (net of foreign withholding taxes of $0,
$3,364, $0, $0, $0, respectively)................... $3,173,485 $11,145,047 $2,343,240 $5,768,839
<CAPTION>
<S> <C> <C> <C> <C>
EXPENSES
Management fee........................................ 284,977 987,044 202,102 546,941
Distribution Plan expenses............................ 346,141 14,407 228,750 8,731
Transfer agent fees................................... 83,571 66,508 83,025 35,360
Custodian fees........................................ 51,296 82,597 39,350 51,941
Administrative services fees.......................... 34,481 69,536 11,267 38,083
Professional fees..................................... 23,622 17,269 26,033 16,910
Registration and filing fees.......................... 42,963 53,298 25,890 90,281
Trustees' fees and expenses........................... 0 4,106 0 4,047
Organization expenses................................. 0 986 0 1,035
Other................................................. 25,905 44,367 32,197 26,280
Fee waivers and/or expense reimbursement by
affiliates.......................................... (245,255) (5,480) (145,636) (73,557)
Total expenses...................................... 647,701 1,334,638 502,978 746,052
Less: Indirectly paid expenses........................ (11,507) (640) (6,039) (641)
Net expenses........................................ 636,194 1,333,998 496,939 745,411
NET INVESTMENT INCOME................................. 2,537,291 9,811,049 1,846,301 5,023,428
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY RELATED TRANSACTIONS
Net realized gain (loss) on:
Investments......................................... (101,173) (1,614,828) (207,489) (16,049)
Foreign currency related transactions............... 0 0 311,507 0
Net realized gain on investments and foreign currency
related transactions................................ (101,173) (1,614,828) 104,018 (16,049)
Net change in unrealized appreciation on:
Investments......................................... 279,120 2,782,704 589,966 219,766
Foreign currency related transactions............... 0 0 79,789 0
Net change in unrealized appreciation on investments
and foreign currency related transactions........... 279,120 2,782,704 669,755 219,766
Net realized and unrealized gain on investments and
foreign currency related transactions............... 177,947 1,167,876 773,773 203,717
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.......................................... $2,715,238 $10,978,925 $2,620,074 $5,227,145
<CAPTION>
(picture of
flag)
SHORT-
INTERMEDIATE
FUND***
<S> <C>
INVESTMENT INCOME
Interest (net of foreign withholding taxes of $0,
$3,364, $0, $0, $0, respectively)................... $28,349,460
EXPENSES
Management fee........................................ 1,998,063
Distribution Plan expenses............................ 251,695
Transfer agent fees................................... 96,271
Custodian fees........................................ 78,107
Administrative services fees.......................... 167,636
Professional fees..................................... 19,246
Registration and filing fees.......................... 57,771
Trustees' fees and expenses........................... 9,310
Organization expenses................................. 0
Other................................................. 47,316
Fee waivers and/or expense reimbursement by
affiliates.......................................... 0
Total expenses...................................... 2,725,415
Less: Indirectly paid expenses........................ (2,308)
Net expenses........................................ 2,723,107
NET INVESTMENT INCOME................................. 25,626,353
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY RELATED TRANSACTIONS
Net realized gain (loss) on:
Investments......................................... (2,101,788)
Foreign currency related transactions............... 0
Net realized gain on investments and foreign currency
related transactions................................ (2,101,788)
Net change in unrealized appreciation on:
Investments......................................... 2,666,233
Foreign currency related transactions............... 0
Net change in unrealized appreciation on investments
and foreign currency related transactions........... 2,666,233
Net realized and unrealized gain on investments and
foreign currency related transactions............... 564,445
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.......................................... $26,190,798
</TABLE>
* Nine months ended June 30, 1997. During the period, the Fund changed its
fiscal year end from September 30 to June 30.
** Eleven months ended June 30, 1997. During the period, the Fund changed its
fiscal year end from July 31 to June 30.
*** Year ended June 30, 1997.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
EVERGREEN KEYSTONE
(logo)
STATEMENTS OF OPERATIONS
Prior Periods
<TABLE>
<CAPTION> (picture of (picture of
capital) stars)
CAPITAL KEYSTONE
PRESERVATION INTERMEDIATE
FUND* FUND**
<S> <C> <C>
INVESTMENT INCOME
Interest................................................................................... $5,536,633 $3,205,120
EXPENSES
Management fee............................................................................. 493,147 273,644
Distribution Plan expenses................................................................. 610,933 312,408
Transfer agent fees........................................................................ 139,248 106,796
Custodian fees............................................................................. 57,386 46,630
Administrative services fees............................................................... 24,176 23,963
Professional fees.......................................................................... 37,958 29,575
Registration and filing fees............................................................... 45,925 41,731
Organization expenses...................................................................... 3,896 0
Other...................................................................................... 34,903 27,827
Fee waivers and/or expense reimbursement by affiliates..................................... (341,016) (191,096)
Total expenses........................................................................... 1,106,556 671,478
Less: Indirectly paid expenses............................................................. (12,182) (6,981)
Net expenses............................................................................. 1,094,374 664,497
NET INVESTMENT INCOME...................................................................... 4,442,259 2,540,623
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES CONTRACTS
Net realized gain (loss) on:
Investments.............................................................................. (549,777) (35,859)
Foreign currency related transactions.................................................... 0 62,463
Net realized gain (loss) on investments and foreign currency related transactions.......... (549,777) 26,604
Net change in unrealized appreciation (depreciation) on:
Investments.............................................................................. 648,310 (687,165)
Foreign currency related transactions.................................................... 0 (43,181)
Net change in unrealized appreciation (depreciation) on investments and foreign currency
related transactions..................................................................... 648,310 (730,346)
Net realized and unrealized gain (loss) on investments and foreign currency related
transactions............................................................................. 98,533 (703,742)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....................................... $4,540,792 $1,836,881
</TABLE>
* Year ended September 30, 1996.
** Year ended July 31, 1996.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
EVERGREEN KEYSTONE
(logo)
STATEMENTS OF CHANGES IN NET ASSETS
Period Ended June 30, 1997
<TABLE>
<CAPTION> (picture of (picture of (picture of (picture of
capital) star) stars) George
Washington)
CAPITAL EVERGREEN KEYSTONE INTERMEDIATE
PRESERVATION INTERMEDIATE INTERMEDIATE GOVERNMENT
FUND* FUND*** FUND** FUND***
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income................................ $ 2,537,291 $ 9,811,049 $ 1,846,301 $ 5,023,428
Net realized gain (loss) on investments and foreign
currency related transactions...................... (101,173) (1,614,828) 104,018 (16,049)
Net change in unrealized appreciation (depreciation)
on investments and foreign currency related
transactions....................................... 279,120 2,782,704 669,755 219,766
<CAPTION>
Net increase in net assets resulting from
operations....................................... 2,715,238 10,978,925 2,620,074 5,227,145
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income:
Class A............................................ (710,409) (179,161) (666,667) (31,632)
Class B............................................ (1,412,040) (36,467) (719,674) (29,748)
Class C............................................ (160,768) (1,275) (417,078) (1,189)
Class Y............................................ 0 (9,653,448) 0 (4,959,781)
In excess of net investment income:
Class A............................................ (20,595) 0 0 (97)
Class B............................................ (40,936) 0 0 (91)
Class C............................................ (4,661) 0 0 (4)
Class Y............................................ 0 0 0 (15,207)
Tax basis return of capital
Class A............................................ 0 (1,220) 0 0
Class B............................................ 0 (248) 0 0
Class C............................................ 0 (9) 0 0
Class Y............................................ 0 (65,758) 0 0
Total distributions to shareholders................ (2,349,409) (9,937,586) (1,803,419) (5,037,749)
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold............................ 8,631,265 50,138,853 3,559,906 35,487,793
Proceeds from reinvestment of distributions.......... 1,854,608 6,780,391 1,095,398 3,993,534
Payment for shares redeemed.......................... (28,964,306) (58,718,452) (14,580,292) (54,650,906)
Net increase (decrease) in net assets resulting
from capital share transactions.................. (18,478,433) (1,799,208) (9,924,988) (15,169,579)
Total increase (decrease) in net assets.......... (18,112,604) (757,869) (9,108,333) (14,980,183)
NET ASSETS
Beginning of period.................................. 70,932,291 161,183,484 38,075,917 87,893,391
END OF PERIOD........................................ $52,819,687 $160,425,615 $28,967,584 $72,913,208
Undistributed net investment income (accumulated
distributions in excess of net investment income).... $ (95,813) $ (5,106) $ 242,787 $ (5,097)
<CAPTION>
(picture of
flag)
SHORT-
INTERMEDIATE
FUND***
<S> <C>
OPERATIONS
Net investment income................................ $ 25,626,353
Net realized gain (loss) on investments and foreign
currency related transactions...................... (2,101,788)
Net change in unrealized appreciation (depreciation)
on investments and foreign currency related
transactions....................................... 2,666,233
Net increase in net assets resulting from
operations....................................... 26,190,798
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income:
Class A............................................ (1,217,283)
Class B............................................ (1,225,460)
Class C............................................ (58,085)
Class Y............................................ (23,369,583)
In excess of net investment income:
Class A............................................ 0
Class B............................................ 0
Class C............................................ 0
Class Y............................................ 0
Tax basis return of capital
Class A............................................ 0
Class B............................................ 0
Class C............................................ 0
Class Y............................................ 0
Total distributions to shareholders................ (25,870,411)
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold............................ 122,641,025
Proceeds from reinvestment of distributions.......... 15,137,626
Payment for shares redeemed.......................... (132,309,835)
Net increase (decrease) in net assets resulting
from capital share transactions.................. 5,468,816
Total increase (decrease) in net assets.......... 5,789,203
NET ASSETS
Beginning of period.................................. 392,886,449
END OF PERIOD........................................ $398,675,652
Undistributed net investment income (accumulated
distributions in excess of net investment income).... $ (16,203)
</TABLE>
* Nine months ended June 30, 1997. During the period, the Fund changed its
fiscal year end from September 30 to June 30.
** Eleven months ended June 30, 1997. During the period, the Fund changed its
fiscal year end from July 31 to June 30.
*** Year ended June 30, 1997.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
EVERGREEN KEYSTONE
(logo)
STATEMENTS OF CHANGES IN NET ASSETS
Fiscal Periods Ended 1996
<TABLE>
<CAPTION>
(picture of (picture of (picture of (picture of
capital) star) stars) George
Washington)
CAPITAL EVERGREEN KEYSTONE INTERMEDIATE
PRESERVATION INTERMEDIATE INTERMEDIATE GOVERNMENT
FUND* FUND** FUND*** FUND**
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income................................ $ 4,442,259 $ 5,797,073 $ 2,540,623 $ 4,606,598
Net realized gain (loss) on investments and foreign
currency related transactions...................... (549,777) 314,598 26,604 11,468
Net change in unrealized appreciation (depreciation)
on investments and foreign currency related
transactions....................................... 648,310 (3,327,986) (730,346) (1,507,190)
Net increase in net assets resulting from
operations....................................... 4,540,792 2,783,685 1,836,881 3,110,876
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income:
Class A............................................ (1,089,444) (35,386) (898,299) (23,774)
Class B............................................ (2,568,398) (2,841) (1,028,103) (2,363)
Class C............................................ (147,748) (169) (576,335) (255)
Class Y............................................ 0 (5,670,902) 0 (4,562,840)
Tax basis return of capital:
Class A............................................ (52,292) 0 0 0
Class B............................................ (123,279) 0 0 0
Class C............................................ (7,092) 0 0 0
Total distributions to shareholders................ (3,988,253) (5,709,298) (2,502,737) (4,589,232)
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold............................ 12,691,883 38,531,458 10,120,565 13,828,502
Proceeds from shares issued in the acquisition of
Evergreen Managed Bond Fund........................ 0 79,773,557 0 0
Proceeds from reinvestment of distributions.......... 2,823,494 4,544,198 1,417,473 4,095,518
Payment for shares redeemed.......................... (30,181,809) (54,860,961) (15,524,524) (34,626,524)
Net increase (decrease) in net assets resulting
from capital share transactions.................. (14,666,432) 67,988,252 (3,986,486) (16,702,504)
Total increase (decrease) in net assets.......... (14,113,893) 65,062,639 (4,652,342) (18,180,860)
NET ASSETS
Beginning of period.................................. 85,046,184 96,120,845 42,728,259 106,074,251
END OF PERIOD........................................ $70,932,291 $161,183,484 $38,075,917 $87,893,391
Undistributed net investment income (accumulated
distributions in excess of net investment income).... $ (305,808) $ 87,592 $ (21,199) $ 17,332
<CAPTION>
(picture of
flag)
SHORT-
INTERMEDIATE
FUND****
<S> <C>
OPERATIONS
Net investment income................................ $ 24,943,586
Net realized gain (loss) on investments and foreign
currency related transactions...................... (4,715,061)
Net change in unrealized appreciation (depreciation)
on investments and foreign currency related
transactions....................................... (2,841,758)
Net increase in net assets resulting from
operations....................................... 17,386,767
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income:
Class A............................................ (1,165,625)
Class B............................................ (1,059,184)
Class C............................................ (49,329)
Class Y............................................ (23,005,091)
Tax basis return of capital:
Class A............................................ 0
Class B............................................ 0
Class C............................................ 0
Total distributions to shareholders................ (25,279,229)
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold............................ 170,338,605
Proceeds from shares issued in the acquisition of
Evergreen Managed Bond Fund........................ 0
Proceeds from reinvestment of distributions.......... 18,879,027
Payment for shares redeemed.......................... (172,279,164)
Net increase (decrease) in net assets resulting
from capital share transactions.................. 16,938,468
Total increase (decrease) in net assets.......... 9,046,006
NET ASSETS
Beginning of period.................................. 383,840,443
END OF PERIOD........................................ $392,886,449
Undistributed net investment income (accumulated
distributions in excess of net investment income).... $ 98,373
</TABLE>
* Year ended September 30, 1996.
** Ten months ended June 30, 1996. The Fund changed its fiscal year end from
August 31 to June 30.
*** Year ended July 31, 1996.
**** Year ended June 30, 1996.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
38
<PAGE>
EVERGREEN KEYSTONE
(logo)
STATEMENTS OF CHANGES IN NET ASSETS
Prior Periods
<TABLE>
<CAPTION> picture of (picture of (picture of (picture of
capital) star) stars) George
Washington)
EVERGREEN KEYSTONE
CAPITAL INTERMEDIATE INTERMEDIATE INTERMEDIATE
PRESERVATION FUND FUND FUND GOVERNMENT FUND
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1995 AUGUST 31, 1995 JULY 31, 1995 AUGUST 31, 1995
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income................................. $ 5,308,068 $ 5,110,145 $ 2,911,914 $ 5,851,118
Net realized gain (loss) on investments and foreign
currency related transactions....................... (1,162,200) (741,577) (583,642) (1,236,390)
Net change in unrealized appreciation (depreciation)
on investments and futures contracts................ 1,169,382 4,454,061 628,176 3,611,699
Net increase in net assets resulting from
operations........................................ 5,315,250 8,822,629 2,956,448 8,226,427
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income:
Class A............................................. (909,585) (2,134) (1,002,996) (10,951)
Class B............................................. (3,706,229) 0 (1,010,554) 0
Class C............................................. (143,406) 0 (654,159) 0
Class Y............................................. 0 (5,105,153) 0 (5,850,108)
In excess of net investment income:
Class A............................................. (26,148) 0 (61,783) 0
Class B............................................. (106,543) 0 (62,249) 0
Class C............................................. (4,122) 0 (40,296) 0
Net realized gain on investments:
Class Y............................................. 0 (401,810) 0 0
Total distributions to shareholders................. (4,896,033) (5,509,097) (2,832,037) (5,861,059)
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold............................. 28,808,789 16,277,483 8,978,216 19,842,837
Proceeds from shares issued in the acquisition of
Keystone America Capital Preservation and Income
Fund-- Class A...................................... 23,825,980 0 0 0
Proceeds from reinvestment of distributions........... 3,281,799 4,957,099 1,575,164 5,214,391
Payment for shares redeemed........................... (69,924,430) (20,151,849) (14,890,499) (27,796,468)
Net increase (decrease) in net assets resulting from
capital share transactions........................ (14,007,862) 1,082,733 (4,337,119) (2,739,240)
Total increase (decrease) in net assets........... (13,588,645) 4,396,265 (4,212,708) (373,872)
NET ASSETS
Beginning of period................................... 98,634,829 91,724,580 46,940,967 106,448,123
END OF PERIOD......................................... $ 85,046,184 $96,120,845 $42,728,259 $ 106,074,251
Accumulated distributions in excess of net investment
income................................................ $ (415,117) $ (183) $ (94,328) $ (34)
</TABLE>
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
EVERGREEN KEYSTONE
(logo)
COMBINED NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Evergreen Keystone Short and Intermediate Term Bond Funds consist of
Keystone Capital Preservation and Income Fund ("Capital Preservation Fund"),
Evergreen Intermediate-Term Bond Fund ("Evergreen Intermediate Fund"), Keystone
Intermediate Term Bond Fund ("Keystone Intermediate Fund"), Evergreen
Intermediate-Term Government Securities Fund ("Intermediate Government Fund")
and Evergreen Short-Intermediate Bond Fund ("Short-Intermediate Fund"),
(collectively, the "Funds"), all of which are registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as diversified, open-end
management investment companies. The Evergreen Intermediate Fund and the
Intermediate Government Fund are separate series of The Evergreen Lexicon Fund
and Short-Intermediate Fund is a separate series of the Evergreen Investment
Trust.
The Funds offer Class A, Class B, Class C and/or Class Y shares. Class A shares
are sold with a maximum front-end sales charge of 3.25%. Class B and Class C
shares are sold without a front-end sales charge, but pay a higher ongoing
distribution fee than Class A. Class B shares are sold subject to a contingent
deferred sales charge that is payable upon redemption and decreases depending on
how long the shares have been held. Class C shares are sold subject to a
contingent deferred sales charge payable on shares redeemed within one year
after the month of purchase. Class B shares purchased after January 1, 1997 will
automatically convert to Class A shares after seven years. Class B shares
purchased prior to January 1, 1997 retain their existing conversion rights.
Class Y shares are sold at net asset value and are not subject to contingent
deferred sales charges or distribution fees. Class Y shares are sold only to
investment advisory clients of First Union and its affiliates, certain
institutional investors or Class Y shareholders of record of certain other funds
managed by First Union and its affiliates as of December 30, 1994.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles, which
require management to make estimates and assumptions that affect amounts
reported herein. Actual results could differ from these estimates.
A. VALUATION OF SECURITIES
U.S. government obligations held by the Funds are valued at the mean between the
over-the-counter bid and asked prices. Corporate bonds, other fixed-income
securities, and mortgage and other asset-backed securities are valued at prices
provided by an independent pricing service. In determining value for normal
institutional-size transactions, the pricing service uses methods based on
market transactions for comparable securities and analysis of various
relationships between similar securities which are generally recognized by
institutional traders. Securities for which valuations are not available from an
independent pricing service (including restricted securities) are valued at fair
value as determined in good faith according to procedures established by the
Board of Trustees.
Short-term investments with remaining maturities of 60 days or less are carried
at amortized cost, which approximates market value.
B. REPURCHASE AGREEMENTS
Each Fund may invest in repurchase agreements. Securities pledged as collateral
for repurchase agreements are held by the custodian on the Fund's behalf. Each
Fund monitors the adequacy of the collateral daily and will require the seller
to provide additional collateral in the event the market value of the securities
pledged falls below the carrying value of the repurchase agreement, including
accrued interest. Each Fund will only enter into repurchase agreements with
banks and other financial institutions which are deemed by the investment
advisor to be creditworthy pursuant to guidelines established by the Board of
Trustees.
Pursuant to an exemptive order issued by the Securities and Exchange Commission,
the Capital Preservation and Keystone Intermediate Funds, along with certain
other funds managed by Keystone, may transfer uninvested cash balances into a
joint trading account. These balances are invested in one or more repurchase
agreements that are fully collateralized by U.S. Treasury and/or federal agency
obligations.
C. REVERSE REPURCHASE AGREEMENTS
To obtain short-term financing, Capital Preservation and Keystone Intermediate
Fund may enter into reverse repurchase agreements with qualified third-party
broker-dealers. Interest on the value of reverse repurchase agreements is based
upon competitive market rates at the time of issuance. At the time the Fund
enters into a reverse repurchase agreement, it will establish and maintain a
segregated account with the custodian containing qualifying assets having a
value not less than the repurchase price, including accrued interest. If the
counterparty to the transaction is rendered insolvent, the ultimate realization
of the securities to be repurchased by the Fund may be delayed or limited.
D. FOREIGN CURRENCY
The books and records of the Funds are maintained in United States (U.S.)
dollars. Foreign currency amounts are translated into U.S. dollars as follows:
market value of investments, assets and liabilities at the daily rate of
exchange; purchases and sales of investments, income and expenses at the rate of
exchange prevailing on the respective dates of such transactions. Net unrealized
foreign exchange gain (loss) resulting from changes in foreign currency exchange
rates is a component of net unrealized appreciation (depreciation) on
investments and foreign currency related transactions. Net realized foreign
currency gains and losses resulting from changes in exchange rates include
foreign currency gains and losses between trade date and settlement date on
investment securities transactions and foreign currency related transactions and
is included in realized gain (loss) on foreign currency related transactions.
Foreign currency transactions related to the difference between the amounts of
interest and dividends recorded on the books of the Fund and the amount actually
received is included in gross investment income. The portion of foreign currency
gains and losses related to fluctuations in exchange rates between the initial
purchase trade date and subsequent sale trade date is included in realized gain
(loss) on investments.
40
<PAGE>
EVERGREEN KEYSTONE
(logo)
COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
E. SECURITY TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premium.
F. DISTRIBUTIONS
Distributions from net investment income for the Capital Preservation and
Keystone Intermediate Funds are declared daily and paid monthly. Distributions
from net investment income are declared and paid monthly for the Evergreen
Intermediate, Intermediate Government and Short-Intermediate Funds.
Distributions from net realized capital gains, if any, are paid at least
annually. Distributions to shareholders are recorded at the close of business on
the ex-dividend date.
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. The significant differences between financial statement
amounts available for distributions and distributions made in accordance with
income tax regulations are primarily due to differing treatment for mortgage
paydown gains (losses) and foreign securities transactions, if any.
G. CLASS ALLOCATIONS
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the relative
net assets of each class. Currently, class specific expenses are limited to
expenses incurred under the Distribution Plans for each class.
H. ORGANIZATION EXPENSES
For the Evergreen Intermediate and Intermediate Government Funds, organization
expenses were amortized to operations over a five-year period on a straight-line
basis. During the year ended June 30, 1997, organization costs were fully
amortized for the Evergreen Intermediate and Intermediate Government Funds.
I. FEDERAL INCOME TAXES
The Funds have qualified and intend to continue to qualify as regulated
investment companies under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Funds will not incur any federal income tax liability since
they are expected to distribute all of their net investment company taxable
income, net tax-exempt income and net capital gains, if any, to their
shareholders. The Funds also intend to avoid any excise tax liability by making
the required distributions under the Code. Accordingly, no provision for federal
income taxes is required. To the extent that realized capital gains can be
offset by capital loss carryforwards, it is each Fund's policy not to distribute
such gains.
2. CAPITAL SHARE TRANSACTIONS
The Capital Preservation Fund and Keystone Intermediate Fund have unlimited
number of shares of beneficial interest with no par value authorized. The
Evergreen Intermediate Fund, Intermediate Government Fund and Short-Intermediate
Fund each have unlimited number of shares of beneficial interest with a par
value of $0.0001 authorized. Shares of beneficial interest of the Funds are
currently divided into Class A, Class B, Class C and/or Class Y. Transactions in
shares of the Funds were as follows:
CAPITAL PRESERVATION FUND
<TABLE>
<CAPTION>
DECEMBER 30, 1994
(COMMENCEMENT OF
NINE MONTHS ENDED YEAR ENDED CLASS OPERATIONS) TO
JUNE 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
<S> <C> <C> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
CLASS A
Shares sold..................................... 534,956 $ 5,229,171 808,295 $ 7,859,112 72,460 $ 699,481
Share issued in acquisition of Keystone America
Capital Preservation Income Fund.............. 0 0 0 0 2,506,041 23,825,980
Shares issued in reinvestment of
distributions................................. 61,902 604,810 89,475 865,840 71,420 689,075
Shares redeemed................................. (1,318,046) (12,878,080) (563,085) (5,471,951) (656,221) (6,023,682)
Net increase (decrease)......................... (721,188) $ (7,044,099) 334,685 $ 3,253,001 1,993,700 $ 19,190,854
</TABLE>
41
<PAGE>
EVERGREEN KEYSTONE
(logo)
COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CAPITAL PRESERVATION FUND-- continued
NINE MONTHS ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
<S> <C> <C> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
CLASS B
Shares sold..................................... 182,841 $ 1,788,928 282,004 $ 2,742,007 2,758,618 $ 26,668,622
Shares issued in reinvestment of
distributions................................. 114,536 1,119,992 187,040 1,829,883 257,649 2,480,740
Shares redeemed................................. (1,459,187) (14,270,487) (2,455,640) (23,865,587) (6,464,191) (62,204,625)
Net decrease.................................... (1,161,810) $(11,361,567) (1,986,596) $(19,293,697) (3,447,924) $(33,055,263)
CLASS C
Shares sold..................................... 164,962 $ 1,613,166 215,390 $ 2,090,764 150,700 $ 1,440,686
Shares issued in reinvestment of
distributions................................. 13,283 129,806 12,718 127,771 11,638 111,984
Shares redeemed................................. (185,566) (1,815,739) (86,982) (844,271) (176,498) (1,696,123)
Net increase (decrease)......................... (7,321) $ (72,767) 141,126 $ 1,374,264 (14,160) $ (143,453)
</TABLE>
EVERGREEN INTERMEDIATE FUND
<TABLE>
<CAPTION>
MAY 2, 1995
(COMMENCEMENT OF
YEAR ENDED TEN MONTHS ENDED CLASS OPERATIONS) TO
JUNE 30, 1997 JUNE 30, 1996 AUGUST 31, 1995
<S> <C> <C> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
CLASS A
Shares sold..................................... 52,051 $ 529,465 292,734 $ 2,962,857 24,799 $ 255,892
Shares issued in reinvestment of
distributions................................. 17,590 178,344 3,368 34,080 209 2,134
Shares redeemed................................. (62,211) (632,271) (20,323) (206,789) (9,442) (96,968)
Net increase.................................... 7,430 $ 75,538 275,779 $ 2,790,148 15,566 $ 161,058
</TABLE>
<TABLE>
<CAPTION>
JANUARY 30, 1996
(COMMENCEMENT OF
YEAR ENDED CLASS OPERATIONS) TO
JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT
CLASS B
Shares sold..................................... 62,610 $ 633,834 40,844 $ 415,640
Shares issued in reinvestment of
distributions................................. 2,120 21,504 228 2,296
Shares redeemed................................. (4,937) (50,000) (1,244) (12,553)
Net increase.................................... 59,793 $ 605,338 39,828 $ 405,383
</TABLE>
<TABLE>
<CAPTION>
APRIL 29, 1996
(COMMENCEMENT OF
YEAR ENDED CLASS OPERATIONS) TO
JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT
CLASS C
Shares sold..................................... 490 $ 5,000 2,450 $ 24,797
Shares issued in reinvestment of
distributions................................. 126 1,282 16 167
Shares redeemed................................. (249) (2,514) 0 0
Net increase.................................... 367 $ 3,768 2,466 $ 24,964
</TABLE>
42
<PAGE>
EVERGREEN KEYSTONE
(logo)
COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
EVERGREEN INTERMEDIATE FUND-- continued
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996 AUGUST 31, 1995
<S> <C> <C> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
CLASS Y
Shares sold..................................... 4,825,919 $ 48,970,554 3,399,442 $ 35,128,164 1,606,066 $ 16,021,590
Shares issued in acquisition of Evergreen
Managed Bond Fund............................. 0 0 7,674,423 79,773,557 0 0
Shares issued in reinvestment of
distributions................................. 649,188 6,579,261 438,427 4,507,655 498,736 4,954,965
Shares redeemed................................. (5,719,188) (58,033,667) (5,208,789) (54,641,619) (2,018,177) (20,054,880)
Net increase (decrease)......................... (244,081) $ (2,483,852) 6,303,503 $ 64,767,757 86,625 $ 921,675
</TABLE>
KEYSTONE INTERMEDIATE FUND
<TABLE>
<CAPTION>
ELEVEN MONTHS ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1997 JULY 31, 1996 JULY 31, 1995
<S> <C> <C> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
CLASS A
Shares sold........................................ 175,221 $ 1,566,271 258,497 $ 2,283,194 214,382 $ 1,875,188
Shares issued in reinvestment of distributions..... 45,592 404,429 52,934 469,775 61,155 533,202
Shares redeemed.................................... (547,872) (4,863,536) (465,961) (4,141,580) (449,814) (3,937,486)
Net decrease....................................... (327,059) $(2,892,836) (154,530) $(1,388,611) (174,277) $(1,529,096)
CLASS B
Shares sold........................................ 170,620 $ 1,528,256 555,555 $ 4,965,806 566,892 $ 4,978,695
Shares issued in reinvestment of distributions..... 46,270 411,336 63,537 565,232 66,016 576,332
Shares redeemed.................................... (779,593) (6,943,044) (808,199) (7,205,208) (624,636) (5,447,096)
Net increase (decrease)............................ (562,703) $(5,003,452) (189,107) $(1,674,170) 8,272 $ 107,931
CLASS C
Shares sold........................................ 52,022 $ 465,379 318,799 $ 2,871,565 243,954 $ 2,124,333
Shares issued in reinvestment of distributions..... 31,491 279,633 42,997 382,466 53,388 465,630
Shares redeemed.................................... (311,128) (2,773,712) (468,122) (4,177,736) (630,936) (5,505,917)
Net decrease....................................... (227,615) $(2,028,700) (106,326) $ (923,705) (333,594) $(2,915,954)
</TABLE>
INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
MAY 2, 1995
TEN MONTHS (COMMENCEMENT OF
YEAR ENDED ENDED CLASS OPERATIONS) TO
JUNE 30, 1997 JUNE 30, 1996 AUGUST 31, 1995
<S> <C> <C> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
CLASS A
Shares sold..................................... 10,763 $ 107,284 64,791 $ 663,129 879 $ 8,925
Shares issued in reinvestment of
distributions................................. 2,429 24,330 1,503 15,239 0 0
Shares redeemed................................. (5,953) (59,462) (17,382) (175,816) 0 0
Net increase.................................... 7,239 $ 72,152 48,912 $ 502,552 879 $ 8,925
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 9, 1996
(COMMENCEMENT OF
YEAR ENDED CLASS OPERATIONS) TO
JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT
CLASS B
Shares sold..................................... 49,960 $ 500,124 35,925 $ 359,696
Shares issued in reinvestment of
distributions................................. 1,735 17,379 67 666
Shares redeemed................................. (13,674) (136,147) (2) (23)
Net increase.................................... 38,021 $ 381,356 35,990 $ 360,339
</TABLE>
43
<PAGE>
EVERGREEN KEYSTONE
(logo)
COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT FUND-- continued
APRIL 10, 1996
(COMMENCEMENT OF
YEAR ENDED CLASS OPERATIONS) TO
JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT
CLASS C
Shares sold..................................... 2,288 $ 22,910 3,551 $ 35,538
Shares issued in reinvestment of
distributions................................. 85 967 26 254
Shares redeemed................................. (4,419) (44,414) (324) (3,205)
Net increase (decrease)......................... (2,046) $ (20,537) 3,253 $ 32,587
</TABLE>
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996 AUGUST 31, 1995
<S> <C> <C> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
CLASS Y
Shares sold..................................... 3,476,575 $ 34,857,475 1,257,974 $ 12,770,139 1,999,05 $ 19,833,912
Shares issued in reinvestment of
distributions................................. 394,427 3,950,858 402,054 4,079,359 526,254 5,214,391
Shares redeemed................................. (5,437,776) (54,410,883) (3,404,763) (34,447,480) (2,799,781) (27,796,468)
Net increase (decrease)......................... (1,566,774) $(15,602,550) 1,744,735 $ 17,597,982 (274,476) $ (2,748,165)
</TABLE>
SHORT-INTERMEDIATE FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT
CLASS A
Shares sold........................................................... 584,893 $ 5,786,371 417,422 $ 4,161,754
Shares issued in reinvestment of distributions........................ 93,998 924,863 91,045 906,558
Shares redeemed....................................................... (775,720) (7,650,833) (498,266) (4,979,754)
Net increase (decrease)............................................... (96,829) $ (939,599) 10,201 $ 88,558
CLASS B
Shares sold........................................................... 520,912 $ 5,138,212 844,991 $ 8,456,439
Shares issued in reinvestment of distributions........................ 87,527 862,791 74,101 739,247
Shares redeemed....................................................... (486,579) (4,795,124) (512,788) (5,128,366)
Net increase.......................................................... 121,860 $ 1,205,879 406,304 $ 4,067,320
CLASS C
Shares sold........................................................... 35,729 $ 354,646 94,089 $ 944,432
Shares issued in reinvestment of distributions........................ 4,508 44,442 3,083 30,731
Shares redeemed....................................................... (53,064) (524,077) (32,296) (321,263)
Net increase (decrease)............................................... (12,827) $ (124,989) 64,876 $ 653,900
CLASS Y
Shares sold........................................................... 11,302,391 $111,361,796 15,667,603 $156,775,980
Shares issued in reinvestment of distributions........................ 1,353,407 13,305,530 1,726,865 17,202,491
Shares redeemed....................................................... (12,121,462) (119,339,801) (16,165,702) (161,849,781)
Net increase.......................................................... 534,336 $ 5,327,525 1,228,766 $ 12,128,690
</TABLE>
44
<PAGE>
EVERGREEN KEYSTONE
(logo)
COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) were as follows for the year ended June 30, 1997:
<TABLE>
<CAPTION>
COST OF PURCHASES PROCEEDS FROM SALES
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OTHER U.S. GOVERNMENT OTHER
<CAPTION>
<S> <C> <C> <C> <C>
Capital Preservation Fund*............ $ 30,413,800 $ 0 $ 42,505,286 $ 0
Evergreen Intermediate Fund........... 108,340,939 24,077,086 138,666,138 6,840,920
Keystone Intermediate Fund**.......... 28,261,905 30,738,558 31,902,091 36,582,139
Intermediate Government Fund.......... 59,320,521 0 65,407,081 0
Short-Intermediate Fund............... 103,309,243 113,815,506 71,256,326 99,358,914
</TABLE>
* For the nine months ended June 30, 1997
** For the eleven months ended June 30, 1997
The average daily balance of reverse repurchase agreements outstanding for the
Capital Preservation Fund and the Keystone Intermediate Fund during the period
ended June 30, 1997 was approximately $988,000 and $1,102,000, respectively, at
a weighted average interest rate of 5.40% and 5.58%, respectively. The maximum
amount outstanding under reverse repurchase agreements during the period ended
June 30, 1997 for the Capital Preservation Fund was $4,066,236 (including
accrued interest) and $2,017,983 (including accrued interest) for Keystone
Intermediate Fund. There were no reverse repurchase agreements outstanding at
June 30, 1997 for either Fund.
On June 30, 1997, the composition of gross unrealized appreciation and
depreciation of investment securities based on the aggregate cost of investments
for federal tax purposes was as follows:
<TABLE>
<CAPTION>
GROSS GROSS NET UNREALIZED
TAX UNREALIZED UNREALIZED APPRECIATION
COST APPRECIATION DEPRECIATION (DEPRECIATION)
<S> <C> <C> <C> <C>
Capital Preservation Fund.................. $ 51,559,754 $ 541,790 $ (3,297) $ 538,493
Evergreen Intermediate Fund................ 156,347,538 3,200,532 (929,701) 2,270,831
Keystone Intermediate Fund................. 28,676,532 258,959 (365,371) (106,412)
Intermediate Government Fund............... 79,147,737 712,159 (321,259) 390,900
Short-Intermediate Fund.................... 398,505,815 3,176,863 (5,024,416) (1,847,553)
</TABLE>
As of June 30, 1997, the Funds had capital loss carryovers for federal income
tax purposes as follows:
<TABLE>
<CAPTION>
EXPIRATION
<S> <C> <C> <C> <C> <C> <C>
1999 2001 2002 2003 2004 2005
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Capital Preservation Fund.......... -- $5,900,000 $ 197,000 $642,000 $ 254,000 $ --
Evergreen Intermediate Fund........ -- 1,440,000 -- 907,000 211,000 1,200,000
Keystone Intermediate Fund......... $970,000 -- 2,688,000 94,000 -- 147,000
Intermediate Government Fund....... -- -- -- 642,000 1,140,000 --
Short-Intermediate Fund............ -- -- 6,021,000 -- 4,049,000 4,374,000
</TABLE>
4. DISTRIBUTION PLANS
Since December 11, 1996, Evergreen Keystone Distributor, Inc. (formerly,
Evergreen Funds Distributor, Inc.) ("EKD"), a wholly-owned subsidiary of The
BISYS Group Inc. ("BISYS") has served as principal underwriter to the Capital
Preservation Fund and the Keystone Intermediate Fund. Prior to December 11,
1996, Evergreen Keystone Investment Services, Inc. ("EKIS"), a wholly-owned
subsidiary of Keystone, served as the principal underwriter. EKD also serves as
the principal underwriter for the Evergreen Intermediate, Intermediate
Government and Short-Intermediate Funds.
Each Fund has adopted Distribution Plans for each class of shares as allowed by
Rule 12b-1 of the 1940 Act. Distribution plans permit each Fund to reimburse its
principal underwriter for costs related to selling shares of the Fund and for
various other services. These costs, which consist primarily of commissions and
service fees to broker-dealers who sell shares of the Fund, are paid by
shareholders through expenses called "Distribution Plan expenses". Each class,
except Class Y, currently pays a service fee equal to 0.25% of the average daily
net assets of the class. The service fee for Class A shares of
Short-Intermediate is currently limited to 0.10% of average daily net assets.
Class B and Class C also presently pay distribution fees equal to 0.75% of the
average daily net assets of each respective class. Distribution Plan expenses
are calculated daily and paid monthly.
With respect to Class B and Class C shares of the Capital Preservation Fund and
the Keystone Intermediate Fund, the principal underwriter may incur costs
greater than the allowable annual amounts the Fund is permitted to pay. The Fund
may reimburse the principal underwriter for such excess amounts in later years
with annual interest at the prime rate plus 1.00%.
45
<PAGE>
EVERGREEN KEYSTONE
(logo)
COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
During the year ended June 30, 1997, amounts accrued or paid to EKD and/or EKIS
pursuant to each Fund's Class A, Class B and Class C Distribution Plans were as
follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Capital Preservation Fund*............................................ $28,581 $285,293 $32,267
Evergreen Intermediate Fund........................................... 6,972 7,180 255
Keystone Intermediate Fund**.......................................... 24,268 129,648 74,834
Intermediate Government Fund.......................................... 2,047 6,442 242
Short-Intermediate Fund............................................... 18,961 222,264 10,470
</TABLE>
* For the nine months ended June 30, 1997
** For the eleven months ended June 30, 1997
For the year ended June 30, 1997, EKD voluntarily waived Class A distribution
fees for the Evergreen Intermediate and Intermediate Government Funds in the
amounts of $5,480 and $1,763, respectively.
Each of the Distribution Plans for the Capital Preservation and the Keystone
Intermediate Funds may be terminated at any time by vote of the Independent
Trustees or by vote of a majority of the outstanding voting shares of the
respective class. However, after the termination of any Distribution Plan, and
subject to the discretion of the Independent Trustees, payments to EKIS and/or
EKD may continue as compensation for services which had been earned while the
Distribution Plan was in effect.
EKD intends, but is not obligated, to continue to pay distribution costs that
exceed the current annual payments from the Fund. EKD intends to seek full
payment of such distribution costs from the Fund at such time in the future as,
and to the extent that, payment thereof by the Class B or Class C shares would
be within permitted limits.
EKD and/or its predecessor has advised the Funds that it has retained front-end
sales charges resulting from the sales of Class A shares during the period ended
June 30, 1997 as follows:
<TABLE>
<S> <C>
Capital Preservation Fund....................................................... $ 9,851
Evergreen Intermediate Fund..................................................... 504
Keystone Intermediate Fund...................................................... 11,043
Intermediate Government Fund.................................................... 77
Short-Intermediate Fund......................................................... 6,833
</TABLE>
Contingent deferred sales charges paid by redeeming shareholders are paid to EKD
or its predecessor.
5. INVESTMENT MANAGEMENT AGREEMENT AND OTHER AFFILIATED TRANSACTIONS
Keystone Investment Management Company ("Keystone"), a subsidiary of First Union
Corporation ("First Union"), is the investment adviser for the Capital
Preservation Fund and the Keystone Intermediate Fund. In return for providing
investment management and administrative services, each Fund pays Keystone a
management fee that is calculated daily and paid monthly. The management fee is
computed at an annual rate of 2.00% of the each respective Fund's gross
investment income plus an amount determined by applying percentage rates
starting at 0.50% and declining to 0.25% per annum as net assets increase, to
the average daily net asset value of the Fund. Prior to December 11, 1996,
Keystone Management, Inc. ("KMI"), a wholly-owned subsidiary of Keystone, served
as investment manager to the Keystone Intermediate Fund and provided investment
management and administrative services. Under an investment advisory agreement
between KMI and Keystone, Keystone served as the investment adviser and provided
investment advisory and management services to the Keystone Intermediate Fund.
In return for its services, Keystone received an annual fee equal to 85% of the
management fee received by KMI.
Effective January 1, 1997, BISYS became the sub-administrator to the Capital
Preservation and Keystone Intermediate Funds and is paid by Keystone.
First Union serves as the investment adviser to the Evergreen Intermediate Fund,
Intermediate Government Fund and Short-Intermediate Fund and is paid a
management fee that is computed daily and paid monthly. For the Evergreen
Intermediate Fund and the Intermediate Government Fund, First Union is entitled
to a fee at an annual rate of 0.60% of each Fund's respective average daily net
assets. For the Short-Intermediate Fund, First Union is entitled to a fee at an
annual rate of 0.50% of the Fund's average daily net assets.
For Evergreen Intermediate Fund, Intermediate Government Fund and
Short-Intermediate Fund, Evergreen Keystone Investment Services, Inc. ("EKIS"),
a subsidiary of First Union, is the administrator. Prior to March 11, 1997,
Evergreen Asset Management Corp. ("Evergreen Asset"), a wholly-owned subsidiary
of First Union, was the administrator. Furman Selz LLC ("Furman Selz") was the
sub-administrator through December 31, 1996. Effective January 1, 1997, BISYS
acquired Furman Selz' mutual fund unit and accordingly BISYS became
sub-administrator. The administrator and sub-administrator for each Fund is
entitled to an annual fee based on the average daily net assets of the funds
administered by EKIS for which First Union or its investment advisory
subsidiaries are also the investment advisors. The administration fee is
calculated by applying percentage rates, which start at 0.05% and decline to
0.01% per annum as net assets increase, to the average daily net asset value of
the
46
<PAGE>
EVERGREEN KEYSTONE
(logo)
COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Fund. The sub-administration fee is calculated by applying percentage rates,
which start at 0.01% and decline to .004% as net assets increase, to the average
daily net asset value of the Fund.
For the Capital Preservation and Keystone Intermediate Funds, Keystone has
voluntarily limited the expenses, excluding indirectly paid expenses, to the
following rates based on the average daily net assets of each respective class:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Capital Preservation Fund............................................... 0.90% 1.65% 1.65%
Keystone Intermediate Fund.............................................. 1.10% 1.85% 1.85%
</TABLE>
For the period ended June 30, 1997, the Funds waived management fees as follows:
<TABLE>
<S> <C>
Capital Preservation Fund.................................................................. $245,255
Keystone Intermediate Fund................................................................. 145,636
Intermediate Government Fund............................................................... 71,794
</TABLE>
During the period ended June 30, 1997, the Funds paid or accrued to EKIS the
following amounts for certain administrative services:
<TABLE>
<S> <C>
Capital Preservation Fund................................................................... $34,481
Evergreen Intermediate Fund................................................................. 57,505
Keystone Intermediate Fund.................................................................. 11,267
Intermediate Government Fund................................................................ 31,665
Short-Intermediate Fund..................................................................... 139,440
</TABLE>
Evergreen Keystone Service Company ("EKSC"), a wholly-owned subsidiary of
Keystone, serves as the transfer and dividend disbursing agent for the Capital
Preservation and Keystone Intermediate Funds. Effective May 5, 1997, EKSC also
began providing transfer and dividend disbursing agent services for the
Evergreen Intermediate Fund, Intermediate Government Fund and Short-Intermediate
Fund that were formerly provided by State Street Bank and Trust Company ("State
Street"). For certain accounts, State Street had and subsequent to May 5, 1997,
EKSC has sub-contracted First Union to maintain shareholder sub-account records,
take fund purchase and redemption orders and answer inquiries. For each account
of the Evergreen Intermediate Fund, Intermediate Government Fund and
Short-Intermediate Fund, First Union earned a fee which in aggregate totaled
$23,547, $24 and $103,428, respectively for the year ended June 30, 1997.
Officers of the Funds and affiliated Trustees receive no compensation directly
from the Funds. Currently the Independent Trustees of the Capital Preservation
and the Keystone Intermediate Funds receive no compensation for their services.
As sub-administrator, BISYS provides the officers of the Funds.
6. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an expense offset arrangement with their custodian.
The assets deposited with the custodian under this expense offset arrangement
could have been invested in income-producing assets.
7. DEFERRED TRUSTEES' FEES
Each Independent Trustee of the Evergreen Intermediate Fund, Intermediate
Government Fund and Short-Intermediate Fund may defer any or all compensation
related to performance of duties as a Trustee. Each Trustee's deferred balances
are allocated to deferral accounts which are included in the accrued expenses
for the Fund. The investment performance of the deferral accounts are based on
the investment performance of certain Evergreen Keystone Funds. Any gains earned
or losses incurred in the deferral accounts are reported in each Fund's
Trustees' fees and expenses. Trustees will be paid either in one lump sum or in
quarterly installments for up to ten years at their election, not earlier than
either the year in which the Trustee ceases to be a member of the Board of
Trustees or January 1, 2000. As of June 30, 1997, the value of the Trustees'
deferral accounts for the Evergreen Intermediate Fund, Intermediate Government
Fund and Short-Intermediate Fund were $5,106, $5,097 and $16,203, respectively.
8. FINANCING AGREEMENT
On October 31, 1996, a financing agreement between all of the Evergreen Funds
and State Street, Societe Generale and ABN Amro Bank N.V. (collectively, the
"Banks") became effective. Under this agreement, the Banks provide an unsecured
credit facility in the aggregate amount of $225 million ($112.5 million
committed and $112.5 million uncommitted) allocated evenly between the Banks.
Borrowings under this facility bear interest at 0.75% per annum above the
Federal Funds rate. A commitment fee of 0.10% per annum will be incurred on the
unused portion of the committed facility which will be allocated to all
participating funds. State Street acts as agent for the Banks, and as agent is
entitled to a fee of $15,000 which is allocated to all of the Evergreen Funds.
During the period ended June 30, 1997, the Funds had no borrowings under this
agreement.
47
<PAGE>
EVERGREEN KEYSTONE
(logo)
COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. ACQUISITIONS
On December 30, 1994, the Capital Preservation Fund acquired the net assets of
Keystone America Capital Preservation and Income Fund ("Preservation and Income
Fund") in exchange for Class A shares and on February 29, 1996 the Evergreen
Intermediate Fund acquired the net assets of Evergreen Managed Bond Fund
("Managed Bond Fund") in exchange for Class Y shares. Both acquisitions were
accomplished by a tax-free exhange of the respective shares of each respective
fund. The value of assets acquired, number of shares issued, unrealized
appreciation acquired and aggregate net assets of each fund immediately after
the acquisition are as follows:
<TABLE>
<CAPTION>
UNREALIZED
VALUE OF NET NUMBER OF APPRECIATION
ACQUIRING FUND ACQUIRED FUND ASSETS ACQUIRED SHARES ISSUED (DEPRECIATION)
<S> <C> <C> <C> <C>
Capital Preservation Fund Preservation and Income Fund $23,825,980 2,506,041 $ (301,751)
Evergreen Intermediate Fund Managed Bond Fund 79,773,557 7,674,423 1,789,417
<CAPTION>
NET ASSETS
AFTER
ACQUISITION
<C>
$115,746,857
158,097,520
</TABLE>
48
<PAGE>
EVERGREEN KEYSTONE
(logo)
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders
Keystone Capital Preservation and Income Fund
The Evergreen Lexicon Fund
Keystone Intermediate Term Bond Fund
Evergreen Investment Trust
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments of the Evergreen Keystone Short and Intermediate
Term Bond Funds listed below as of June 30, 1997, and the related statements of
operations, statements of changes in net assets, and financial highlights for
each of the years or periods listed below:
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND-- statements of operations for
the nine months ended June 30, 1997 and the year ended September 30, 1996,
statements of changes in net assets for the nine months ended June 30, 1997
and each of the years in the two-year period ended September 30, 1996, and
financial highlights for the periods presented on pages 14 and 15.
EVERGREEN INTERMEDIATE-TERM BOND FUND (ONE OF THE PORTFOLIOS CONSTITUTING
THE EVERGREEN LEXICON FUND)-- statement of operations for the year ended
June 30, 1997, statements of changes in net assets for the year ended June
30, 1997 and the ten months ended June 30, 1996, and the financial
highlights for the periods presented on pages 16 and 17, except for the
periods prior to June 30, 1996. The financial highlights for the periods
prior to June 30, 1996 and the statements of changes in net assets for the
year ended August 31, 1995 were audited by other auditors whose report dated
October 6, 1995 expressed an unqualified opinion thereon.
KEYSTONE INTERMEDIATE TERM BOND FUND-- statements of operations for the
eleven months ended June 30, 1997 and the year ended July 31, 1996,
statements of changes in net assets for the eleven months ended June 30,
1997 and each of the years in the two-year period ended July 31, 1996, and
the financial highlights for the periods presented on pages 18 and 19.
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND (ONE OF THE
PORTFOLIOS CONSTITUTING THE EVERGREEN LEXICON FUND)-- statement of
operations for the year ended June 30, 1997, statements of changes in net
assets for the year ended June 30, 1997 and the ten months ended June 30,
1996, and the financial highlights for the periods presented on pages 20 and
21, except for the periods ended prior to June 30, 1996. The financial
highlights for the periods prior to June 30, 1996 and the statements of
changes in net assets for the year ended August 31, 1995 were audited by
other auditors whose report dated October 6, 1995 expressed an unqualified
opinion thereon.
EVERGREEN SHORT-INTERMEDIATE BOND FUND (ONE OF THE PORTFOLIOS CONSTITUTING
EVERGREEN INVESTMENT TRUST)-- statement of operations for the year ended
June 30, 1997, statements of changes in net assets for each of the years in
the two-year period ended June 30, 1997, and the financial highlights for
the periods presented on pages 22-24.
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1997 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Keystone Capital Preservation and Income Fund, Evergreen Intermediate-Term Bond
Fund, Keystone Intermediate Term Bond Fund, Evergreen Intermediate-Term
Government Securities Fund and Evergreen Short-Intermediate Bond Fund as of June
30, 1997, the results of their operations for the years or periods then ended,
and the changes in their net assets and financial highlights for each of the
years or periods specified in the first paragraph above in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
August 8, 1997
49
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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 Keystone Distributor, Inc.
60922 Form #541496
8/97
