KEYSTONE STRATEGIC INCOME FUND, N-30D, 1997-07-08

KEYSTONE STRATEGIC INCOME FUND
N-30D, 1997-07-08

Previous: SOUTHEASTERN ASSET MANAGEMENT INC/TN/, SC 13G, 1997-07-08

Next: PAINEWEBBER INVESTMENT SERIES, N-30D, 1997-07-08

EVERGREEN KEYSTONE
LONG TERM
BOND FUNDS

1997 ANNUAL REPORT

(Logo of Evergreen Keystone Funds appears here)

<PAGE>
EVERGREEN KEYSTONE
(Pine cone logo appears here)

TABLE OF CONTENTS

<TABLE>
<S> <C>
Letter to Shareholders................................. 1
Keystone Strategic Income Fund
Fund at a Glance.................................. 2
Management Report................................. 3
Evergreen U.S. Government Fund
Fund at a Glance.................................. 4
Management Report................................. 5
Growth of Investments.................................. 6
Financial Highlights
Keystone Strategic Income Fund.................... 7
Evergreen U.S. Government Fund.................... 10
Schedule of Investments
Keystone Strategic Income Fund.................... 12
Evergreen U.S. Government Fund.................... 17
Statements of Assets and Liabilities................... 18
Statements of Operations............................... 19
Statements of Changes in Net Assets.................... 21
Combined Notes to Financial Statements................. 23
Independent Auditors' Report........................... 30
</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
(Pine cone logo appears here)

LETTER TO SHAREHOLDERS
June 1997

(Photo of William M. Ennis appears here)

WILLIAM M. ENNIS

Dear Shareholders:

The past year has been a time when the most effective fixed income investment
strategies have been those that emphasized the coupon rates paid by the bonds.
Attempts to guess interest rate movements or foreign currency gains have tended
to be less successful. The economy has been strong-- witness the 4.7%
inflation-adjusted U.S. annualized growth rate for the fourth quarter of 1996
and the 5.6% annualized growth rate for the first quarter of 1997. Inflation has
been contained, although the strong economic growth has sparked periodic fears
of inflation and caused a great deal of short-term price fluctuations in the
bond market. In fact, over the six months that ended on April 30, 1997, yields
on the 30-year Treasury bond swung from a low of 6.35% to a high of 7.17%-- a
very abrupt swing by historical standards. As of this writing, the Federal
Reserve already has raised short-term rates by one-quarter of one percent, with
most observers expecting another increase eventually.

In this environment, U.S. corporations have tended to do well, and investors
have been well paid for holding corporate debt and focusing on income. In the
U.S., lower-rated securities-- which are less interest-rate sensitive-- tended
to do better than higher-rated securities. This meant high yield or "junk" bonds
outperformed investment grade corporate bonds and mortgage-backed securities,
which in turn outperformed U.S. Treasury Bonds. Strategies that emphasized
investments in foreign markets tended to suffer-- unless investments were hedged
back into the U.S. dollar. The strength of the U.S. dollar tended to undercut
the returns generated in currencies denominated in foreign currencies--
particularly the Japanese yen.

History has shown, however, that you can't make good investment decisions by
looking in the rear-view mirror. Should economic growth in the U.S. slow
dramatically, and interest rates peak and then start to decline, the investment
strategies that worked best during the past 12 months may not necessarily be the
best for the next 12 months. This is why a diversified portfolio-- in which the
investors balance the type of risks they take-- makes sense for many people. At
Evergreen Keystone, we also believe it is important for investors to remain in
close touch with their professional advisors for guidance on changing markets
and strategies.

I am delighted to inform you that Evergreen Keystone successfully integrated all
service functions of Evergreen and Keystone Funds in early May. 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 shareholder 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 honest, 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
any suggestions you may have.

Sincerely,

(Signature of William M. Ennis appears here)
WILLIAM M. ENNIS
MANAGING DIRECTOR

<PAGE>
(Keystone Strategic Income Fund logo appears here)

KEYSTONE
STRATEGIC INCOME FUND

FUND AT A GLANCE
As of April 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 4.08 % 3.48 % 7.49 % N/A
One year w/o sales
charge 9.27 8.48 8.49 N/A
SEC 30-day yield
w/sales charge1 7.02 6.66 6.61 N/A
Twelve month dividends
per share $0.54 $0.49 $0.49 $0.18 3

<CAPTION>
AVERAGE
ANNUAL RETURNS* CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Three years 3.38 % 3.47 % 4.26 % N/A
Five years 8.44 N/A N/A N/A
Ten years 6.90 N/A N/A N/A
Life of class2 6.87 7.11 7.44 N/A
<CAPTION>
CUMULATIVE RETURNS* CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Nine months w/o sales
charge 6.80 % 6.06 % 6.07 % N/A
Three years 10.47 10.77 13.33 N/A
Five years 49.95 N/A N/A N/A
Ten years 94.81 N/A N/A N/A
Life of class2 95.01 33.85 35.64 -2.87 %
*ALL RETURNS INCLUDE THE MAXIMUM APPLICABLE SALES
CHARGE
<CAPTION>
PORTFOLIO CHARACTERISTICS
<S> <C> <C> <C> <C>
Total net assets $193.1 million
Average credit
quality BBB
Average maturity 6.5 years
Average duration 4.93 years
1SEC YIELD IS BASED ON THE FUND'S NET INVESTMENT INCOME
OVER A 30-DAY PERIOD AND IS CALCULATED IN ACCORDANCE
WITH SECURITIES AND EXCHANGE COMMISSION GUIDELINES.
2CLASS A SHARES COMMENCED INVESTMENT OPERATIONS ON
4/14/87. CLASS B AND C SHARES WERE INTRODUCED ON
2/1/93. CLASS Y SHARES WERE INTRODUCED ON 1/13/97.
3DIVIDENDS FOR CLASS Y ARE FOR THE PERIOD JANUARY 13,
1997 TO APRIL 30, 1997.
</TABLE>

PORTFOLIO QUALITY (AS A PERCENTAGE OF NET ASSETS)

(Pie chart appears here with the following information:)

AAA 34.2%
AA 2.0%
BBB 5.5%
Other 58.3%

OBJECTIVES
High current income from interest on debt securities. Secondarily, the Fund
considers potential for growth of capital in selecting securities.

STRATEGY
The Fund seeks to meet its objectives by investing in three fixed-income asset
classes: U.S. government and agency securities; high yield corporate bonds
issued in the United States; and foreign bonds. The U.S. investments include a
range of issues spanning virtually the entire quality spectrum, from the
highest-quality government and agency obligations to high yielding bonds rated
below investment-grade. The foreign portion consists primarily of high-quality
securities issued by sovereign governments. Investing in foreign securities
generally involves more risk than investing in a portfolio consisting solely of
securities of domestic issuers. Fluctuations in foreign exchange rates pose an
additional level of risk. Keystone Strategic Income Fund manages investment and
currency risk by conducting extensive research of the countries and companies
whose securities it buys and by hedging the foreign currency exposure, if
needed.

PORTFOLIO MANAGEMENT TEAM

(Photo of Prescott Crocker appears here)

Senior Vice President and Head of the High Yield Bond Team,
Prescott Crocker is portfolio manager of Keystone Strategic
Income Fund. A Chartered Financial Analyst, Mr. Crocker has 25
years of senior-level investment experience. He is a graduate
of Harvard College and holds an M.B.A. in international
finance from Harvard Business School.

<PAGE>
KEYSTONE
STRATEGIC INCOME FUND

(Keystone Strategic Income Fund logo appears here)

MANAGEMENT REPORT
June 1997

Dear Shareholders:

We are pleased to report to you on the activities of Keystone Strategic Income
Fund for the fiscal period which ended April 30, 1997. You may recall you
recently received a semi-annual report for the period ending January 31, 1997.
We have changed your Fund's fiscal year, however, to end on April 30, 1997. This
is part of an effort by Evergreen Keystone Funds to streamline fund
administration. Funds with similar investment objectives are being placed on the
same fiscal year cycle. The next report you will receive will be a semi-annual
report for the period ending October 31, 1997. You should expect to receive it
in December.

PERFORMANCE

Your Fund generated strong total returns for the nine-month period ending April
30, 1997. The overall performance reflected the favorable investment climates in
each of the Fund's three asset classes. The high yield sector had the strongest
performance during the period and helped to boost the overall total return. The
results of U.S. government securities were generally lackluster, but stayed
positive despite fluctuating interest rates. However, the Fund's European
holdings denominated in non-U.S. currencies underperformed, due to the strength
of the U.S. dollar. We have modified our hedging strategy to protect the
portfolio more effectively. At this writing, 100% of the Fund's European
holdings denominated in non-U.S. dollars is hedged.

UNPREDICTABLE MARKET

The investment environment was generally favorable during the period, with the
economy growing moderately and many corporations reporting better-than-expected
earnings growth. Consumer confidence was high, as was evidenced by strong retail
sales and demand for stocks and high-yield bonds. Conversely, these positive
fundamentals spurred fears of inflation and higher interest rates, resulting in
pockets of significant turbulence during the period. The inflation concerns
subsided when the Federal Reserve raised interest rates at the end of March.

STRATEGY

We have made some material adjustments to the Fund, primarily seeking to
increase the portfolio's total return. We increased the weighting in the high
yield area, as we believed this sector was fundamentally strong, attractively
valued, and consistently in high demand during the period.

At the close of the period, the Fund had 33% of net assets in high yield bonds,
versus 25% at the time of our last semiannual report dated January 31, 1997. The
economic uncertainties in Europe combined with the strength of the U.S. dollar
motivated us to reduce significantly our foreign currency exposure. We did this
by reducing our European holdings and by hedging the remaining positions. In
expectation of lower interest rates in the later part of 1997, we increased our
positions in U.S. government and agency issues to represent 33.7% of the
portfolio. Our overall optimism notwithstanding, we positioned the Fund's
duration-- or sensitivity to interest rates-- conservatively, to help preserve
the value of the portfolio during periods of volatility, which we believed would
recur. Although the Fund's duration is generally in the range of 4-6 years, we
adjusted it downward at fiscal year-end

PORTFOLIO ALLOCATIONS APRIL 30, 1997
(AS A PERCENTAGE OF NET ASSETS)

(Pie chart appears here with the following information:)

Corporate debt 33.3%
Foreign bonds 26.3%
Mortgage-backed 21.2%
U.S. Treasury 11.3%
Other assets and
liabilities (net) 4.6%
Short-term
investments 3.3%

to 4.9 years to guard against potential interest-rate volatility in the
short-term.

OUTLOOK

We are confident that we could see substantially better markets in the following
months after a potential period of interest rate fluctuations in the short run.
The economy responded favorably to the interest rate hike in March and we think
that economic growth will continue to moderate.

We are bullish on the high yield sector, given the continuing apparent good
health of U.S. corporations and the strong demand from investors seeking higher
yields.

With regard to the Fund's foreign holdings, we think the U.S. dollar may
continue to be strong. Economic uncertainty surrounds the forming of the
European Monetary Union (EMU) in 1999, as indicated by the turbulence in the
markets following the Socialist victory in the French elections. This
uncertainty may continue to pressure European currencies, but provide investment
opportunities for the Fund in Italian, Spanish, and Swedish bonds as the
outlying markets continue to converge on the stronger core German market.

Emerging market bonds have been very attractive relative to U.S. treasuries and
we believe this will continue. These trends reflect the growing confidence of
investors in the viability and creditworthiness of developing economies.

Thank you for your support of Keystone Strategic Income Fund.

Sincerely,

(Signature of Albert H. Elfner, III appears here)

ALBERT H. ELFNER, III
CHAIRMAN
Keystone Investment Management Company

(Signature of Prescott Crocker appears here)

PRESCOTT CROCKER
SENIOR VICE PRESIDENT
Keystone Investment Management Company

<PAGE>
EVERGREEN
U . S. GOVERNMENT FUND

(Evergreen U.S. Government Fund logo appears here)

FUND AT A GLANCE
As of April 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 1.32 % 0.60 % 4.58 % 6.63 %
One year w/o sales
charge 6.37 5.58 5.58 6.63
SEC 30-day yield1 with
sales charge 6.13 5.37 5.36 6.38
Twelve month dividends
per share $0.62 $0.55 $0.55 $0.65

AVERAGE
ANNUAL RETURNS CLASS A CLASS B CLASS C CLASS Y
Three years 5.04 % 5.10 % N/A 7.02 %
Life of class2 4.30 4.42 6.18 % 4.75
ALL RETURNS INCLUDE THE MAXIMUM APPLICABLE SALES CHARGE

CUMULATIVE RETURNS CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Ten months w/o sales
charge 5.30 % 4.65 % 4.65 % 5.52 %
Three years 15.90 16.10 N/A 22.58
Life of class2 19.84 20.45 17.33 18.67
PORTFOLIO CHARACTERISTICS
Total net assets $287.8 million
Average credit quality AAA
Average maturity 8.65 years
Average duration 4.27 years
1SEC YIELD IS BASED ON THE FUND'S NET INVESTMENT INCOME
OVER A 30-DAY PERIOD AND IS CALCULATED IN ACCORDANCE
WITH SECURITIES AND EXCHANGE COMMISSION GUIDELINES.
2CLASS A AND B SHARES WERE INTRODUCED ON 1/11/93. CLASS C
SHARES WERE INTRODUCED ON 9/2/94. CLASS Y SHARES WERE
INTRODUCED ON 9/2/93.
</TABLE>

PORTFOLIO COMPOSITION APRIL 30, 1997
(AS A PERCENTAGE OF NET ASSETS)

(Pie chart appears here with the following information:)

Mortgage-back
securities 53.6%
U.S. Treasury
obligations 44.7%
Repurchase
Agreements 0.7%
Other assets and
liabilities 1.0%

OBJECTIVE
A high level of current income consistent with stability of principal.

STRATEGY
The Fund seeks to meet its objectives by investing in debt instruments issued or
guaranteed by the U.S. government, its agencies or instrumentalities. The Fund
may also invest in mortgage-backed securities, which represent ownership
interests in mortgage pools of U.S. government agencies, such as Federal Home
Loan Mortgage Corporation and Government National Mortgage Association. Other
investments may include asset-backed securities, for which automobile and credit
card receivables are the most common collateral. Up to 20% of net assets may be
invested in collateralized mortgage obligations (CMOs), and other debt
securities considered appropriate. The Fund's net asset value is not insured and
is likely to fluctuate according to changes in interest rates. Experienced
professional management seeks to ensure broad diversification of issues and
maturities, helping to maximize opportunities and minimize the risks of changing
interest rates.

PORTFOLIO MANAGEMENT TEAM

(Photo of Rollin C. Williams appears here)

Rollin C. Williams, a Vice President and Senior Fixed Income
Portfolio Manager of First Union Capital Management Group, is
portfolio manager of Evergreen U.S. Government Fund. An
investment professional with more than 27 years of banking and
investment management experience, he is responsible for the
management of over $2.1 billion in fixed income portfolios.
Mr. Williams is a Chartered Financial Analyst, and holds a
B.B.A. from Milton College as well as graduate studies from
University of Nebraska, Omaha. He is a member of the
Association for Investment Management and Research and the
North Carolina Society of Financial Analysts. Before joining
First Union, Mr. Williams was the head of fixed-income
investments at Dominion Trust Company in Roanoke, Va. Mr.
Williams has been with First Union since 1993 when Dominion
was acquired by First Union National Bank.

<PAGE>
EVERGREEN
U . S. GOVERNMENT FUND

(Evergreen U.S. Government Fund logo appears here)

MANAGEMENT REPORT
June 1997

Dear Shareholders:
We are pleased to present the annual report for the Evergreen U.S. Government
Fund for the fiscal period which ended April 30, 1997. You may recall that you
recently received a semi-annual report for the period which ended December 31,
1996. We have changed your Fund's fiscal year, however, to end on April 30,
1997. This is part of an effort by Evergreen Keystone Funds to streamline and
increase the efficiency of fund administration. Funds with similar investment
objectives are being placed on the same fiscal year cycle. The next report you
will receive will be a semi-annual report for the period ending October 31,
1997. You should expect to receive it in December.

PERFORMANCE

Evergreen U.S. Government Fund performed very well during the period. In fact,
Class Y shares completed the period with top-quartile, 12-month performance
among the 175 funds in the U.S. Government Bond Fund Category of Lipper
Analytical Services, Inc., an independent mutual fund ranking service.

We attribute the Fund's solid performance during this period both to strong
duration management during a period when interest rates fluctuated dramatically,
and to an emphasis on mortgage-backed securities.

INVESTMENT CLIMATE

Throughout the 12-month period, U.S. economic growth remained extremely strong,
as evidenced by the inflation-adjusted annualized growth rate of 5.6% in the
first quarter of 1997. This strong growth, however, has made the financial
markets wary of any signs of inflationary pressure. After hitting a low point in
late November, 1996, interest rates began rising in anticipation of potential
Federal Reserve Board action to raise short-term rates to head off potential
inflation. In fact on March 25, the Federal Reserve Board raised the key Federal
Funds Rate by one-quarter of one percent, indicating it was concerned that
strong economic growth was "increasing the risk of inflationary imbalances."

Going forward, the financial markets continue to focus on any emerging
information that could suggest inflationary pressure and could result in further
hikes in short-term interest rates by the Federal Reserve.

STRATEGY

In response to rising interest rates and uncertainty about the Federal Reserve
Board's course of action, the duration of your Fund has been shortened from 4.78
years to 4.27 years over the 12-month period that ended April 30. Duration
adjustments were implemented in the Treasury sector by selling securities due in
2019 and buying shorter-term securities. In addition to shortening the duration,
we modestly increased the mortgage position of the Fund, primarily in the first
half of the year. A greater emphasis on mortgages serves as a more defensive
posture in times of interest rate increases, in that mortgages tend to show
greater price stability than

WHY INVEST IN U.S. GOVERNMENT SECURITIES?
1. The most diverse and actively traded sector of the securities market, U.S.
government securities offer a wide selection of investment choices and
liquidity.

2. U.S. government securities represent the highest-quality issues in the
fixed-income market.

3. If held to maturity, U.S. Treasury bills, notes and bonds are guaranteed by
the U.S. government as to the payment of principal and interest. This
guarantee applies to the individual securities only and not to the shares of
U.S. government securities mutual funds.

Treasuries when prices start to fall. Over the past 12 months, the mortgage
position of the Fund has been increased from 49.6% of net assets to 53.6% on
April 30, 1997. U.S. Treasuries accounted for 44.7% of assets on April 30, with
cash and other assets and liabilities accounting for the remaining 1.7%.

OUTLOOK

Looking forward, we believe the bond market's participants will continue to
monitor both the Federal Reserve Board's actions and any signs of inflation
appearing in emerging economic data. Historically, the Federal Reserve has
tended not to take isolated steps in moving short-term interest rates in any
direction, whether up or down. In fact, the last time the Federal Reserve moved
rates only once was back in 1987. As a result, we believe it is likely that the
March 25 increase in short-term rates will not be an isolated event, and that
interest rates will rise further in the short term. Over the longer term,
however, we think interest rates are more likely to decline.

Consistent with this outlook, we expect over the next few months that the
duration of the Fund will be aggressively extended to take advantage of
opportunities as interest rates peak and start to decline, and bond prices
consequently rise.

The overall strategy of the Evergreen U.S. Government Fund continues to be to
provide the investor with a high quality portfolio that offers attractive
income.

Thank you for your investment in the Evergreen U.S. Government Fund.

Sincerely,

(Signature of Richard K. Wagoner appears here)

RICHARD K. WAGONER
EXECUTIVE VICE PRESIDENT
CHIEF INVESTMENT OFFICER
First Union Capital Management Group

(Signature of Rollin C. Williams appears here)

ROLLIN C. WILLIAMS
VICE PRESIDENT
SENIOR FIXED INCOME PORTFOLIO MANAGER

<PAGE>
EVERGREEN KEYSTONE

(Pine cone logo appears here)

GROWTH OF INVESTMENTS

KEYSTONE STRATEGIC INCOME FUND

(A chart appears below with the following information:)

Comparisons of a $10,000 investment in Keystone Strategic
Income Fund, Class A shares, versus a similar investment
in the Lehman Aggregate Bond Index (LABI) and the
Consumer Price Index (CPI).

Class A CPI LABI
------- ------ ------
(In Thousands)

4/87 $ 9,525 $10,000 $10,000
4/88 9,788 10,495 10,421
4/89 10,645 10,979 11,246
4/90 9,734 11,497 12,261
4/91 9,478 12,058 14,120
4/92 12,388 12,442 15,673
4/93 15,011 12,840 17,754
4/94 16,814 13,144 17,902
4/95 16,202 13,545 19,213
4/96 17,847 13,939 20,872
4/97 19,501 14,286 22,350

Average Annual Total Returns
- -------------------------------------------------
1 Year 5 Year 10 Year Life of Class
------ ------ ------- -------------
Class A 4.08% 8.44% 6.90% 6.87%
Class B 3.48% - - 7.11%
Class C 7.49% - - 7.44%
Class Y - - - -

Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholder
investing in the different classes. The Lehman Aggregate Bond Index is an
unmanaged, market index. The index does not include transaction costs
associated with buying and selling securities, nor any management fees. The
Consumer Price Index, a measure of inflation, is through March 31, 1997.

EVERGREEN U.S. GOVERNMENT FUND

(A chart appears below with the following information:)

Comparisons of a $10,000 investment in Evergreen U.S.
Government Fund, Class A shares, versus a similar investment
in the Lehman Brothers Intermediate Term Government
Bond Index (LBIGBI), and the Consumer Price Index (CPI).

Class A CPI LABI
------- ------ ------
(In Thousands)

1/12/93 $ 9,525 $10,000 $10,000
4/93 9,860 10,148 10,455
4/94 9,849 10,388 10,549
4/95 10,488 10,705 11,200
4/96 11,266 11,016 12,044
4/97 11,984 11,290 12,888

Average Annual Total Returns
- --------------------------------
1 Year Life of Class
------ -------------
Class A 1.32% 4.30%
Class B 0.60% 4.42%
Class C 4.58% 6.18%
Class Y 6.63 4.75%

Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholder
investing in the different classes. The Lehman Brothers Intermediate
Government Bond Index is an unmanaged, market index. The index does
not include transaction costs associated with buying and selling securities,
nor any management fees. The Consumer Price Index, a measure of inflation,
is through March 31, 1997.

<PAGE>
KEYSTONE
STRATEGIC INCOME FUND

(Keystone Strategic Income Fund logo appears here)

FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
APRIL 30, 1997 YEAR ENDED JULY 31,
(D) 1996 1995 1994 (B) 1993
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING OF PERIOD.............................. $ 6.77 $ 6.89 $ 7.35 $ 7.86 $ 7.02
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................................ 0.37 0.54 0.64 0.61 0.69
Net realized and unrealized gain (loss) on investments and
foreign currency related transactions.......................... 0.09 (0.09) (0.45) (0.44) 0.89
Total from investment operations................................. 0.46 0.45 0.19 0.17 1.58
LESS DISTRIBUTIONS FROM:
Net investment income............................................ (0.38) (0.52) (0.60) (0.61) (0.72)
In excess of investment income................................... (0.03) 0 (0.03) (0.03) (0.02)
Tax basis return of capital...................................... 0 (0.05) (0.02) (0.04) 0
Net realized gains on investments and foreign currency
related transactions........................................... 0 0 0 0 0
Total distributions.............................................. (0.41) (0.57) (0.65) (0.68) (0.74)
NET ASSET VALUE END OF PERIOD.................................... $ 6.82 $ 6.77 $ 6.89 $ 7.35 $ 7.86
Total return (a)................................................. 6.80% 6.84% 3.00% 1.86% 24.13%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Expenses....................................................... 1.28%(c) 1.30% 1.33% 1.32% 1.80%
Expenses excluding reimbursement............................... 1.28%(c) 1.30% 1.33% 1.32% 1.80%
Expenses excluding indirectly paid expenses.................... 1.26%(c) 1.28% -- -- --
Net investment income.......................................... 7.28%(c) 8.05% 9.31% 7.79% 9.50%
Portfolio turnover rate.......................................... 86% 101% 95% 92% 151%
NET ASSETS END OF PERIOD (THOUSANDS)............................. $58,725 $68,118 $85,970 $105,181 $85,793
</TABLE>

<TABLE>
<CAPTION>
FEBRUARY 13, 1987
(COMMENCEMENT
YEAR ENDED JULY 31, OF OPERATIONS) TO
1992 1991 1990 1989 1988 JULY 31, 1987
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES (CONTINUED)
NET ASSET VALUE BEGINNING OF PERIOD.................... $ 6.10 $ 7.17 $ 9.02 $ 9.36 $ 10.04 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................................. 0.78 0.89 1.03 1.10 1.05 0.22
Net realized and unrealized gain (loss) on investments
and
foreign currency related transactions................ 0.89 (1.01) (1.79) (0.31) (0.65) 0.00
Total from investment operations....................... 1.67 (0.12) (0.76) 0.79 0.40 0.22
LESS DISTRIBUTIONS FROM:
Net investment income.................................. (0.75) (0.89) (1.04) (1.11) (1.08) (0.18)
In excess of investment income......................... 0 (0.06) (0.05) 0 0 0
Tax basis return of capital............................ 0 0 0 0 0 0
Net realized gains on investments and foreign currency
related
transactions......................................... 0 0 0 (0.02) 0 0
Total distributions.................................... (0.75) (0.95) (1.09) (1.13) (1.08) (0.18)
NET ASSET VALUE END OF PERIOD.......................... $ 7.02 $ 6.10 $ 7.17 $ 9.02 $ 9.36 $ 10.04
Total return (a)....................................... 28.73% 0.54% (8.55%) 9.00% 4.49% 2.20%(e)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................. 2.09% 2.00% 2.00% 1.81% 1.28% 1.00%(e)
Expenses excluding reimbursement..................... 2.12% 2.25% 2.01% 1.90% 2.08% 6.08%(e)
Expenses excluding indirectly paid expenses.......... -- -- -- -- -- --
Net investment income................................ 11.73% 15.23% 12.91% 12.06% 10.98% 10.12%(e)
Portfolio turnover rate................................ 95% 82% 36% 73% 46% 13%
NET ASSETS END OF PERIOD (THOUSANDS)................... $70,459 $70,246 $83,106 $138,499 $114,310 $ 8,191
</TABLE>

(a) Excluding applicable sales charges.
(b) Calculation based on average shares outstanding.
(c) Annualized.
(d) The Fund changed its fiscal year end from July 31 to April 30 during the
current period.
(e) Annualized for the period from April 14, 1987 (Commencement of Investment
Operations) to July 31, 1987.

SEE COMBINED NOTES TO FINANCIAL STATEMENTS.

<PAGE>
KEYSTONE
STRATEGIC INCOME FUND

(Keystone Strategic Income Fund logo appears here)

FINANCIAL HIGHLIGHTS (CONTINUED)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
FEBRUARY 1, 1993
NINE MONTHS ENDED (DATE OF INITIAL
APRIL 30, 1997 YEAR ENDED JULY 31, PUBLIC OFFERING)
(D) 1996 1995 1994 (B) TO JULY 31, 1993
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING OF PERIOD............... $ 6.81 $ 6.92 $ 7.38 $ 7.89 $ 7.07
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................. 0.34 0.50 0.60 0.55 0.24
Net realized and unrealized gain (loss) on
investments and foreign currency related
transactions.................................... 0.07 (0.09) (0.47) (0.44) 0.92
Total from investment operations.................. 0.41 0.41 0.13 0.11 1.16
LESS DISTRIBUTIONS FROM:
Net investment income............................. (0.34) (0.47) (0.55) (0.55) (0.24)
In excess of net investment income................ (0.03) 0 (0.03) (0.03) (0.10)
Tax basis return of capital....................... 0 (0.05) (0.01) (0.04) 0
Total distributions............................... (0.37) (0.52) (0.59) (0.62) (0.34)
NET ASSET VALUE END OF PERIOD..................... $ 6.85 $ 6.81 $ 6.92 $ 7.38 $ 7.89
Total return (a).................................. 6.06% 6.21% 2.12% 1.10% 16.75%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Expenses.......................................... 2.04%(c) 2.07% 2.06% 2.07% 2.37%(c)
Expenses excluding indirectly paid expenses....... 2.02%(c) 2.05% -- -- --
Net investment income............................. 6.52%(c) 7.28% 8.58% 7.11% 7.18%(c)
Portfolio turnover rate........................... 86% 101% 95% 92% 151%
NET ASSETS END OF PERIOD (THOUSANDS).............. $ 110,082 $123,389 $149,091 $162,866 $ 35,415
</TABLE>

<TABLE>
<CAPTION>
FEBRUARY 1, 1993
NINE MONTHS ENDED (DATE OF INITIAL
APRIL 30, 1997 YEAR ENDED JULY 31, PUBLIC OFFERING)
(D) 1996 1995 1994 (B) TO JULY 31, 1993
<S> <C> <C> <C> <C> <C>
CLASS C SHARES
NET ASSET VALUE BEGINNING OF PERIOD.................. $ 6.80 $ 6.92 $ 7.37 $ 7.88 $ 7.07
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................ 0.33 0.49 0.59 0.55 0.24
Net realized and unrealized gain (loss) on
investments and foreign currency related
transactions....................................... 0.08 (0.09) (0.45) (0.44 ) 0.91
Total from investment operations..................... 0.41 0.40 0.14 0.11 1.15
LESS DISTRIBUTIONS FROM:
Net investment income................................ (0.34) (0.47) (0.55) (0.55 ) (0.24)
In excess of net investment income................... (0.03) 0 (0.03) (0.03 ) (0.10)
Tax basis return of capital.......................... 0 (0.05) (0.01) (0.04 ) 0
Total distributions.................................. (0.37) (0.52) (0.59) (0.62 ) (0.34)
NET ASSET VALUE END OF PERIOD........................ $ 6.84 $ 6.80 $ 6.92 $ 7.37 $ 7.88
Total return (a)..................................... 6.07% 6.07% 2.27% 1.09% 16.61%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................. 2.04%(c) 2.07% 2.08% 2.07% 2.25%(c)
Expenses excluding indirectly paid expenses.......... 2.03%(c) 2.05% -- -- --
Net investment income................................ 6.52%(c) 7.29% 8.56% 7.09% 7.35%(c)
Portfolio turnover rate.............................. 86% 101% 95% 92% 151%
NET ASSETS END OF PERIOD (THOUSANDS)................. $24,304 $31,816 $46,221 $59,228 $ 19,706
</TABLE>

(a) Excluding applicable sales charges
(b) Calculation based on average shares outstanding.
(c) Annualized.
(d) The Fund changed its fiscal year end from July 31 to April 30 during the
current period.

SEE COMBINED NOTES TO FINANCIAL STATEMENTS.

<PAGE>
KEYSTONE
STRATEGIC INCOME FUND

(Keystone Strategic Income Fund logo appears here)

FINANCIAL HIGHLIGHTS (CONTINUED)
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

<TABLE>
<CAPTION>
JANUARY 13, 1997
(COMMENCEMENT
OF CLASS
OPERATIONS)
TO
APRIL 30, 1997
<S> <C>
CLASS Y SHARES
NET ASSET VALUE BEGINNING OF PERIOD..................................................................... $7.03
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................................................................... 0.00
Net realized and unrealized loss on investments and foreign currency related transactions............... (0.20)
Total from investment operations........................................................................ (0.20)
LESS DISTRIBUTIONS FROM:
Net investment income................................................................................... (0.17)
In excess of net investment income...................................................................... (0.01)
Total distributions..................................................................................... (0.18)
NET ASSET VALUE END OF PERIOD........................................................................... $6.65
Total return............................................................................................ (2.87%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Expenses................................................................................................ 0.00%(a)
Expenses excluding indirectly paid expenses............................................................. 0.00%(a)
NET INVESTMENT INCOME................................................................................... 0.00%(a)
Portfolio turnover rate................................................................................. 86%
NET ASSETS END OF PERIOD................................................................................ $ 7
</TABLE>

(a) Annualized.

SEE COMBINED NOTES TO FINANCIAL STATEMENTS.

<PAGE>
EVERGREEN
U . S. GOVERNMENT FUND

(Evergreen U.S. Government Fund logo appears here)

FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
JANUARY 11, 1993
TEN MONTHS YEAR SIX MONTHS YEAR (COMMENCEMENT OF
ENDED ENDED ENDED ENDED OPERATIONS) TO
APRIL 30, JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1997 (D) 1996 1995 (C) 1994 1993
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING OF PERIOD................. $ 9.42 $ 9.65 $ 9.07 $ 10.05 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................... 0.52 0.63 0.33 0.66 0.68
Net realized and unrealized gain (loss) on
investments....................................... (0.03) (0.23 ) 0.58 (0.98) 0.05
Total from investment operations.................... 0.49 0.40 0.91 (0.32) 0.73
LESS DISTRIBUTIONS FROM NET INVESTMENT INCOME....... (0.52) (0.63 ) (0.33) (0.66) (0.68)
NET ASSET VALUE END OF PERIOD....................... $ 9.39 $ 9.42 $ 9.65 $ 9.07 $ 10.05
Total return (b).................................... 5.30% 4.28% 10.17% (3.18%) 7.43%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................ 0.98%(a) 0.99% 1.04%(a) 0.96% 0.68%(a)
Expenses excluding waivers and/or reimbursements.... 0.98%(a) 0.99% 1.05%(a) 1.00% 0.99%(a)
Expenses excluding indirectly paid expenses......... 0.98%(a) -- -- -- --
Net investment income............................... 6.60%(a) 6.61% 7.07%(a) 6.97% 6.93%(a)
Portfolio turnover rate............................. 12% 23% 0% 19% 39%
NET ASSETS END OF PERIOD (THOUSANDS)................ $ 17,913 $20,345 $ 22,445 $ 23,706 $ 38,851
</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 June 30 to April 30 during the
current period.

<TABLE>
<CAPTION>
JANUARY 11, 1993
TEN MONTHS YEAR SIX MONTHS YEAR (COMMENCEMENT OF
ENDED ENDED ENDED ENDED OPERATIONS) TO
APRIL 30, JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1997 (D) 1996 1995 (C) 1994 1993
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING OF PERIOD................ $ 9.42 $ 9.65 $ 9.07 $ 10.05 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.............................. 0.46 0.56 0.29 0.61 0.63
Net realized and unrealized gain (loss) on
investments...................................... (0.03) (0.23) 0.58 (0.98) 0.05
Total from investment operations................... 0.43 0.33 0.87 (0.37) 0.68
LESS DISTRIBUTIONS FROM NET INVESTMENT INCOME...... (0.46) (0.56) (0.29) (0.61) (0.63)
NET ASSET VALUE END OF PERIOD...................... $ 9.39 $ 9.42 $ 9.65 $ 9.07 $ 10.05
Total return (b)................................... 4.65% 3.50% 9.76% (3.75%) 6.91%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................... 1.73%(a) 1.74% 1.79%(a) 1.54% 1.19%(a)
Expenses excluding waivers and reimbursements...... 1.73%(a) 1.74% 1.80%(a) 1.58% 1.50%(a)
Expenses excluding indirectly paid expenses........ 1.73%(a) -- -- -- --
Net investment income.............................. 5.85%(a) 5.85% 6.32%(a) 6.42% 6.44%(a)
Portfolio turnover rate............................ 12% 23% 0% 19% 39%
NET ASSETS END OF PERIOD (THOUSANDS)............... $142,371 $165,988 $192,490 $195,571 $236,696
</TABLE>

SEE COMBINED NOTES TO FINANCIAL STATEMENTS.

<PAGE>
EVERGREEN
U . S. GOVERNMENT FUND

(Evergreen U.S. Government Fund logo appears here)

FINANCIAL HIGHLIGHTS (CONTINUED)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
SEPTEMBER 2, 1994
TEN MONTHS YEAR SIX MONTHS (DATE OF INITIAL
ENDED ENDED ENDED PUBLIC OFFERING)
APRIL 30, JUNE 30, JUNE 30, TO
1997 (D) 1996 1995 (C) DECEMBER 31, 1994
<S> <C> <C> <C> <C>
CLASS C SHARES
NET ASSET VALUE BEGINNING OF PERIOD................................ $ 9.42 $ 9.65 $ 9.07 $ 9.39
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.............................................. 0.46 0.56 0.29 0.20
Net realized and unrealized gain (loss) on investments............. (0.03) (0.23 ) 0.58 (0.32)
Total from investment operations................................... 0.43 0.33 0.87 (0.12)
LESS DISTRIBUTIONS FROM NET INVESTMENT INCOME...................... (0.46) (0.56 ) (0.29) (0.20)
NET ASSET VALUE END OF PERIOD...................................... $ 9.39 $ 9.42 $ 9.65 $ 9.07
Total return (b)................................................... 4.65% 3.50% 9.76% (1.30%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................................... 1.73%(a) 1.74% 1.79%(a) 1.71%(a)
Expenses excluding waivers and reimbursements...................... 1.73%(a) 1.74% 1.80%(a) 1.75%(a)
Expenses excluding indirectly paid expenses........................ 1.73%(a) -- -- --
Net investment income.............................................. 5.85%(a) 5.87% 6.36%(a) 6.70%(a)
Portfolio turnover rate............................................ 12% 23% 0% 19%
NET ASSETS END OF PERIOD (THOUSANDS)............................... $ 455 $ 649 $ 350 $ 266
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 2, 1993
TEN MONTHS YEAR SIX MONTHS YEAR (DATE OF INITIAL
ENDED ENDED ENDED ENDED PUBLIC OFFERING)
APRIL 30, JUNE 30, JUNE 30, DECEMBER 31, TO
1997 (D) 1996 1995 (C) 1994 DECEMBER 31, 1993
<S> <C> <C> <C> <C> <C>
CLASS Y SHARES
NET ASSET VALUE BEGINNING OF PERIOD................ $ 9.42 $ 9.65 $ 9.07 $ 10.05 $ 10.25
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.............................. 0.54 0.66 0.34 0.69 0.25
Net realized and unrealized gain (loss) on
investments...................................... (0.03) (0.23) 0.58 (0.98) (0.20)
Total from investment operations................... 0.51 0.43 0.92 (0.29) 0.05
LESS DISTRIBUTIONS FROM NET INVESTMENT INCOME...... (0.54) (0.66) (0.34) (0.69) (0.25)
NET ASSET VALUE END OF PERIOD...................... $ 9.39 $ 9.42 $ 9.65 $ 9.07 $ 10.05
Total return (b)................................... 5.52% 4.54% 10.30% (2.94%) 0.49%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................... 0.73%(a) 0.74% 0.79%(a) 0.71% 0.48%(a)
Expenses excluding waivers and reimbursements...... 0.73%(a) 0.74% 0.80%(a) 0.75% 0.79%(a)
Expenses excluding indirectly paid expenses........ 0.73%(a) -- -- -- --
Net investment income.............................. 6.85%(a) 6.86% 7.31%(a) 7.27% 7.20%(a)
Portfolio turnover rate............................ 12% 23% 0% 19% 39%
NET ASSETS END OF PERIOD (THOUSANDS)............... $127,099 $121,569 $ 16,934 $ 15,595 $ 14,486
</TABLE>

SEE COMBINED NOTES TO FINANCIAL STATEMENTS.

<PAGE>
KEYSTONE
STRATEGIC INCOME FUND

(Keystone Strategic Income Fund logo appears here)

SCHEDULE OF INVESTMENTS
April 30, 1997

<TABLE>
<CAPTION>
PRINCIPAL MARKET PRINCIPAL MARKET
AMOUNT VALUE AMOUNT VALUE
<C> <S> <C> <C> <C> <C>
</TABLE>

<TABLE>
<CAPTION>
FIXED INCOME-- 92.1%
<C> <S> <C>
INDUSTRIAL BONDS & NOTES-- 33.3%
AEROSPACE-- 0.3%
$ 500,000 Airplanes Pass Thru Trust,
Series 1, Class D, Bond (Subord.),
10.88%, 3/15/19................... $ 552,780
BROADCASTING-- 3.0%
775,000 Ackerly Communications,
Incorporated,
Series B, Sr. Notes,
10.75%, 10/1/03................... 813,750
1,500,000 Echostar Satellite Broadcast
Corporation,
Sr. Disc. Notes,
(Eff. Yield 10.05%) (d)
0.00%, 3/15/04.................... 1,110,000
750,000 K-III Communications Corporation,
Sr. Notes,
8.50%, 2/1/06 (e)................. 723,750
1,000,000 Paxson Communications Corporation,
Sr. Notes (Subord.),
11.63%, 10/1/02................... 1,062,500
1,000,000 SFX Broadcasting, Incorporated,
Series B, Sr. Notes (Subord.),
10.75%, 5/15/06 (e)............... 1,047,500
1,000,000 Sinclair Broadcast Group,
Incorporated,
Sr. Notes (Subord.),
10.00%, 9/30/05................... 1,017,500
5,775,000
CABLE/OTHER VIDEO DISTRIBUTION-- 5.1%
1,000,000 Adelphia Communications Corporation,
Sr. Notes,
9.88%, 3/1/07 (e)................. 945,000
500,000 Comcast Corporation,
Sr. Deb. (Subord.),
10.63%, 7/15/12................... 555,000
2,000,000 Diamond Cable Communications
Company,
Sr. Disc. Notes,
(Eff. Yield 10.07%) (d)
0.00%, 9/30/04.................... 1,640,000
500,000 Diamond Cable Communications
Company,
Sr. Disc. Notes,
(Eff. Yield 10.48%) (d)
0.00%, 2/15/07 (e)................ 291,250
250,000 Frontiervision,
Sr. Notes (Subord.),
11.00%, 10/15/06.................. 250,000
CABLE/OTHER VIDEO DISTRIBUTION-- CONTINUED
$1,000,000 Fundy Cable Limited,
Sr. Secd. 2nd Priority Notes,
11.00%, 11/15/05.................. $ 1,055,000
1,250,000 Marcus Cable Operating Company LP,
Sr. Disc. Notes,
13.50%, 8/1/04.................... 1,034,375
1,000,000 Rogers Cablesystems Limited,
Sr. Deb. (Subord.),
10.13%, 9/1/12.................... 1,022,500
650,000 Telewest Communications PLC,
Sr. Disc. Deb.,
(Eff. Yield 9.07%) (d)
0.00%, 10/1/07.................... 438,750
750,000 TCI Satellite Entertainment,
Incorporated,
Sr. Notes (Subord.),
10.88%, 2/15/07 (e)............... 714,375
250,000 TCI Satellite Entertainment,
Incorporated,
Sr. Disc. Notes,
12.25%, 2/15/07 (e)............... 131,250
2,000,000 Videotron Holdings PLC,
Sr. Disc. Notes,
(Eff. Yield 11.00%) (d)
0.00%, 8/15/05.................... 1,620,000
9,697,500
CHEMICALS-- 2.9%
750,000 Astor Corporation,
Series B, Sr. Notes (Subord.),
10.50%, 10/15/06.................. 772,500
750,000 Freedom Chemicals, Incorporated,
Sr. Notes (Subord.),
10.63%, 10/15/06.................. 778,125
1,000,000 Kaiser Aluminum and Chemical
Corporation,
Sr. Notes (Subord.),
12.75%, 2/1/03.................... 1,085,000
1,550,000 NL Industries, Incorporated,
Sr. Secd. Notes,
11.75%, 10/15/03.................. 1,666,250
675,000 Rexene Corporation,
Sr. Notes,
11.75%, 12/1/04................... 745,875
500,000 Texas Petrochemicals Corporation,
Sr. Notes (Subord.),
11.13%, 7/1/06.................... 520,000
5,567,750
</TABLE>

(CONTINUED)

<PAGE>
KEYSTONE
STRATEGIC INCOME FUND

(Keystone Strategic Income Fund logo appears here)

SCHEDULE OF INVESTMENTS (CONTINUED)
April 30, 1997

<TABLE>
<CAPTION>
PRINCIPAL MARKET PRINCIPAL MARKET
AMOUNT VALUE AMOUNT VALUE
<C> <S> <C> <C> <C>
</TABLE>

CONSUMER-- 3.7%
$ 500,000 Consumers International, Incorporated,
Sr. Notes,
10.25%, 4/1/05 (e)................ $ 515,000
1,000,000 Exide Corporation,
Sr. Notes,
10.75%, 12/15/02.................. 1,025,000
1,000,000 Fonda Group, Incorporated,
Sr. Notes (Subord.),
9.50%, 3/1/07 (e)................. 945,000
1,025,000 International Semi-Tech Micro-
electronics, Incorporated,
Sr. Disc. Notes,
(Eff. Yield 11.98%) (d)
0.00%, 8/15/03.................... 553,500
1,250,000 McLeod, Incorporated,
Sr. Disc. Notes,
(Eff. Yield 9.84%) (d)
0.00%, 3/1/07 (e)................. 712,500
3,800,000 Revlon Worldwide Corporation,
Sr. Disc. Notes,
(Eff. Yield 10.75%) (d)
0.00%, 3/15/01 (e)................ 2,498,500
1,000,000 Tracor, Incorporated,
Sr. Notes (Subord.),
8.50%, 3/1/07 (e)................. 980,000
7,229,500
DIVERSIFIED MEDIA-- 0.9%
500,000 Cinemark USA, Incorporated,
Series B, Sr. Notes (Subord.),
9.63%, 8/1/08..................... 495,000
1,000,000 Dawson Production Services,
Incorporated,
Sr. Notes,
9.38%, 2/1/07..................... 990,000
350,000 Lifestyle Brands,
Gtd. Deb. (Surbord.),
10.00%, 10/30/97.................. 350,000
1,835,000
ENERGY-- 3.2%
1,000,000 Clark USA, Incorporated,
Series B, Sr. Notes,
10.88%, 12/1/05................... 1,012,500
775,000 Ferrellgas Partners Limited Partnership
Series B Sr. Secd. Notes,
9.38%, 6/15/06.................... 797,281
1,250,000 HS Resources, Incorporated,
Sr. Notes (Subord.),
9.25%, 11/15/06................... 1,220,313
ENERGY-- CONTINUED
$1,000,000 Nuevo Energy Company,
Sr. Notes (Subord.),
9.50%, 4/15/06.................... $ 1,020,000
1,000,000 Parker Drilling Corporation,
Series B, Sr. Notes,
9.75%, 11/15/06 (b)............... 1,027,500
500,000 Plains Resources, Incorporated,
Series B, Sr. Notes (Subord.),
10.25%, 3/15/06 (e)............... 520,000
500,000 Vintage Petroleum, Incorporated,
Sr. Notes (Subord.),
9.00%, 12/15/05................... 496,250
6,093,844
FINANCIAL-- 0.5%
1,000,000 Reliance Group Holdings,
Incorporated,
Sr. Deb. (Subord.),
9.75%, 11/15/03................... 1,027,500
FOODS/TOBACCO/BEVERAGES-- 2.0%
500,000 Chiquita Brands International,
Incorporated,
Sr. Notes,
9.63%, 1/15/04.................... 510,000
4,336,000 Iowa Select Farms,
Series A, Sr. Notes,
(Eff. Yield 16.62%) (d)
(8/2/94-$2,243,310),
0.00%, 2/15/04 (b)................ 2,879,707
500,000 Ralphs Grocery Company,
Sr. Notes (Subord.),
11.00%, 6/15/05................... 532,500
3,922,207
FOREST PRODUCTS/CONTAINERS-- 3.3%
1,000,000 Affiliated Newspaper Investments,
Incorporated,
Sr. Disc. Notes,
(Eff. Yield 9.20%) (d)
0.00%, 7/1/06..................... 855,000
1,000,000 Container Corporation of America,
Series A, Sr. Notes,
11.25%, 5/1/04.................... 1,070,000
375,000 Four M Corporation,
Sr. Notes,
12.00%, 6/1/06 (e)................ 367,500
934,000 Owens-Illinois, Incorporated,
Sr. Notes (Subord.),
10.50%, 6/15/02................... 985,370
350,000 Printpack, Incorporated,
Series B, Sr. Notes (Subord.),
10.63%, 8/15/06................... 359,188

(CONTINUED)

<PAGE>
KEYSTONE
STRATEGIC INCOME FUND

(Keystone Strategic Income Fund logo appears here)

SCHEDULE OF INVESTMENTS (CONTINUED)
April 30, 1997

<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<C> <S> <C>
</TABLE>

Incorporated,
Sr. Notes,
10.75%, 10/15/01.................. $ 1,095,000
500,000 Sea Containers Limited,
Sr. Deb. (Subord.),
12.50%, 12/1/04................... 548,750
1,000,000 Stone Container Corporation,
1st Mtge. Notes,
10.75%, 10/1/02................... 1,005,000
6,285,808
GAMING-- 3.8%
1,000,000 Casino America, Incorporated,
Sr. Notes,
12.50%, 8/1/03.................... 1,007,500
2,488,391 Grand Palais Casino, Incorporated,
Sr. Secd. PIK Notes,
(8/15/94-$2,488,391)
18.25%, 11/1/97 (a) (b) (c)....... 25
1,000,000 Lodgenet Entertainment Corporation,
Sr. Notes,
10.25%, 12/15/06 (e).............. 971,250
1,150,000 Magestic Star Casino LLC,
Sr. Secd. Notes,
12.75%, 5/15/03................... 1,242,000
500,000 Prime Hospitality Corporation,
Sr. Notes (Subord.),
9.75%, 4/1/07 (e)................. 507,500
500,000 Prime Hospitality Corporation,
1st Mtge. Notes,
9.25%, 1/15/06.................... 508,750
1,000,000 Showboat, Incorporated,
Sr. Notes (Subord.),
13.00%, 8/1/09.................... 1,130,000
750,000 Starcraft Corporation,
Notes (Subord.),
16.50%, 1/15/98 (a) (b) (c)....... 15,000
1,000,000 Sun International Hotels Limited,
Sr. Notes (Subord.),
9.00%, 3/15/07 (e)................ 990,000
1,000,000 Sun World International, Incorporated,
1st Mtge. Notes,
11.25%, 4/15/04 (e)............... 1,030,000
7,402,025
HOUSING-- 0.5%
1,000,000 Continental Homes Holding
Corporation,
Sr. Notes,
10.00%, 4/15/06................... 985,000
RETAIL-- 1.0%
$ 800,000 Cole National Group, Incorporated,
Sr. Notes,
11.25%, 10/1/01................... $ 872,000
1,000,000 Finlay Fine Jewelry Corporation,
Sr. Notes,
10.63%, 5/1/03.................... 1,045,000
1,917,000
TELECOMMUNICATIONS-- 2.1%
1,000,000 Dial Call Communications,
Incorporated,
Series B, Sr. Disc. Notes,
(Eff. Yield 11.24%) (d)
0.00%, 12/15/05................... 742,500
2,900,000 Nextel Communications, Incorporated,
Sr. Disc. Notes,
(Eff. Yield 10.70%) (d)
0.00%, 8/15/04.................... 2,109,750
1,000,000 Teleport Communications Group,
Sr. Disc. Notes,
(Eff. Yield 8.97%) (d)
0.00%, 7/1/07..................... 687,500
525,000 Teleport Communications Group,
Sr. Notes,
9.88%, 7/1/06..................... 547,313
4,087,063
TRANSPORTATION-- 0.2%
500,000 Eletson Holdings, Incorporated,
1st Pfd. Mtge. Notes,
9.25%, 11/15/03................... 490,000
WIRELESS COMMUNICATIONS-- 0.8%
500,000 Rogers Cantel,
Sr. Secd. Deb.,
9.38%, 6/1/08..................... 513,750
1,000,000 Vanguard Cellular Systems,
Incorporated, Sr. Unsecd. Deb.,
9.38%, 4/15/06.................... 975,000
1,488,750
TOTAL INDUSTRIAL BONDS & NOTES
(COST-- $66,359,186).............. 64,356,727

MORTGAGE-BACKED SECURITIES-- 21.2%
1,998,073 CWMBS, Incorporated,
7.84%, 11/1/26.................... 1,953,116
7,611,868 FHLMC Participation Certificate Pool
#607352,
7.68%, 4/1/22..................... 7,991,244

2,625,806 FHLMC Participation Certificate Pool
#846298,
7.19%, 8/1/22..................... 2,719,757

(CONTINUED)

<PAGE>
KEYSTONE
STRATEGIC INCOME FUND

(Keystone Strategic Income Fund logo appears here)

SCHEDULE OF INVESTMENTS (CONTINUED)
April 30, 1997

1,171,156 FNMA Grantor Trust 95-T5, Class A,
7.00%, 3/17/35................$ 1,126,506
4,451,652 FNMA Pool #322356,
7.00%, 9/1/25................. 4,322,242
5,886,008 FNMA Pool #324193,
7.00%, 9/1/25..................... 5,714,902
9,932,529 GNMA Pool #354714,
6.50%, 12/15/23................... 9,420,407
7,943,707 GNMA Pool #780163,
6.50%, 7/15/09.................... 7,771,169
TOTAL MORTGAGE-BACKED SECURITIES
(COST $41,324,624)................ 41,019,343

FOREIGN BONDS (U. S. DOLLARS)-- 16.7%
1,500,000 Argentina Republic, Deb.,
11.38%, 1/30/17................... 1,594,500
2,500,000 Argentina Global, Deb.,
11.00%, 10/9/06................... 2,690,625
8,150,138 Brazil (Federal Republic of), Govt.
Gtd.,
8.00%, 4/15/14.................... 6,183,917
5,500,000 Comtel Brasileira, Notes,
10.75%, 9/26/04 (e)............... 5,692,500
2,500,000 Grupo Industrial Durango S.A.,
Notes,
12.00%, 7/15/01................... 2,675,000
400,000 Grupo Industrial Durango S.A.,
Notes,
12.63%, 8/1/03.................... 431,000
2,900,000 Grupo Televisa S.A., Series B,
Sr. Notes,
11.88%, 5/15/06 (e)............... 3,088,500
3,000,000 Indah Kiat International Finance Co.,
Gtd. Sr. Secd. Notes,
11.88%, 6/15/02................... 3,210,000
500,000 Intermedia Capital Partners, Sr.
Notes,
11.25%, 8/1/06 (e)................ 513,750
750,000 Ispat Mexicana S. A., Sr. Unsecd. Deb.,
10.38%, 3/15/01 (e)............... 765,500

FOREIGN BONDS (U. S. DOLLARS)-- CONTINUED
$5,000,000 Klabin Fabricadora Papel, Unsecd. Deb.,
10.00%, 12/20/01..................$ 5,025,000
425,000 TV Azteca SA DE CV, Sr. Notes,
10.50%, 2/15/07 (e)............... 418,094
TOTAL FOREIGN BONDS (U.S. DOLLARS)
(COST-- $31,699,064).............. 32,287,886
FOREIGN BONDS (NON U. S. DOLLARS)-- 9.6%
8,250,000 Canada Government, Deb.,
CD 8.75%, 12/1/05...................... 6,743,504
35,500,000 Denmark (Kingdom of), Deb.,
DK 8.00%, 5/15/03...................... 5,974,570
9,400,000 Germany (Federal Republic of), Deb.,
DM 6.88%, 5/12/05...................... 5,862,652
TOTAL FOREIGN BONDS (NON U.S.
DOLLARS)(COST-- $20,140,076)...... 18,580,726
U.S. TREASURY OBLIGATIONS-- 11.3%
5,900,000 U.S. Treasury Bills,
0.00%, 3/5/98..................... 5,622,877
7,723,000 U.S. Treasury Bonds,
7.88%, 2/15/21.................... 8,442,166
4,180,000 U.S. Treasury Bonds,
6.50%, 11/15/26................... 3,925,940
2,500,000 U.S. Treasury Notes,
6.25%, 3/31/99.................... 2,499,600
1,250,000 U.S. Treasury Notes,
6.13%, 12/31/01................... 1,228,325
TOTAL U.S. TREASURY OBLIGATIONS
(COST-- $21,584,207).............. 21,718,908
TOTAL FIXED INCOME
(COST-- $181,107,157)............. 177,963,590

(CONTINUED)

<PAGE>

KEYSTONE
STRATEGIC INCOME FUND

(Keystone Strategic Income Fund logo appears here)

SCHEDULE OF INVESTMENTS (CONTINUED)
April 30, 1997

COMMON STOCKS/WARRANTS-- 0.6%
[C] [S] [C]
104,514 Casino America, Incorporated (a).... $ 222,092
19,582 Casino America, Incorporated, wts.
(a)............................... 196
170,042 Colorado Gaming and Entertainment
Company (a)....................... 765,189
72,794 Grand Palais Casinos, Inc., Series
A, wts.(8/15/94-$727) (a) (b)..... 73
39,706 Grand Palais Casinos, Inc., Series
B, wts.(8/15/94-$397) (a) (b)..... 40
350,735 Grand Palais Casinos, Inc., Series
C, wts.(8/15/94-$3,507) (a) (b)... 351
160,136 Grand Palais Casinos, Inc., Series
D, wts.(8/15/94-$-0-) (a) (b)..... 160
87,342 Grand Palais Casinos, Inc.,
wts.(8/15/94-$57) (a) (b)......... 87
117,800 Iowa Select Farms, wts. (2/4/94-
$955,122) (a) (b)................. 117,800
4,820 Nextel Communications Incorporated,
wts. (a).......................... 48
TOTAL COMMON STOCKS/WARRANTS
(COST-- $3,034,294)............... 1,106,036

PREFERRED STOCK-- 0.6% (COST-- $2,106,055)
2,156 Ampex Corp. (a) (b) (c)............. $ 1,164,240

SHORT-TERM U.S. GOVERNMENT AGENCY OBLIGATION-- 2.2%
(COST-- $4,170,000)
PRINCIPAL
AMOUNT
$4,170,000 Federal Home Loan Bank, Disc. Notes,
5.28%, 05/01/97................... 4,170,000

REPURCHASE AGREEMENT-- 1.1% (COST-- $2,151,000)
2,151,000 Keystone Joint Repurchase Agreement
(Investments in repurchase
agreements, in a joint trading
account, dated 4/30/97, maturity
value $2,151,329) (f)
5.50%, 05/01/97................... 2,151,000

TOTAL INVESTMENTS
(COST-- $192,568,506).... 96.6% 186,554,866
OTHER ASSETS AND
LIABILITIES-- NET........ 3.4% 6,555,485
NET ASSETS................. 100.0% $193,110,351

(a) Non-income producing.
(b) All or a portion of these securities are either (1) restricted securities
(i.e., securities which may not be publicly sold without registration under
the Federal Securities Act of 1933) or (2) illiquid securities, and are
valued using market quotations where readily available. In the absence of
market quotations, the securities are valued based upon their fair value
determined under procedures approved by the Board of Trustees. The Fund may
make investments in an amount up to 15% of the value of the Fund's net
assets in such securities. The date of acquisition and cost are set forth in
parentheses after the description of each restricted security. On the date
of acquisition there were no market quotations on similar securities and the
securities were valued at acquisition cost. At April 30, 1997, the fair
value of these restricted securities was $2,998,243 (1.55% of the Fund's net
assets).
(c) Securities which have defaulted on payment of interest and/or principal.
The Fund has stopped accruing income on these securities. At April 30,
1997, the fair value of these securities was $1,179,265 (0.61% of the
Fund's net assets).
(d) Effective yield (calculated at the date of purchase) is the yield at which
the bond accretes on an annual basis until maturity date.
(e) Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pursant 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.
(f) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at April 30, 1997.

LEGEND OF PORTFOLIO ABBREVIATIONS:
CWMBS-- Countrywide Mortgage Backed Securities
FHLMC-- Federal Home Loan Mortgage Corporation
FNMA-- Federal National Mortgage Association
GNMA-- Government National Mortgage Association
CD-- Canadian Dollar
DK-- Danish Krone
DM-- Deutsche Mark

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
<TABLE>
<CAPTION>
EXCHANGE U.S. $ VALUE AT IN EXCHANGE
DATE APRIL 30, 1997 FOR U.S. $
<S> <C> <C> <C>

Forward Foreign Currency Exchange Contracts to Sell:
Contracts to Deliver
5/27/97 6,619,351 Canadian Dollar 4,743,320 4,747,335
7/11/97 10,089,020 Deutsche Mark 5,856,040 5,879,040
7/11/97 39,138,750 Danish Krone 5,963,119 5,981,774

</TABLE>
<TABLE>
<CAPTION>
EXCHANGE NET UNREALIZED
DATE APPRECIATION
<S> <C>
Forward Foreign Currency Exchange Contra
5/27/97 $ 4,015
7/11/97 23,000
7/11/97 18,655
$ 45,670
</TABLE>

SEE COMBINED NOTES TO FINANCIAL STATEMENTS.

<PAGE>
EVERGREEN
U . S. GOVERNMENT FUND

(Evergreen U.S. Government Fund logo appears here)

SCHEDULE OF INVESTMENTS
April 30, 1997

<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE

MORTGAGE-BACKED SECURITIES-- 53.6%
<C> <S> <C>
FEDERAL HOME LOAN MORTGAGE CORP.-- 11.5%
$14,790,674 6.50%, 04/01/26.................... $ 14,012,965
5,535,754 8.00%, 07/01/17-04/01/22........... 5,677,345
3,801,026 8.50%, 10/01/17-04/01/23........... 3,962,023
3,541,622 9.00%, 12/01/19-04/01/23........... 3,765,089
1,362,472 9.50%, 09/01/20.................... 1,469,057
2,106,788 10.00%, 12/01/19-08/01/21.......... 2,304,105
1,808,085 10.50%, 12/01/19................... 1,993,978
33,184,562
FEDERAL NATIONAL MORTGAGE ASSN.-- 16.8%
5,028,486 6.50%, 01/01/24.................... 4,751,919
17,902,428 7.00%, 08/01/01-08/01/25........... 17,382,130
12,138,650 7.50%, 07/01/23-07/01/25........... 12,070,370
11,886,747 8.00%, 08/01/25.................... 12,086,908
1,768,560 9.50%, 02/01/23.................... 1,902,307
48,193,634
GOVERNMENT NATIONAL MORTGAGE ASSN.-- 25.3%
15,066,683 7.00%, 12/15/22-12/15/23........... 14,600,550
10,544,426 7.50%, 02/15/22-03/15/23........... 10,478,523
20,893,894 8.00%, 04/15/23-08/15/24........... 21,288,018
11,950,122 8.50%, 12/15/21-07/15/24........... 12,397,450
5,835,610 9.00%, 01/15/20-06/15/21........... 6,131,038
6,036,338 9.50%, 01/15/19-02/15/21........... 6,502,265
1,296,372 10.00%, 12/15/18................... 1,423,172
72,821,016
TOTAL MORTGAGE-BACKED SECURITIES
(COST-- $156,369,768)............ 154,199,212

<CAPTION>
U.S. TREASURY OBLIGATIONS-- 44.7%
<C> <S> <C>
U.S. TREASURY BONDS-- 15.7%
$ 8,100,000 8.50%, 2/15/20..................... $ 9,401,062
3,650,000 8.75%, 11/15/08.................... 4,013,858
3,080,000 8.75%, 8/15/20..................... 3,666,161
14,010,000 8.88%, 8/15/17..................... 16,737,565
9,300,000 9.25%, 2/15/16..................... 11,418,652
45,237,298
U.S. TREASURY NOTES-- 29.0%
12,000,000 7.75%, 11/30/99.................... 12,378,744
9,800,000 7.75%, 1/31/00..................... 10,124,625
21,500,000 7.88%, 11/15/99.................... 22,245,770
6,850,000 8.25%, 7/15/98..................... 7,023,387
17,180,000 8.88%, 11/15/97.................... 17,453,798
13,700,000 9.25%, 8/15/98..................... 14,226,587
83,452,911
TOTAL U. S. TREASURY OBLIGATIONS
(COST-- $135,846,696)............ 128,690,209
<CAPTION>
REPURCHASE AGREEMENT (COST-- $2,039,802)-- 0.7%
<C> <S> <C>
2,039,802 Donaldson, Lufkin & Jenrette
Securities Corp., 5.40% dated
04/30/97, due 05/01/97, maturity
value $2,040,108 (Collateralized
by $1,943,000 U.S Treasury Notes,
7.50%, due 05/15/02; value,
including accrued interest
$2,081,365)...................... 2,039,802
TOTAL INVESTMENTS
(COST-- $294,256,266)... 99.0% 284,929,223
OTHER ASSETS AND
LIABILITIES-- NET....... 1.0 2,909,325
NET ASSETS................ 100.0% $287,838,548
</TABLE>

SEE COMBINED NOTES TO FINANCIAL STATEMENTS.

<PAGE>
EVERGREEN KEYSTONE

(Pine cone logo appears here)

STATEMENTS OF ASSETS AND LIABILITIES
April 30, 1997

(Keystone Strategic logo appears here)
(Evergreen U.S. Government Fund logo appears here)

<TABLE>
<CAPTION> STRATEGIC U.S.
INCOME GOVERNMENT
FUND FUND
<S> <C> <C>
ASSETS
Investments at market value (identified cost-- $192,568,506 and $294,256,266, respectively)... $186,554,866 $284,929,223
Cash.......................................................................................... 8,446 0
Foreign currency (Cost $18,926)............................................................... 18,849 0
Receivable for investments sold............................................................... 4,615,523 0
Interest receivable........................................................................... 3,704,541 4,284,712
Receivable for Fund shares sold............................................................... 645,220 7,886
Unrealized appreciation on forward foreign currency exchange contracts........................ 45,670 0
Prepaid expenses and other assets............................................................. 102,461 50,600
Total assets.............................................................................. 195,695,576 289,272,421
LIABILITIES
Payable for investments purchased............................................................. 1,118,125 0
Payable for Fund shares redeemed.............................................................. 638,306 614,697
Distributions to shareholders................................................................. 552,765 490,615
Payable for closed forward foreign currency exchange contracts................................ 117,809 0
Distribution fee payable...................................................................... 90,789 122,335
Due to related parties........................................................................ 8,818 124,765
Accrued expenses and other liabilities........................................................ 58,613 81,461
Total liabilities......................................................................... 2,585,225 1,433,873
NET ASSETS...................................................................................... $193,110,351 $287,838,548
Net assets represented by
Paid-in capital............................................................................... $264,572,334 $314,822,329
Undistributed net investment income (accumulated distributions in excess of net investment
income)..................................................................................... (576,398) 207
Accumulated net realized loss on investments and foreign currency related transactions........ (64,835,778) (17,656,945)
Net unrealized depreciation on investments and foreign currency related transactions.......... (6,049,807) (9,327,043)
TOTAL NET ASSETS.......................................................................... $193,110,351 $287,838,548
Net assets consist of
Class A....................................................................................... $ 58,725,075 $ 17,912,899
Class B....................................................................................... 110,081,672 142,371,185
Class C....................................................................................... 24,303,597 455,150
Class Y....................................................................................... 7 127,099,314
$193,110,351 $287,838,548
SHARES OUTSTANDING
Class A....................................................................................... 8,613,751 1,907,838
Class B....................................................................................... 16,071,930 15,164,185
Class C....................................................................................... 3,552,632 48,478
Class Y....................................................................................... 1 13,537,374
NET ASSET VALUE PER SHARE
Class A....................................................................................... $ 6.82 $ 9.39
Class A-- Offering price (based on sales charge of 4.75%)..................................... $ 7.16 $ 9.86
Class B....................................................................................... $ 6.85 $ 9.39
Class C....................................................................................... $ 6.84 $ 9.39
Class Y....................................................................................... $ 6.65 $ 9.39
</TABLE>

SEE COMBINED NOTES TO FINANCIAL STATEMENTS.

<PAGE>
EVERGREEN KEYSTONE

STATEMENTS OF OPERATIONS
Periods Ended April 30, 1997

(Keystone Strategic logo appears here)
(Evergreen U.S. Government Fund logo appears here)

<TABLE>
<CAPTION>
FUND* FUND**
<S> <C> <C>
INVESTMENT INCOME
Interest (Net of foreign withholding taxes of $58,603 and $0, respectively).................... $13,515,590 $19,078,615
Other income................................................................................... 23,475 0
13,539,065 19,078,615
EXPENSES
Distribution Plan expenses..................................................................... 1,213,672 1,346,462
Management fee................................................................................. 1,017,082 1,258,319
Transfer agent fees............................................................................ 398,950 185,488
Custodian fees................................................................................. 119,727 95,205
Administrative services fees................................................................... 23,600 108,936
Professional fees.............................................................................. 38,029 16,553
Trustees' fees and expenses.................................................................... 27,497 5,756
Other.......................................................................................... 25,850 163,314
Total expenses............................................................................... 2,864,407 3,180,033
Less: Indirectly paid expenses................................................................. (25,507) (108 )
Net expenses................................................................................. 2,838,900 3,179,925
NET INVESTMENT INCOME.......................................................................... 10,700,165 15,898,690
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY RELATED TRANSACTIONS
Realized gain (loss) on:
Investments.................................................................................. 6,552,327 (3,340,851 )
Foreign currency related transactions........................................................ (1,090,050) 0
Net realized gain (loss) on investments and foreign currency related transactions.............. 5,462,277 (3,340,851 )
Net change in unrealized appreciation (depreciation) on:
Investments.................................................................................. (2,851,665) 2,370,773
Foreign currency related transactions........................................................ 153,110 0
Net change in unrealized appreciation (depreciation) on investments and foreign currency
related transactions......................................................................... (2,698,555) 2,370,773
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY RELATED
TRANSACTIONS................................................................................. 2,763,722 (970,078 )
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................... $13,463,887 $14,928,612
</TABLE>

* Nine months ended April 30, 1997. During the period, the Strategic Income
Fund changed its fiscal year end from July 31 to April 30.
** Ten months ended April 30, 1997. During the period, the U.S. Government Fund
changed its fiscal year end from June 30 to April 30.

SEE COMBINED NOTES TO FINANCIAL STATEMENTS.

<PAGE>
EVERGREEN KEYSTONE

STATEMENTS OF OPERATIONS

(Keystone Strategic logo appears here)
(Evergreen U.S. Government Fund logo appears here)

<TABLE>
<CAPTION>
STRATEGIC U.S.
INCOME GOVERNMENT
FUND* FUND**
<S> <C> <C>
INVESTMENT INCOME
Interest (Net of foreign withholding taxes of $48,566 and $0, respectively).................... $23,880,913 $22,884,665
Other income................................................................................... 133,017 0
24,013,930 22,884,665
EXPENSES
Distribution Plan expenses..................................................................... 1,972,005 1,891,240
Management fee................................................................................. 1,663,669 1,507,281
Transfer agent fees............................................................................ 655,455 215,204
Custodian fees................................................................................. 173,082 138,256
Administrative services fees................................................................... 24,365 159,046
Professional fees.............................................................................. 54,863 45,212
Trustees' fees and expenses.................................................................... 30,556 7,532
Other.......................................................................................... 140,311 154,406
Total expenses............................................................................... 4,714,306 4,118,177
Less: Indirectly paid expenses................................................................. (37,066) 0
Net expenses................................................................................. 4,677,240 4,118,177
NET INVESTMENT INCOME.......................................................................... 19,336,690 18,766,488
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY RELATED TRANSACTIONS
Realized loss on:
Investments.................................................................................. (2,858,545) (3,731,984 )
Foreign currency related transactions........................................................ (1,073,293) 0
Net realized loss on investments and foreign currency related transactions..................... (3,931,838) (3,731,984 )
Net change in unrealized appreciation (depreciation) on:
Investments.................................................................................. (48,177) (3,860,415 )
Foreign currency related transactions........................................................ 295,422 0
Net change in unrealized appreciation (depreciation) on investments and foreign currency
related transactions......................................................................... 247,245 (3,860,415 )
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND FOREIGN CURRENCY RELATED TRANSACTIONS...... (3,684,593) (7,592,399 )
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................... $15,652,097 $11,174,089
</TABLE>

* Year ended July 31, 1996.
** Year ended June 30, 1996.

SEE COMBINED NOTES TO FINANCIAL STATEMENTS.

<PAGE>
EVERGREEN KEYSTONE

STATEMENTS OF CHANGES IN NET ASSETS
Periods Ended April 30, 1997

(Keystone Strategic logo appears here)
(Evergreen U.S. Government Fund logo appears here)

<TABLE>
<CAPTION>
STRATEGIC U.S.
INCOME GOVERNMENT
FUND* FUND**
<S> <C> <C>
OPERATIONS
Net investment income......................................................................... $ 10,700,165 $ 15,898,690
Net realized gain (loss) on investments and foreign currency related transactions............. 5,462,277 (3,340,851)
Net change in unrealized appreciation (depreciation) on investments and foreign currency
related transactions........................................................................ (2,698,555) 2,370,773
Net increase in net assets resulting from operations........................................ 13,463,887 14,928,612
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income:
Class A..................................................................................... (3,484,550) (1,050,495)
Class B..................................................................................... (5,810,734) (7,610,760)
Class C..................................................................................... (1,404,882) (35,021)
Class Y..................................................................................... 0 (7,202,207)
In excess of net investment income:
Class A..................................................................................... (256,701) 0
Class B..................................................................................... (428,067) 0
Class C..................................................................................... (103,495) 0
Total distributions to shareholders......................................................... (11,488,429) (15,898,483)
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold..................................................................... 25,911,778 26,211,170
Proceeds from reinvestment of distributions................................................... 6,009,396 10,717,216
Payment for shares redeemed................................................................... (64,109,043) (56,670,711)
Net decrease in net assets resulting from capital share transactions........................ (32,187,869) (19,742,325)
Total decrease in net assets.............................................................. (30,212,411) (20,712,196)
NET ASSETS
Beginning of period........................................................................... 223,322,762 308,550,744
END OF PERIOD................................................................................. $193,110,351 $287,838,548
Undistributed net investment income (accumulated distributions in excess of net investment
income)....................................................................................... $ (576,398) $ 207
</TABLE>

SEE COMBINED NOTES TO FINANCIAL STATEMENTS.

<PAGE>
EVERGREEN KEYSTONE

STATEMENTS OF CHANGES IN NET ASSETS

(Keystone Strategic logo appears here)
(Evergreen U.S. Government Fund logo appears here)

<TABLE>
<CAPTION>
STRATEGIC INCOME FUND U.S. GOVERNMENT FUND
YEAR ENDED SIX MONTHS ENDED
YEAR ENDED JULY 31, JUNE 30, JUNE 30,
1996 1995 1996 1995*
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income........................................ $ 19,336,690 $ 25,856,250 $ 18,766,488 $ 7,438,980
Net realized loss on investments, closed futures contracts
and foreign currency related transactions.................. (3,931,838) (38,021,996) (3,731,984) (2,084,111)
Net change in unrealized appreciation (depreciation) on
investments and foreign currency related transactions...... 247,245 17,203,692 (3,860,415) 16,345,873
Net increase in net assets resulting from operations....... 15,652,097 5,037,946 11,174,089 21,700,742
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income:
Class A.................................................... (5,945,153) (8,015,693) (1,406,673) (794,337)
Class B.................................................... (9,706,657) (12,000,626) (10,727,964) (6,054,489)
Class C.................................................... (2,690,979) (3,983,775) (28,511) (10,127)
Class Y.................................................... 0 0 (6,603,340) (580,027)
In excess of net investment income:
Class A.................................................... 0 (385,252) 0 0
Class B.................................................... 0 (576,777) 0 0
Class C.................................................... 0 (191,469) 0 0
Tax basis return of capital:
Class A.................................................... (564,217) (199,090) 0 0
Class B.................................................... (921,197) (298,065) 0 0
Class C.................................................... (255,384) (98,947) 0 0
Total distributions to shareholders........................ (20,083,587) (25,749,694) (18,766,488) (7,438,980)
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold.................................... 28,128,495 57,203,658 138,179,343 8,321,751
Proceeds from shares issued in acquisition of Evergreen U.S.
Government Securities Fund................................. 0 0 5,739,713 0
Proceeds from reinvestment of distributions.................. 10,567,921 13,886,209 11,871,813 3,745,065
Payment for shares redeemed.................................. (92,224,304) (96,370,777) (71,866,685) (29,247,163)
Net increase (decrease) in net assets resulting from
capital share transactions............................... (53,527,888) (25,280,910) 83,924,184 (17,180,347)
Total increase (decrease) in net assets.................. (57,959,378) (45,992,658) 76,331,785 (2,918,585)
NET ASSETS
Beginning of period.......................................... 281,282,140 327,274,798 232,218,959 235,137,544
END OF PERIOD................................................ $223,322,762 $281,282,140 $308,550,744 $232,218,959
Undistributed net investment income (accumulated distributions
in excess of net investment income).......................... $ (1,169,996) $ (1,023,303) $ 0 $ 0
</TABLE>

* The U.S. Government Fund changed its fiscal year end from December 31 to June
30.

SEE COMBINED NOTES TO FINANCIAL STATEMENTS.

<PAGE>
EVERGREEN KEYSTONE

(Pine cone logo appears here)

COMBINED NOTES TO FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

The Evergreen Keystone Long Term Bond Funds consist of Keystone Strategic Income
Fund ("Strategic Income Fund") and Evergreen U.S. Government Fund ("U.S.
Government Fund") both of which are registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as diversified, open-end investment
management companies. Keystone Strategic Income Fund and Evergreen U.S.
Government Fund, a separate series of Evergreen Investment Trust, are
collectively known as the "Funds".

Keystone Investment Management Company ("Keystone") is the Investment Adviser
and Manager of the Strategic Income Fund. Keystone is a subsidiary of First
Union Keystone, Inc. First Union Keystone, Inc. is a wholly-owned subsidiary of
First Union National Bank of North Carolina which in turn is a wholly-owned
subsidiary of First Union Corporation ("First Union"). First Union is the
Investment Adviser for the U.S. Government Fund. Each Fund offers several
classes of shares. The investment objective of Strategic Income is to seek high
current income from high yield, foreign and U.S. government or agency
obligations. The investment objective of the U.S. Government Fund is to achieve
a high level of current income consistent with stability of principal from U.S.
government or agency obligations.

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. Although actual results could differ from these estimates, any
such differences are expected to be immaterial to the net assets of the Fund.

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, 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 various relationships between
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 Boards of Trustees.

Short term investments with remaining maturities of 60 days or less are carried
at amortized cost, which approximates market value. Short term investments with
greater than 60 days to maturity are valued at 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. The
Fund monitors the adequacy of the collateral daily and will require the seller
to provide additional collateral in the event the market value of the securities
pledged falls below the carrying value of the repurchase agreement.

Pursuant to an exemptive order issued by the Securities and Exchange Commission,
the Strategic Income Fund, 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
The Strategic Income 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
liquid 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 United States 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 transactions. Net realized
foreign currency gains and losses resulting from changes in exchange rates
include foreign currency gains and losses between trade date and settlement date
on investment securities transactions, foreign currency transactions and the
difference between the amounts of interest and dividends recorded on the books
of the Fund and the amount actually received. The portion of foreign currency
gains and losses related to fluctuations in exchange rates between the initial
purchase trade date and subsequent sale trade date is included in realized gain
(loss) on foreign currency related transactions.

E. FUTURES CONTRACTS
In order to gain exposure to or protect against changes in security values, the
Funds may buy and sell futures contracts.

The initial margin deposited with a broker when entering into a futures
transaction is subsequently adjusted by daily payments or receipts as the value
of the contract changes. Such changes are recorded as unrealized gains or
losses. Realized gains or losses are recognized on closing the contract.

<PAGE>
EVERGREEN KEYSTONE

(Pine cone logo appears here)

COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Risks of entering into futures contracts include (i) the possibility of an
illiquid market for the contract, (ii) the possibility that a change in the
value of the contract may not correlate with changes in the value of the
underlying instrument or index, and (iii) the credit risk that the other party
will not fulfill their obligations under the contract. Futures contracts also
involve elements of market risk in excess of the amount reflected in the
statement of assets and liabilities.

F. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Strategic Income Fund may enter into forward foreign currency exchange
contracts ("forward contracts") to settle portfolio purchases and sales of
securities denominated in a foreign currency and to hedge certain foreign
currency assets or liabilities. Forward contracts are recorded at the forward
rate and marked-to-market daily. Realized gains and losses arising from such
transactions are included in net realized gain (loss) on foreign currency
related transactions. The Fund bears the risk of an unfavorable change in the
foreign currency exchange rate underlying the forward contract and is subject to
the credit risk that the other party will not fulfill their obligations under
the contract. Forward contracts involve elements of market risk in excess of the
amount reflected in the statement of assets and liabilities.

G. 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
amortization of discounts.

H. FEDERAL INCOME TAXES
The Funds have qualified and intend to qualify in the future as regulated
investment companies under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Funds are relieved of any federal income tax liability by
distributing all of their net taxable investment income and net taxable capital
gains, if any, to their shareholders. The Funds also intend to avoid excise tax
liability by making the required distributions under the Code. Accordingly, no
provision for federal income taxes is required.

I. DISTRIBUTIONS
Distributions from net investment income for the Strategic Income Fund are
declared and paid monthly. Distributions from net investment income for the U.S.
Government Fund are declared daily and paid monthly. Distributions from net
realized capital gains, if any, are paid at least annually. Distributions to
shareholders are recorded at the close of business on the ex-dividend date.

Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. The significant differences between financial statement
amounts available for distributions and distributions made in accordance with
income tax regulations are primarily due to differing treatment for foreign
currency related transactions.

J. CLASS ALLOCATIONS
Class A shares are offered at a public offering price which includes a maximum
sales charge of 4.75% payable at the time of purchase.

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 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 features.

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 Y shares are available without a front-end sales charge or contingent
deferred sales charge 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.

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.

<PAGE>
EVERGREEN KEYSTONE

(Pine cone logo appears here)

COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. CAPITAL SHARE TRANSACTIONS

The Strategic Income Fund has an unlimited number of shares of beneficial
interest with no par value authorized. The U.S. Government Fund has an 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 Class Y. Transactions in shares of the Funds were as
follows:

STRATEGIC INCOME FUND

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED YEAR ENDED
APRIL 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................................. 722,925 $ 5,021,195 862,737 $ 5,908,665 1,476,748 $ 10,254,533
Shares issued in reinvestment of
distributions............................. 280,932 1,940,819 493,925 3,365,004 630,245 4,322,219
Shares redeemed............................. (2,450,268) (16,920,382) (3,779,494) (25,781,907) (3,933,229) (27,229,543)
Net decrease................................ (1,446,411) $ (9,958,368) (2,422,832) $(16,508,238) (1,826,236) $(12,652,791)
CLASS B
Shares sold................................. 2,590,485 $ 18,030,379 2,657,436 $ 18,284,154 4,868,980 $ 34,092,723
Shares issued in reinvestment of
distributions............................. 448,617 3,114,373 781,880 5,354,257 989,682 6,821,317
Shares redeemed............................. (5,099,176) (35,510,240) (6,840,568) (46,918,273) (6,393,919) (44,185,075)
Net decrease................................ (2,060,074) $(14,365,488) (3,401,252) $(23,279,862) (535,257) $ (3,271,035)
CLASS C
Shares sold................................. 413,449 $ 2,860,197 573,201 $ 3,935,676 1,847,558 $ 12,856,402
Shares issued in reinvestment of
distributions............................. 137,625 954,204 270,184 1,848,660 397,992 2,742,673
Shares redeemed............................. (1,679,415) (11,678,421) (2,845,554) (19,524,124) (3,594,976) (24,956,159)
Net decrease................................ (1,128,341) $ (7,864,020) (2,002,169) $(13,739,788) (1,349,426) $ (9,357,084)
</TABLE>

<TABLE>
<CAPTION>
JANUARY 13, 1997
(COMMENCEMENT OF
CLASS OPERATIONS)
TO
APRIL 30, 1997
<S> <C> <C> <C> <C> <C> <C>
SHARES AMOUNT
CLASS Y
Shares sold..................................... 1 $7
Shares issued in reinvestment of
distributions................................ -- --
Shares redeemed................................ -- --
Net increase................................... 1 $7
Total net decrease resulting from Fund share
transactions................................ .(4,634,825) $(32,187,869) (7,826,253) $(53,527,888) (3,710,919) $(25,280,910)
</TABLE>

<PAGE>
EVERGREEN KEYSTONE

(Pine cone logo appears here)

COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
U.S. GOVERNMENT FUND
TEN MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED
APRIL 30, 1997 JUNE 30, 1996 JUNE 30, 1995
<S> <C> <C> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
CLASS A
Shares sold.................................... 294,513 $ 2,785,151 786,564 $ 7,560,325 129,542 $ 1,230,340
Shares issued in reinvestment of
distributions................................ 60,924 575,792 78,565 755,991 38,627 363,779
Shares redeemed................................ (606,651) (5,738,805) (1,032,918) (9,892,163) (455,148) (4,253,390)
Net decrease................................... (251,214) $ (2,377,862) (167,789) $ (1,575,847) (286,979) $ (2,659,271)
CLASS B
Shares sold.................................... 776,060 $ 7,347,686 1,702,353 $ 16,401,640 361,937 $ 3,402,126
Shares issued in reinvestment of
distributions................................ 394,931 3,733,484 533,686 5,138,748 310,078 2,918,499
Shares redeemed................................ (3,621,913) (34,238,311) (4,576,583) (43,960,576) (2,281,908) (21,266,740)
Net decrease................................... (2,450,922) $(23,157,141) (2,340,544) $(22,420,188) (1,609,893) $(14,946,115)
CLASS C
Shares sold.................................... 28,184 $ 265,064 43,395 $ 420,990 21,067 $ 197,099
Shares issued in reinvestment of
distributions................................ 1,432 13,539 1,437 13,783 377 3,563
Shares redeemed................................ (50,056) (470,176) (12,168) (117,297) (14,514) (136,177)
Net increase (decrease)........................ (20,440) $ (191,573) 32,664 $ 317,476 6,930 $ 64,485
CLASS Y
Shares sold.................................... 1,675,475 $ 15,813,269 11,801,163 $113,796,388 370,297 $ 3,492,186
Shares issued in Acquisition of Evergreen U.S.
Government Securities Fund (Note 7).......... -- -- 590,505 5,739,713 -- --
Shares issued in reinvestment of
distributions................................ 676,410 6,394,401 620,463 5,963,291 48,784 459,225
Shares redeemed................................ (1,715,716) (16,223,419) (1,866,525) (17,896,649) (383,032) (3,590,857)
Net increase................................... 636,169 $ 5,984,251 11,145,606 $107,602,743 36,049 $ 360,554
Total net increase (decrease) resulting from
Fund share transactions...................... (2,086,407) $(19,742,325) 8,669,937 $ 83,924,184 (1,853,893) $(17,180,347)
</TABLE>

<PAGE>
EVERGREEN KEYSTONE

(Pine cone logo appears here)

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 period ended April 30, 1997:

<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
<S> <C> <C>
Strategic Income Fund*.................................................. $175,425,523 $220,805,535
U.S. Government Fund**.................................................. 34,081,380 37,955,747
</TABLE>

* For the nine months ended April 30, 1997.
** For the ten months ended April 30, 1997.

The average daily balance of reverse repurchase agreements outstanding for the
Strategic Income Fund during the nine months ended April 30, 1997 was
approximately $4,984,000 at a weighted average interest rate of 4.98%. The
maximum amount of borrowing during the nine months ended April 30, 1997 for
Strategic Income Fund was $9,907,597 (including accrued interest). There were no
reverse repurchase agreements outstanding at April 30, 1997.

On April 30, 1997, the composition of unrealized appreciation and depreciation
of investment securities based on the aggregate cost of investments for federal
tax purposes was as follows:

<TABLE>
<CAPTION>
TAX NET UNREALIZED
COST APPRECIATION DEPRECIATION APPRECIATION (DEPRECIATION)
<S> <C> <C> <C> <C>
Strategic Income Fund.............................. $193,176,646 $2,988,581 $9,610,361 ($6,621,780)
U.S. Government Fund............................... 294,256,266 565,635 9,892,678 (9,327,043)
</TABLE>

As of April 30, 1997, the Funds had capital loss carryovers for federal income
tax purposes as follows:

<TABLE>
<CAPTION>
EXPIRATION
1999 2000 2001 2002 2003 2004 2005
<S> <C> <C> <C> <C> <C> <C> <C>
Strategic Income Fund............. $28,000 $11,547,000 $12,170,000 -- $5,288,000 $35,072,000 --
U.S. Government Fund.............. -- -- 1,978,000 $6,521,000 -- 2,973,000 $3,134,000
</TABLE>

4. DISTRIBUTION PLANS

Each Fund bears some of the costs of selling its shares under Distribution Plans
adopted for its Class A, B and C shares pursuant to Rule 12b-1 under the 1940
Act. Under the Distribution Plans, each Fund pays its principal underwriter
amounts which are calculated and paid monthly.

On December 11, 1996, the Strategic Income Fund entered into a principal
underwriting agreement with Evergreen Keystone Distributor, Inc. (formerly,
Evergreen Funds Distributor, Inc.) ("EKD"), a wholly-owned subsidiary of The
BISYS Group Inc. ("BISYS"). Prior to December 11, 1996, Evergreen Keystone
Investment Services, Inc. (formerly, Keystone Investment Distributors Company)
("EKIS"), a wholly-owned subsidiary of Keystone, served as the Strategic Income
Fund's principal underwriter. EKD also serves as the principal underwriter for
the U.S. Government Fund.

The Class A Distribution Plans of the Funds provide for expenditures, which are
currently limited to 0.25% annually of the average daily net assets of the Class
A shares, to pay expenses related to the distribution of Class A shares.

Pursuant to each Fund's Class B and Class C Distribution Plans, each Fund pays a
distribution fee which may not exceed 1.00% annually of the average daily net
assets of Class B and Class C shares, respectively. Of that amount, 0.75% is
used to pay distribution expenses and 0.25% is used to pay service fees.

During the period ended April 30, 1997, amounts 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>
Strategic Income Fund...................... $112,916 $ 885,405 $215,351
U.S. Government Fund....................... 39,780 1,300,696 5,986
</TABLE>

Each of the Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting shares
of the respective class. However, after the termination of any Distribution
Plan, and subject to the discretion of the Independent Trustees, payments to
EKIS and/or EKD may continue as compensation for services which had been
provided 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.

<PAGE>
EVERGREEN KEYSTONE

(Pine cone logo appears here)

COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)

At April 30, 1997, total unpaid distribution costs for the Strategic Income Fund
were $11,424,582 for Class B and $5,014,549 for Class C.

EKD has advised the Funds that it has retained the following amounts from
front-end sales charges resulting from the sales of Class A shares during the
period ended April 30, 1997 of $9,140 and $32,391 for the Strategic Income Fund
and the U.S. Government Fund, respectively.

Contingent deferred sales charges paid by redeeming shareholders are paid to EKD
or its predecessor.

5. INVESTMENT MANAGEMENT AGREEMENT AND OTHER AFFILIATED TRANSACTIONS

Under the terms of an Investment Advisory Agreement dated December 11, 1996,
Keystone provides investment management and administrative services to the
Strategic Income Fund. In return, Keystone is paid a management fee that is
computed daily and paid monthly. The management fee is computed at an annual
rate of 2.00% of Strategic Income 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. First Union serves as the Investment Adviser to the U.S. Government Fund
and is paid a management fee that is computed daily and paid monthly at an
annual rate of 0.50% of the Fund's average daily net assets.

For the U.S. Government Fund, 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 are 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 is also the investment advisor. 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 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.

During the period ended April 30, 1997, the Strategic Income Fund and U.S.
Government Fund paid or accrued to EKIS $23,600 and $90,757, respectively, for
certain accounting services.

Evergreen Keystone Service Company (formerly, Keystone Investor Resource Center,
Inc.), ("EKSC") a wholly-owned subsidiary of Keystone, serves as the transfer
and dividend disbursing agent for the Strategic Income Fund. Effective May 5,
1997, EKSC also began providing transfer and dividend disbursing agent services
for the U.S. Government Fund that were formerly provided by State Street Bank
and Trust Company ("State Street"). For certain accounts, First Union had been
sub-contracted by State Street to maintain shareholder sub-account records, take
fund purchase and redemption orders and answer inquiries. For each account,
First Union is entitled a fee which in aggregate totaled $44,946 for the ten
months ended April 30, 1997.

Officers of the Funds and affiliated Trustees receive no compensation directly
from the Funds.

ORGANIZATIONAL EXPENSES-- U.S. Government's organizational expenses were borne
initially by a prior administrator. As a result of the change in the
administration agreement, First Union purchased the remaining unreimbursed
initial organizational expenses from the prior administrator. U.S. Government
will reimburse First Union during the five-year period following its
commencement of operations. Pursuant to these arrangements, as of and for the
ten months ended April 30, 1997, U.S. Government has paid and has a remaining
liability of $22,819 and $5,566, respectively.

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. The custody fees incurred,
credits received and net custody expenses for the Funds are as follows for the
period ended April 30, 1997:

<TABLE>
<CAPTION>
CUSTODY CREDIT NET
FEES RECEIVED FEE
<S> <C> <C> <C>
Strategic Income Fund.............................. $119,727 $25,507 $94,220
U.S. Government Fund............................... 95,205 108 95,097
</TABLE>

<PAGE>
EVERGREEN KEYSTONE

(Pine cone logo appears here)

COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. ACQUISITIONS

Effective at the close of business on July 7, 1995, U.S. Government Fund
acquired substantially all of the assets of Evergreen U.S. Government Securities
Fund through the issuance of 590,505 of its Class Y shares in exchange for
Evergreen U.S. Government Securities Fund's net assets valued at $5,739,713. The
aggregate net assets immediately after the acquisition was $233,475,732. The
acquired net assets, in this non-taxable transaction, consisted primarily of
portfolio securities with unrealized appreciation of $24,133.

8. DEFERRED TRUSTEES' FEES

Each Trustee of the U.S. Government 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 is based on
the investment performance of certain Evergreen Keystone Funds. Any gains earned
or losses incurred in the deferral accounts are reported in the 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 April 30, 1997, the value of the Trustees' deferral
account was $9,648 for the U.S. Government Fund.

9. FINANCING AGREEMENT

Prior to October 31, 1996, a financing agreement was in place with all of the
Evergreen Funds and State Street. Under this agreement, State Street provided an
unsecured line of credit facility, in the aggregate amount of $100 million ($50
million committed and $50 million uncommitted), to be accessed by the Evergreen
Funds for temporary or emergency purposes only and is subject to each
participating Fund's borrowing restrictions. Effective October 31, 1996, a new
financing agreement was put in place with all of the Evergreen Funds and State
Street, Societe Generale and ABN Amro Bank N.V. (collectively, the "Banks").
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. During the period
ended April 30, 1997, the U.S. Government Fund had no borrowings outstanding.

<PAGE>
EVERGREEN KEYSTONE

(Pine cone logo appears here)

INDEPENDENT AUDITORS' REPORT

The Trustees and Shareholders
Keystone Strategic Income Fund
Evergreen Investment Trust

We have audited the accompanying statements of assets and liabilities, including
the schedules of investments of the Evergreen Keystone Long Term Bond Funds
listed below as of April 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 STRATEGIC INCOME FUND-- statements of operations for the nine
months ended April 30, 1997 and the year ended July 31, 1996, statements of
changes in net assets for the nine months ended April 30, 1997 and for each
of the years in the two-year period ended July 31, 1996, and financial
highlights for the nine months ended April 30, 1997, each of the years in
the nine-year period ended July 31, 1996 and the period from February 13,
1987 (commencement of operations) to July 31, 1987.

EVERGREEN U.S. GOVERNMENT FUND (ONE OF THE PORTFOLIOS CONSTITUTING EVERGREEN
INVESTMENT TRUST)-- statements of operations for the ten months ended April
30, 1997 and the year ended June 30, 1996, statements of changes in net
assets for the ten months ended April 30, 1997, for the year ended June 30,
1996 and for the six months ended June 30, 1995, and the financial
highlights for the ten months ended April 30, 1997, the year ended June 30,
1996, the six months ended June 30, 1995, the year ended December 31, 1994
and the period from January 11, 1993 (commencement of operations) to
December 31, 1993.

These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform 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 April
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 Strategic Income Fund and Evergreen U.S. Government Fund as of April
30, 1997, the results of their operations for the years or periods then ended,
and the changes in their net assets and the financial highlights for each of the
years or periods specified in the first paragraph above in conformity with
generally accepted accounting principles.

Boston, Massachusetts KPMG Peat Marwick LLP
May 30, 1997

<PAGE>

(Pine cone logo appears here)

(This Page Left Blank Intentionally)

<PAGE>

(Pine cone logo appears here)

(This Page Left Blank Intentionally)

<PAGE>

This report was prepared primarily for the information of fund shareholders. It
is authorized for distribution if preceded or accompanied by each fund's current
prospectus. The prospectus contains important information about each fund,
including fees and expenses. Read it carefully before you invest or send money.
For a free prospectus on other Evergreen Keystone Funds, contact your financial
adviser or call Evergreen Keystone.

NOT
FDIC May lose value
INSURED No bank guarantee

Evergreen Keystone Distributor, Inc.

Evergreen Keystone(SM) is a Service Mark of Evergreen Keystone Investment
Services, Inc. Copyright 1997.

541075
59425 6/97

<PAGE>

EVERGREEN KEYSTONE FUNDS
EVERGREEN KEYSTONE INVESTMENT SERVICES, INC.
200 Berkeley Street
Boston, MA 02116-5034

Securities and Exchange Commission
Juciciary Plaza
450 Fifth Street, NW
Washington, D.C.

Attn: File Room

Re: The Keystone Strategic Income Fund
File No. 811-4947
CIK# 0000808330
CCC# azz*ud8s

The Evergreen Investment Trust (Evergreen U.S. Government Fund)
File No. 811-4154
CIK# 0000757440
CCC# 4apyfsr*

Commissioners:

Please be advised that the Annual Report for the above referenced Fund(s)
were submitted to your office on June 30, 1997, via electronic transmission
(EDGAR).

Any questions or comments about this document should be directed to the
undersigned at (617) 210-3570.

Very Truly Yours,

/s/ Doug Miller
Doug Miller
Assistant Vice President