EVERGREEN SM EVERGREEN SM
INTERMEDIATE-TERM INTERMEDIATE-TERM
BOND FUND GOVERNMENT
SECURITIES FUND
(Photo of (Photo of
Money monument
appears here) appears here)
(FORMERLY FFB FUNDS)
SEMI-ANNUAL
REPORT
FEBRUARY 29, 1996
(Tree logo appears here)
Evergreen
Funds
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
(Photo of Economic Overview......................................................... 1
money INTERMEDIATE-TERM A Report From Your Portfolio Manager...................................... 2
appears here) BOND FUND Statement of Investments.................................................. 3
</TABLE>
<TABLE>
<C> <S> <C>
Statement of Assets and Liabilities....................................... 4
Statement of Operations................................................... 5
Statement of Changes in Net Assets........................................ 6
Financial Highlights...................................................... 7
</TABLE>
<TABLE>
<C> <S> <C>
(Photo of INTERMEDIATE-TERM A Report From Your Portfolio Manager...................................... 8
monument GOVERNMENT SECURITIES Statement of Investments.................................................. 9
appears here)
</TABLE>
<TABLE>
<C> <S> <C>
FUND Statement of Assets and Liabilities....................................... 10
Statement of Operations................................................... 11
Statement of Changes in Net Assets........................................ 12
Financial Highlights...................................................... 13
</TABLE>
<TABLE>
<C> <S> <C>
Combined Notes to Financial Statements.................................... 14
</TABLE>
<TABLE>
<C> <S> <C>
Trustees and Officers...................................... Inside Back Cover
</TABLE>
EVERGREEN SM is a Service Mark of Evergreen Asset Management Corp.
Copyright 1995, Evergreen Asset Management Corp.
<PAGE>
ECONOMIC OVERVIEW
BY EVERGREEN ASSET MANAGEMENT CHAIRMAN
STEPHEN A. LIEBER
The volatility of investment markets during the (Photo of
first quarter of 1996 reflected a virtually constant Steven A.
reappraisal of economic prospects. The prospects of Lieber
sporadic commodity inflation, evidence of resurgent appears here)
employment trends, failure of
political negotiations to achieve a balanced budget agreement, declining demand
in personal computer-based technological products, sizable consumer credit
growth and greater credit card losses, the increase in imports without
concomitant increases in exports, and the rise of the dollar, all drove the
markets to mirror the fast changing trends of new statistics. The question of
whether inflation might be reappearing was central to the investor reaction to
these concerns. Fears of inflation increased through the first quarter, as
evidenced by the sizable rise in bond market yields. By early April, long-term
U.S. Treasury bond yields reached 7%, a level last seen in August 1995, and up
more than one full percentage point from the beginning of the year. Clearly,
investors were demanding more of an inflation premium in interest rates.
The background with which this year has begun is inconclusive in its trends.
We have previously held to the view that a wage-driven inflation is unlikely in
the present economic environment due to the easy substitution of imported goods
for many domestic goods, while competitive pressures for U.S. and world markets
mount from the broadening dispersion of technology, capital, and capital goods.
The strength of American industry, it is generally held, must come from its
product innovation, its quality, and the rising productivity of its work force.
These internal and external pressures have had a major impact in restraining
wage-driven inflation. Monetary inflation has shown improving trends as the
budget deficit, as a percentage of gross domestic product, continues to decline.
Attention, however, must still be given to the longer term issues of potentially
destabilized Federal budgeting due to entitlements. While no solution to this
issue of government deficit control emerged from this year's political
negotiations, it is at least better established on the political agenda than
ever before.
Investment markets demand a risk premium when faced with elements of
uncertainty. The risk premium lately built into the fixed income markets not
only reflects the arguable issue of whether there is a risk of wage inflation in
the United States, but also the sharp recent increases in some key commodity
prices. The combination of a dearth of rainfall and reduced acreage in key
agricultural states has spiked up major food commodity prices. Similarly, the
draining of oil inventories because of the heat requirements of the abnormally
long and cold winter in northern states, together with the cautious inventory
policies of the oil industry faced with the possibility that Iraqi supplies
might return to the market, has caused prices of oil and refined products to
rise. Many watchers for inflationary trends have jumped on these commodity
rises, which have lead them to conclude that the inflation rate will rise and,
therefore, that bond yields have to go up. The dissent is widespread, arguing
that these are temporary interruptions, which will in the long run serve more to
shrink profit margins than to raise prices and arguing that these are only
interruptions to a fundamentally steady low inflation trend. They point to the
2.8% increase in the Consumer Price Index for the twelve months ended March 31.
More important in the analysis of the potentials for bond yields, many
economists argue, is the current trend toward the reduction of interest rates in
Europe, led by the recent half percent discount rate cut by the German
Bundesbank. The revival of economic growth in Europe, it is felt, requires lower
interest rates which in turn will facilitate a decline in rates in the United
States, merely from reduced competitive investment pressures. We conclude that
negative trends which have dominated the bond market in the first months of the
year, as marked by the sharp rise in yields, may well reflect shorter-term
factors rather than long-term trends. Federal Reserve Bank Governors in numerous
recent speeches and interviews have made the point that they are confident about
the underlying trend of well-controlled inflation, suggesting that they are not
aiming to increase the discount rates or to put any pressures to slow the
economy. We conclude that the Federal Reserve is not aiming to stimulate the
economy at this time, but will act to sustain a reasonable growth in the better
than 2% range if there is any further evidence of broadly slowing economic
activity. International competitive interest rate pressures are diminishing, the
trade balance is improving, and the economy has remained resilient in the recent
period of inventory correction. These are all factors suggesting a period of
comparative stability for the months ahead.
1
<PAGE>
(Photo of EVERGREEN INTERMEDIATE-TERM BOND FUND
money appears (FORMERLY FFB LEXICON FIXED INCOME FUND)
here)
A REPORT FROM YOUR
PORTFOLIO MANAGER
BRUCE BESECKER
The investment strategy of Evergreen Intermediate-Term Bond (Photo of
Fund since last July has been to stay fully invested with a Bruce Besecker
duration close to or slightly ahead of the Fund's benchmark appears here)
index, the Lehman Brothers Government Corporate Bond Index*. We
maintained this strategy in order to stay with the longer-term
downward trend in interest rates. This strategy was driven by
our investment discipline of responding to confirmation, not
predictions, of trend changes in interest rates. On July 6,
1995, the Federal Reserve lowered the Fed Funds rate, after
several increases, confirming the drop in interest rates that
had occurred during the prior several months. Our investment
discipline proved to be effective over the next six-month
period, through the end of February.
During August and September, interest rates continued to fall in response to
steady economic growth, continued good inflation news, and growing positive
sentiment with regard to progress on the budget deficit. Despite this good news
built into the yield levels during this time, we maintained our positive market
outlook, as it appeared that passage of a credible budget package was within
reach. While the budget package remained critical to the continued good
performance of the bond market, weaker fundamentals surfaced during the final
quarter of 1995 to lend even further support to lower yield levels. Some of the
more important factors indicating slower growth were found in employment
figures, retail sales, and foreign economies, along with cuts in foreign central
bank interest rates. Last, but not least, there was an easier Federal Reserve
policy, as on December 19, the Fed Funds rate was cut by 25 basis points for the
second time in 1995.
Our focus on maintaining portfolio durations slightly longer than the
benchmark index continued through the early part of 1996. In January, the
economic news remained weak which we felt was supportive of the prevailing yield
levels. These views were supported by the recent action of the Federal Reserve,
when on January 31, in addition to cutting the Fed Funds rate by another 25
basis points, the Federal Reserve cut the discount rate for the first time since
they began easing last July. The importance of this move was reflected in the
next of the Fed's announcements where, for the first time since they began
easing, they mentioned the "moderating" pace of economic growth; previous policy
statements had been focused on reductions in inflation and inflationary
expectations. The discount rate cut was also important to our fixed income
discipline as it confirmed the easing move that the Fed began last July, and
under our discipline your portfolio duration can not fall below that of the
benchmark index as long as the Fed continues through this easing cycle.
During February, however, the bond market experienced its first serious
correction since the rally began in late 1994. More positive economic news, a
breakdown in the budget negotiations, and portfolio hedge fund selling, drove
yield levels significantly higher by the end of February. While our duration
could have been significantly longer given our discipline, we chose to stay
close to that of our benchmark index, fearing the potential for a near-term
market sell-off. Our longer-term outlook remains unchanged as we see the market
as holding either steady or declining from these yield levels as we continue
through 1996.
* UNMANAGED INDEX OF SELECTED SECURITIES
2
<PAGE>
EVERGREEN INTERMEDIATE-TERM BOND FUND
(Photo of (FORMERLY FFB LEXICON FIXED INCOME FUND)
money appears STATEMENT OF INVESTMENTS
here) FEBRUARY 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
COLLATERALIZED MORTGAGE SECURITIES -- 8.0%
$ 5,000 Federal Home Loan Mortgage Corp.
1555-PC,
5.50%, 11/15/04....................... $ 4,967,495
1,188 Paine Webber Trust P-3,
9.00%, 10/1/12........................ 1,210,586
TOTAL COLLATERALIZED MORTGAGE
SECURITIES
(COST $6,202,179)..................... 6,178,081
CORPORATE BONDS -- 6.8%
600 Deere & Co.,
8.95%, 6/15/19........................ 698,848
2,500 General Electric Capital Corp.,
Callable 12/15/96 @ $100
7.98%, 12/15/07....................... 2,547,972
800 Harris Bancorp.,
9.375%, 6/1/01........................ 904,742
1,000 KFW International Finance,
8.85%, 6/15/99........................ 1,086,295
TOTAL CORPORATE BONDS
(COST $4,991,635)..................... 5,237,857
U.S. AGENCY OBLIGATIONS -- 13.4%
2,500 Farm Credit Systems Financial
Assistance Co.,
8.80%, 6/10/05........................ 2,902,470
Government National Mortgage
Association,
2,500 6.50%, 1/15/99........................ 2,433,594
2,500 7.00%, 1/15/99........................ 2,492,578
2,500 7.50%, 1/1/99......................... 2,517,578
TOTAL U.S. AGENCY OBLIGATIONS
(COST $10,128,434).................... 10,346,220
U.S. TREASURY OBLIGATIONS -- 55.6%
5,500 U.S. Treasury Bonds,
7.50%, 11/15/16....................... 6,048,273
U.S. Treasury Notes,
8,000 5.75%, 8/15/03........................ 7,875,000
5,000 5.875%, 11/15/05...................... 4,904,680
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
U.S. TREASURY OBLIGATIONS -- CONTINUED
U.S. Treasury Notes -- (continued)
$ 3,500 6.375%, 1/15/99....................... $ 3,575,463
9,000 6.375%, 8/15/02....................... 9,219,375
6,500 6.50%, 5/15/05........................ 6,658,438
4,500 6.75%, 4/30/00........................ 4,665,937
TOTAL U.S. TREASURY OBLIGATIONS
(COST $42,158,696).................... 42,947,166
YANKEE OBLIGATIONS -- 10.6%
3,000 Hydro-Quebec,
8.00%, 2/1/13......................... 3,170,007
800 Petro Canada Ltd.,
8.60%, 1/15/10........................ 914,663
Svenska Handelsbanken,
2,000 8.125%, 8/15/07....................... 2,201,576
1,000 8.35%, 7/15/04........................ 1,095,479
700 Westpac Banking,
9.125%, 8/15/01....................... 782,864
TOTAL YANKEE OBLIGATIONS
(COST $7,520,386)..................... 8,164,589
REPURCHASE AGREEMENT -- 14.4%
11,110 State Street Bank & Trust Co., 5.35%,
dated 2/29/96, due 3/1/96 --
collateralized by $7,675,000 U.S.
Treasury Bonds, 12.00%, due 8/15/13;
value, including accrued interest
$11,374,237
(COST $11,110,000).................... 11,110,000
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS --
(COST $82,111,330)........ 108.8% 83,983,913
OTHER ASSETS AND
LIABILITIES -- NET........ (8.8) (6,768,052)
NET ASSETS --................ 100.0% $77,215,861
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
EVERGREEN INTERMEDIATE-TERM BOND FUND
(Photo of (FORMERLY FFB LEXICON FIXED INCOME FUND)
money appears STATEMENT OF ASSETS AND LIABILITIES
here) FEBRUARY 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities...................................................................................... $72,873,913
Investments in repurchase agreements........................................................................... 11,110,000
Investments at value (identified cost $82,111,330).......................................................... 83,983,913
Cash........................................................................................................... 981
Interest receivable............................................................................................ 738,302
Receivable for Fund shares sold................................................................................ 28,136
Unamortized organizational expenses and other assets........................................................... 3,094
Total assets................................................................................................ 84,754,426
LIABILITIES:
Payable for investments purchased.............................................................................. 7,468,750
Accrued expenses............................................................................................... 34,668
Accrued advisory fee........................................................................................... 31,807
Accrued administration fee..................................................................................... 3,303
Distribution fee payable....................................................................................... 37
Total liabilities........................................................................................... 7,538,565
NET ASSETS........................................................................................................ $77,215,861
NET ASSETS CONSIST OF:
Paid-in capital................................................................................................ $75,384,878
Distributions in excess of net investment income............................................................... (13,390)
Accumulated net realized loss on investment transactions....................................................... (28,210)
Net unrealized appreciation of investments..................................................................... 1,872,583
Net assets.................................................................................................. $77,215,861
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($325,357 (division sign) 31,319 shares of beneficial interest outstanding)........................ $10.39
Sales charge -- 3.25% of offering price........................................................................... .35
Maximum offering price...................................................................................... $10.74
Class B Shares ($55,345 (division sign) 5,327 shares of beneficial interest outstanding).......................... $10.39
Class C Shares ($291 (division sign) 28 shares of beneficial interest outstanding)................................ $10.39
Class Y Shares ($76,834,868 (division sign) 7,397,284 shares of beneficial interest outstanding).................. $10.39
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
EVERGREEN INTERMEDIATE-TERM BOND FUND
(Photo of (FORMERLY FFB LEXICON FIXED INCOME FUND)
money appears STATEMENT OF OPERATIONS
here) SIX MONTHS ENDED FEBRUARY 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest........................................................................................... $3,015,419
EXPENSES:
Advisory fee....................................................................................... $288,660
Administrative personnel and services fees......................................................... 72,152
Distribution fees.................................................................................. 108
Professional fees.................................................................................. 17,211
Registration and filing fees....................................................................... 16,382
Custodian fee...................................................................................... 5,927
Transfer agent fee................................................................................. 3,712
Amortization of organization expenses.............................................................. 1,538
Insurance.......................................................................................... 1,474
Trustees' fees and expenses........................................................................ 1,436
Reports and notices to shareholders................................................................ 1,209
Miscellaneous...................................................................................... 5,771
415,580
Less: Advisory fee waiver.......................................................................... (23,537)
Total expenses.................................................................................. 392,043
Net investment income................................................................................. 2,623,376
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investment transactions....................................................... 713,397
Net change in unrealized appreciation of investments............................................... 833,958
Net gain on investments............................................................................... 1,547,355
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................................. $4,170,731
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
EVERGREEN INTERMEDIATE-TERM BOND FUND
(Photo of (FORMERLY FFB LEXICON FIXED INCOME FUND)
money appears STATEMENT OF CHANGES IN NET ASSETS
here)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 29, 1996 AUGUST 31,
(UNAUDITED) 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................................................. $ 2,623,376 $ 5,110,145
Net realized gain (loss) on investment transactions.................................... 713,397 (741,577)
Net change in unrealized appreciation of investments................................... 833,958 4,454,061
Net increase in net assets resulting from operations................................ 4,170,731 8,822,629
DISTRIBUTIONS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME:
Class A Shares......................................................................... (7,506) (2,134)
Class B Shares......................................................................... (209) --
Class Y Shares......................................................................... (2,628,868) (5,105,153)
Total distributions from net investment income...................................... (2,636,583) (5,107,287)
NET REALIZED GAIN ON INVESTMENTS:
Class Y Shares......................................................................... -- (401,810)
Total distributions to shareholders................................................. (2,636,583) (5,509,097)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold.............................................................. 13,967,775 16,277,483
Proceeds from reinvestment of distributions............................................ 2,184,623 4,957,099
Payment for shares redeemed............................................................ (36,591,530) (20,151,848)
Net increase (decrease) resulting from Fund share transactions...................... (20,439,132) 1,082,733
Net increase (decrease) in net assets............................................... (18,904,984) 4,396,265
NET ASSETS:
Beginning of period.................................................................... 96,120,845 91,724,580
End of period (including distributions in excess of net investment income of $13,390
and $183, respectively).............................................................. $77,215,861 $96,120,845
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
EVERGREEN INTERMEDIATE-TERM BOND FUND
(Photo of (FORMERLY FFB LEXICON FIXED INCOME FUND)
money appears FINANCIAL HIGHLIGHTS
here)
<TABLE>
<CAPTION>
CLASS B SHARES
CLASS A SHARES JANUARY 30, CLASS Y SHARES
SIX MONTHS MAY 2, 1996* SIX MONTHS
ENDED 1995* THROUGH ENDED
FEBRUARY 29, THROUGH FEBRUARY 29, FEBRUARY 29,
1996 AUGUST 31, 1996 1996 YEAR ENDED AUGUST 31,
(UNAUDITED) 1995 (UNAUDITED) (UNAUDITED) 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.... $10.30 $9.98 $10.68 $10.29 $9.93 $10.99 $10.56
Income (loss) from investment
operations:
Net investment income................... .28 .18 .04 .28 .56 .55 .63
Net realized and unrealized gain (loss)
on investments........................ .09 .33 (.29) .09 .40 (.86) .66
Total from investment operations...... .37 .51 (.25) .37 .96 (.31) 1.29
Less distributions to shareholders from:
Net investment income................. (.28) (.19) (.04) (.28) (.56) (.55) (.64)
Net realized gains.................... -- -- -- -- (.04) (.20) (.22)
Total distributions................. (.28) (.19) (.04) (.28) (.60) (.75) (.86)
Net asset value, end of period.......... $10.39 $10.30 $10.39 $10.38 $10.29 $9.93 $10.99
TOTAL RETURN+........................... 3.7% 5.2% (2.3%) 3.7% 10.1% (2.9%) 12.9%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's
omitted).............................. $325 $160 $55 $ 76,835 $95,961 $91,724 $86,892
Ratios to average net assets:
Expenses.............................. .80%++** .80%++** 1.73%++** .80%++** .69%** .55%** .55%**
Net investment income................. 6.85%++** 5.53%++** 4.43%++** 5.36%++** 5.63%** 5.32%** 5.93%**
Portfolio turnover rate................. 25% 73% 25% 25% 73% 69% 49%
<CAPTION>
NOVEMBER 1,
1991*
THROUGH
AUGUST 31,
1992
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period.... $10.00
Income (loss) from investment
operations:
Net investment income................... .55
Net realized and unrealized gain (loss)
on investments........................ .55
Total from investment operations...... 1.10
Less distributions to shareholders from:
Net investment income................. (.54)
Net realized gains.................... --
Total distributions................. (.54)
Net asset value, end of period.......... $10.56
TOTAL RETURN+........................... 11.3%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's
omitted).............................. $66,695
Ratios to average net assets:
Expenses.............................. .55%++**
Net investment income................. 6.49%++**
Portfolio turnover rate................. 65%
</TABLE>
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charge or contingent deferred
sales charge is not reflected.
++ Annualized
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment adviser, the annualized ratios
of expenses and net investment income to average net assets would have been
the following:
<TABLE>
<CAPTION>
CLASS B SHARES
CLASS A SHARES JANUARY 30, CLASS Y SHARES
SIX MONTHS MAY 2, 1996* SIX MONTHS
ENDED 1995* THROUGH ENDED
FEBRUARY 29, THROUGH FEBRUARY 29, FEBRUARY 29,
1996 AUGUST 31, 1996 1996 YEAR ENDED AUGUST 31,
(UNAUDITED) 1995 (UNAUDITED) (UNAUDITED) 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C>
Expenses................................ .93% 1.38% 1.84% .85% .83% .83% .83%
Net investment income................... 6.72% 4.95% 4.31% 5.32% 5.49% 5.04% 5.65%
<CAPTION>
NOVEMBER 1,
1991*
THROUGH
AUGUST 31,
1992
<S> <C>
Expenses................................ .86%
Net investment income................... 6.18%
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
EVERGREEN INTERMEDIATE-TERM GOVERNMENT
(Photo of SECURITIES FUND
monument (FORMERLY FFB LEXICON INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND)
appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGER
L. ROBERT CHESHIRE
We are pleased to present the Semi-Annual Report for (Photo of
Evergreen Intermediate-Term Government Securities Fund for the L. Robert
six months ended February 29, 1996. During the first five months Cheshire
of this period, interest rates continued the decline which began appears
in earlier in the year. The major factors contributing to this here)
positive outlook for interest rates were:
-- an economy that was slowing in both the consumer and
manufacturing sectors. By the end of the fourth quarter,
concerns grew over a possible recession;
-- continued intervention by the Federal Reserve to lower
short-term rates and boost economic activity, which was
both needed as well as justified by a low inflation environment;
-- none of the inflation indicators gave any reason for concern;
-- markets which began to discount the passage by Congress of a credible
deficit reduction package;
-- foreign central banks continuing to buy U.S. Treasuries with the dollars
they acquired from currency support operators.
By 1995 year-end, yields on intermediate Treasuries had declined an
additional 80 basis points and we were trading with yields in the 5% range for
the first time since 1993. This contributed significantly to the strong returns
on fixed income for 1995.
Early February brought signs of economic strength and the realization that
any Fed ease would be delayed. In addition, it became evident that Congress was
not going to tackle the tough issues concerning a deficit reduction until after
the 1996 election. With three of the four main factors driving the markets no
longer having a positive influence, rates rose sharply across the entire yield
curve. It is uncertain if this back-up in rates is justified by the economic
fundamentals, as that data has been distorted by severe weather conditions and
the partial government shut-down. The next few months of data will give a better
indication.
During most of the period, the Fund's discipline by policy was in a neutral
mode that was established when the Fed reversed direction and lowered the Fed
Funds rate by 25 basis points in early July. Within this context and a favorable
longer-term fundamental trend analysis based on a slowing economy and moderate
inflation, a duration range of slightly longer than our benchmark index, the
Lehman Brothers Intermediate Government Index*, was established and maintained.
This strategy proved to be effective over the six-month period ended February
29, 1996.
* AN UNMANAGED INDEX OF SELECTED SECURITIES
8
<PAGE>
EVERGREEN INTERMEDIATE-TERM GOVERNMENT
(Photo of SECURITIES FUND
monument (FORMERLY FFB LEXICON INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND)
appears here) STATEMENT OF INVESTMENTS
FEBRUARY 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 23.2%
$ 2,100 Federal Agriculture Mortgage
Corporation,
6.44%, 5/28/96....................... $ 2,106,254
1,300 Federal Home Loan Bank,
8.60%, 1/25/00....................... 1,417,390
5,000 Federal Home Loan Mortgage
Corporation,
5.60%, 2/15/13....................... 4,958,445
Federal National Mortgage
Association,
5,000 6.85%, 5/26/20....................... 5,083,320
2,000 7.50%, 2/11/02....................... 2,133,474
2,000 7.875%, 2/24/05...................... 2,193,356
2,000 Student Loan Marketing Association,
7.67%, 3/8/00........................ 2,041,726
2,000 Tennessee Valley Authority, 6.375%,
6/15/05.............................. 1,993,532
1,000 United States Department of Veteran
Affairs,
7.00%, 5/15/12....................... 1,000,000
900 World Bank Global Bonds,
8.375%, 10/1/99...................... 976,113
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS
(COST $23,389,092)................... 23,903,610
U.S. TREASURY NOTES -- 74.1%
7,000 5.50%, 2/28/99....................... 6,991,250
5,500 6.00%, 8/31/97....................... 5,551,563
7,000 6.125%, 12/31/96..................... 7,056,875
6,000 6.25%, 1/31/97....................... 6,056,250
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
U.S TREASURY NOTES -- CONTINUED
$ 4,000 6.375%, 7/15/99...................... $ 4,091,244
2,000 6.375%, 8/15/02...................... 2,048,750
2,000 6.50%, 11/30/96...................... 2,018,750
2,000 6.50%, 5/15/97....................... 2,028,122
4,000 6.50%, 5/15/05....................... 4,097,500
4,000 7.25%, 5/15/04....................... 4,293,744
10,000 7.50%, 10/31/99...................... 10,603,110
4,000 7.50%, 5/15/02....................... 4,331,244
4,250 7.50%, 2/15/05....................... 4,641,791
1,700 7.875%, 4/15/98...................... 1,781,280
3,500 7.875%, 11/15/04..................... 3,905,776
5,200 8.00%, 1/15/97....................... 5,320,250
1,300 8.50%, 11/15/00...................... 1,445,437
TOTAL U.S. TREASURY NOTES
(COST $74,616,042)................... 76,262,936
REPURCHASE AGREEMENT -- 1.6%
1,135 State Street Bank & Trust Co., 5.35%,
dated 2/29/96, due
3/1/96 -- collaterialized by
$1,135,000 U.S. Treasury Bonds,
12.00%, due 8/15/13; value, including
accrued interest -- $1,682,485
(COST $1,639,000).................... 1,639,000
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS
(COST $99,644,134)....... 98.9% 101,805,546
OTHER ASSETS AND
LIABILITIES -- NET....... 1.1 1,173,270
NET ASSETS --............... 100.0% $102,978,816
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
EVERGREEN INTERMEDIATE-TERM GOVERNMENT
(Photo of SECURITIES FUND
monument (FORMERLY FFB LEXICON INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND)
appears here) STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $99,644,134)............................................................ $101,805,546
Cash.......................................................................................................... 1,516
Interest receivable........................................................................................... 1,253,135
Receivable for Fund shares sold............................................................................... 7,449
Unamortized organizational expenses and other assets.......................................................... 3,137
Total assets............................................................................................ 103,070,783
LIABILITIES:
Accrued expenses.............................................................................................. 45,050
Accrued advisory fee.......................................................................................... 40,558
Accrued administration fee.................................................................................... 4,470
Payable for Fund shares repurchased........................................................................... 1,850
Distribution fee payable...................................................................................... 39
Total liabilities....................................................................................... 91,967
NET ASSETS....................................................................................................... $102,978,816
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................... $102,959,114
Distributions in excess of net investment income.............................................................. (15,327)
Accumulated net realized loss on investment transactions...................................................... (2,126,383)
Net unrealized appreciation of investments.................................................................... 2,161,412
Net assets.............................................................................................. $102,978,816
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($548,102 (division sign) 53,803 shares of beneficial interest outstanding).................... $10.19
Sales charge -- 3.25% of offering price....................................................................... .34
Maximum offering price..................................................................................... $10.53
Class B Shares ($16,983 (division sign) 1,667 shares of beneficial interest outstanding)...................... $10.19
Class C Shares ($294 (division sign) 28.86 shares of beneficial interest outstanding)......................... $10.19
Class Y Shares ($102,413,437 (division sign) 10,053,157 shares of beneficial interest outstanding)............ $10.19
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
EVERGREEN INTERMEDIATE-TERM GOVERNMENT
SECURITIES FUND
(Photo of (FORMERLY FFB LEXICON INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND)
monument STATEMENT OF OPERATIONS
appears here) SIX MONTHS ENDED FEBRUARY 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest....................................................................................... $ 3,264,067
EXPENSES:
Advisory fee................................................................................... $ 312,961
Administrative personnel and services fees..................................................... 75,365
Distribution fees.............................................................................. 157
Registration and filing fees................................................................... 17,953
Professional fees.............................................................................. 16,409
Custodian fee.................................................................................. 7,463
Transfer agent fee............................................................................. 4,614
Reports and notices to shareholders............................................................ 2,941
Insurance...................................................................................... 1,707
Amortization of organization expenses.......................................................... 1,607
Trustees' fees and expenses.................................................................... 1,497
Miscellaneous.................................................................................. 594
443,268
Less: Advisory fee waiver...................................................................... (25,906)
Total expenses.............................................................................. 417,362
Net investment income............................................................................. 2,846,705
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investment transactions................................................... 66,446
Net change in unrealized appreciation of investments........................................... 403,193
Net gain on investments........................................................................... 469,639
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............................................. $ 3,316,344
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
EVERGREEN INTERMEDIATE-TERM GOVERNMENT
(Photo of SECURITIES FUND
monument (FORMERLY FFB LEXICON INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND)
appears here) STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 29, 1996 AUGUST 31,
(UNAUDITED) 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................................................. $ 2,846,705 $ 5,851,118
Net realized gain (loss) on investments................................................ 66,446 (1,236,390)
Net change in unrealized appreciation of investments................................... 403,193 3,611,699
Net increase in net assets resulting from operations................................ 3,316,344 8,226,427
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A Shares......................................................................... (14,343) (10,951)
Class B Shares......................................................................... (63) --
Class Y Shares......................................................................... (2,847,592) (5,850,108)
Total distributions to shareholders................................................. (2,861,998) (5,861,059)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold.............................................................. 8,756,418 19,842,837
Proceeds from reinvestment of distributions............................................ 2,558,339 5,214,391
Payment for shares redeemed............................................................ (14,864,538) (27,796,468)
Net decrease resulting from Fund share transactions................................. (3,549,781) (2,739,240)
Net decrease in net assets.......................................................... (3,095,435) (373,872)
NET ASSETS:
Beginning of period.................................................................... 106,074,251 106,448,123
End of period (including distributions in excess of net investment income of $15,327
and $34, respectively)............................................................... $ 102,978,816 $ 106,074,251
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
EVERGREEN INTERMEDIATE-TERM GOVERNMENT
(Photo of SECURITIES FUND
monument (FORMERLY FFB LEXICON INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND)
appears here) FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS B SHARES
CLASS A SHARES FEBRUARY 9, CLASS Y SHARES
SIX MONTHS MAY 2, 1996* SIX MONTHS
ENDED 1995* THROUGH ENDED
FEBRUARY 29, THROUGH FEBRUARY 29, FEBRUARY 29,
1996 AUGUST 31, 1996 1996 YEAR ENDED AUGUST 31,
(UNAUDITED) 1995 (UNAUDITED) (UNAUDITED) 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period............................. $10.15 $9.95 $10.38 $10.15 $9.92 $10.61 $10.41
Income (loss) from investment
operations:
Net investment income.............. .28 .19 .04 .28 .55 .54 .57
Net realized and unrealized gain
(loss) on investments............ .04 .20 (.19) .04 .23 (.64) .24
Total from investment operations... .32 .39 .15 .32 .78 (.10) .81
Less distributions to shareholders
from:
Net investment income.............. (.28) (.19) (.04) (.28) (.55) (.54) (.58)
Net realized gains................. -- -- -- -- -- (.05) (.03)
Total distributions.............. (.28) (.19) (.04) (.28) (.55) (.59) (.61)
Net asset value, end of period....... $10.19 $10.15 $10.19 $10.19 $10.15 $9.92 $10.61
TOTAL RETURN+........................ 3.2% 3.9% (1.5%) 3.2% 8.2% (1.0%) 8.0%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's
omitted)........................... $548 $9 $17 $102,413 $106,066 $106,448 $119,172
Ratios to average net assets:
Expenses........................... .80%++** .80%++** 1.51%++** .80%++** .70%** .55%** .55%**
Net investment income.............. 5.51%++** 5.42%++** 3.89%++** 5.47%++** 5.54%** 5.22%** 5.48%**
Portfolio turnover rate.............. 19% 45% 19% 19% 45% 45% 31%
<CAPTION>
NOVEMBER 1,
1991*
THROUGH
AUGUST 31,
1992
<S> <C><C>
PER SHARE DATA:
Net asset value, beginning of
period............................. $10.00
Income (loss) from investment
operations:
Net investment income.............. .48
Net realized and unrealized gain
(loss) on investments............ .40
Total from investment operations... .88
Less distributions to shareholders
from:
Net investment income.............. (.47)
Net realized gains................. --
Total distributions.............. (.47)
Net asset value, end of period....... $10.41
TOTAL RETURN+........................ 9.1%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's
omitted)........................... $87,648
Ratios to average net assets:
Expenses........................... .55%++**
Net investment income.............. 5.68%++**
Portfolio turnover rate.............. 47%
</TABLE>
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charge or contingent deferred
sales charge is not reflected.
++ Annualized.
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment adviser, the annualized ratios
of expenses and net investment income to average net assets would have been
the following:
<TABLE>
<CAPTION>
CLASS B SHARES
CLASS A SHARES FEBRUARY 9, CLASS Y SHARES
SIX MONTHS MAY 2, 1996* SIX MONTHS
ENDED 1995* THROUGH ENDED
FEBRUARY 29, THROUGH FEBRUARY 29, FEBRUARY 29,
1996 AUGUST 31, 1996 1996 YEAR ENDED AUGUST 31,
(UNAUDITED) 1995 (UNAUDITED) (UNAUDITED) 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C>
Expenses............................. .96% 1.34% 1.60% .85% .84% .82% .83%
Net investment income................ 5.35% 4.88% 3.80% 5.42% 5.40% 4.95% 5.20%
<CAPTION>
NOVEMBER 1,
1991*
THROUGH
AUGUST 31,
1992
<S> <C><C>
Expenses............................. .86%
Net investment income................ 5.37%
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS
The Evergreen Income Funds (the "Funds") included herein are each a series
of Evergreen Lexicon Fund (formerly FFB Lexicon Funds), an open-end management
investment company registered under the Investment Company Act of 1940, as
amended (the "Act"). The Evergreen Income Funds included herein are the
Evergreen Intermediate-Term Bond Fund ("Intermediate-Term Bond") and the
Evergreen Intermediate-Term Government Securities Fund ("Intermediate-Term
Government"). The investment objective of Intermediate-Term Bond is to maximize
current yield consistent with the preservation of capital. The investment
objective of Intermediate-Term Government is to preserve principal value and
maintain a high degree of liquidity while providing current income.
Effective January 1, 1996, First Union Corporation, the corporate parent of
First Union National Bank of North Carolina ("First Union"), each Fund's current
investment adviser, consummated a merger (the "Bank Merger") with First Fidelity
Bancorporation, the corporate parent of First Fidelity Bank, N.A. ("FFB"), each
Fund's prior investment adviser. Effective January 19, 1996, each of the FFB
Lexicon Funds including FFB Lexicon Fixed Income Fund and FFB Lexicon
Intermediate-Term Government Securities Fund (the "Lexicon Funds") , became part
of the Evergreen Funds (the "Fund Combinations"). The FFB Lexicon Fixed Income
Fund was renamed Evergreen Intermediate-Term Bond Fund. The FFB Lexicon
Intermediate-Term Government Securities Fund was renamed Evergreen
Intermediate-Term Government Securities Fund. Shares of each of the Lexicon
Fund's class previously known as the Institutional Class were redesignated as
each respective Fund's Class Y Shares. Shares of each of the Lexicon Fund's
class previously known as the Investor Class were redesignated as each
respective Fund's Class A Shares. See Note 5 for a description of each of the
classes.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements. These policies are
in conformity with generally accepted accounting principles.
SECURITY VALUATION -- U.S. Government obligations are valued at the mean
between the over-the-counter bid and asked price as furnished by an independent
pricing source. Corporate bonds (and other fixed income and asset backed
securities) are valued at the last sale price reported on national securities
exchanges on that day, if available. Otherwise, corporate bonds and asset backed
securities are valued at the mean between the over-the-counter bid and asked
price provided by an independent pricing service. Short-term securities when
purchased with remaining maturities of sixty days or less are stated at
amortized cost which approximates market value.
SECURITY TRANSACTIONS -- Security transactions are accounted for on the
date purchased or sold. Net realized gains or losses are determined on the
identified cost basis.
INVESTMENT INCOME AND EXPENSES -- Interest income and expenses are accrued
daily. Premiums and discounts paid on securities are amortized into interest
income.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase
agreements are held by the Federal Reserve Bank and are designated as being held
on each Fund's behalf by its custodian under a book-entry system. Each Fund
monitors the adequacy of the collateral on a daily basis and can require the
seller to provide additional collateral in the event the market value of the
securities pledged falls below the carrying value of the repurchase agreement,
including accrued interest. Each Fund will only enter into repurchase agreements
with banks and other financial institutions which are deemed by the investment
adviser to be creditworthy pursuant to guidelines established by the Trustees.
DIVIDENDS TO SHAREHOLDERS -- Dividends from net investment income are
declared and paid monthly. Dividends from net capital gains on investments, if
any, will be distributed at least annually. Income distributions and capital
gain distributions are determined in accordance with income tax regulations
which may differ from the amounts available under generally
14
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- continued
accepted accounting principles. To the extent these differences are permanent in
nature, such amounts are reclassified within the components of net assets.
INCOME TAXES -- It is each Fund's policy to meet the requirements of the
Internal Revenue Code (the "Code") applicable to regulated investment companies
and to distribute substantially all of its taxable net income to its
shareholders. Accordingly, no provisions for Federal income or excise taxes are
necessary. To the extent that realized capital gains can be offset by capital
loss carryforwards it is each Fund's policy not to distribute such gains.
At August 31, 1995, each Fund's most recent fiscal year end,
Intermediate-Term Bond and Intermediate-Term Government had capital loss
carryforwards of $117,850 and $955,860, respectively. Pursuant to the Code, each
of the capital loss carryforwards will expire in the fiscal year ended 2003.
Capital losses incurred after October 31, within a Fund's fiscal year are
deemed to arise on the first business day of the Fund's following fiscal year.
Intermediate-Term Bond and Intermediate-Term Government had incurred and elected
to defer $623,727 and $1,236,390, respectively, in losses to the current fiscal
year.
WHEN ISSUED AND DELAYED DELIVERY SECURITIES -- The Funds record when-issued
or delayed delivery transactions on the trade date and maintain security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED ORGANIZATIONAL EXPENSES -- The costs incurred with respect to each
Funds' organization have been deferred and are being amortized using the
straight-line method not to exceed a period of 60 months from the Fund's
commencement of operations.
USE OF ESTIMATES -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AGREEMENTS -- Prior to the Bank Merger described in
Note 1, FFB served as each Fund's investment adviser and was entitled to an
investment advisory fee of .60 of 1% of average daily net assets. FFB also acted
as the Funds' custodian. Fees payable to FFB for custody services were included
as part of the investment advisory fees.
Effective January 1, 1996, the date of the Bank Merger, First Union became
investment adviser. First Union is entitled to a fee of .60 of 1% for investment
advisory services. For Intermediate-Term Bond and Intermediate-Term Government,
First Union and its predecessor FFB, voluntarily waived $23,461 and $25,757,
respectively, of its advisory fee for the six months ended February 29, 1996.
First Union can modify or terminate these voluntary waivers at any time.
Effective January 19, 1996, the date of the Fund Combinations, custody
services were moved to State Street Bank and Trust Company. Accordingly, after
the date of the Fund Combinations, custody services were billed separately and
ceased to be incorporated with the investment advisory agreement.
ADMINISTRATION AGREEMENTS -- Through the date of the Fund Combinations, SEI
Financial Management Corporation ("SEI") served as the Funds' administrator.
Pursuant to its administration agreement, SEI was entitled to a an annual fee of
.17 of 1% of average daily net assets. SEI also served as transfer agent for the
Institutional Class of shares of the Funds. SEI's administration fee included
the amounts due for transfer agent services.
15
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES -- continued
After the date of the Fund Combinations, Evergreen Asset Management Corp.
("Evergreen Asset"), a wholly owned subsidiary of First Union, became the Funds'
administrator and Furman Selz LLC ("Furman Selz") became sub-administrator. As
sub-administrator, Furman Selz provides the officers for the Funds. Evergreen
Asset's and Furman Selz' fees are based on the average daily net assets of all
of the funds administered by Evergreen Asset for which either First Union or
Evergreen Asset is also the investment adviser. This fee is calculated at the
following annual rates:
<TABLE>
<CAPTION>
ADMINISTRATION FEE AVERAGE DAILY NET ASSETS
<C> <S>
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
in excess of $30
0.010% billion
</TABLE>
<TABLE>
<CAPTION>
SUB-ADMINISTRATION FEE AVERAGE DAILY NET ASSETS
<C> <S>
0.0100% on the first $7 billion
0.0075% on the next $3 billion
0.0050% on the next $15 billion
0.0040% in excess of $25 billion
</TABLE>
At February 29, 1996, assets for which Evergreen Asset was the
administrator for which either Evergreen Asset or First Union was the investment
adviser totaled approximately $14.4 billion.
PLANS OF DISTRIBUTION AND SHAREHOLDER SERVICING -- Prior to the date of the
Fund Combinations, SEI Financial Services Company served as the distributor for
the Funds. The Funds had adopted a Distribution Plan pursuant to Rule 12b-1
under the Act for their Investor shares pursuant to which the Investor shares
bear distribution expenses and related service fees at the annual rate of .50 of
1% of each Fund's Investor class assets. All fees were waived under this plan.
Subsequent to the Fund Combinations, for their Class B and Class C shares,
the Funds have adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. The Plan provides that the Funds may incur distribution expenses
up to an annual fee of .75 of 1% of the average daily net assets of the Class B
and Class C shares. In addition, for the six-month period ended February 29,
1995, all payments for Class A shares under the Plan were waived. It is expected
that in the future, the Class A shares Rule 12b-1 fees will be limited to .25 of
1% of each Fund's Class A shares average daily net assets.
In connection with their plans, the Funds have entered into distribution
agreements with Evergreen Funds Distributor, Inc. ("EFD"), a subsidiary of
Furman Selz. Under its agreement, the Funds will compensate EFD for its services
at an annual fee of .25 of 1% of Class A share's average daily net assets and
.75 of 1% of its Class B shares and Class C shares average daily net assets. The
fees for Class A were waived for the six-month period ended February 29, 1996.
Under the terms of a Shareholder Services Agreement with First Union Brokerage
Services ("FUBS"), each of the Funds will pay FUBS up to .25 of 1% of average
daily net assets of the Funds' Class B and Class C shares. This fee is designed
to obtain certain services for shareholders and to maintain the shareholder
accounts.
EFD has advised the Funds that it has retained $47 from Intermediate-Term
Government from front-end sales charges resulting from sales of Class A shares
during the six months ended February 29, 1996.
16
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 4 -- INVESTMENT TRANSACTIONS
The cost of purchases and proceeds from sales of investments, excluding
short-term securities, for the six months ended February 29, 1996 were as
follows:
<TABLE>
<CAPTION>
PURCHASES SALES
U.S. GOVERNMENT OTHER U.S. GOVERNMENT OTHER
<S> <C> <C> <C> <C>
Intermediate-Term Bond $ 3,977,539 $19,271,270 $33,486,096 $12,315,234
Intermediate-Term Government 19,360,936 -- 22,448,164 --
</TABLE>
On February 29, 1996, the composition of unrealized appreciation and
depreciation of investment securities based on the aggregate cost of investments
for federal tax purposes was as follows (book cost was equal to tax cost):
<TABLE>
<CAPTION>
APPRECIATION DEPRECIATION NET
<S> <C> <C> <C>
Intermediate-Term Bond $ 2,128,220 $255,637 $1,872,583
Intermediate-Term Government 2,338,935 177,523 2,161,412
</TABLE>
NOTE 5 -- SHARES OF BENEFICIAL INTEREST
The Funds have an unlimited number of no par value shares of beneficial
interest authorized, which are divided into four classes, designated Class A,
Class B, Class C and Class Y shares. Class A shares are offered with a front-end
sales charge of 3.25%. Class B shares are offered with a contingent deferred
sales charge payable when shares are redeemed which would decline from 5% to
zero over a seven-year period (after which it is expected that they will convert
to Class A shares). Class C shares are sold with a contingent deferred sales
charge of 1% for shares redeemed within one year after the date of purchase.
Class Y shares are sold without a sales charge and are available only to
investment advisory clients of the Adviser and its affiliates, certain
institutional investors or Class Y shareholders of record of other funds managed
by the Adviser and its affiliates as of December 30, 1994. All classes have
identical voting, dividend, liquidation and other rights, except that certain
classes bear different distribution expenses (see Note 3) and have exclusive
voting rights with respect to their distribution plan.
17
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 29, 1996 YEAR ENDED
(UNAUDITED) AUGUST 31, 1995
INTERMEDIATE-TERM BOND SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold...................................................... 18,141 $ 191,719 24,799 $ 255,892
Shares issued on reinvestment of distributions................... 596 6,257 209 2,134
Shares redeemed.................................................. (2,984 ) (31,593) (9,442) (96,968)
Net increase..................................................... 15,753 166,383 15,566 161,058
CLASS B*
Shares sold...................................................... 5,307 56,682 -- --
Shares issued on reinvestment of distributions................... 20 208 -- --
Net increase..................................................... 5,327 56,890 -- --
CLASS C*
Shares sold...................................................... 28 300 -- --
Net increase..................................................... 28 300 -- --
CLASS Y
Shares sold...................................................... 1,301,166 13,719,074 1,606,066 16,021,590
Shares issued on reinvestment of distributions................... 207,714 2,178,158 498,736 4,954,965
Shares redeemed.................................................. (3,432,940 ) (36,559,937) (2,018,177) (20,054,880)
Net increase (decrease).......................................... (1,924,060 ) (20,662,705) 86,625 921,675
Total net increase (decrease) resulting from Fund
share transactions............................................. (1,902,952 ) $(20,439,132) 102,191 $ 1,082,733
</TABLE>
* For Class B Shares, the Fund share transaction activity reflects the period
January 30, 1996 (commencement of class operations) to February 29, 1996. For
Class C Shares, the Fund share transaction activity reflects the initial
purchase of 28 shares on January 22, 1996. Through February 29, 1996 there
were no further transactions.
18
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 29, 1996 YEAR ENDED
(UNAUDITED) AUGUST 31, 1995
INTERMEDIATE-TERM GOVERNMENT SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold...................................................... 60,588 $ 621,117 879 $ 8,925
Shares issued on reinvestment of distributions................... 783 8,046 -- --
Shares redeemed.................................................. (8,447) (86,292) -- --
Net increase..................................................... 52,924 542,871 879 8,925
CLASS B*
Shares sold...................................................... 1,667 17,300 -- --
Net increase..................................................... 1,667 17,300 -- --
CLASS C*
Shares sold...................................................... 29 300 -- --
Net increase..................................................... 29 300 -- --
CLASS Y
Shares sold...................................................... 789,255 8,117,701 1,999,051 19,833,912
Shares issued on reinvestment of distributions................... 249,010 2,550,293 526,254 5,214,391
Shares redeemed.................................................. (1,439,506) (14,778,246) (2,799,781) (27,796,468)
Net decrease..................................................... (401,241) (4,110,252) (274,476) (2,748,165)
Total net decrease resulting from Fund
share transactions............................................. (346,621) $ (3,549,781) (273,597) $ (2,739,240)
</TABLE>
* For Class B Shares, the Fund share transaction activity reflects the period
February 9, 1996 (commencement of class operations) to February 29, 1996. For
Class C Shares, the Fund share transaction activity reflects the purchase of
29 shares on January 22, 1996. Through February 29, 1996 there were no further
transactions.
NOTE 6 -- SUBSEQUENT EVENTS
Effective at the close of business on February 29, 1996, Intermediate-Term
Bond acquired substantially all of the net assets of Evergreen Managed Bond Fund
through the issuance of 7,674,420 of its Class Y shares in exchange for Managed
Bond's net assets valued at $79,773,557. The aggregate net assets immediately
after the acquisition was $158,097,520. The acquired net assets, in this
non-taxable transaction, consisted primarily of portfolio securities with
unrealized appreciation of $1,789,418.
19
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20
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TRUSTEES AND OFFICERS
TRUSTEES:
Laurence B. Ashkin
Foster Bam
James S. Howell, Chairman
Robert J. Jeffries
Gerald M. McDonnell
Thomas L. McVerry
William W. Pettit
Russell A. Salton, III M.D.
Michael S. Scofield
OFFICERS:
John J. Pileggi
President and Treasurer
Joan V. Fiore
Secretary
Sheryl Hirschfeld
Assistant Secretary
Donald E. Brostrom
Assistant Treasurer
Stephen W. St. Clair
Assistant Treasurer
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NOT May lose value
FDIC No bank guarantee
INSURED
Evergreen Funds Distributor, Inc. 538360
43057 4/96
