<PAGE>
June 30, 1998
Annual Report
Evergreen
Short and
Intermediate Term
Bond Funds
[ART DEPICTING STATUE OF LIBERTY APPEARS HERE]
[LOGO OF EVERGREEN FUNDS APPEARS HERE]
<PAGE>
EVERGREEN
Capital Preservation and Income Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
December 30, 1994
(Commencement of
Nine Months Class Operations)
Year Ended Ended Year Ended through
June 30, 1998 June 30, 1997 (d) September 30, 1996 September 30, 1995
- --------------------------------------------------------------------------------------------------
CLASS A SHARES
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $ 9.80 $ 9.74 $ 9.68 $ 9.51
------- ------- ------- -------
..................................................................................................
INCOME FROM INVESTMENT
OPERATIONS
..................................................................................................
Net investment income 0.57 0.46 0.61(c) 0.46
..................................................................................................
Net realized and
unrealized gain (loss)
on investments (0.07) 0.03 0.01 0.14
------- ------- ------- -------
..................................................................................................
Total from investment
operations 0.50 0.49 0.62 0.60
------- ------- ------- -------
..................................................................................................
LESS DISTRIBUTIONS FROM
..................................................................................................
Net investment income (0.56) (0.42) (0.53) (0.42)
..................................................................................................
In excess of net
investment income (0.01) (0.01) 0 (0.01)
..................................................................................................
Tax basis return of
capital 0 0 (0.03) 0
------- ------- ------- -------
..................................................................................................
Total distributions (0.57) (0.43) (0.56) (0.43)
------- ------- ------- -------
..................................................................................................
NET ASSET VALUE END OF
PERIOD $ 9.73 $ 9.80 $ 9.74 $ 9.68
------- ------- ------- -------
..................................................................................................
TOTAL RETURN (a) 5.24% 5.12% 6.56% 6.36%
..................................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.87% 0.92%(b) 0.91% 0.86%(b)
..................................................................................................
Expenses excluding
indirectly paid
expenses 0.87% 0.90%(b) 0.90% 0.82%(b)
..................................................................................................
Expenses excluding
waivers and
reimbursements 1.29% 1.47%(b) 1.33% 1.27%(b)
..................................................................................................
Net investment income 5.77% 6.24%(b) 6.31% 6.37%(b)
..................................................................................................
PORTFOLIO TURNOVER RATE 88% 52% 74% 67%
..................................................................................................
NET ASSETS END OF PERIOD
(THOUSANDS) $18,022 $15,751 $22,684 $19,293
..................................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
(c) Calculation based on average shares outstanding.
(d) The Fund changed its fiscal year end from September 30 to June 30.
See Combined Notes to Financial Statements.
16
<PAGE>
EVERGREEN
Capital Preservation and Income Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
July 1, 1991
(Commencement of
Nine Months Year Ended September 30, Class Operations)
Year Ended Ended ----------------------------------------------- through
June 30, 1998 June 30, 1997 (d) 1996 1995 1994 1993 1992 September 30, 1991
- -------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $ 9.81 $ 9.75 $ 9.68 $ 9.62 $ 9.91 $ 9.88 $ 10.06 $ 10.00
------- ------- ------- ------- ------- -------- -------- -------
...............................................................................................................................
INCOME FROM INVESTMENT
OPERATIONS
...............................................................................................................................
Net investment income 0.49 0.39 0.55 (c) 0.52 0.47 0.45 0.58 0.18
...............................................................................................................................
Net realized and
unrealized gain (loss)
on investments (0.07) 0.04 0.01 0.03 (0.41) (0.05) (0.21) 0.06
------- ------- ------- ------- ------- -------- -------- -------
...............................................................................................................................
Total from investment
operations 0.42 0.43 0.56 0.55 0.06 0.40 0.37 0.24
------- ------- ------- ------- ------- -------- -------- -------
...............................................................................................................................
LESS DISTRIBUTIONS FROM
...............................................................................................................................
Net investment income (0.48) (0.36) (0.46) (0.48) (0.34) (0.37) (0.55) (0.18)
...............................................................................................................................
In excess of net
investment income (0.01) (0.01) 0 (0.01) (0.01) 0 0 0
...............................................................................................................................
Tax basis return of
capital 0 0 (0.03) 0 0 0 0 0
------- ------- ------- ------- ------- -------- -------- -------
...............................................................................................................................
Total distributions (0.49) (0.37) (0.49) (0.49) (0.35) (0.37) (0.55) (0.18)
------- ------- ------- ------- ------- -------- -------- -------
...............................................................................................................................
NET ASSET VALUE END OF
PERIOD $ 9.74 $ 9.81 $ 9.75 $ 9.68 $ 9.62 $ 9.91 $ 9.88 $ 10.06
------- ------- ------- ------- ------- -------- -------- -------
...............................................................................................................................
TOTAL RETURN (a) 4.42% 4.53% 5.90% 5.81% 0.58% 4.16% 3.71% 2.43%
...............................................................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.65% 1.67% (b) 1.63% 1.53% 1.50% 1.50% 1.36% 1.19% (b)
...............................................................................................................................
Expenses excluding
indirectly paid
expenses 1.65% 1.65% (b) 1.62% 1.50% -- -- -- --
...............................................................................................................................
Expenses excluding
waivers and
reimbursements 2.10% 2.23% (b) 2.09% 2.09% 1.93% 1.94% 2.03% 3.19% (b)
...............................................................................................................................
Net investment income 5.07% 5.52% (b) 5.63% 5.46% 4.05% 4.44% 5.50% 6.42% (b)
...............................................................................................................................
PORTFOLIO TURNOVER RATE 88% 52% 74% 67% 34% 60% 41% 2%
...............................................................................................................................
NET ASSETS END OF PERIOD
(THOUSANDS) $26,056 $32,694 $44,096 $62,998 $95,761 $144,725 $186,742 $25,769
...............................................................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
(c) Calculation based on average shares outstanding.
(d) The Fund changed its fiscal year end from September 30 to June 30.
See Combined Notes to Financial Statements.
17
<PAGE>
EVERGREEN
Capital Preservation and Income Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
February 1, 1993
Year Ended September (Commencement of
Nine Months 30, Class Operations)
Year Ended Ended ------------------------ through
June 30, 1998 June 30, 1997(d) 1996 1995 1994 September 30, 1993
- -------------------------------------------------------------------------------------------------------
CLASS C SHARES
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $ 9.80 $ 9.74 $ 9.67 $ 9.60 $ 9.90 $ 9.82
------ ------ ------ ------ ------ ------
.......................................................................................................
INCOME FROM INVESTMENT
OPERATIONS
.......................................................................................................
Net investment income 0.49 0.40 0.54(c) 0.52 0.40 0.23
.......................................................................................................
Net realized and
unrealized gain (loss)
on investments (0.06) 0.03 0.02 0.04 (0.35) 0.09
------ ------ ------ ------ ------ ------
.......................................................................................................
Total from investment
operations 0.43 0.43 0.56 0.56 0.05 0.32
------ ------ ------ ------ ------ ------
.......................................................................................................
LESS DISTRIBUTIONS FROM
.......................................................................................................
Net investment income (0.48) (0.36) (0.46) (0.48) (0.34) (0.24)
.......................................................................................................
In excess of net
investment income (0.01) (0.01) 0 (0.01) (0.01) 0
.......................................................................................................
Tax basis return of
capital 0 0 (0.03) 0 0 0
------ ------ ------ ------ ------ ------
.......................................................................................................
Total distributions (0.49) (0.37) (0.49) (0.49) (0.35) (0.24)
------ ------ ------ ------ ------ ------
.......................................................................................................
NET ASSET VALUE END OF
PERIOD $ 9.74 $ 9.80 $ 9.74 $ 9.67 $ 9.60 $ 9.90
------ ------ ------ ------ ------ ------
.......................................................................................................
TOTAL RETURN (a) 4.53% 4.53% 5.91% 5.93% 0.48% 3.28%
.......................................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.65% 1.67%(b) 1.64% 1.53% 1.50% 1.50%(b)
.......................................................................................................
Expenses excluding
indirectly paid
expenses 1.65% 1.65%(b) 1.62% 1.50% -- --
.......................................................................................................
Expenses excluding
waivers and
reimbursements 2.09% 2.23%(b) 2.09% 2.08% 1.94% 1.67%(b)
.......................................................................................................
Net investment income 5.05% 5.53%(b) 5.60% 5.51% 4.08% 2.91%(b)
.......................................................................................................
PORTFOLIO TURNOVER RATE 88% 52% 74% 67% 34% 60%
.......................................................................................................
NET ASSETS END OF PERIOD
(THOUSANDS) $3,972 $4,105 $4,152 $2,755 $2,874 $2,077
.......................................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
(c) Calculation based on average shares outstanding.
(d) The Fund changed its fiscal year end from September 30 to June 30.
See Combined Notes to Financial Statements.
18
<PAGE>
EVERGREEN
Intermediate Term Bond Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Eleven Months Year Ended July 31,
Year Ended Ended -------------------------
June 30, 1998 June 30, 1997 (d) 1996 1995 1994
- -----------------------------------------------------------------------------------------
CLASS A SHARES
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $ 8.93 $ 8.73 $ 8.88 $ 8.84 $ 9.46
-------- ------- ------- ------- -------
.........................................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................................
Net investment income 0.57(c) 0.54 0.59 0.63 0.57(c)
.........................................................................................
Net realized and
unrealized gain (loss)
on investments, closed
futures contracts and
foreign currency
related transactions 0.20 0.18 (0.16) 0.02 (0.59)
-------- ------- ------- ------- -------
.........................................................................................
Total from investment
operations 0.77 0.72 0.43 0.65 (0.02)
-------- ------- ------- ------- -------
.........................................................................................
LESS DISTRIBUTIONS FROM
.........................................................................................
Net investment income (0.61) (0.52) (0.58) (0.57) (0.57)
.........................................................................................
In excess of net
investment income (0.01) 0 0 (0.04) (0.02)
.........................................................................................
Tax basis return of
capital 0 0 0 0 (0.01)
-------- ------- ------- ------- -------
.........................................................................................
Total distributions (0.62) (0.52) (0.58) (0.61) (0.60)
-------- ------- ------- ------- -------
.........................................................................................
NET ASSET VALUE END OF
PERIOD $ 9.08 $ 8.93 $ 8.73 $ 8.88 $ 8.84
-------- ------- ------- ------- -------
.........................................................................................
TOTAL RETURN (a) 8.82% 8.40% 4.95% 7.76% (0.29%)
.........................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.11% 1.12%(b) 1.10% 1.00% 1.00%
.........................................................................................
Expenses excluding
indirectly paid
expenses 1.10% 1.10%(b) 1.08% -- --
.........................................................................................
Expenses excluding
waivers and
reimbursements 1.44% 1.58%(b) 1.54% 1.48% 1.80%
.........................................................................................
Net investment income 6.00% 6.43%(b) 6.57% 7.13% 6.81%
.........................................................................................
PORTFOLIO TURNOVER RATE 331% 179% 231% 149% 280%
.........................................................................................
NET ASSETS END OF PERIOD
(THOUSANDS) $123,723 $10,341 $12,958 $14,558 $16,036
.........................................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended July 31,
----------------------------------------------------
1993 1992 1991 1990 1989 1988
- ---------------------------------------------------------------------------------
CLASS A SHARES
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $ 9.23 $ 8.64 $ 8.60 $ 9.11 $ 9.05 $ 9.61
------- ------- ------- ------- ------- -------
.................................................................................
INCOME FROM INVESTMENT
OPERATIONS
.................................................................................
Net investment income 0.70 0.71 0.72 0.67 0.69 0.72
.................................................................................
Net realized and
unrealized gain (loss)
on investments, closed
futures contracts and
foreign currency
related transactions 0.18 0.60 0.05 (0.45) 0.10 (0.45)
------- ------- ------- ------- ------- -------
.................................................................................
Total from investment
operations 0.88 1.31 0.77 0.22 0.79 0.27
------- ------- ------- ------- ------- -------
.................................................................................
LESS DISTRIBUTIONS FROM
.................................................................................
Net investment income (0.65) (0.71) (0.72) (0.70) (0.73) (0.83)
.................................................................................
In excess of net
investment income 0 (0.01) (0.01) (0.03) 0 0
..................................................................................
Tax basis return of
capital 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
.................................................................................
Total distributions (0.65) (0.72) (0.73) (0.73) (0.73) (0.83)
------- ------- ------- ------- ------- -------
.................................................................................
NET ASSET VALUE END OF
PERIOD $ 9.46 $ 9.23 $ 8.64 $ 8.60 $ 9.11 $ 9.05
------- ------- ------- ------- ------- -------
.................................................................................
TOTAL RETURN (a) 9.88% 15.65% 9.42% 2.71% 9.13% 2.95%
.................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.52% 1.88% 2.00% 2.00% 1.92% 1.30%
.................................................................................
Expenses excluding
indirectly paid
expenses -- -- -- -- -- --
.................................................................................
Expenses excluding
waivers and
reimbursements 1.99% 1.88% 2.06% 2.33% 2.19% 2.65%
.................................................................................
Net investment income 7.48% 7.85% 8.42% 7.90% 7.88% 7.48%
.................................................................................
PORTFOLIO TURNOVER RATE 160% 90% 76% 107% 148% 208%
.................................................................................
NET ASSETS END OF PERIOD
(THOUSANDS) $18,032 $19,288 $20,227 $23,694 $30,337 $38,615
.................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
(c) Calculation based on average shares outstanding.
(d) The Fund changed its fiscal year end from July 31 to June 30.
See Combined Notes to Financial Statements.
19
<PAGE>
EVERGREEN
Intermediate Term Bond Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
February 1, 1993
(Date of Initial
Eleven Months Year Ended July 31, Public Offering)
Year Ended Ended ------------------------- through
June 30, 1998 June 30, 1997 (d) 1996 1995 1994 July 31, 1993
- ----------------------------------------------------------------------------------------------------------
CLASS B SHARES
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $ 8.95 $ 8.74 $ 8.89 $ 8.85 $ 9.47 $ 9.35
------- ------- ------- ------- ------- ------
..........................................................................................................
INCOME FROM INVESTMENT
OPERATIONS
..........................................................................................................
Net investment income 0.48(c) 0.47 0.52 0.56 0.49(c) 0.29
..........................................................................................................
Net realized and
unrealized gain (loss)
on investments, closed
futures contracts and
foreign currency
related transactions 0.21 0.20 (0.16) 0.02 (0.58) 0.12
------- ------- ------- ------- ------- ------
..........................................................................................................
Total from investment
operations 0.69 0.67 0.36 0.58 (0.09) 0.41
------- ------- ------- ------- ------- ------
..........................................................................................................
LESS DISTRIBUTIONS FROM
..........................................................................................................
Net investment income (0.54) (0.46) (0.51) (0.51) (0.49) (0.29)
..........................................................................................................
In excess of net
investment income (0.01) 0 0 (0.03) (0.03) 0
..........................................................................................................
Tax basis return of
capital 0 0 0 0 (0.01) 0
------- ------- ------- ------- ------- ------
..........................................................................................................
Total distributions (0.55) (0.46) (0.51) (0.54) (0.53) (0.29)
------- ------- ------- ------- ------- ------
..........................................................................................................
NET ASSET VALUE END OF
PERIOD $ 9.09 $ 8.95 $ 8.74 $ 8.89 $ 8.85 $ 9.47
------- ------- ------- ------- ------- ------
..........................................................................................................
TOTAL RETURN (a) 7.89% 7.81% 4.10% 6.87% (1.05%) 4.42%
..........................................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.86% 1.87%(b) 1.85% 1.75% 1.75% 1.76%(b)
..........................................................................................................
Expenses excluding
indirectly paid
expenses 1.85% 1.85%(b) 1.83% -- -- --
..........................................................................................................
Expenses excluding
waivers and
reimbursements 2.22% 2.35%(b) 2.32% 2.21% 2.36% 2.71%(b)
..........................................................................................................
Net investment income 5.28% 5.68%(b) 5.82% 6.38% 5.48% 5.67%(b)
..........................................................................................................
PORTFOLIO TURNOVER RATE 331% 179% 231% 149% 280% 160%
..........................................................................................................
NET ASSETS END OF PERIOD
(THOUSANDS) $10,763 $11,368 $16,034 $17,985 $17,819 $8,159
..........................................................................................................
</TABLE>
<TABLE>
<CAPTION>
February 1, 1993
(Date of Initial
Eleven Months Year Ended July 31, Public Offering)
Year Ended Ended ------------------------ through
June 30, 1998 June 30, 1997 (d) 1996 1995 1994 July 31, 1993
- --------------------------------------------------------------------------------------------------------
CLASS C SHARES
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $ 8.94 $ 8.74 $ 8.89 $ 8.85 $ 9.46 $ 9.35
------ ------ ------ ------- ------- ------
.........................................................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................................................
Net investment income 0.49(c) 0.46 0.52 0.55 0.49(c) 0.29
.........................................................................................................
Net realized and
unrealized gain (loss)
on investments, closed
futures contracts and
foreign currency
related transactions 0.21 0.20 (0.16) 0.03 (0.57) 0.11
------ ------ ------ ------- ------- ------
.........................................................................................................
Total from investment
operations 0.70 0.66 0.36 0.58 (0.08) 0.40
------ ------ ------ ------- ------- ------
.........................................................................................................
LESS DISTRIBUTIONS FROM
.........................................................................................................
Net investment income (0.54) (0.46) (0.51) (0.51) (0.49) (0.29)
.........................................................................................................
In excess of net
investment income (0.01) 0 0 (0.03) (0.03) 0
.........................................................................................................
Tax basis return of
capital 0 0 0 0 (0.01) 0
------ ------ ------ ------- ------- ------
.........................................................................................................
Total distributions (0.55) (0.46) (0.51) (0.54) (0.53) (0.29)
------ ------ ------ ------- ------- ------
.........................................................................................................
NET ASSET VALUE END OF
PERIOD $ 9.09 $ 8.94 $ 8.74 $ 8.89 $ 8.85 $ 9.46
------ ------ ------ ------- ------- ------
.........................................................................................................
TOTAL RETURN (a) 8.01% 7.70% 4.10% 6.87% (0.95%) 4.31%
.........................................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.86% 1.87%(b) 1.85% 1.75% 1.75% 1.77%(b)
.........................................................................................................
Expenses excluding
indirectly paid
expenses 1.85% 1.85%(b) 1.83% -- -- --
.........................................................................................................
Expenses excluding
waivers and
reimbursements 2.21% 2.35%(b) 2.31% 2.23% 2.37% 2.61%(b)
.........................................................................................................
Net investment income 5.26% 5.68%(b) 5.82% 6.37% 5.44% 5.61%(b)
.........................................................................................................
PORTFOLIO TURNOVER RATE 331% 179% 231% 149% 280% 160%
.........................................................................................................
NET ASSETS END OF PERIOD
(THOUSANDS) $5,439 $7,259 $9,084 $10,185 $13,086 $7,522
.........................................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized
(c) Calculation based on average shares outstanding.
(d) The Fund changed its fiscal year end from July 31 to June 30.
See Combined Notes to Financial Statements.
20
<PAGE>
EVERGREEN
Intermediate Term Bond Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
January 26, 1998
(Commencement
of Class Operations)
through
June 30, 1998
- -----------------------------------------------------------------------------
CLASS Y SHARES
- -----------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE BEGINNING OF PERIOD $ 9.09
-------
.............................................................................
INCOME FROM INVESTMENT OPERATIONS
.............................................................................
Net investment income 0.24(b)
.............................................................................
Net realized and unrealized gain (loss) on investments
and foreign currency related transactions (0.01)
-------
.............................................................................
Total from investment operations 0.23
-------
.............................................................................
LESS DISTRIBUTIONS FROM
.............................................................................
Net investment income (0.24)
.............................................................................
In excess of net investment income 0(c)
.............................................................................
Total distributions (0.24)
-------
.............................................................................
NET ASSET VALUE END OF PERIOD $ 9.08
-------
.............................................................................
TOTAL RETURN 2.58%
.............................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS
Expenses 0.86%(a)
.............................................................................
Expenses excluding indirectly paid expenses 0.85%(a)
.............................................................................
Expenses excluding waivers and reimbursements 1.10%(a)
.............................................................................
Net investment income 6.23%(a)
.............................................................................
PORTFOLIO TURNOVER RATE 331%
.............................................................................
NET ASSETS END OF PERIOD (THOUSANDS) $63,721
.............................................................................
</TABLE>
(a) Annualized
(b) Calculation based on average shares outstanding.
(c) Represents an amount less than $0.01 per share.
See Combined Notes to Financial Statements.
21
<PAGE>
EVERGREEN
Intermediate Term Government Securities Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
May 2, 1995
(Commencement
Year Ended June 30, Ten Months of Class Operations)
--------------------- Ended through
1998 1997 June 30,1996 (c) August 31, 1995
- ---------------------------------------------------------------------------------------
CLASS A SHARES
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF YEAR $ 10.02 $ 9.99 $10.15 $ 9.95
---------- --------- ------ ------
.......................................................................................
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.55 0.55 0.46 0.19
.......................................................................................
Net realized and
unrealized gain (loss)
on investments 0.19 0.03 (0.16) 0.20
---------- --------- ------ ------
.......................................................................................
Total from investment
operations 0.74 0.58 0.30 0.39
---------- --------- ------ ------
.......................................................................................
LESS DISTRIBUTIONS FROM
NET INVESTMENT INCOME (0.55) (0.55) (0.46) (0.19)
---------- --------- ------ ------
.......................................................................................
NET ASSET VALUE END OF
YEAR $ 10.21 $ 10.02 $ 9.99 $10.15
---------- --------- ------ ------
.......................................................................................
TOTAL RETURN (a) 7.55% 6.00% 3.00% 3.90%
.......................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.83% 0.86% 0.81%(b) 0.80%(b)
.......................................................................................
Expenses excluding
indirectly paid
expenses 0.83% 0.86% -- --
.......................................................................................
Expenses excluding
waivers and
reimbursements 1.02% 0.94% 1.06%(b) 1.34%(b)
.......................................................................................
Net investment income 5.39% 5.47% 5.49%(b) 5.42%(b)
.......................................................................................
PORTFOLIO TURNOVER RATE 45% 68% 28% 45%
.......................................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 81,034 $ 571 $ 497 $ 9
.......................................................................................
</TABLE>
<TABLE>
<CAPTION>
February 9, 1996
(Commencement
Year Ended June 30, of Class Operations)
-------------------- through
1998 1997 June 30, 1996
- ---------------------------------------------------------------------------------
CLASS B SHARES
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE BEGINNING OF YEAR $ 10.02 $ 9.99 $10.38
--------- --------- ------
.................................................................................
INCOME FROM INVESTMENT OPERATIONS
.................................................................................
Net investment income 0.46 0.45 0.18
.................................................................................
Net realized and unrealized gain
(loss) on investments 0.19 0.04 (0.39)
--------- --------- ------
.................................................................................
Total from investment operations 0.65 0.49 (0.21)
--------- --------- ------
.................................................................................
LESS DISTRIBUTIONS FROM NET
INVESTMENT INCOME (0.46) (0.46) (0.18)
--------- --------- ------
.................................................................................
NET ASSET VALUE END OF YEAR $ 10.21 $ 10.02 $ 9.99
--------- --------- ------
.................................................................................
TOTAL RETURN (a) 6.57% 5.03% (1.99)%
.................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS
Expenses 1.82% 1.81% 1.80%(b)
.................................................................................
Expenses excluding indirectly paid
expenses 1.82% 1.81% --
.................................................................................
Expenses excluding waivers and
reimbursements 1.82% 1.89% 1.91%(b)
.................................................................................
Net investment income 4.49% 4.53% 4.62%(b)
.................................................................................
PORTFOLIO TURNOVER RATE 45% 68% 28%
.................................................................................
NET ASSETS END OF YEAR (THOUSANDS) $ 1,052 $ 742 $ 359
.................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
(c) The Fund changed its fiscal year end from August 31 to June 30.
See Combined Notes to Financial Statements.
22
<PAGE>
EVERGREEN
Intermediate Term Government Securities Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
April 10, 1996
(Commencement
Year Ended June 30, of Class Operations)
---------------------- through
1998 1997 June 30, 1996
- --------------------------------------------------------------------------------
CLASS C SHARES
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE BEGINNING OF
YEAR $ 10.02 $ 9.99 $10.01
--------- --------- ------
................................................................................
INCOME FROM INVESTMENT
OPERATIONS
................................................................................
Net investment income 0.45(c) 0.40 0.11
................................................................................
Net realized and unrealized gain
(loss) on investments 0.20 0.09 (0.02)
--------- --------- ------
................................................................................
Total from investment operations 0.65 0.49 0.09
--------- --------- ------
................................................................................
LESS DISTRIBUTIONS FROM NET
INVESTMENT INCOME (0.46) (0.46) (0.11)
--------- --------- ------
................................................................................
NET ASSET VALUE END OF YEAR $ 10.21 $ 10.02 $ 9.99
--------- --------- ------
................................................................................
TOTAL RETURN (a) 6.57% 5.03% 0.89%
................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS
Expenses 1.83% 1.81% 1.80%(b)
................................................................................
Expenses excluding indirectly
paid expenses 1.83% 1.81% --
................................................................................
Expenses excluding waivers and
reimbursements 1.83% 1.90% 1.91%(b)
................................................................................
Net investment income 4.54% 4.53% 4.47%(b)
................................................................................
PORTFOLIO TURNOVER RATE 45% 68% 28%
................................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $126 $12 $32
................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
(c) Calculation based on average shares outstanding.
<TABLE>
<CAPTION>
November 1, 1991
(Commencement
Year Ended June 30, Ten Months Year Ended August 31, of Class Operations)
-------------------- Ended ----------------------------- through
1998 1997 June 30, 1996 (b) 1995 1994 1993 August 31, 1992
- -----------------------------------------------------------------------------------------------------------------------
CLASS Y SHARES
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF YEAR $ 10.02 $ 9.99 $ 10.15 $ 9.92 $ 10.61 $ 10.41 $ 10.00
--------- --------- ------- -------- -------- -------- -------
.......................................................................................................................
INCOME FROM INVESTMENT
OPERATIONS
.......................................................................................................................
Net investment income 0.56 0.56 0.46 0.55 0.54 0.57 0.48
.......................................................................................................................
Net realized and
unrealized gain (loss)
on investments 0.19 0.03 (0.16) 0.23 (0.64) 0.24 0.40
--------- --------- ------- -------- -------- -------- -------
.......................................................................................................................
Total from investment
operations 0.75 0.59 0.30 0.78 (0.10) 0.81 0.88
--------- --------- ------- -------- -------- -------- -------
.......................................................................................................................
LESS DISTRIBUTIONS FROM
.......................................................................................................................
Net investment income (0.56) (0.56) (0.46) (0.55) (0.54) (0.58) (0.47)
.......................................................................................................................
Net realized gains on
investments 0 0 0 0 (0.05) (0.03) 0
--------- --------- ------- -------- -------- -------- -------
.......................................................................................................................
Total distributions (0.56) (0.56) (0.46) (0.55) (0.59) (0.61) (0.47)
--------- --------- ------- -------- -------- -------- -------
.......................................................................................................................
NET ASSET VALUE END OF
YEAR $ 10.21 $ 10.02 $ 9.99 $ 10.15 $ 9.92 $ 10.61 $ 10.41
--------- --------- ------- -------- -------- -------- -------
.......................................................................................................................
TOTAL RETURN 7.63% 6.08% 3.00% 8.16% (0.99%) 8.03% 9.04%
.......................................................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.82% 0.81% 0.80%(a) 0.70% 0.55% 0.55% 0.55%(a)
.......................................................................................................................
Expenses excluding
indirectly paid
expenses 0.82% 0.81% -- -- -- -- --
.......................................................................................................................
Expenses excluding
waivers and
reimbursements 0.82% 0.89% 0.87%(a) 0.84% 0.82% 0.83% 0.86%(a)
.......................................................................................................................
Net investment income 5.47% 5.52% 5.47%(a) 5.54% 5.22% 5.48% 5.68%(a)
.......................................................................................................................
PORTFOLIO TURNOVER RATE 45% 68% 28% 45% 45% 31% 47%
.......................................................................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 99,729 $ 71,588 $87,004 $106,066 $106,448 $119,172 $87,648
.......................................................................................................................
</TABLE>
(a) Annualized.
(b) The Fund changed its fiscal year end from August 31 to June 30.
See Combined Notes to Financial Statements.
23
<PAGE>
EVERGREEN
Short Intermediate Bond Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ended June 30, Six Months Year Ended December 31,
------------------------- Ended ---------------------------
1998 1997 1996 June 30, 1995 (c) 1994 1993
- ----------------------------------------------------------------------------------------------------
CLASS A SHARES
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF YEAR $ 9.83 $ 9.82 $ 10.02 $ 9.52 $ 10.42 $ 10.41
------- ------- ------- ------- ----------- -----------
....................................................................................................
INCOME FROM INVESTMENT
OPERATIONS
....................................................................................................
Net investment income 0.61 0.63 0.63 0.32 0.65 0.65
....................................................................................................
Net realized and
unrealized gain (loss)
on investments 0.07 0.02 (0.19) 0.50 (0.91) 0.19
------- ------- ------- ------- ----------- -----------
....................................................................................................
Total from investment
operations 0.68 0.65 0.44 0.82 (0.26) 0.84
------- ------- ------- ------- ----------- -----------
....................................................................................................
LESS DISTRIBUTIONS FROM
....................................................................................................
Net investment income (0.61) (0.64) (0.64) (0.32) (0.64) (0.65)
....................................................................................................
In excess of net
investment income 0 0 0 0 0 0
....................................................................................................
Net realized gains on
investments 0 0 0 0 0 (0.18)
------- ------- ------- ------- ----------- -----------
....................................................................................................
Total distributions (0.61) (0.64) (0.64) (0.32) (0.64) (0.83)
------- ------- ------- ------- ----------- -----------
....................................................................................................
NET ASSET VALUE END OF
YEAR $ 9.90 $ 9.83 $ 9.82 $ 10.02 $ 9.52 $ 10.42
------- ------- ------- ------- ----------- -----------
....................................................................................................
TOTAL RETURN (a) 7.08% 6.77% 4.45% 8.77% (2.57)% 8.29%
....................................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.80% 0.72% 0.79% 0.77%(b) 0.75%(b) 0.93%
....................................................................................................
Expenses excluding
indirectly paid
expenses 0.80% 0.72% -- -- -- --
....................................................................................................
Expenses excluding
waivers and
reimbursements 0.80% -- -- -- -- --
....................................................................................................
Net investment income 6.14% 6.37% 6.35% 6.58%(b) 6.46%(b) 6.15%
....................................................................................................
PORTFOLIO TURNOVER RATE 68% 45% 76% 34% 48% 73%
....................................................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $16,848 $17,703 $18,630 $18,898 $ 19,127 $ 22,865
....................................................................................................
</TABLE>
<TABLE>
<CAPTION>
January 28, 1989
(Commencement of
Year Ended December 31, Nine Months Year Class Operations)
------------------------ Ended Ended through
1992 1991 December 31, 1990 (d) March 31, 1990 March 31, 1989
- -----------------------------------------------------------------------------------------------------------
CLASS A SHARES
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF YEAR $ 10.54 $ 9.99 $ 9.72 $ 9.50 $ 9.70
----------- ----------- ------- ------ -------
...........................................................................................................
INCOME FROM INVESTMENT
OPERATIONS
...........................................................................................................
Net investment income 0.71 0.73 0.55 0.79 0.10
...........................................................................................................
Net realized and
unrealized gain (loss)
on investments (0.06) 0.60 0.24 0.20 (0.14)
----------- ----------- ------- ------ -------
...........................................................................................................
Total from investment
operations 0.65 1.33 0.79 0.99 (0.04)
----------- ----------- ------- ------ -------
...........................................................................................................
LESS DISTRIBUTIONS FROM
...........................................................................................................
Net investment income (0.67) (0.70) (0.52) (0.77) (0.16)
...........................................................................................................
In excess of net
investment income 0 (0.01) 0 0 0
...........................................................................................................
Net realized gains on
investments (0.11) (0.07) 0 0 0
----------- ----------- ------- ------ -------
...........................................................................................................
Total distributions (0.78) (0.78) (0.52) (0.77) (0.16)
----------- ----------- ------- ------ -------
...........................................................................................................
NET ASSET VALUE END OF
YEAR $ 10.41 $ 10.54 $ 9.99 $ 9.72 $ 9.50
----------- ----------- ------- ------ -------
...........................................................................................................
TOTAL RETURN (a) 6.39% 13.74% 8.31% 10.51% (0.31)%
...........................................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.90% 0.80% 1.01%(b) 1.00% 1.78%(b)
...........................................................................................................
Expenses excluding
indirectly paid
expenses -- -- -- -- --
...........................................................................................................
Expenses excluding
waivers and
reimbursements -- 0.89% 1.82%(b) 1.50% --
...........................................................................................................
Net investment income 6.79% 7.30% 7.53%(b) 7.57% 6.10%(b)
...........................................................................................................
PORTFOLIO TURNOVER RATE 66% 53% 27% 32% 18%
...........................................................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 21,488 $ 17,680 $11,765 $6,496 $11,580
...........................................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
(c) The Fund changes its fiscal year end from December 31 to June 30.
(d) The Fund changes its fiscal year end from March 31 to December 31.
See Combined Notes to Financial Statements.
24
<PAGE>
EVERGREEN
Short Intermediate Bond Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
January 25, 1993
(Commencement
Year Ended June 30, Six Months of Class Operations)
------------------------- Ended Year Ended through
1998 1997 1996 June 30, 1995 (c) December 31, 1994 December 31, 1993
- -------------------------------------------------------------------------------------------------------------
CLASS B SHARES
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF YEAR $ 9.85 $ 9.84 $ 10.04 $ 9.54 $ 10.44 $10.57
------- ------- ------- ------- ------- ------
.............................................................................................................
INCOME FROM INVESTMENT
OPERATIONS
.............................................................................................................
Net investment income 0.52 0.54 0.55 0.28 0.58 0.58
.............................................................................................................
Net realized and
unrealized gain (loss)
on investments 0.07 0.01 (0.19) 0.50 (0.92) 0.05
------- ------- ------- ------- ------- ------
.............................................................................................................
Total from investment
operations 0.59 0.55 0.36 0.78 (0.34) 0.63
------- ------- ------- ------- ------- ------
.............................................................................................................
LESS DISTRIBUTIONS FROM
.............................................................................................................
Net investment income (0.52) (0.54) (0.56) (0.28) (0.56) (0.58)
.............................................................................................................
Net realized gains on
investments 0 0 0 0 0 (0.18)
------- ------- ------- ------- ------- ------
.............................................................................................................
Total distributions (0.52) (0.54) (0.56) (0.28) (0.56) (0.76)
------- ------- ------- ------- ------- ------
.............................................................................................................
NET ASSET VALUE END OF
YEAR $ 9.92 $ 9.85 $ 9.84 $ 10.04 $ 9.54 $10.44
------- ------- ------- ------- ------- ------
.............................................................................................................
TOTAL RETURN (a) 6.11% 5.78% 3.62% 8.31% (3.33%) 6.08%
.............................................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.70% 1.62% 1.69% 1.67%(b) 1.50% 1.57%(b)
.............................................................................................................
Expenses excluding
indirectly paid
expenses 1.70% 1.62% -- -- -- --
.............................................................................................................
Net investment income 5.23% 5.48% 5.45% 5.68%(b) 5.75% 5.42%(b)
.............................................................................................................
PORTFOLIO TURNOVER RATE 68% 45% 76% 34% 48% 73%
.............................................................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $22,689 $22,237 $21,006 $17,366 $17,625 $8,876
.............................................................................................................
</TABLE>
<TABLE>
<CAPTION>
September 6, 1994
(Commencement
Year Ended June 30, Six Months of Class Operations)
---------------------- Ended through
1998 1997 1996 June 30, 1995 (c) December 31, 1994
- ------------------------------------------------------------------------------------------
CLASS C SHARES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF YEAR $ 9.85 $ 9.84 $10.05 $ 9.55 $9.85
------ ------ ------ ------ -----
..........................................................................................
INCOME FROM INVESTMENT
OPERATIONS
..........................................................................................
Net investment income 0.52 0.54 0.55 0.26 0.18
..........................................................................................
Net realized and
unrealized gain (loss)
on investments 0.07 0.01 (0.20) 0.50 (0.30)
------ ------ ------ ------ -----
..........................................................................................
Total from investment
operations 0.59 0.55 0.35 0.76 (0.12)
------ ------ ------ ------ -----
..........................................................................................
LESS DISTRIBUTIONS FROM
NET INVESTMENT INCOME (0.52) (0.54) (0.56) (0.26) (0.18)
------ ------ ------ ------ -----
..........................................................................................
NET ASSET VALUE END OF
YEAR $ 9.92 $ 9.85 $ 9.84 $10.05 $9.55
------ ------ ------ ------ -----
..........................................................................................
TOTAL RETURN (a) 6.11% 5.77% 3.51% 8.23% (1.27%)
..........................................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.70% 1.62% 1.69% 1.67%(b) 1.65%(b)
..........................................................................................
Expenses excluding
indirectly paid
expenses 1.70% 1.62% -- -- --
..........................................................................................
Net investment income 5.25% 5.47% 5.46% 5.69%(b) 5.87%(b)
..........................................................................................
PORTFOLIO TURNOVER RATE 68% 45% 76% 34% 48%
..........................................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $1,143 $1,029 $1,155 $ 527 $ 512
..........................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
(c) The Fund changed its fiscal year end from December 31 to June 30.
See Combined Notes to Financial Statements.
25
<PAGE>
EVERGREEN
Short Intermediate Bond Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ended June 30, Six Months
---------------------------- Ended
1998 1997 1996 June 30, 1995 (b)
- -------------------------------------------------------------------------------
CLASS Y SHARES
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF
YEAR $ 9.83 $ 9.82 $ 10.02 $ 9.52
-------- -------- -------- --------
...............................................................................
INCOME FROM INVESTMENT
OPERATIONS
...............................................................................
Net investment income 0.62 0.64 0.64 0.33
...............................................................................
Net realized and unrealized
gain (loss) on investments 0.07 0.02 (0.19) 0.49
-------- -------- -------- --------
...............................................................................
Total from investment
operations 0.69 0.66 0.45 0.82
-------- -------- -------- --------
...............................................................................
LESS DISTRIBUTIONS FROM
.........................................................................
Net investment income (0.62) (0.65) (0.65) (0.32)
...............................................................................
In excess of net investment
income 0 0 0 0
...............................................................................
Net realized gains on
investments 0 0 0 0
-------- -------- -------- --------
...............................................................................
Total distributions (0.62) (0.65) (0.65) (0.32)
-------- -------- -------- --------
...............................................................................
NET ASSET VALUE END OF YEAR $ 9.90 $ 9.83 $ 9.82 $ 10.02
-------- -------- -------- --------
...............................................................................
TOTAL RETURN 7.19% 6.88% 4.63% 8.80%
...............................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS
Expenses 0.70% 0.62% 0.69% 0.67%(a)
...............................................................................
Expenses excluding indirectly
paid expenses 0.70% 0.62% -- --
...............................................................................
Expenses excluding waivers
and reimbursements 0.70% 0.62% 0.69% 0.67%(a)
...............................................................................
Net investment income 6.25% 6.48% 6.45% 6.68%(a)
...............................................................................
PORTFOLIO TURNOVER RATE 68% 45% 76% 34%
...............................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $348,358 $357,706 $352,095 $347,050
...............................................................................
</TABLE>
<TABLE>
<CAPTION>
January 4, 1991
(Commencement
Year Ended December 31, of Class Operations)
----------------------------- through
1994 1993 1992 December 31, 1991
- -------------------------------------------------------------------------------
CLASS Y SHARES
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING
OF YEAR $ 10.43 $ 10.41 $ 10.54 $ 10.06
-------- -------- -------- --------
...............................................................................
INCOME FROM INVESTMENT
OPERATIONS
...............................................................................
Net investment income 0.65 0.69 0.70 0.71
...............................................................................
Net realized and
unrealized gain (loss)
on investments (0.91) 0.19 (0.02) 0.56
-------- -------- -------- --------
...............................................................................
Total from investment
operations (0.26) 0.88 0.68 1.27
-------- -------- -------- --------
...............................................................................
LESS DISTRIBUTIONS FROM
...............................................................................
Net investment income (0.65) (0.68) (0.70) (0.71)
...............................................................................
In excess of net
investment income 0 0 0 (0.01)
...............................................................................
Net realized gains on
investments 0 (0.18) (0.11) (0.07)
-------- -------- -------- --------
...............................................................................
Total distributions (0.65) (0.86) (0.81) (0.79)
-------- -------- -------- --------
...............................................................................
NET ASSET VALUE END OF
YEAR $ 9.52 $ 10.43 $ 10.41 $ 10.54
-------- -------- -------- --------
...............................................................................
TOTAL RETURN (2.55)% 8.67% 6.64% 13.80%
...............................................................................
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.65% 0.66% 0.69% 0.69%(a)
...............................................................................
Expenses excluding
indirectly paid expenses -- -- --
...............................................................................
Expenses excluding
waivers and
reimbursements 0.65% 0.66% 0.69% 0.69%(a)
...............................................................................
Net investment income 6.56% 6.41% 6.67% 7.12%(a)
...............................................................................
PORTFOLIO TURNOVER RATE 48% 73% 66% 53%
...............................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $345,025 $376,445 $324,068 $256,254
...............................................................................
</TABLE>
(a) Annualized.
(b) The Fund changed its fiscal year end from December 31 to June 30.
See Combined Notes to Financial Statements.
26
<PAGE>
EVERGREEN
Capital Preservation and Income Fund
SCHEDULE OF INVESTMENTS
June 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES - 69.2%
FHLMC - 30.4%
$ 613,120 FHLMC Pool #605343, Cap 13.61%, Margin 2.75%+ WTAL,
Resets Annually,
7.77%, 3/1/19...................................... $ 639,944
1,627,748 FHLMC Pool #605386, Cap 12.87%, Margin 2.75%+ WTAL,
Resets Annually,
7.75%, 9/1/17...................................... 1,700,231
557,719 FHLMC Pool #606541, Cap 13.55%, Margin 2.79%+ WTAL,
Resets Annually,
7.58%, 3/1/21...................................... 583,167
1,096,311 FHLMC Pool #606679, Cap 12.08%, Margin 2.88%+ WTAL,
Resets Annually,
7.74%, 10/1/21..................................... 1,140,163
359,688 FHLMC Pool #607352, Cap 13.61%, Margin 2.75%+ WTAL,
Resets Annually,
7.79%, 4/1/22...................................... 377,899
2,722,010 FHLMC Pool #608034, Cap 14.78%, Margin 2.22%+ WTAL,
Resets Annually,
7.08%, 6/1/16...................................... 2,790,060
137,902 FHLMC Pool #645062, Cap 14.14%, Margin 2.90%+ WTAL,
Resets Annually,
7.98%, 5/1/19...................................... 143,074
329,286 FHLMC Pool #785114, Cap 13.31%, Margin 2.75%+ WTAL,
Resets Annually,
7.79%, 7/1/19...................................... 344,051
50,844 FHLMC Pool #785147, Cap 12.78%, Margin 2.75%+ WTAL,
Resets Annually,
7.55%, 5/1/20...................................... 51,463
1,302,119 FHLMC Pool #845063, Cap 12.10%, Margin 2.83%+ WTAL,
Resets Annually,
7.76%, 11/1/21..................................... 1,346,066
2,343,747 FHLMC Pool #845070, Cap 11.84%, Margin 2.78%+ WTAL,
Resets Annually,
7.67%, 1/1/22...................................... 2,430,173
1,649,372 FHLMC Pool #845082, Cap 12.58%, Margin 2.69%+ WTAL,
Resets Annually,
7.52%, 3/1/22...................................... 1,692,668
945,107 FHLMC Pool #846163, Cap 13.07%, Margin 2.71%+ WTAL,
Resets Annually,
7.53%, 7/1/30...................................... 981,881
374,893 FHLMC Pool #865220, Cap 15.08%, Margin 2.35%+ WTAL,
Resets Triennially,
8.32%, 4/1/20...................................... 384,149
-----------
14,604,989
-----------
FNMA - 38.8%
255,689 FNMA Pool #062610, Cap 12.75%, Margin 2.75%+ CMT,
Resets Annually,
8.00%, 6/1/18...................................... 264,799
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES - CONTINUED
FNMA - CONTINUED
$ 331,250 FNMA Pool #070033, Cap 14.31%, Margin 2.60%+ CMT,
Resets Annually,
7.38%, 10/1/17....................................... $ 343,258
1,354,358 FNMA Pool #070119, Cap 12.00%, Margin 2.76%+ CMT,
Resets Annually,
7.67%, 11/1/17....................................... 1,404,300
247,811 FNMA Pool #070327, Cap 12.95%, Margin 2.75%+ CMT,
Resets Annually,
7.46%, 6/1/19........................................ 257,297
1,340,201 FNMA Pool #090678, Cap 13.15%, Margin 2.70%+ CMT,
Resets Annually,
7.54%, 9/1/18........................................ 1,400,296
339,211 FNMA Pool #092086, Cap 15.55%, Margin 2.75%+ CMT,
Resets Annually,
7.42%, 10/1/16....................................... 348,170
766,342 FNMA Pool #094564, Cap 15.84%, Margin 2.50%+ CMT,
Resets Annually,
7.33%, 1/1/16........................................ 793,042
904,757 FNMA Pool #095405, Cap 13.65%, Margin 2.73%+ CMT,
Resets Annually,
7.65%, 12/1/19....................................... 937,554
428,145 FNMA Pool #102905, Cap 13.11%, Margin 2.82%+ CMT,
Resets Annually,
7.44%, 7/1/20........................................ 448,884
281,328 FNMA Pool #105007, Cap 13.33%, Margin 2.75%+ CMT,
Resets Annually,
7.60%, 7/1/19........................................ 291,175
252,610 FNMA Pool #114714, Cap 12.60%, Margin 2.75%+ CMT,
Resets Annually,
7.28%, 3/1/19........................................ 262,083
828,027 FNMA Pool #124015, Cap 13.24%, Margin 2.58%+ CMT,
Resets Annually,
7.38%, 11/1/18....................................... 856,494
714,866 FNMA Pool #124204, Cap 13.51%, Margin 2.71%+ CMT,
Resets Annually,
7.50%, 1/1/22........................................ 740,000
2,641,683 FNMA Pool #124289, Cap 13.46%, Margin 2.67%+ CMT,
Resets Annually,
7.48%, 9/1/21........................................ 2,764,283
1,143,805 FNMA Pool #124945, Cap 12.54%, Margin 2.78%+ CMT,
Resets Annually,
7.59%, 1/1/31........................................ 1,187,418
291,215 FNMA Pool #142963, Cap 11.03%, Margin 2.63%+ CMT,
Resets Annually,
7.45%, 1/1/22........................................ 295,447
1,920,414 FNMA Pool #313663, Cap 12.96%, Margin 2.81%+ CMT,
Resets Annually,
7.39%, 5/1/22........................................ 2,000,226
</TABLE>
27
<PAGE>
EVERGREEN
Capital Preservation and Income Fund
SCHEDULE OF INVESTMENTS(continued)
June 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES - CONTINUED
FNMA - CONTINUED
$1,064,457 FNMA Pool #313994, Cap 9.83%, 2.48%+ Six Month LIBOR,
7.46%, 12/1/23...................................... $ 1,083,564
1,379,137 FNMA Pool #331526, Cap 11.17%, Margin 2.75%+ CMT,
Resets Annually,
6.15%, 5/1/36....................................... 1,387,536
132,996 FNMA Pool #391290, Cap 12.68%, Margin 2.71%+ CMT,
Resets Annually,
7.59%, 2/1/17....................................... 136,675
1,422,375 FNMA Pool #423207, Cap 11.87%, Margin 2.75%+ CMT,
Resets Annually,
5.87%, 4/1/38....................................... 1,433,488
-----------
18,635,989
-----------
Total Adjustable Rate Mortgage Securities (cost
$33,150,562)........................................ 33,240,978
-----------
ASSET-BACKED SECURITIES - 9.0%
1,000,000 Carco Auto Loan Master Trust,
Series 1997-1, Class A,
6.69%, 8/15/04...................................... 1,005,690
1,580,326 CoreStates Home Equity Trust,
Series 1994-1, Class A,
6.65%, 5/15/09...................................... 1,590,914
1,713,109 Merrill Lynch Mortgage Investors, Inc., Series 1992-
B, Class B,
8.50%, 4/15/12...................................... 1,743,089
-----------
Total Asset-Backed Securities
(cost $4,334,129)................................... 4,339,693
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS - 8.3%
14,937 FHLMC CMO, Series 11 Class 11C,
(Est. Mat. 1998), (a)
9.50%, 4/15/19...................................... 15,175
1,305,666 FHLMC Strip, Series 20, Class F,
6.57%, 7/1/29....................................... 1,311,379
559,018 FNMA, Series 1993-160, Class PD, 5.60%, 10/25/12..... 556,921
918,065 Nomura Depositor Trust,
Series 1998-ST1, Class A1,
5.94%, 2/15/34 (b) ................................. 918,065
1,184,818 Prudential Home Mortgage Securities, Series 1990-12,
Class A1,
8.15%, 11/25/20..................................... 1,196,296
-----------
Total Collateralized Mortgage Obligations
(cost $3,997,932)................................... 3,997,836
-----------
</TABLE>
(a) The estimated maturity of a Collateralized Mortgage Obligation (CMO)
is based on current and projected prepayment rates. Changes in inter-
est rates can cause the estimated maturity to differ from the listed
date.
(b) Securities that may be sold to qualified institutional buyers under
Rule 144A or securities offered pursuant to Section 4(2) of the Secu-
rities Act of 1933, as amended. These securities have been determined
to be liquid under guidelines established by the Board of Trustees.
(c) The repurchase agreements are fully collateralized by U.S. Government
and/or agency obligations based on market prices at June 30, 1998.
LEGEND OF PORTFOLIO ABBREVIATIONS
CMT 1, 3, or 5 year Constant Maturity Treasury Index
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
GNMA Government National Mortgage Association
LIBOR London Interbank Overnight Rate
WTAL 1 to 3 year Weekly Treasury Average Lookback
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
FIXED RATE MORTGAGE SECURITIES - 6.3%
FHLMC - 1.7%
$ 436,116 FHLMC Pool #B00078,
10.50%, 10/1/05................................ $ 450,451
346,064 FHLMC Pool #B00475,
10.50%, 4/1/04................................. 361,149
-----------
811,600
-----------
FNMA - 1.8%
380,227 FNMA Pool #002497,
11.00%, 1/1/16................................. 422,786
166,499 FNMA Pool #058442,
11.00%, 1/1/18................................. 183,014
256,995 FNMA Pool #100051,
9.50%, 4/15/05................................. 267,516
-----------
873,316
-----------
GNMA - 2.8%
1,286,393 GNMA Pool #268164,
10.25%, 11/15/29............................... 1,335,404
-----------
Total Fixed Rate Mortgage Securities
(cost $3,049,005).............................. 3,020,320
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 1.0%
(COST $499,610)
500,000 Federal Home Loan Bank,
5.625%, 3/19/01................................ 499,060
-----------
U.S. TREASURY OBLIGATIONS - 4.2%
600,000 5.75%, 11/30/02................................. 604,968
1,380,000 6.25%, 8/31/02.................................. 1,416,004
-----------
Total U.S. Treasury Obligations
(cost $2,020,391).............................. 2,020,972
-----------
REPURCHASE AGREEMENT - 0.6% (COST $267,000)
267,000 Keystone Joint Repurchase Agreement,
(6.06% dated 6/30/98 due 7/1/98, maturity value
$267,045) (c) ................................. 267,000
-----------
TOTAL INVESTMENTS -
(COST $47,318,629)............................ 98.6% 47,385,859
OTHER ASSETS AND
LIABILITIES - NET............................. 1.4 664,334
----- -----------
NET ASSETS -................................... 100.0% $48,050,193
===== ===========
</TABLE>
See Combined Notes to Financial Statements.
28
<PAGE>
EVERGREEN
Intermediate Term Bond Fund
SCHEDULE OF INVESTMENTS
June 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
ASSET-BACKED SECURITIES - 2.9% (B)
$1,000,000 California Infrastructure PG&E,
Series 1997-1 Certificate,
Class A4 (Est. Maturity 2000),
6.16%, 6/25/03..................................... $ 1,003,281
2,500,000 Contimortgage Home Equity Loan Trust,
Series 1998-1 Class A6
(Est. Maturity 2003),
6.58%, 12/15/18.................................... 2,523,950
1,044,800 CoreStates Home Equity Trust,
Series 1994-1 Class A
(Est. Maturity 2000),
6.65%, 5/15/09..................................... 1,051,800
187,779 Merrill Lynch Mortgage Investors, Inc.,
Series 1990-I Class A
(Est. Maturity 1999),
9.20%, 1/15/11..................................... 188,072
1,000,000 Southern Pacific Secured Assets Corp., Series 1996-3
Class A4
(Est. Maturity 2002),
7.60%, 10/25/27.................................... 1,033,438
------------
Total Asset-Backed Securities
(cost $5,727,737).................................. 5,800,541
------------
CORPORATE BONDS - 50.7%
AEROSPACE & DEFENSE - 3.9%
3,675,000 Boeing, Inc.,
Debentures,
8.10%, 11/15/06.................................... 4,132,795
200,000 Eagle Picher Industries, Inc.,
Senior Subordinated Notes,
9.375%, 3/1/08 (a)................................. 202,000
3,000,000 Lockheed Martin Corp.,
Note,
7.25%, 5/15/06..................................... 3,182,910
500,000 Northrop Grumman Corp.,
Note,
7.00%, 3/1/06...................................... 517,130
------------
8,034,835
------------
BANKS - 6.5%
1,000,000 Amsouth Bancorp,
Subordinated Debentures,
Puttable 2005,
6.75%, 11/1/25..................................... 1,026,870
675,000 Bayerische Landesbank Girozen,
New York,
Senior Notes, Series D,
6.20%, 2/9/06...................................... 668,358
Chase Manhattan Corp.:
2,500,000 Series A, MTN,
6.75%, 9/15/06...................................... 2,597,875
1,250,000 Subordinated Notes,
9.375%, 7/1/01...................................... 1,362,625
1,000,000 CIT Group Holdings, Inc.,
Tranche Trust 00001, MTN,
9.25%, 3/15/01...................................... 1,080,030
1,164,000 First Chicago Corp.,
Subordinated Note,
9.875%, 8/15/00..................................... 1,251,230
2,000,000 NationsBank Corp.,
Subordinated Notes,
8.125%, 6/15/02..................................... 2,140,240
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - CONTINUED
BANKS - CONTINUED
$1,000,000 Southtrust Bank,
Subordinated Notes, Bank Notes,
6.565%, 12/15/27................................. $ 1,043,500
2,000,000 Suntrust Banks, Inc.,
Senior Bond,
6.00%, 1/15/28................................... 1,968,340
------------
13,139,068
------------
BUILDING, CONSTRUCTION & FURNISHINGS - 0.3%
200,000 MDC Holdings, Inc.,
Senior Notes,
8.375%, 2/1/08................................... 200,000
500,000 Webb Delaware Corp.,
Senior Subordinated Debenture,
9.375%, 5/1/09.................................. 495,000
------------
695,000
------------
BUSINESS EQUIPMENT & SERVICES - 0.3%
500,000 Williams Scotsman, Inc.,
Senior Note,
9.875%, 6/1/07.................................. 520,000
------------
CABLE/OTHER VIDEO DISTRIBUTION - 1.4%
750,000 Century Communications Corp.,
Senior Note,
9.75%, 2/15/02.................................. 802,500
500,000 Jones Intercable, Inc.,
Senior Note,
9.625%, 3/15/02................................. 540,000
1,000,000 Lenfest Communications, Inc.,
Senior Secured Notes,
8.375%, 11/1/05................................. 1,062,500
500,000 Marcus Cable Operating Co. LP,
Guaranteed Senior
Subordinated Discount Note
(Eff. Yield 7.43%) (c),
0.00%, 8/1/04................................... 485,000
------------
2,890,000
------------
CHEMICAL & AGRICULTURAL PRODUCTS - 1.6%
500,000 Borden Chemicals and Plastics,
Note,
9.50%, 5/1/05................................... 500,000
1,164,000 Dow Chemical Co.,
Debentures,
8.625%, 4/1/06.................................. 1,320,639
500,000 Harris Chemical North American, Inc.,
Senior Secured Note,
10.25%, 7/15/01................................. 520,000
300,000 International Specialty Products Holdings, Inc.,
Senior Note, Series B,
9.00%, 10/15/03.................................. 313,500
500,000 Kaiser Aluminum & Chemical Corp.,
Senior Note,
9.875%, 2/15/02................................. 513,750
------------
3,167,889
------------
COMMUNICATION SYSTEMS & SERVICES - 5.8%
2,600,000 Bell Telephone Co. of Pennsylvania,
Debentures,
8.35%, 12/15/30................................. 3,278,314
</TABLE>
29
<PAGE>
EVERGREEN
Intermediate Term Bond Fund
SCHEDULE OF INVESTMENTS(continued)
June 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - CONTINUED
COMMUNICATION SYSTEMS & SERVICES - CONTINUED
$ 950,000 Centennial Cellular Corp.,
Senior Notes,
8.875%, 11/1/01..................................... $ 988,000
5,000,000 GTE Corp.,
Debenture,
6.46%, 4/15/08...................................... 5,047,550
1,000,000 MCI Communications Corp.,
Puttable and Callable @ 100, 4/15/02
(Eff. Yield 6.23%) (c),
6.125%, 4/15/12..................................... 996,280
500,000 Olympus Communications LP,
Senior Note,
10.625%, 11/15/06................................... 550,000
500,000 Price Communications Wireless,
Senior Notes,
9.125%, 12/15/06 (a)................................ 500,000
500,000 Rural Cellular,
Subordinated Note,
9.625%, 5/15/08 (a)................................. 497,500
------------
11,857,644
------------
CONSUMER PRODUCTS & SERVICES - 1.8%
200,000 Dryper's Corp.,
Senior Notes, Series B,
10.25%, 6/15/07...................................... 206,500
1,000,000 French Fragrances, Inc.,
Senior Note, Series C,
10.375%, 5/15/07 (a) ............................... 1,067,500
1,164,000 General Mills, Inc.,
Series B, MTN,
9.00%, 12/20/02..................................... 1,298,046
1,000,000 Westpoint Stevens, Inc.,
Senior Notes,
7.875%, 6/15/05 (a)................................. 1,000,000
------------
3,572,046
------------
FINANCE & INSURANCE - 11.0%
1,000,000 Bear Stearns Co., Inc.,
Global Note,
6.20%, 3/30/03...................................... 995,760
1,000,000 Beneficial Corp.,
Series I, MTN,
6.25%, 2/18/13...................................... 997,800
1,000,000 CB Richards Ellis Services, Inc.,
Senior Subordinated Note,
8.875%, 6/1/06...................................... 987,500
2,000,000 Donaldson Lufkin & Jenrette,
Senior Note,
6.50%, 6/1/08....................................... 1,999,840
2,000,000 Fleet Financial Group, Inc.,
Note,
6.50%, 3/15/08...................................... 2,024,040
2,000,000 General Electric Capital Corp.,
Debentures,
8.75%, 5/21/07...................................... 2,370,000
1,000,000 Glenborough Properties LP,
Senior Notes,
7.625%, 3/15/05 (a)................................. 1,007,470
1,500,000 Grand Metropolitan Investment Corp.,
6.50%, 9/15/99...................................... 1,508,610
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - CONTINUED
FINANCE & INSURANCE - CONTINUED
$ 800,000 Harris BanCorp.,
Subordinated Notes,
9.375%, 6/1/01.................................... $ 870,152
500,000 International Lease Finance Corp.,
Note,
5.75%, 1/15/03.................................... 493,245
500,000 Lehman Brothers Holdings, Inc.,
Note,
6.50%, 10/1/02.................................... 505,290
3,000,000 Liberty Mutual Insurance Co.,
Surplus Notes,
8.20%, 5/4/07 (a)................................. 3,384,030
500,000 National Westminster Bancorp,
Subordinated Notes,
9.375%, 11/15/03.................................. 571,190
875,000 Paine Webber Group, Inc.,
Senior Note,
8.25%, 5/1/02..................................... 932,750
500,000 Presidential Life Insurance Corp.,
Senior Notes,
9.50%, 12/15/00................................... 516,875
2,000,000 Prudential Insurance,
Note,
7.125%, 7/1/07 (a)................................ 2,092,140
1,000,000 Reliance Group Holdings, Inc.,
Senior Notes,
9.00%, 11/15/00................................... 1,044,250
------------
22,300,942
------------
FOOD & BEVERAGE PRODUCTS - 1.7%
750,000 Chiquita Brands International, Inc.,
Senior Note,
9.625%, 1/15/04................................... 783,750
600,000 Fleming Companies, Inc.,
Senior Note,
10.625%, 12/15/01................................. 636,000
2,000,000 Fred Meyer, Inc.,
Note,
7.15%, 3/1/03...................................... 2,000,980
------------
3,420,730
------------
GAMING - 0.3%
200,000 Boyd Gaming Corp.,
Senior Subordinated Notes,
9.50%, 7/15/07.................................... 208,000
400,000 Station Casinos, Inc.,
Senior Subordinated Note,
9.625%, 6/1/03.................................... 414,000
------------
622,000
------------
HEALTHCARE PRODUCTS & SERVICES - 0.7%
1,164,000 Baxter International, Inc.,
Note,
7.25%, 2/15/08.................................... 1,253,279
200,000 Paragon Health Network, Inc.,
Senior Subordinated Note, Series B,
9.50%, 11/1/07.................................... 203,000
------------
1,456,279
------------
INDUSTRIAL SPECIALTY PRODUCTS & SERVICES - 0.3%
200,000 Delta Mills, Inc.,
Senior Note, Series B,
9.625%, 9/1/07.................................... 196,000
</TABLE>
30
<PAGE>
EVERGREEN
Intermediate Term Bond Fund
SCHEDULE OF INVESTMENTS(continued)
June 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - CONTINUED
INDUSTRIAL SPECIALTY PRODUCTS & SERVICES - CONTINUED
$ 500,000 Sequa Corp.,
Senior Note,
8.75%, 12/15/01.................................... $ 510,000
------------
706,000
------------
INFORMATION SERVICES & TECHNOLOGY - 0.1%
118,000 Unisys Corp.,
Senior Notes,
10.625%, 10/1/99................................... 119,180
------------
IRON & STEEL - 1.5%
1,000,000 Ameristeel Corp.,
Senior Note,
8.75%, 4/15/08 (a)................................. 1,000,000
850,000 Armco, Inc.,
Senior Notes,
9.375%, 11/1/00.................................... 850,000
350,000 Bethlehem Steel Corp.,
Senior Notes,
10.375%, 9/1/03.................................... 364,000
750,000 Wheeling Pittsburgh Corp.,
Senior Note,
9.375%, 11/15/03................................... 820,313
------------
3,034,313
------------
LEISURE & TOURISM - 1.9%
1,000,000 Caesar's World, Inc.,
Senior Subordinated Notes,
8.875%, 8/15/02.................................... 1,015,170
700,000 Hammon John Q Hotels,
First Mortgage,
8.875%, 2/15/04.................................... 705,250
1,000,000 Host Marriott Hotel Properties, Inc.,
Senior Notes, Series B,
9.50%, 5/15/05..................................... 1,087,500
405,000 Host Marriott Travel Plazas, Inc.,
Senior Secured Notes, Series B,
9.50%, 5/15/05..................................... 431,831
500,000 Prime Hospitality Corp.,
First Mortgage Note,
9.25%, 1/15/06..................................... 530,000
------------
3,769,751
------------
METALS & MINING - 0.2%
500,000 Great Central Mines Ltd.,
Senior Notes,
8.875%, 4/1/08 (a)................................. 490,000
------------
OIL/ENERGY - 2.3%
900,000 Occidental Petroleum Corp.,
Debentures,
9.25%, 8/1/19...................................... 1,120,752
500,000 PDV America, Inc.,
Senior Notes,
7.25%, 8/1/98...................................... 498,180
1,000,000 R & B Falcon Corp.,
Senior Notes,
6.95%, 4/15/08 (a)................................. 1,002,980
2,000,000 Transocean Offshore, Inc.,
Notes,
7.45%, 4/15/27..................................... 2,139,860
------------
4,761,772
------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - CONTINUED
PAPER & PACKAGING - 0.7%
$ 500,000 Container Corp. of America,
Senior Notes, Series A,
11.25%, 5/1/04...................................... $ 538,750
Stone Container Corp.:
700,000 Senior Notes,
9.875%, 2/1/01...................................... 715,750
200,000 Senior Subordinated Note,
11.00%, 8/15/99...................................... 207,000
------------
1,461,500
------------
PUBLISHING, BROADCASTING & ENTERTAINMENT - 3.2%
200,000 American Lawyer Media, Inc.,
Senior Notes,
9.75%, 12/15/07(a).................................. 207,500
1,000,000 Comcast Corp.,
Senior Subordinated Debenture,
9.375%, 5/15/05..................................... 1,068,070
200,000 Hollinger International Publishing,
Senior Subordordinated Notes,
9.25%, 2/1/06....................................... 209,250
2,327,000 Loews Corp.,
6.75%, 12/15/06..................................... 2,357,554
250,000 Pegasus Communications Corp.,
Senior Note, Series B,
9.625%, 10/15/05.................................... 257,500
200,000 Sinclair Broadcast Group, Inc.,
Senior Subordinated Notes,
10.00%, 9/30/05..................................... 215,000
1,000,000 Time Warner Entertainment, Inc.,
Notes,
9.625%, 5/1/02...................................... 1,117,070
500,000 Viacom, Inc.,
Subordinated Debenture,
8.00%, 7/7/06....................................... 516,250
600,000 World Color Press, Inc.,
Senior Subordinated Notes,
9.125%, 3/15/03..................................... 622,500
------------
6,570,694
------------
REAL ESTATE - 0.9%
1,900,000 Equity Office Properties Trust,
Senior Notes,
6.375%, 2/15/03 (a)................................. 1,891,925
------------
TRANSPORTATION - 1.7%
13,569 Atlantic Coast Airlines Corp.,
7.20%, 1/1/14 (a)................................... 13,659
200,000 Coach USA, Inc.,
Senior Subordinated Note, Series B,
9.375%, 7/1/07...................................... 208,000
950,000 Ford Motor Co.,
Debenture,
9.00%, 9/15/01...................................... 1,030,237
1,000,000 Norfolk Southern Corp.,
Note,
7.05%, 5/1/37....................................... 1,061,890
500,000 Sea Containers Ltd.,
Senior Notes,
7.875%, 2/15/08 .................................... 495,625
500,000 TBS Shipping International Ltd.,
Mortgage Notes, First Preferred Ship,
10.00%, 5/1/05 (a)................................... 452,500
</TABLE>
31
<PAGE>
EVERGREEN
Intermediate Term Bond Fund
SCHEDULE OF INVESTMENTS(continued)
June 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - CONTINUED
TRANSPORTATION - CONTINUED
$ 200,000 U.S. Air, Inc.,
Equipment Test Certificate, Series 88-D,
9.80%, 1/15/00...................................... $ 205,508
------------
3,467,419
------------
UTILITIES - 2.6%
200,000 Benton Oil and Gas Co.,
Senior Notes,
9.375%, 11/1/07..................................... 195,000
2,000,000 K N Energy, Inc.,
Senior Note,
6.65%, 3/1/05....................................... 2,005,580
1,000,000 Long Island Lighting Co.,
Debentures,
7.30%, 7/15/99...................................... 1,010,490
2,000,000 Oklahoma Gas & Electric Co.,
Senior Notes,
6.65%, 7/15/27...................................... 2,104,940
------------
5,316,010
------------
Total Corporate Bonds
(cost $101,711,004)................................. 103,264,997
------------
COLLATERALIZED MORTGAGE OBLIGATIONS (B) - 8.6%
500,000 Chase Commercial Mortgage Securities Corp.,
Series 1997-1 Class B
(Est. Maturity 2007),
7.37%, 4/19/07....................................... 511,156
990,541 Criimi Mae Financial Corp.,
Series 1 Class A
(Est. Maturity 2004),
7.00%, 1/1/33....................................... 978,314
1,000,000 Federal National Mortgage Association,
Series 1993-248 Class SA, REMIC
(Est. Maturity 2004),
4.059%, 8/25/23 (d)................................. 862,020
1,961,757 Independent National Mortgage Corp.,
Series 1997-A Class A
(Est. Maturity 2004),
7.791%, 12/26/26 (a)................................ 1,975,725
500,000 Merrill Lynch Trust,
Series 35 Class G
(Est. Maturity 2005),
8.45%, 11/1/18...................................... 525,465
Morgan Stanley Capital I, Inc.:
700,000 Series 1997-C1 Class B
(Est. Maturity 2006),
7.69%, 2/15/20...................................... 752,719
4,000,000 Series 1998-WF1 Class C
(Est. Maturity 2007),
6.77%, 1/15/08....................................... 4,072,500
3,133,030 Nationslink Funding Corp.,
Series 1998-1 Class C
(Est. Maturity 2007),
6.648%, 1/20/08..................................... 3,144,779
675,658 PNC Mortgage Securities Corp.,
Series 1997-4 Class 2PP1, REMIC
(Est. Maturity 2000),
7.50%, 7/25/27...................................... 682,183
1,836,130 Nomura Depositor Trust,
Series 1998-ST1 Class A1
(Est. Maturity 2002),
5.936%, 1/15/03(a)(d)............................... 1,836,130
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS - CONTINUED
$ 939,567 Paine Webber Mortgage Acceptance Corp.,
Series 1993-4 Class M1
(Est. Maturity 2002),
7.50%, 5/25/23................................... $ 948,082
1,250,000 Resolution Trust Corp.,
Series 1995-1 Class A2C
(Est. Maturity 1999),
7.50%, 10/25/28................................. 1,266,406
------------
Total Collateralized Mortgage Obligations
(cost $17,268,621).............................. 17,555,479
------------
MORTGAGE-BACKED SECURITIES (B) - 2.0%
Resolution Trust Corp. Mortgage Pass Thru:
344,219 Series 1992 C Class A1
(Est. Maturity 1999),
8.80%, 8/25/23................................... 353,685
1,532,565 Series 1992-3 Class A2, REMIC
(Est. Maturity 1999),
6.882%, 9/25/19.................................. 1,535,439
1,032,957 Series 1992-3 Class A3, REMIC
(Est. Maturity 1999),
6.854%, 5/25/21.................................. 1,034,894
1,108,447 Series 1992-6, Class A4, REMIC
(Est. Maturity 1999),
7.505%, 11/25/25................................. 1,110,525
------------
Total Mortgage-Backed Securities
(cost $3,917,255)............................... 4,034,543
------------
U.S. AGENCY OBLIGATIONS - 1.8%
2,500,000 Farm Credit Systems Financial Assistance Corp.,
Bonds, Series A-05,
8.80%, 6/10/05................................... 2,921,875
750,000 Federal Home Loan Mortgage Corp.,
6.70%, 1/5/07................................... 792,068
------------
Total U.S. Agency Obligations
(cost $3,408,746)............................... 3,713,943
------------
U.S. TREASURY OBLIGATIONS - 13.7%
U.S. Treasury Notes:
1,425,000 5.50%, 2/28/03................................... 1,423,888
25,510,000 6.125%, 8/15/07.................................. 26,542,390
------------
Total U. S. Treasury Obligations
(cost $27,671,040).............................. 27,966,278
------------
YANKEE OBLIGATIONS - 8.2%
300,000 Disco SA,
Note,
9.875%, 5/15/08 (a)............................. 283,398
1,000,000 Group Videotron Ltd.,
Senior Notes,
10.625%, 2/15/05................................ 1,098,260
2,000,000 Manitoba Province, Canada,
Notes,
8.00%, 4/15/02.................................. 2,132,780
2,000,000 Nippon Telegraph and Telephone Corp.,
6.00%, 3/25/08.................................. 2,006,480
1,000,000 Petroleum Geo Services,
6.625%, 3/30/08................................. 1,013,140
1,164,000 Province of Ontario, Canada,
Notes,
7.75%, 6/4/02................................... 1,236,063
</TABLE>
32
<PAGE>
EVERGREEN
Intermediate Term Bond Fund
SCHEDULE OF INVESTMENTS(continued)
June 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
YANKEE OBLIGATIONS - CONTINUED
$1,000,000 Republic of Colombia,
Bonds,
8.625%, 4/1/08.................................. $ 948,820
1,000,000 Rogers Cablesystems Ltd.,
Notes,
9.625%, 8/1/02.................................. 1,070,000
600,000 Sifto Canada, Inc.,
Guaranteed Senior Secured Note,
8.50%, 7/15/00.................................. 618,000
1,000,000 Svenska Handelsbanken,
Subordinated Notes,
8.35%, 7/15/04.................................. 1,092,220
500,000 Tevecap SA,
Senior Notes,
12.625%, 11/26/04............................... 435,000
2,000,000 United Utilities PLC,
Notes,
6.45%, 4/1/08................................... 1,993,700
700,000 Westpac Banking Corp.,
Subordinated Debenture,
9.125%, 8/15/01................................. 756,693
2,000,000 YPF Sociedad Anonima,
Senior Notes,
7.25%, 3/15/03.................................. 1,947,160
------------
Total Yankee Obligations
(cost $16,344,936).............................. 16,631,714
------------
</TABLE>
(a) Securities that may be sold to qualified institutional buyers under
Rule 144A or securities offered pursuant to Section 4(2) of the Secu-
rities Act of 1933, as amended. These securities have been determined
to be liquid under guidelines established by the Board of Trustees.
(b) The estimated maturity of a Collateralized Mortgage Obligation or
Mortgage-Backed Security is based on current and projected prepayment
rates. Changes in interest rates can cause the estimated maturity to
differ from the listed date.
(c) Effective yield (calculated at the time of purchase) is the yield at
which the bond accretes on an annual basis until maturity date.
(d) Inverse floater, resets monthly.
(e) The repurchase agreements are fully collateralized by U.S. Government
and/or agency obligations based on market prices at June 30, 1998.
LEGEND OF PORTFOLIO ABBREVIATIONS
DEM Deutsche Mark
DKK Danish Krone
GRD Greek Drachma
MTN Medium Term Note
NOK Norwegian Krone
REMIC Real Estate Mortgage Investment Conduit
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Forward foreign currency exchange contracts to sell:
<TABLE>
<CAPTION>
NET
EXCHANGE U.S. $ VALUE AT IN EXCHANGE UNREALIZED
DATE CONTRACTS TO DELIVER JUNE 30, 1998 FOR U.S. $ APPRECIATION
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
7/16/98 11,460,000Danish Krone 1,669,316 1,675,316 $ 6,000
9/14/98 109,234,000Danish Krone 15,952,144 16,033,171 81,027
9/28/98 4,140,201Deutsche Mark 2,307,867 2,309,323 1,456
-------
$88,483
=======
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
FOREIGN BONDS - (NON-US DOLLAR DENOMINATED) - 11.8%
3,600,000 Greece Republic of Hellenic,
DEM Series E, MTN,
6.75%, 11/13/06.................................... $ 2,180,820
615,000,000 Greece Republic of Hellenic,
GRD Government Bonds,
8.60%, 3/26/08..................................... 2,129,796
13,770,000 Kingdom of Norway,
NOK 6.75%, 1/15/07..................................... 1,939,424
61,180,000 Nykredit,
DKK Series ANN,
6.00%, 10/1/26..................................... 8,879,316
60,900,000 Realkredit Danmark,
DKK 6.00%, 10/1/26..................................... 8,856,409
------------
Total Foreign Bonds - (Non-US Dollar Denominated)
(cost $23,413,251)................................ 23,985,765
------------
REPURCHASE AGREEMENT (COST $844,000) - 0.4%
$ 844,000 Keystone Joint Repurchase Agreement (6.06% dated
6/30/98, due 7/1/98, maturity
value $844,142) (e)............................... 844,000
------------
TOTAL INVESTMENTS -
(COST $200,306,590)........................ 100.1% 203,797,260
OTHER ASSETS AND LIABILITIES - NET.......... (0.1) (151,910)
----- ------------
NET ASSETS - ............................... 100.0% $203,645,350
===== ============
</TABLE>
See Combined Notes to Financial Statements.
33
<PAGE>
EVERGREEN
Intermediate Term Government Securities Fund
SCHEDULE OF INVESTMENTS
June 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
MORTGAGE-BACKED SECURITIES - 44.7%
Federal Home Loan Mortgage Corp.:
$ 2,592,283 5.60%, 2/15/13..................................... $ 2,587,966
56,166 7.843%, 8/1/19..................................... 58,504
29,211 8.187%, 12/1/20.................................... 29,704
9,606,478 6.50%, 9/1/08...................................... 9,700,814
6,821,261 6.50%, 11/1/09..................................... 6,888,246
3,324,054 Federal Home Loan Mortgage Corp. Gold,
9.00%, 1/1/17...................................... 3,568,305
Federal National Mortgage Assn.:
3,000,000 6.50%, 6/25/22..................................... 3,041,479
3,322,182 7.00%, 3/1/24...................................... 3,377,031
229,328 8.50%, 12/1/01..................................... 236,721
57,604 7.971%, 6/1/19..................................... 60,183
3,282,001 7.00%, 12/1/99..................................... 3,319,416
2,807,260 7.00%, 8/1/01...................................... 2,849,538
2,593,449 6.00%, 2/1/08...................................... 2,571,275
13,096,787 7.00%, 4/1/11...................................... 13,352,829
3,958,441 6.374%, 3/1/06..................................... 4,011,892
688,598 6.00%, 5/1/11...................................... 682,608
8,423,896 7.50%, 8/1/26...................................... 8,652,942
3,500,000 6.40%, 12/1/07..................................... 3,594,150
Government National Mortgage Assn.:
150,451 8.00%, 3/15/17..................................... 158,399
245,645 9.00%, 9/15/21..................................... 264,847
1,624,968 7.00%, 3/15/28..................................... 1,653,031
9,783,068 6.50%, 2/15/27..................................... 9,775,144
835,560 U.S. Department of Veteran Affairs,
7.00%, 5/15/12..................................... 835,906
------------
Total Mortgage-Backed Securities (cost
$79,858,048)...................................... 81,270,930
------------
U.S. AGENCY OBLIGATIONS - 13.9%
993,000 Federal Agricultural Mortgage Corp. MTN,
7.37%, 8/1/06...................................... 1,063,442
Federal Home Loan Bank:
5,000,000 5.50%, 4/14/00..................................... 4,987,540
1,300,000 8.60%, 1/25/00..................................... 1,356,306
8,500,000 Federal Home Loan Mortgage Corp.,
7.36%, 6/5/07...................................... 8,989,337
Federal National Mortgage Assn.:
2,000,000 7.50%, 2/11/02..................................... 2,119,422
2,000,000 7.875%, 2/24/05.................................... 2,240,064
</TABLE>
LEGEND OF PORTFOLIO ABBREVIATIONS
MTN Medium Term Note
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
U.S. AGENCY OBLIGATIONS - CONTINUED
$ 4,480,000 Federal National Mortgage Assn. MTN,
6.16%, 4/3/01...................................... $ 4,538,643
------------
Total U.S. Agency Obligations
(cost $24,302,796)................................ 25,294,754
------------
U.S. TREASURY OBLIGATIONS - 39.4%
2,500,000 U.S. Treasury Bonds,
11.75%, 11/15/14................................... 3,764,845
U.S. Treasury Notes:
4,500,000 5.50%, 2/28/99..................................... 4,501,409
5,000,000 6.125%, 9/30/00.................................... 5,064,065
8,400,000 6.25%, 4/30/01..................................... 8,557,508
4,000,000 6.375%, 7/15/99.................................... 4,035,004
10,750,000 6.625%, 5/15/07.................................... 11,556,261
1,000,000 6.75%, 4/30/00..................................... 1,021,251
2,300,000 7.00%, 7/15/06..................................... 2,513,470
14,250,000 7.125%, 2/29/00.................................... 14,610,710
4,000,000 7.50%, 10/31/99.................................... 4,100,004
2,000,000 7.50%, 11/15/01.................................... 2,118,752
4,400,000 7.50%, 5/15/02..................................... 4,697,004
2,500,000 7.875%, 11/15/04................................... 2,808,595
1,300,000 8.50%, 11/15/00.................................... 1,385,314
1,000,000 8.875%, 2/15/99.................................... 1,020,626
------------
Total U.S. Treasury Obligations
(cost $70,572,489)................................ 71,754,818
------------
REPURCHASE AGREEMENT - 1.2% (COST $2,122,810)
2,122,810 Donaldson, Lufkin & Jenrette Securities Corp.
5.75%, dated 6/30/98, due 7/1/98, maturity value,
$2,123,149 (Collaterallized by $5,059,000 U.S.
Treasury Strips, 0.00%, due 5/15/13; value,
including accrued interest $2,123,094)............ 2,122,810
------------
TOTAL INVESTMENTS -
(COST $176,856,143)......................... 99.2% 180,443,312
OTHER ASSETS AND LIABILITIES - NET........... 0.8 1,497,934
----- ------------
NET ASSETS -................................. 100.0% $181,941,246
===== ============
</TABLE>
See Combined Notes to Financial Statements.
34
<PAGE>
EVERGREEN
Short Intermediate Bond Fund
SCHEDULE OF INVESTMENTS
June 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
ASSET-BACKED SECURITIES - 14.6%
$ 3,295,285 Advanta Home Equity Loan Trust, Pass Through
Certificates,
Series 1992-4, Class A1,
7.20%, 11/25/08............................... $ 3,358,241
Amresco Residential Securities Mortgage Loan
Trust:
3,450,000 6.245%, 4/25/22................................ 3,458,625
3,000,000 6.50%, 11/25/15................................ 3,003,750
1,100,000 Associates Manufactured Housing, Pass Through
Certificates,
Series 1997-1, Class A3,
6.60%, 6/15/28................................ 1,109,851
4,000,000 Carco Auto Loan Master Trust,
Series 1997-1, Class A,
6.689%, 8/15/04............................... 4,064,180
1,750,000 Case Equipment Loan Trust,
Asset Backed Certificate,
Series 1995 B, Class B,
6.45%, 9/15/02................................ 1,765,181
1,999,985 Contimortgage Home Equity Loan Trust, Series
1996-1, Class A5, 6.15%, 3/15/11.............. 2,003,195
2,473,831 Continental Airlines, Inc.,
Pass-Through Certificates,
Series 1997, Class 1B,
7.461%, 4/1/13................................ 2,660,914
5,495,999 Empire Funding Home Loan
Owner Trust,
6.64%, 12/25/12............................... 5,518,176
1,178,060 EQCC Home Equity Loan Trust,
Series 1996-1, Class A2,
5.82%, 9/15/09................................ 1,176,912
690,633 First Bank Auto Receivable,
Asset Backed Certificates, Class B, 8.30%,
1/15/00....................................... 691,811
1,171,199 First Security Auto Grantor Trust, Series 1995
A, Class A,
6.25%, 1/15/01................................ 1,173,618
4,903,984 Fleetwood Credit Corp. Grantor Trust, Series
1993 B, Class A,
4.95%, 8/15/08................................ 4,854,036
5,000,000 Iroquois Trust, Indexed Amortization Notes,
Series 1997-3, Class A, 6.68%, 11/10/03 (a)... 5,039,000
4,997,935 Life Financial Home Loan
Owner Trust,
6.79%, 10/25/11............................... 5,028,647
876,840 SCFC Recreational Vehicle Loan Trust, Series
1991-1,
7.25%, 9/15/06................................ 878,642
2,500,000 Southern Pacific Secured Assets Corp., Series
1998-1, Class A6,
7.08%, 3/25/28................................ 2,577,350
Western Financial Grantor Trust, Series 1995,
Class A2:
1,147,604 6.20%, 2/1/02.................................. 1,151,351
2,618,494 5.875%, 3/1/02................................. 2,618,612
4,545,537 Xerox Rental Equipment Trust,
Series 1996 A,
6.20%, 12/26/05 (a)........................... 4,565,423
------------
Total Asset-Backed Securities
(cost $56,011,861)............................ 56,697,515
------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - 22.7%
BANKS - 5.2%
$ 3,000,000 BB&T Corp.,
6.375%, 6/30/05.............................. $ 3,021,186
3,000,000 Cenfed Financial Corp.,
Senior Debenture,
11.17%, 12/15/01 (a)......................... 3,334,800
2,000,000 Chase Manhattan Corp.,
Subordinated Note,
8.00%, 5/15/04............................... 2,031,636
First Chicago NBD Corp.: Subordinated Note,
4,000,000
9.00%, 6/15/99................................ 4,110,204
2,000,000 MTN, Series E,
9.20%, 12/17/01............................... 2,193,792
5,000,000 First Security Corp.,
6.40%, 2/10/03................................ 5,065,075
500,000 Security Pacific Corp., Note,
10.45%, 5/8/01................................ 557,985
------------
20,314,678
------------
FINANCE & INSURANCE - 12.4%
2,000,000 American Express Credit Corp.,
Step Bond
(Eff. Yield 5.57%) (b),
6.25%, 8/10/05................................ 2,018,158
3,350,000 Amsouth Bancorporation, Debenture,
6.75%, 11/1/25................................ 3,498,717
3,000,000 Associated P&C Holdings, Inc.,
Guaranteed Senior Note,
6.75%, 7/15/03 (a)............................ 3,020,175
3,000,000 Bear Stearns Co., Inc.,
7.625%, 4/15/00............................... 3,083,232
1,000,000 Horace Mann Educators Corp.,
Senior Note,
6.625%, 1/15/06............................... 1,019,443
Lehman Brothers Holdings, Inc.:
5,000,000 6.625%, 11/15/00.............................. 5,051,685
5,000,000 8.875%, 3/1/02................................ 5,432,725
2,500,000 MTN,
6.84%, 10/7/99................................ 2,521,897
Metropolitan Life Insurance Co.,
Surplus Note (a):
5,000,000 6.30%, 11/1/03................................ 4,992,750
5,000,000 7.00%, 11/1/05................................ 5,202,110
5,000,000 Money Store, Inc.,
7.88%, 9/15/00................................ 5,116,150
7,000,000 Salomon, Inc.,
7.20%, 2/1/04................................. 7,316,561
------------
48,273,603
------------
HEALTHCARE PRODUCTS & SERVICES - 2.5%
10,000,000 Columbia/HCA Healthcare Corp.,
6.875%, 7/15/01............................... 9,770,370
------------
INDUSTRIAL SPECIALTY PRODUCTS & SERVICES - 2.6%
5,000,000 GTE Corp.,
10.25%, 11/1/20............................... 5,603,205
4,375,000 Johnson Controls, Inc.,
6.30%, 2/1/08................................. 4,431,691
------------
10,034,896
------------
Total Corporate Bonds
(cost $86,931,072)........................... 88,393,547
------------
</TABLE>
35
<PAGE>
EVERGREEN
Short Intermediate Bond Fund
SCHEDULE OF INVESTMENTS(continued)
June 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
MORTGAGE-BACKED SECURITIES - 29.7%
$ 3,150,000 Chase Commercial Mortgage Security Corp., Mortgage
Pass Through Certificates, Series 1996-2, Class C,
6.90%, 11/19/28.................................... $ 3,233,743
2,194,036 CMC Securities Corp.,
Collateralized Mortgage Obligation, Series 93,
Class D3,
10.00%, 7/25/23.................................... 2,276,134
5,000,000 Credit Suisse First Boston
Mortgage Securities Corp.,
Series 1998-C1, Class A1B,
6.48%, 5/17/08..................................... 5,082,500
2,500,000 DLJ Mortgage Acceptance Corp., Series 1993 MF7,
7.95%, 6/18/03..................................... 2,625,000
Federal Home Loan Mortgage Corp.:
6,050,000 6.48%, 7/10/00..................................... 6,054,096
1,017,086 6.80%, 10/15/05.................................... 1,015,820
2,000,000 6.97%, 6/16/05..................................... 2,041,234
4,809,612 7.40%, 10/15/05.................................... 4,843,832
343,899 10.50%, 9/1/15..................................... 376,139
Federal Housing Administration -Puttable Project
Loans:
5,247,523 7.43%, 7/1/22...................................... 5,558,517
4,562,826 7.43%, 11/1/22..................................... 4,743,354
4,601,828 Merrill Lynch 199,
8.43%, 2/1/20...................................... 4,843,585
2,853,863 Reilly 18,
6.875%, 4/1/15..................................... 2,825,324
1,550,218 Reilly 55,
7.43%, 3/1/24...................................... 1,631,659
10,153,738 Reilly 64,
7.43%, 1/1/24...................................... 10,708,183
Federal National Mortgage Assn.:
1,500,000 5.30%, 8/25/98..................................... 1,500,144
500,000 6.00%, 12/15/00.................................... 499,202
855,566 6.23%, 12/25/25.................................... 854,073
5,000,000 7.11%, 8/7/01...................................... 4,978,475
2,100,000 8.00%, 11/25/06.................................... 2,177,210
9,000,000 8.10%, 4/25/25..................................... 9,396,397
7,168,885 11.00%, 1/1/99..................................... 8,280,062
18,983 14.00%, 6/1/11..................................... 21,869
896,393 GCC Second Mortgage Trust,
10.00%, 7/15/05.................................... 898,576
1,393,470 Government National Mortgage Assn., Series 1996-10,
Class E,
7.50%, 11/20/08.................................... 1,399,901
4,000,000 Kidder Peabody Acceptance Corp., Series 1994-C1,
Class A,
6.65%, 2/1/06...................................... 4,086,300
3,000,000 Nationslink Funding Corp.,
Commercial Mortgage Certificates,
Series 98-1, Class D,
6.803%, 1/20/08.................................... 3,012,300
2,000,000 Painewebber Mortgage Acceptance Corp. IV,
Multifamily Mortgages, Series 1996-M1, Class E,
7.655%, 1/2/12 (a)................................. 2,081,250
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
MORTGAGE-BACKED SECURITIES - CONTINUED
Potomac Gurnee Finance
Corp., Commercial
Mortgage Pass Through
Certificates:
$ 2,448,059 Class A,
6.887%, 12/21/26.................................. $ 2,542,639
2,500,000 Class B,
7.003%, 12/21/26.................................. 2,599,538
Prudential Home Mortgage
Securities:
843,110 Mortgage Pass Through
Certificates, Series 92-
31, Class A5,
6.30%, 10/25/99................................... 841,057
4,788,537 Series 1993-39, Class A8,
6.50%, 10/25/08................................... 4,804,937
3,401,203 Prudential Securities
Secured Financing Corp.,
Series 1994-4, Class A1,
8.12%, 2/15/25.................................... 3,577,301
4,165,335 Saxon Mortgage Securities
Corp., Series 1993-8A,
Class 1A2,
7.375%, 9/25/23................................... 4,205,895
------------
Total Mortgage-Backed
Securities (cost
$112,711,013).................................... 115,616,246
------------
U. S. AGENCY OBLIGATIONS - 2.9%
Federal Home Loan Bank:
3,000,000 6.043%, 4/28/03................................... 3,003,750
5,000,000 6.47%, 9/16/02.................................... 5,015,500
3,150,000 Consolidated Bond,
6.55%, 12/18/02................................... 3,150,000
------------
Total U.S. Agency
Obligations
(cost $11,166,094)............................... 11,169,250
------------
U.S. TREASURY OBLIGATIONS - 21.2%
U.S. Treasury Notes:
9,500,000 5.50%, 2/15/08.................................... 9,500,009
9,000,000 5.75%, 4/30/03.................................... 9,090,009
21,000,000 6.125%, 8/15/07................................... 21,866,271
8,000,000 6.25%, 2/15/07.................................... 8,382,504
2,500,000 6.50%, 10/15/06................................... 2,656,253
9,000,000 6.625%, 5/15/07................................... 9,675,009
4,980,000 7.00%, 7/15/06.................................... 5,442,209
4,500,000 7.75%, 11/30/99................................... 4,635,004
11,000,000 8.875%, 2/15/99................................... 11,226,886
------------
Total U. S. Treasury
Obligations
(cost $83,063,323).................................. 82,474,154
------------
TAXABLE MUNICIPAL BONDS - 0.8% (COST 2,885,285)
2,900,000 Virginia State Housing
Development Authority,
Subseries A-4,
7.00%, 1/1/14.................................... 3,074,580
------------
FOREIGN BONDS - (US DOLLAR
DENOMINATED) - 7.3%
5,000,000 Boral Limited Australia
Co., MTN, 7.90%, 11/19/99
(a).............................................. 5,144,415
Korea Development Bank,
Bond:
5,000,000 7.25%, 5/15/06.................................... 4,054,130
6,000,000 7.375%, 9/17/04................................... 4,890,516
</TABLE>
36
<PAGE>
EVERGREEN
Short Intermediate Bond Fund
SCHEDULE OF INVESTMENTS(continued)
June 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
FOREIGN BONDS - (US DOLLAR DENOMINATED) - CONTINUED
$ 6,000,000 National Bank of Canada,
Yankee Notes, Series B,
8.125%, 8/15/04................................... $ 6,572,886
6,500,000 Petroliam Nasional Berhad,
Bond,
7.125%, 10/18/06 (a).............................. 5,732,051
2,000,000 Ras Laffan Liquefied Natural Gas, Bond,
7.628%, 9/15/06 (a)............................... 1,943,912
------------
Total Foreign Bonds - (US Dollar Denominated) (cost
$30,983,680)...................................... 28,337,910
------------
</TABLE>
(a) Securities that may be sold to qualified institutional buyers under
Rule 144A or securities offered pursuant to Section 4(2) of the Secu-
rities Act of 1933, as amended. These securities have been determined
to be liquid under guidelines established by the Board of Trustees.
(b) Effective yield (calculated at the time of purchase) is the yield at
which the bond accretes on an annual basis until maturity date.
LEGEND OF PORTFOLIO ABBREVIATIONS
MTN Medium Term Note
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT - 0.0% (COST $221,289)
$ 221,289 Donaldson, Lufkin & Jenrette Securities Corp.,
5.75% dated 06/30/98, due 07/01/98, maturity value
$221,324 (Collateralized by $520,000 U.S. Treasury
STRIPS, due 02/15/13, value, including accrued
interest $225,842)................................ $ 221,289
------------
TOTAL INVESTMENTS -
(COST $383,973,617)......................... 99.2% 385,984,491
OTHER ASSETS AND LIABILITIES - NET........... 0.8 3,030,576
----- ------------
NET ASSETS -................................. 100.0% $389,015,067
===== ============
</TABLE>
See Combined Notes to Financial Statements.
37
<PAGE>
EVERGREEN
Short and Intermediate Term Bond Fund
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1998
<TABLE>
<CAPTION>
Capital Intermediate Intermediate Short
Preservation Bond Government Intermediate
Fund Fund Fund Fund
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments at market
value (identified
cost-$47,318,629,
$200,306,590,
$176,856,143 and
$383,973,617,
respectively).......... $47,385,859 $203,797,260 $180,443,312 $385,984,491
Cash.................... 647 0 0 0
Principal paydown
receivable............. 420,347 0 0 714
Interest receivable..... 399,819 3,454,770 1,923,580 5,536,950
Receivable for Fund
shares sold............ 1,200 37,404 196,305 247,544
Receivable for
investments sold....... 0 987,918 0 0
Unrealized appreciation
on forward foreign
currency contracts..... 0 88,483 0 0
Prepaid expenses and
other assets........... 25,605 97,984 16,441 57,441
- ----------------------------------------------------------------------------------
Total assets.......... 48,233,477 208,463,819 182,579,638 391,827,140
- ----------------------------------------------------------------------------------
LIABILITIES
Dividends payable....... 80,968 369,397 299,177 833,595
Payable for Fund shares
redeemed............... 48,667 716,739 201,280 1,710,011
Due to related
parties................ 30,440 45,420 94,123 169,177
Distribution fee
payable................ 6,246 73,491 0 17,449
Accrued Trustees' fees
and expenses........... 815 11,459 7,779 21,867
Payable for reverse
repurchase
agreements............. 0 3,500,573 0 0
Due to custodian........ 0 29,790 0 0
Accrued expenses and
other liabilities...... 16,148 71,600 36,033 59,974
- ----------------------------------------------------------------------------------
Total liabilities..... 183,284 4,818,469 638,392 2,812,073
- ----------------------------------------------------------------------------------
NET ASSETS $48,050,193 $203,645,350 $181,941,246 $389,015,067
- ----------------------------------------------------------------------------------
NET ASSETS REPRESENTED
BY
Paid-in capital......... $54,848,044 $215,090,111 $198,348,192 $404,144,613
Distributions in excess
of net investment
income................. (81,569) (381,370) (41,722) (199,106)
Accumulated net
realized loss on
investments and
foreign currency
related transactions... (6,783,512) (14,640,938) (19,952,393) (16,941,314)
Net unrealized
appreciation on
investments and
foreign currency
related transactions... 67,230 3,577,547 3,587,169 2,010,874
- ----------------------------------------------------------------------------------
Total net assets...... $48,050,193 $203,645,350 $181,941,246 $389,015,067
- ----------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Class A................. $18,022,236 $123,722,642 $ 81,033,871 $ 16,848,094
Class B................. 26,056,021 10,763,332 1,052,160 22,689,226
Class C................. 3,971,936 5,438,597 126,497 1,143,291
Class Y................. -- 63,720,779 99,728,718 348,334,456
- ----------------------------------------------------------------------------------
$48,050,193 $203,645,350 $181,941,246 $389,015,067
- ----------------------------------------------------------------------------------
SHARES OUTSTANDING
Class A................. 1,851,308 13,624,306 7,939,396 1,702,321
Class B................. 2,674,041 1,183,619 103,086 2,287,879
Class C................. 407,970 598,217 12,394 115,273
Class Y................. -- 7,017,260 9,771,069 35,195,495
- ----------------------------------------------------------------------------------
NET ASSET VALUE PER
SHARE
Class A................. $ 9.73 $ 9.08 $ 10.21 $ 9.90
- ----------------------------------------------------------------------------------
Class A--Offering price
(based on sales charge
of 3.25%).............. $ 10.06 $ 9.39 $ 10.55 $ 10.23
- ----------------------------------------------------------------------------------
Class B................. $ 9.74 $ 9.09 $ 10.21 $ 9.92
- ----------------------------------------------------------------------------------
Class C................. $ 9.74 $ 9.09 $ 10.21 $ 9.92
- ----------------------------------------------------------------------------------
Class Y................. -- $ 9.08 $ 10.21 $ 9.90
- ----------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
38
<PAGE>
EVERGREEN
Short and Intermediate Term Bond Funds
STATEMENTS OF OPERATIONS
Year ended June 30, 1998
<TABLE>
<CAPTION>
Capital Intermediate Intermediate Short
Preservation Bond Government Intermediate
Fund Fund Fund Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest (net of foreign
withholding taxes of $0,
$2,393, $0 and $0,
respectively)........... $3,250,458 $6,544,221 $7,005,323 $27,445,658
- --------------------------------------------------------------------------------
EXPENSES
Distribution Plan
expenses................ 365,926 296,425 80,936 239,174
Management fee........... 307,654 574,715 668,939 1,976,366
Transfer agent fees...... 87,227 182,600 45,534 336,004
Registration and filing
fees.................... 52,502 144,108 62,836 58,227
Shareholders reports
expense................. 33,823 77,260 21,857 72,141
Custodian fees........... 16,901 36,627 35,706 142,039
Administrative services
fees.................... 8,656 17,249 33,343 123,018
Trustees' fees and
expenses................ 2,717 7,592 3,663 12,811
Other.................... 19,426 37,907 27,771 42,976
Fee waivers and/or
expense reimbursements.. (212,054) (285,486) (54,649) 0
- --------------------------------------------------------------------------------
Total expenses.......... 682,778 1,088,997 925,936 3,002,756
Less: Indirectly paid
expenses................ (1,244) (6,912) (914) (3,939)
- --------------------------------------------------------------------------------
Net expenses............ 681,534 1,082,085 925,022 2,998,817
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME.... 2,568,924 5,462,136 6,080,301 24,446,841
- --------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND
FOREIGN CURRENCY RELATED
TRANSACTIONS
Net realized gain (loss)
on:
Investments............. 162,335 449,089 263,411 (1,189,957)
Foreign currency related
transactions........... 0 (355,667) 0 0
- --------------------------------------------------------------------------------
Net realized gain (loss)
on investments and
foreign currency related
transactions............ 162,335 93,422 263,411 (1,189,957)
- --------------------------------------------------------------------------------
Net change in unrealized
appreciation
(depreciation) on:
Investments............. (474,778) 468,516 1,220,668 3,858,427
Foreign currency related
transactions........... 0 50,268 0 0
- --------------------------------------------------------------------------------
Net change in unrealized
appreciation
(depreciation) on
investments and foreign
currency related
transactions............ (474,778) 518,784 1,220,668 3,858,427
- --------------------------------------------------------------------------------
Net realized and
unrealized gain (loss)
on investments and
foreign currency
related transactions.... (312,443) 612,206 1,484,079 2,668,470
- --------------------------------------------------------------------------------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS.............. $2,256,481 $6,074,342 $7,564,380 $27,115,311
- --------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
39
<PAGE>
EVERGREEN
Short and Intermediate Term bond Funds
STATEMENTS OF CHANGES IN NET ASSETS
Year ended June 30, 1998
<TABLE>
<CAPTION>
Capital Intermediate Intermediate Short
Preservation Bond Government Intermediate
Fund Fund Fund Fund
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income... $ 2,568,924 $ 5,462,136 $ 6,080,301 $ 24,446,841
Net realized gain (loss)
on investments and
foreign currency
related transactions... 162,335 93,422 263,411 (1,189,957)
Net change in unrealized
appreciation
(depreciation) on
investments and foreign
currency related
transactions........... (474,778) 518,784 1,220,668 3,858,427
- -----------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ 2,256,481 6,074,342 7,564,380 27,115,311
- -----------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income
Class A................ (865,044) (2,914,112) (1,551,596) (1,003,205)
Class B................ (1,436,957) (644,528) (35,699) (1,108,182)
Class C................ (201,810) (403,611) (5,115) (53,200)
Class Y................ 0 (1,626,128) (4,476,803) (22,216,773)
In excess of net
investment income
Class A................ (22,496) (46,536) 0 0
Class B................ (37,369) (10,293) 0 0
Class C................ (5,248) (6,445) 0 0
Class Y................ 0 (25,968) 0 0
- -----------------------------------------------------------------------------------
Total distributions to
shareholders.......... (2,568,924) (5,677,621) (6,069,213) (24,381,360)
- -----------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS
Proceeds from shares
sold................... 19,443,143 24,366,074 19,195,384 140,518,437
Proceeds from shares
issued in connection
with the acquisition
of:
Blanchard Short-Term
Flexible Income Fund.. 0 116,766,103 0 0
Evergreen Intermediate
Term Bond Fund II..... 0 66,213,695 0 0
Virtus U.S. Government
Securities Fund....... 0 0 133,551,466 0
Proceeds from
reinvestment of
distributions.......... 1,756,964 3,396,992 4,080,093 13,099,071
Payment for shares
redeemed............... (25,657,158) (36,461,819) (49,294,072) (166,012,044)
- -----------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from capital
share transactions.... (4,457,051) 174,281,045 107,532,871 (12,394,536)
- -----------------------------------------------------------------------------------
Total increase
(decrease) in net
assets............... (4,769,494) 174,677,766 109,028,038 (9,660,585)
NET ASSETS
Beginning of year....... 52,819,687 28,967,584 72,913,208 398,675,652
- -----------------------------------------------------------------------------------
END OF YEAR............. $48,050,193 $203,645,350 $181,941,246 $389,015,067
- -----------------------------------------------------------------------------------
Distributions in excess
of net investment
income................. $ (81,569) $ (381,370) $ (41,722) $ (199,106)
- -----------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
40
<PAGE>
EVERGREEN
Short and Intermediate Term Bond Funds
STATEMENTS OF CHANGES IN NET ASSETS
Prior Periods
<TABLE>
<CAPTION>
INTERMEDIATE SHORT
GOVERNMENT INTERMEDIATE
CAPITAL PRESERVATION FUND INTERMEDIATE BOND FUND FUND FUND
--------------------------------- ----------------------------- ------------- -------------
Nine Months Year Eleven Months Year Year Year
Ended Ended Ended Ended Ended Ended
June 30, 1997* September 30, 1996 June 30, 1997** July 31, 1996 June 30, 1997 June 30, 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income... $ 2,537,291 $ 4,442,259 $ 1,846,301 $ 2,540,623 $ 5,023,428 $ 25,626,353
Net realized gain (loss)
on investments and
foreign currency
related transactions... (101,173) (549,777) 104,018 26,604 (16,049) (2,101,788)
Net change in unrealized
appreciation
(depreciation) on
investments and foreign
currency related
transactions........... 279,120 648,310 669,755 (730,346) 219,766 2,666,233
- -----------------------------------------------------------------------------------------------------------------------
Net increase in net
assets resulting from
operations............ 2,715,238 4,540,792 2,620,074 1,836,881 5,227,145 26,190,798
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income
Class A................ (710,409) (1,089,444) (666,667) (898,299) (31,632) (1,217,283)
Class B................ (1,412,040) (2,568,398) (719,674) (1,028,103) (29,748) (1,225,460)
Class C................ (160,768) (147,748) (417,078) (576,335) (1,189) (58,085)
Class Y................ 0 0 0 0 (4,959,781) (23,369,583)
In excess of net
investment income
Class A................ (20,595) 0 0 0 (97) 0
Class B................ (40,936) 0 0 0 (91) 0
Class C................ (4,661) 0 0 0 (4) 0
Class Y................ 0 0 0 0 (15,207) 0
Tax basis return of
capital
Class A................ 0 (52,292) 0 0 0 0
Class B................ 0 (123,279) 0 0 0 0
Class C................ 0 (7,092) 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders.......... (2,349,409) (3,988,253) (1,803,419) (2,502,737) (5,037,749) (25,870,411)
- -----------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS
Proceeds from shares
sold................... 8,631,265 12,691,883 3,559,906 10,120,565 35,487,793 122,641,025
Proceeds from
reinvestment of
distributions.......... 1,854,608 2,823,494 1,095,398 1,417,473 3,993,534 15,137,626
Payment for shares
redeemed............... (28,964,306) (30,181,809) (14,580,292) (15,524,524) (54,650,906) (132,309,835)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from capital
share transactions.... (18,478,433) (14,666,432) (9,924,988) (3,986,486) (15,169,579) 5,468,816
- -----------------------------------------------------------------------------------------------------------------------
Total increase
(decrease) in net
assets............... (18,112,604) (14,113,893) (9,108,333) (4,652,342) (14,980,183) 5,789,203
NET ASSETS
Beginning of period..... 70,932,291 85,046,184 38,075,917 42,728,259 87,893,391 392,886,449
- -----------------------------------------------------------------------------------------------------------------------
END OF PERIOD........... $52,819,687 $70,932,291 $28,967,584 $38,075,917 $72,913,208 $398,675,652
- -----------------------------------------------------------------------------------------------------------------------
Undistributed net
investment income
(accumulated
distributions in excess
of net investment
income)................ $ (95,813) $ (305,808) $ 242,787 $ (21,199) $ (5,097) $ (16,203)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* During the period, the Fund changed its fiscal year end from September 30 to
June 30.
** During the period, the Fund changed its fiscal year end from July 31 to June
30.
See Combined Notes to Financial Statements.
41
<PAGE>
[ARTWORK APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The Evergreen Short and Intermediate Term Bond Funds consist of Evergreen
Capital Preservation and Income Fund ("Capital Preservation Fund"), Evergreen
Intermediate Term Bond Fund ("Intermediate Bond Fund"), Evergreen Intermediate
Term Government Securities Fund ("Intermediate Government Fund") and Evergreen
Short Intermediate Bond Fund ("Short Intermediate Fund"), (collectively, the
"Funds"). Each Fund is a diversified series of Evergreen Fixed Income Trust
(the "Trust"), a Delaware business trust organized on September 18, 1997. The
Trust is an open end management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act").
The Funds offer Class A, Class B, Class C and/or Class Y shares. Class A shares
are sold with a maximum front-end sales charge of 3.25%. Class B and Class C
shares are sold without a front-end sales charge, but pay a higher ongoing
distribution fee than Class A. Class B shares are sold subject to a contingent
deferred sales charge that is payable upon redemption and decreases depending
on how long the shares have been held. Class B shares of Capital Preservation
Fund and Intermediate Bond Fund purchased after January 1, 1997 will
automatically convert to Class A shares after seven years. Class B shares of
Capital Preservation Fund and Intermediate Bond Fund purchased prior to January
1, 1997 retain their existing conversion rights. For Intermediate Government
Fund and Short Intermediate Fund, all Class B shares will automatically convert
to Class A shares after seven years. 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 sold at net asset value and are
not subject to contingent deferred sales charges or distribution fees. Class Y
shares are sold only to investment advisory clients of First Union Corporation
("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.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles, which
require management to make estimates and assumptions that affect amounts
reported herein. Actual results could differ from these estimates.
A. VALUATION OF SECURITIES
U.S. government obligations held by the Funds are valued at the mean between
the over-the-counter bid and asked prices. Corporate bonds, other fixed-income
securities, and mortgage and other asset-backed securities are valued at prices
provided by an independent pricing service. In determining value for normal
institutional-size transactions, the pricing service uses methods based on
market transactions for comparable securities and analysis of various
relationships between similar securities which are generally recognized by
institutional traders. Securities for which valuations are not available from
an independent pricing service (including restricted securities) are valued at
fair value as determined in good faith according to procedures established by
the Board of Trustees.
Short-term investments with remaining maturities of 60 days or less are carried
at amortized cost, which approximates market value.
B. REPURCHASE AGREEMENTS
Each Fund may invest in repurchase agreements. Securities pledged as collateral
for repurchase agreements are held by the custodian on the Fund's behalf. Each
Fund monitors the adequacy of the collateral daily and will require the seller
to provide additional collateral in the event the market value of the
securities pledged falls below the carrying value of the repurchase agreement,
including accrued interest. Each Fund will only enter into repurchase
agreements with banks and other financial institutions which are deemed by the
investment advisor to be creditworthy pursuant to guidelines established by the
Board of Trustees.
42
<PAGE>
[ARTWORK APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Capital Preservation Fund and Intermediate Bond Fund, along
with certain other funds managed by Keystone Investment Management Company
("Keystone"), a subsidiary of First Union, may transfer uninvested cash
balances into a joint trading account. These balances are invested in one or
more repurchase agreements that are fully collateralized by U.S. Treasury
and/or federal agency obligations.
C. REVERSE REPURCHASE AGREEMENTS
To obtain short-term financing, the Capital Preservation Fund and Intermediate
Bond Fund may enter into reverse repurchase agreements with qualified third-
party broker-dealers. Interest on the value of reverse repurchase agreements is
based upon competitive market rates at the time of issuance. At the time the
Fund enters into a reverse repurchase agreement, it will establish and maintain
a segregated account with the custodian containing qualifying assets having a
value not less than the repurchase price, including accrued interest. If the
counterparty to the transaction is rendered insolvent, the ultimate realization
of the securities to be repurchased by the Fund may be delayed or limited.
D. FOREIGN CURRENCY
The books and records of the Funds are maintained in United States (U.S.)
dollars. Foreign currency amounts are translated into U.S. dollars as follows:
market value of investments, other assets and liabilities at the daily rate of
exchange; purchases and sales of investments, income and expenses at the rate
of exchange prevailing on the respective dates of such transactions. Net
unrealized foreign exchange gain (loss) resulting from changes in foreign
currency exchange rates is a component of net unrealized appreciation
(depreciation) on investments and foreign currency related transactions. Net
realized foreign currency gains and losses resulting from changes in exchange
rates include foreign currency gains and losses between trade date and
settlement date on investment securities transactions, foreign currency related
transactions and the difference between the amounts of interest and dividend
recorded on the books of the Fund and the amount actually received and is
included in realized gain (loss) on foreign currency related transactions. The
portion of foreign currency gains and losses related to fluctuations in
exchange rates between the initial purchase trade date and subsequent sale
trade date is included in realized gain (loss) on investments.
E. SECURITY TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts.
F. SECURITIES LENDING
In order to generate income and to offset expenses, the Funds may lend
portfolio securities to brokers, dealers and other financial organizations. The
Fund's investment adviser will monitor the creditworthiness of such borrowers.
Loans of securities may not exceed 33 1/3% of a Fund's total assets and will be
collateralized by cash, letters of credit or U.S. Government securities that
are maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities, including interest. While such
securities are out on loan, the borrower will pay the Fund any income accruing
thereon and the Fund may invest the collateral in portfolio securities,
thereby, increasing its return. Any gain or loss in the market price of the
loaned securities, which occur during the term of the loan would affect the
Fund and its investors. A Fund may pay reasonable fees in connection with such
loans.
G. DISTRIBUTIONS
Distributions from net investment income for each Fund are declared daily and
paid monthly. Distributions from net realized capital gains for each Fund, 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
43
<PAGE>
[ARTWORK APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
income tax regulations are primarily due to differing treatment for mortgage
paydown gains (losses) and foreign currency related transactions.
H. CLASS ALLOCATIONS
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the
relative net assets of each class. Currently, class specific expenses are
limited to expenses incurred under the Distribution Plans for each class.
I. FEDERAL INCOME TAXES
The Funds have qualified and intend to continue to qualify as regulated
investment companies under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Funds will not incur any federal income tax liability since
they are expected to distribute all of their net investment company taxable
income and net capital gains, if any, to their shareholders. The Funds also
intend to avoid any excise tax liability by making the required distributions
under the Code. Accordingly, no provision for federal income taxes is required.
To the extent that realized capital gains can be offset by capital loss
carryforwards, it is each Fund's policy not to distribute such gains.
Capital losses incurred after October 31, within the Fund's fiscal year are
deemed to arise on the first business day of the Fund's following fiscal year.
The Short Intermediate Fund has incurred and will elect to defer post October
losses of $683,000.
2. CAPITAL SHARE TRANSACTIONS
The Funds have an unlimited number of shares of beneficial interest with a par
value of $0.001 authorized. Shares of beneficial interest of the Funds are
currently divided into Class A, Class B, Class C and/or Class Y. Transactions
in shares of the Funds were as follows:
Capital Preservation Fund
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended Year Ended
June 30, 1998 June 30, 1997 September 30, 1996
------------------------ ------------------------ ------------------------
Shares Amount Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold............. 1,684,678 $ 16,480,670 534,956 $ 5,229,171 808,295 $ 7,859,112
Shares issued in
reinvestment of
distributions.......... 62,340 609,698 61,902 604,810 89,475 865,840
Shares redeemed ........ (1,502,907) (14,712,976) (1,318,046) (12,878,080) (563,085) (5,471,951)
- ------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 244,111 $ 2,377,392 (721,188) $ (7,044,099) 334,685 $ 3,253,001
- ------------------------------------------------------------------------------------------------------
CLASS B
Shares sold............. 212,637 $ 2,082,936 182,841 $ 1,788,928 282,004 $ 2,742,007
Shares issued in
reinvestment of
distributions.......... 99,464 974,126 114,536 1,119,992 187,040 1,829,883
Shares redeemed......... (998,736) (9,785,685) (1,459,187) (14,270,487) (2,455,640) (23,865,587)
- ------------------------------------------------------------------------------------------------------
Net decrease............ (686,635) $ (6,728,623) (1,161,810) $(11,361,567) (1,986,596) $(19,293,697)
- ------------------------------------------------------------------------------------------------------
CLASS C
Shares sold............. 89,775 $ 879,537 164,962 $ 1,613,166 215,390 $ 2,090,764
Shares issued in
reinvestment of
distributions.......... 17,696 173,140 13,283 129,806 12,718 127,771
Shares redeemed......... (118,346) (1,158,497) (185,566) (1,815,739) (86,982) (844,271)
- ------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. (10,875) $ (105,820) (7,321) $ (72,767) 141,126 $ 1,374,264
- ------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
[ARTWORK APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
Intermediate Bond Fund
<TABLE>
<CAPTION>
Eleven Months
Year Ended Ended Year Ended
June 30, 1998 June 30, 1997 July 31, 1996
------------------------ --------------------- ---------------------
Shares Amount Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold............. 955,523 $ 8,660,565 175,221 $ 1,566,271 258,497 $ 2,283,194
Shares issued in
acquisition of:
Evergreen Intermediate
Term Bond Fund II...... 349,314 3,173,762 0 0 0 0
Blanchard Short-Term
Flexible Income Fund... 12,856,531 116,766,103 0 0 0 0
Shares issued in
reinvestment of
distributions.......... 263,979 2,392,256 45,592 404,429 52,934 469,775
Shares redeemed......... (1,958,558) (17,753,140) (547,872) (4,863,536) (465,961) (4,141,580)
- --------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 12,466,789 $113,239,546 (327,059) $(2,892,836) (154,530) $(1,388,611)
- --------------------------------------------------------------------------------------------------
CLASS B
Shares sold............. 150,439 $ 1,368,742 170,620 $ 1,528,256 555,555 $ 4,965,806
Shares issued in
acquisition of:
Evergreen Intermediate
Term Bond Fund II...... 129,724 1,180,255 0 0 0 0
Shares issued in
reinvestment of
distributions.......... 36,150 328,759 46,270 411,336 63,537 565,232
Shares redeemed......... (403,520) (3,667,231) (779,593) (6,943,044) (808,199) (7,205,208)
- --------------------------------------------------------------------------------------------------
Net decrease............ (87,207) $ (789,475) (562,703) $(5,003,452) (189,107) $(1,674,170)
- --------------------------------------------------------------------------------------------------
CLASS C
Shares sold............. 243,096 $ 2,208,772 52,022 $ 465,379 318,799 $ 2,871,565
Shares issued in
acquisition of:
Evergreen Intermediate
Term Bond Fund II...... 5,677 51,630 0 0 0 0
Shares issued in
reinvestment of
distributions.......... 30,163 274,457 31,491 279,633 42,997 382,466
Shares redeemed......... (492,378) (4,464,809) (311,128) (2,773,712) (468,122) (4,177,736)
- --------------------------------------------------------------------------------------------------
Net decrease............ (213,442) $ (1,929,950) (227,615) $(2,028,700) (106,326) $ (923,705)
- --------------------------------------------------------------------------------------------------
<CAPTION>
January 26, 1998
(Commencement of
Class Operations)
through June 30, 1998
------------------------
Shares Amount
------------------------
<S> <C> <C>
CLASS Y
Shares sold............. 1,335,378 $ 12,127,995
Shares issued in
acquisition of:
Evergreen Intermediate
Term Bond Fund II...... 6,802,769 61,808,048
Shares issued in
reinvestment of
distributions.......... 44,309 401,520
Shares redeemed......... (1,165,196) (10,576,639)
- ----------------------------------------------------
Net increase............ 7,017,260 $ 63,760,924
- ----------------------------------------------------
</TABLE>
45
<PAGE>
[ARTWORK APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
Intermediate Government Fund
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1998 June 30, 1997
------------------------ ------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold............... 230,309 $ 2,342,853 10,763 $ 107,284
Shares issued in
acquisition of Virtus
U.S. Government
Securities Fund.......... 8,857,360 90,273,998
Shares issued in
reinvestment of
distributions............ 118,050 1,202,780 2,429 24,330
Shares redeemed........... (1,323,352) (13,483,204) (5,953) (59,462)
- ------------------------------------------------------------------------------
Net increase.............. 7,882,367 $ 80,336,427 7,239 $ 72,152
- ------------------------------------------------------------------------------
CLASS B
Shares sold............... 79,762 $ 811,849 49,960 $ 500,124
Shares issued in
reinvestment of
distributions............ 2,377 24,146 1,735 17,379
Shares redeemed........... (53,064) (538,430) (13,674) (136,147)
- ------------------------------------------------------------------------------
Net increase.............. 29,075 $ 297,565 38,021 $ 381,356
- ------------------------------------------------------------------------------
CLASS C
Shares sold............... 10,721 $ 108,822 2,288 $ 22,910
Shares issued in
reinvestment of
distributions............ 496 5,037 85 967
Shares redeemed........... (30) (306) (4,419) (44,414)
- ------------------------------------------------------------------------------
Net increase (decrease)... 11,187 $ 113,553 (2,046) $ (20,537)
- ------------------------------------------------------------------------------
CLASS Y
Shares sold............... 1,570,425 $ 15,931,860 3,476,575 $ 34,857,475
Shares issued in
acquisition of Virtus
U.S. Government
Securities Fund.......... 4,246,474 43,277,468 0 0
Shares issued in
reinvestment
distributions............ 280,814 2,848,130 394,427 3,950,858
Shares redeemed........... (3,469,534) (35,272,132) (5,437,776) (54,410,883)
- ------------------------------------------------------------------------------
Net increase (decrease)... 2,628,179 $ 26,785,326 (1,566,774) $(15,602,550)
- ------------------------------------------------------------------------------
</TABLE>
Short Intermediate Fund
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1998 June 30, 1997
-------------------------- --------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold............. 500,922 $ 4,955,344 584,893 $ 5,786,371
Shares issued in
reinvestment of
distributions.......... 76,079 752,038 93,998 924,863
Shares redeemed......... (674,862) (6,681,274) (775,720) (7,650,833)
- --------------------------------------------------------------------------------
Net decrease............ (97,861) $ (973,892) (96,829) $ (939,599)
- --------------------------------------------------------------------------------
CLASS B
Shares sold............. 1,023,010 $ 10,138,464 520,912 $ 5,138,212
Shares issued in
reinvestment of
distributions.......... 78,547 778,080 87,527 862,791
Shares redeemed......... (1,071,136) (10,623,170) (486,579) (4,795,124)
- --------------------------------------------------------------------------------
Net increase............ 30,421 $ 293,374 121,860 $ 1,205,879
- --------------------------------------------------------------------------------
CLASS C
Shares sold............. 64,686 $ 642,818 35,729 $ 354,646
Shares issued in
reinvestment of
distributions.......... 4,490 44,480 4,508 44,442
Shares redeemed......... (58,395) (579,321) (53,064) (524,077)
- --------------------------------------------------------------------------------
Net increase
(decrease)............. 10,781 $ 107,977 (12,827) $ (124,989)
- --------------------------------------------------------------------------------
CLASS Y
Shares sold............. 12,608,737 $ 124,781,811 11,302,391 $ 111,361,796
Shares issued in
reinvestment of
distributions.......... 1,165,985 11,524,473 1,353,407 13,305,530
Shares redeemed......... (14,971,442) (148,128,279) (12,121,462) (119,339,801)
- --------------------------------------------------------------------------------
Net increase
(decrease)............. (1,196,720) $ (11,821,995) 534,336 $ 5,327,525
- --------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
[ARTWORK 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 year ended June 30, 1998:
<TABLE>
<CAPTION>
Cost of Purchases Proceeds from Sales
---------------------------- ----------------------------
U.S. Government Other U.S. Government Other
--------------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
Capital Preservation
Fund................... $ 34,505,283 $ 7,001,629 $ 45,210,651 $ 0
Intermediate Bond Fund.. 145,906,750 153,387,945 231,420,018 62,975,390
Intermediate Government
Fund................... 47,135,045 0 77,483,980 0
Short Intermediate
Fund................... 141,889,283 118,908,133 137,337,799 133,524,515
</TABLE>
On June 30, 1998, the composition of unrealized appreciation and depreciation
of investment securities based on the aggregate cost of investments for federal
income tax purposes was as follows:
<TABLE>
<CAPTION>
Gross Gross Net Unrealized
Tax Unrealized Unrealized Appreciation
Cost Appreciation Depreciation (Depreciation)
------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
Capital Preservation
Fund................... $ 47,323,866 $ 174,327 $ (112,334) $ 61,993
Intermediate Bond Fund.. 200,470,423 3,969,001 (642,164) 3,326,837
Intermediate Government
Fund................... 176,896,637 3,588,365 (41,690) 3,546,675
Short Intermediate
Fund................... 384,045,808 7,778,598 (5,839,915) 1,938,683
</TABLE>
The Short Intermediate Fund loaned securities during the year ended June 30,
1998 to certain brokers who paid the Fund a negotiated lenders' fee. During the
year ended June 30, 1998, the Fund earned $24,160 in income from securities
lending. There were no securities on loan at June 30, 1998.
During the year ended June 30, 1998, the Capital Preservation and Intermediate
Bond Funds had entered into reverse repurchase agreements as follows:
<TABLE>
<CAPTION>
Average Daily
Balance Weighted Average Maximum Amount
Outstanding Interest Rate Outstanding*
------------- ---------------- --------------
<S> <C> <C> <C>
Capital Preservation
Fund................... $ 440,893 5.746% $ 1,015,161
Intermediate Bond Fund.. 1,160,425 5.325 33,086,957
</TABLE>
-------
* The Maximum Amount Outstanding under reverse repurchase agreements
includes accrued interest.
On June 30, 1998, the Intermediate Bond Fund had reverse repurchase agreements
outstanding in the amount of $3,500,573 (including accrued interest) with in-
terest rates varying from 4.25% to 5.90%.
As of June 30, 1998, the Funds had capital loss carryovers for federal income
tax purposes as follows:
<TABLE>
<CAPTION>
Expiration
--------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 2006
-------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Capital Preservation
Fund................... -- $5,685,000 $ 197,000 $ 642,000 $ 254,000 -- --
Intermediate Bond Fund.. $598,000 2,688,000 9,514,000 118,000 359,000 $1,200,000 --
Intermediate Government
Fund................... -- -- 9,743,000 2,020,000 4,450,000 3,660,000 $ 39,000
Short Intermediate
Fund................... -- -- 6,021,000 -- 4,049,000 4,374,000 1,743,000
</TABLE>
4. DISTRIBUTION PLANS
Evergreen Distributor, Inc. ("EDI"), a wholly-owned subsidiary of The BISYS
Group Inc. ("BISYS"), serves as principal underwriter to the Funds.
Each Fund has adopted Distribution Plans for each class of shares, except Class
Y, as allowed by Rule 12b-1 of the 1940 Act. Distribution plans permit each
Fund to reimburse its principal underwriter for costs related to selling shares
of the Fund and for various other services. These costs, which consist primar-
ily of commissions and services fees to broker-dealers who sell shares of the
Fund, are paid by shareholders through expenses called Distribution Plan ex-
penses. Each class, except Class Y, currently pays a service fee equal to 0.25%
of the average daily net assets of the class. The service fee for Class A
shares of Short Intermediate is currently limited to 0.10% of average daily net
assets. Class B and Class C of each Fund also pay distribution fees equal to
0.75% of the average daily net assets of each respective class. Distribution
Plan expenses are calculated daily and paid monthly.
47
<PAGE>
[ARTWORK APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
During the year ended June 30, 1998, amounts accrued or paid to EDI pursuant to
each Fund's Class A, Class B and Class C Distribution Plans were as follows:
<TABLE>
<CAPTION>
Class A Class B Class C
-------------------------
<S> <C> <C> <C>
Capital Preservation Fund.......... $ 33,973 $290,982 $40,971
Intermediate Bond Fund............. 120,529 109,116 66,780
Intermediate Government Fund....... 71,906 7,899 1,131
Short Intermediate Fund............ 16,363 212,701 10,110
</TABLE>
For the year ended June 30, 1998, EDI waived Class A distribution fees for the
Intermediate Government Fund in the amount of $54,649.
The principal underwriter may pay distribution fees greater than the allowable
annual amounts the Funds are permitted to pay under the Distribution Plans. The
Funds may reimburse the principal underwriter for such excess amounts in later
years with annual interest at the prime rate plus 1.00%. With respect to Class
B and Class C shares of the Capital Preservation Fund and the Intermediate Bond
Fund, EDI intends but is not obligated to continue to pay distribution costs
that exceed the current annual payments from the Funds. EDI intends to seek
full payment of such distribution costs from the Funds at such time in the fu-
ture as, and to the extent that, payment thereof by Class B and C shares would
be within the permitted limits.
Each of the Distribution Plans may be terminated at any time by vote of the In-
dependent Trustees or by vote of a majority of the outstanding voting shares of
the respective class. However, for the Capital Preservation Fund and the Inter-
mediate Bond Fund, after the termination of any Distribution Plan and subject
to the discretion of the Independent Trustees, payments to EDI may continue as
compensation for services which had been provided while the Distribution Plans
were in effect.
5. INVESTMENT MANAGEMENT AGREEMENT AND OTHER AFFILIATED TRANSACTIONS
Keystone is the investment adviser for the Capital Preservation Fund and the
Intermediate Bond Fund and 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 each
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 in-
crease, to the average daily net asset value of each Fund.
Capital Management Group ("CMG") of First Union National Bank, a subsidiary of
First Union, serves as the investment adviser to the Intermediate Government
Fund and Short Intermediate Fund and is paid a management fee that is computed
daily and paid monthly. For the Intermediate Government Fund, CMG is entitled
to a fee at an annual rate of 0.60% of the Fund's average daily net assets. For
the Short Intermediate Fund, CMG is entitled to a fee at an annual rate of
0.50% of the Fund's average daily net assets.
For each of the Funds, Evergreen Investment Services, Inc. ("EIS"), a subsidi-
ary of First Union, is the administrator and BISYS serves as the sub-adminis-
trator. As sub-administrator to the Funds, BISYS provides the officers of the
Funds.
The administrator and sub-administrator for the Intermediate Government Fund
and Short Intermediate Fund are entitled to an annual fee based on the average
daily net assets of the funds administered by EIS for which First Union or its
investment advisory subsidiaries are also the investment advisers. The adminis-
tration 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 each Fund. The sub-administration fee is calculated by applying
percentage rates, which start at 0.01% and decline to 0.004% per annum as net
assets increase, to the average daily net assets of each Fund.
As administrator for the Capital Preservation Fund and the Intermediate Bond
Fund, EIS also provides facilities, equipment and personnel on behalf of the
Fund's investment adviser and is reimbursed by the Fund for its services. For
Capital Preservation Fund and Intermediate Bond Fund, the sub-administration
fee is paid by Keystone and is not a fund expense.
48
<PAGE>
[ARTWORK APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
For the Capital Preservation Fund and Intermediate Bond Fund, Keystone has vol-
untarily limited the expenses, excluding indirectly paid expenses, to the fol-
lowing rates based on the average daily net assets of each respective class:
<TABLE>
<CAPTION>
Average Daily Net
Assets
-----------------------
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Capital Preservation Fund............ 0.90% 1.65% 1.65%
Intermediate Bond Fund............... 1.10% 1.85% 1.85%
</TABLE>
For the year ended June 30, 1998, the adviser of the following Funds waived
management fees as follows:
<TABLE>
<S> <C>
Capital Preservation Fund............................. $212,054
Intermediate Bond Fund................................ 285,486
</TABLE>
During the year ended June 30, 1998, the Funds paid or accrued to EIS the fol-
lowing amounts for certain administrative services:
<TABLE>
<S> <C>
Capital Preservation Fund............................. $ 8,656
Intermediate Bond Fund................................ 17,249
Intermediate Government Fund.......................... 27,255
Short Intermediate Fund............................... 100,665
</TABLE>
Evergreen Service Company ("ESC"), a wholly-owned subsidiary of Keystone,
serves as the transfer and dividend disbursing agent for the Funds. For certain
accounts, First Union has been sub-contracted to maintain shareholder sub-ac-
count records, take fund purchase and redemption orders and answer inquiries.
For each account of the Intermediate Bond Fund, Intermediate Government Fund
and Short Intermediate Fund, First Union earned a fee which in aggregate to-
taled $16,870, $939, and $115,410, respectively for the year ended June 30,
1998.
Officers of the Funds and affiliated Trustees receive no compensation directly
from the Funds.
6. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an expense offset arrangement with their custodian.
The assets deposited with the custodian under this expense offset arrangement
could have been invested in income-producing assets.
7. DEFERRED TRUSTEES' FEES
Each Independent Trustee of the Funds may defer any or all compensation related
to performance of duties as a Trustee. Each Trustees' deferred balances are al-
located to deferral accounts which are included in the accrued expenses for the
Fund. The investment performance of the deferral accounts are based on the in-
vestment performance of certain Evergreen Funds. Any gains earned or losses in-
curred in the deferral accounts are reported in each Fund's Trustees' fees and
expenses. Trustees will be paid either in one lump sum or in quarterly install-
ments 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.
8. ACQUISITIONS
The Intermediate Bond Fund was organized for the purpose of combining the as-
sets of the Keystone Intermediate Term Bond Fund and Evergreen Intermediate
Term Bond Fund II (formerly, the Evergreen Intermediate-Term Bond Fund).
On January 21, 1998, prior to the combination of assets into Intermediate Bond
Fund, Evergreen Intermediate Term Bond Fund II transferred substantially all of
its net assets attributable to its Class Y shares to Evergreen Select Core Bond
Fund, an institutional fund, through a redemption-in-kind in the amount of ap-
proximately $108,000,000.
Effective on the close of business on January 23, 1998, Intermediate Bond Fund
acquired all the remaining assets and assumed certain liabilities of Evergreen
Intermediate Term Bond Fund II in exchange for Class A,
49
<PAGE>
[ARTWORK APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
Class B, Class C and Class Y shares of the Intermediate Bond Fund. Also, the
Intermediate Bond Fund acquired all the assets and assumed certain liabilities
of Keystone Intermediate Term Bond Fund in exchange for Class A, Class B and
Class C shares of Intermediate Bond Fund.
Effective on the close of business on February 28, 1998, Intermediate Bond Fund
acquired all of the assets and assumed certain liabilities of Blanchard Short-
Term Flexible Income Fund in an exchange for Class A shares of Intermediate
Bond Fund. Also, the Intermediate Government Fund acquired all of the assets
and assumed certain liabilities of Virtus U.S. Government Securities Fund in an
exchange for Class A shares of Intermediate Government Fund.
All of the above acquisitions were accomplished by a tax-free exchange of the
respective shares of each respective fund. The value of assets acquired, number
of shares issued, unrealized appreciation acquired and the aggregate net assets
of each Fund immediately after the acquisition are as follows:
<TABLE>
<CAPTION>
Number of Net Assets
Acquiring Acquired Value of Net Shares Unrealized After
Fund Fund Assets Acquired Issued Appreciation Acquisition
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Intermediate Bond Fund.. Evergreen Intermediate Term Bond Fund II $ 66,213,695 7,287,484 $ 616,992 $ 93,235,040
Intermediate Bond Fund.. Blanchard Short-Term Flexible Income Fund 116,766,103 12,856,531 2,511,574 211,601,433
Intermediate Government
Fund................... Virtus U.S. Government Securities Fund 133,551,466 13,103,834 1,895,706 201,883,701
</TABLE>
9. FINANCING AGREEMENT
On October 31, 1996, a financing agreement between all of the Evergreen Funds,
State Street Bank & Trust ("State Street") and a group of banks (collectively,
the "Banks") became effective. Under this agreement, the Banks provided an
unsecured credit facility in the aggregate amount of $225 million ($112.5 mil-
lion committed and $112.5 million uncommitted) allocated evenly between the
Banks. Borrowings under this facility bore interest at 0.75% per annum above
the Federal Funds rate. A commitment fee of 0.10% per annum was incurred on the
unused portion of the committed facility, which was allocated to all partici-
pating funds. State Street served as administrative agent for the Banks, and as
agent was entitled to a fee of $15,000 which is allocated to all of the Ever-
green Funds. This agreement was terminated on October 31, 1997.
On October 31, 1997, a temporary financing agreement between all of the Ever-
green Funds and First Union became effective. Under this agreement, First Union
provided a fully committed unsecured credit facility in the aggregate amount of
$300 million. Borrowings under this facility bore interest at 1.00% per annum
above the Federal Funds rate. State Street served as administrative agent under
this agreement, but received no compensation for its services.
On December 22, 1997, a financing agreement among all of the Evergreen Funds,
State Street and a group of Banks became effective. Under this agreement, the
Banks provide an unsecured credit facility in the aggregate amount of $400 mil-
lion ($275 million committed and $125 million uncommitted). The credit facility
is allocated evenly among the Banks, except that $15 million of the committed
facility is being provided to the Funds by State Street under a swing line fa-
cility. The credit facility is to be accessed by the Funds for temporary or
emergency purposes only and is subject to each Fund's borrowing restrictions.
Borrowings under this facility bear interest at 0.50% per annum above the Fed-
eral Funds rate. A commitment fee of 0.065% per annum will be incurred on the
unused portion of the committed facility, which will be allocated to all par-
ticipating funds. For its assistance in arranging this financing agreement, the
Capital Market Group of First Union was paid a one time arrangement fee of
$27,500. State Street serves as administrative agent for the Banks, and as ad-
ministrative agent is entitled to a fee of $20,000 per annum which is allocated
to all of the Funds.
During the year ended June 30, 1998, the Funds had no borrowings under these
agreements.
50
<PAGE>
[ARTWORK APPEARS HERE]
INDEPENDENT AUDITOR'S REPORT
Trustees and Shareholders
Evergreen Fixed Income Trust
We have audited the accompanying statements of assets and liabilities, includ-
ing the schedules of investments, of Evergreen Capital Preservation and Income
Fund, Evergreen Intermediate Term Bond Fund, Evergreen Intermediate Term Gov-
ernment Securities Fund and Evergreen Short Intermediate Bond Fund (the
"Funds") of Evergreen Fixed Income Trust (the "Trust") as of June 30, 1998, and
the related statements of operations for the year then ended, and the state-
ments of changes in net assets, and financial highlights for each of the years
or periods presented below:
Evergreen Capital Preservation and Income Fund--statements of changes in
net assets for the year ended June 30, 1998, the nine months ended June 30,
1997 and the year ended September 30, 1996, and financial highlights for
the years or periods presented on pages 16 through 18.
Evergreen Intermediate Term Bond Fund--statements of changes in net assets
for the year ended June 30, 1998, the eleven months ended June 30, 1997 and
the year ended July 31, 1996, and financial highlights for the years or pe-
riods presented on pages 19 through 21.
Evergreen Intermediate Term Government Securities Fund--statements of
changes in net assets for each of the years in the two year period ended
June 30, 1998, and financial highlights for the years or periods presented
on pages 22 through 23, except for the periods ended prior to June 30,
1996. The financial highlights for the periods ended prior to June 30, 1996
were audited by other auditors whose report dated October 6, 1995 expressed
an unqualified opinion therein.
Evergreen Short Intermediate Bond Fund--statements of changes in net assets
for each of the years in the two year period ended June 30, 1998, and fi-
nancial highlights for the years or periods presented on pages 24 through
26.
These financial statements and financial highlights are the responsibility of
the Trust's 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 stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of June 30, 1998 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 fi-
nancial 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 Ever-
green Capital Preservation and Income Fund, Evergreen Intermediate Term Bond
Fund, Evergreen Intermediate Term Government Securities Fund and Evergreen
Short Intermediate Bond Fund, funds of Evergreen Fixed Income Trust, as of June
30, 1998, the results of their operations, changes in their net assets and fi-
nancial highlights for each of the years or periods specified in the first par-
agraph above, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
July 31, 1998
51
<PAGE>
[ARTWORK APPEARS HERE]
ADDITIONAL INFORMATION (UNAUDITED)
On December 15, 1997, a special meeting of shareholders for the Capital Preser-
vation Fund, Intermediate Government Fund and Short Intermediate Fund was held
to consider a number of proposals with the following number of shares repre-
sented at the meeting. On October 16, 1997, the record date for the meeting,
the Funds had the following shares outstanding:
<TABLE>
<CAPTION>
Short
Capital Intermediate Intermediate
Preservation Fund Government Fund Fund
----------------------------------------------
<S> <C> <C> <C>
Record Date Shares Outstanding.. 4,899,426 7,216,931 39,427,061
Shares represented at meeting... 2,791,778 3,863,879 36,315,562
Percentage of record date shares
represented at meeting......... 56.98% 53.54% 92.11%
PROPOSAL 1 - THE PROPOSED
REORGANIZATION OF THE FUND
AS A SERIES OF THE
EVERGREEN FIXED INCOME
TRUST, A DELAWARE BUSINESS
TRUST:
Shares voted "For"......... 2,531,048 3,819,294 31,241,583
Shares voted "Against"..... 50,245 38,882 114,679
Shares voted "Abstain"..... 210,485 5,703 4,959,300
PROPOSAL 2 -
RECLASSIFICATION AS NON-
FUNDAMENTAL INVESTMENT
OBJECTIVE OF THIS FUND
WHOSE INVESTMENT OBJECTIVE
IS CURRENTLY CLASSIFIED AS
FUNDAMENTAL:
Shares voted "For"......... 2,443,185 3,818,694 31,213,583
Shares voted "Against"..... 91,604 38,882 121,618
Shares voted "Abstain"..... 256,989 6,303 4,980,361
PROPOSAL 3 - CHANGES TO
FUNDAMENTAL INVESTMENT
RESTRICTIONS:
To amend the Fundamental
restriction concerning
diversification of
investments:
Shares voted "For"......... 2,435,995 3,822,428 30,953,772
Shares voted "Against"..... 103,440 38,882 363,495
Shares voted "Abstain"..... 252,343 2,569 4,998,295
To amend the Fundamental
restriction concerning
concentration of a Fund's
assets in a particular
industry:
Shares voted "For"......... 2,437,255 3,822,428 30,953,772
Shares voted "Against"..... 102,180 38,882 363,495
Shares voted "Abstain"..... 252,343 2,569 4,998,295
To amend the Fundamental
restriction concerning the
issuance of senior
securities:
Shares voted "For"......... 2,438,791 3,822,428 30,953,772
Shares voted "Against"..... 101,399 38,882 363,495
Shares voted "Abstain"..... 251,588 2,569 4,998,295
To amend the Fundamental
restriction concerning
borrowing:
Shares voted "For"......... 2,437,013 3,822,428 30,953,772
Shares voted "Against"..... 103,177 38,882 363,495
Shares voted "Abstain"..... 251,588 2,569 4,998,295
To amend the Fundamental
restriction concerning
underwriting:
Shares voted "For"......... 2,438,249 3,822,428 30,953,772
Shares voted "Against"..... 101,186 38,882 363,495
Shares voted "Abstain"..... 252,343 2,569 4,998,295
To amend the Fundamental
restriction concerning
investments in real
estate:
Shares voted "For"......... 2,438,249 3,822,428 30,953,772
Shares voted "Against"..... 101,941 38,882 363,495
Shares voted "Abstain"..... 251,588 2,569 4,998,295
To amend the Fundamental
restriction concerning
commodities:
Shares voted "For"......... 2,437,255 3,822,428 30,953,772
Shares voted "Against"..... 102,935 38,882 363,495
Shares voted "Abstain"..... 251,588 2,569 4,998,295
To amend the Fundamental
restriction concerning
lending:
Shares voted "For"......... 2,438,249 3,822,428 30,953,772
Shares voted "Against"..... 101,941 38,882 363,495
Shares voted "Abstain"..... 251,588 2,569 4,998,295
</TABLE>
52
<PAGE>
[ARTWORK APPEARS HERE]
ADDITIONAL INFORMATION (UNAUDITED) (continued)
<TABLE>
<CAPTION>
Short
Capital Intermediate Intermediate
Preservation Fund Government Fund Fund
----------------------------------------------
<S> <C> <C> <C>
To amend the Fundamental
restriction concerning
unseasoned issuers:
Shares voted "For"......... 2,439,004 N/A N/A
Shares voted "Against"..... 101,186 N/A N/A
Shares voted "Abstain"..... 251,588 N/A N/A
To amend the Fundamental
restriction concerning
control or management:
Shares voted "For"......... N/A 3,822,428 30,953,772
Shares voted "Against"..... N/A 38,882 363,495
Shares voted "Abstain"..... N/A 2,569 4,998,295
To amend the Fundamental
restriction concerning
short sales:
Shares voted "For"......... 2,439,004 3,822,428 3,238,335
Shares voted "Against"..... 101,186 38,882 255,636
Shares voted "Abstain"..... 251,588 2,569 182,401
To amend the Fundamental
restriction concerning
other investment
companies:
Shares voted "For"......... 2,439,004 3,822,428 N/A
Shares voted "Against"..... 101,186 38,882 N/A
Shares voted "Abstain"..... 251,588 2,569 N/A
To amend the Fundamental
restriction concerning
other investment
companies:
Shares voted "For"......... 2,439,004 3,822,428 N/A
Shares voted "Against"..... 101,186 38,882 N/A
Shares voted "Abstain"..... 251,588 2,569 N/A
</TABLE>
53
<PAGE>
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Letter to Shareholders ................................................... 1
Evergreen Capital Preservation and Income Fund
Fund at a Glance ....................................................... 2
Portfolio Manager Interview ............................................ 3
Evergreen Intermediate Term Bond Fund
Fund at a Glance ....................................................... 6
Portfolio Manager Interview ............................................ 7
Evergreen Intermediate Term Government Securities Fund
Fund at a Glance ....................................................... 10
Portfolio Manager Interview ............................................ 11
Evergreen Short Intermediate Bond Fund
Fund at a Glance ....................................................... 13
Portfolio Manager Interview ............................................ 14
Financial Highlights
Evergreen Capital Preservation
and Income Fund ...................................................... 16
Evergreen Intermediate Term
Bond Fund ............................................................ 19
Evergreen Intermediate Term
Government Securities Fund ........................................... 22
Evergreen Short Intermediate
Bond Fund ............................................................ 24
Schedule of Investments
Evergreen Capital Preservation
and Income Fund ...................................................... 27
Evergreen Intermediate Term
Bond Fund ............................................................ 29
Evergreen Intermediate Term
Government Securities Fund ........................................... 34
Evergreen Short Intermediate
Bond Fund ............................................................ 35
Statements of Assets and Liabilities ..................................... 38
Statements of Operations ................................................. 39
Statements of Changes in Net Assets--
Year ended June 30, 1998 ............................................... 40
Statements of Changes in Net Assets--
Prior Periods .......................................................... 41
Combined Notes to Financial
Statements ............................................................... 42
Independent Auditor's Report ............................................. 51
Additional Information ................................................... 52
- --------------------------------------------------------------------------------
Evergreen Funds
- --------------------------------------------------------------------------------
Evergreen Funds is one of the nation's fastest growing investment companies with
approximately $52 billion in assets under management.
With over 70 mutual funds to choose among and acclaimed service and operations
capabilities, investors enjoy a broader range of quality investment products and
services designed to meet their needs.
The Evergreen Funds employ intensive, research-driven investment strategies
executed by over 90 research analysts and portfolio managers. The fund company
remains dedicated to meeting the needs of investors and their advisors in a
global economy. Look to the Evergreen Funds to provide a distinctive level of
service and excellence in investment management.
This annual report must be preceded or accompanied by a prospectus of an
Evergreen fund contained herein. The prospectus contains more complete
information, including fees and expenses, and should be read carefully before
investing or sending money.
----------------------------------------------------------------
Mutual Funds: ARE NOT FDIC INSURED May lose value . Are not bank guaranteed
----------------------------------------------------------------
Evergreen Funds Distributor, Inc.
Evergreen(SM) is a Service Mark of Evergreen Investment Services, Inc.
<PAGE>
Letter to Shareholders
----------------------
August 1998
[PHOTO APPEARS HERE]
William M. Ennis
Managing Director
Dear Shareholders:
The bond market continued its remarkable rally for the fiscal year that
concluded on June 30, 1998, and provided few reasons to be pessimistic about the
remainder of 1998. While short- and intermediate-term bond funds did not benefit
from the rally as fully as longer-maturity (and riskier) funds, the more
conservative funds still provided generous returns in absolute terms.
The Year in Review
As economic growth has moderated -- in part the result of the financial and
currency crisis in Asia--fears of inflation in the United States have subsided,
and interest rates have continued their decline. Not all sectors of the bond
market were affected to the same degree, however. Longer-term bonds experienced
the greatest decline in interest rates, which meant that their prices tended to
rise the most. During the 12 months that ended on June 30, 1998, the 30-year
Treasury fell by more than a full percentage point, from 6.78% to 5.63%. Short-
and intermediate-term yields also fell, but far less dramatically. By the end of
the period, the yield of the 10-year Treasury was 5.45% and the yield of the
one-year Treasury was 5.37%. In light of the 5.63% yield on the 30-year Treasury
Bond, one can recognize a classic case of what investment professionals call a
"flat yield curve" with a very narrow difference between longer- and
shorter-maturity yields.
Potential Opportunity
The financial markets never remain static, however, and it is very possible that
the recent relative underperformance of shorter- and intermediate-term bonds may
have created opportunity.
In light of the evidence that the pace of economic growth in the United States
is starting to slow and that inflation remains under control, it appears
possible that interest rates may decline even further, with the Federal Reserve
Board easing monetary policy and lowering short-term rates. This scenario would
be extremely positive for short- and intermediate-term funds, as their yields
have the potential to decline the most.
One doesn't have to "bet" on this scenario, however, to appreciate the strong
relative value of a conservative portfolio of short- and intermediate-maturity
bonds. In the wake of extraordinary rallies in both the long-term bond market
and the stock market, it makes increasing sense for prudent investors to
diversify and reduce their overall risk by maintaining at least part of their
portfolio in lower-risk, fixed income portfolios.
Cost Savings
Over the past year during our transition of combining Evergreen and Keystone
funds, we have been striving for efficiencies in our fund administration. We
have realigned the funds' fiscal year ends by asset class and combined them in
semiannual and annual reports, and prospectuses. This reduces the number of
different reports and prospectuses, as well as reduces overall costs through
efficiencies in printing and mailing.
Another change we have made is in the way we mail your funds' information.
Wherever possible, we are trying to combine your funds' required mailings so
that you only receive one per household, based on the registration's last name
and exact address./1/ This reduces the mailing costs, not to mention the amount
of paper needed to print. This in turn benefits your funds by reducing the
overall expenses. If you prefer to receive separate copies of reports and
prospectuses for each registered holder in your household, please notify us by
calling the number on your statement and we will adjust our records accordingly.
The Evergreen Commitment
At Evergreen Funds, we are committed to providing a broad array of funds with
complementary objectives and strategies to help investors and their financial
advisors assemble personal portfolios that make sense for their needs and risk
tolerances over the long run. If you have any questions about the Evergreen
Short and Intermediate Term Bond Funds or other Evergreen funds, we encourage
you to consult your financial advisor or call us at 800.343.2898.
Thank you for your continued investment with Evergreen Funds.
Sincerely,
/s/ William M. Ennis
William M. Ennis
Managing Director
Evergreen Funds
/1/ If you purchased your shares through a financial advisor, we may not be
able to consolidate your mailings by last name and address, as the
brokerage firm controls the mailings.
1
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Capital Preservation And Income Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of June 30, 1998
The biggest move in our strategy has been to reduce our emphasis on adjustable
rate mortgages.
Portfolio
Management
----------
[PHOTO APPEARS HERE]
Gary E. Pzegeo
Tenure: April 1997
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE
- --------------------------------------------------------------------------------
Quantity Duration
Short Intermediate Long
High X
Medium
Low
Morningstar's Style Box is based on a portfolio date as of 6/30/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
Source: 1998 Morningstar, Inc.
* * * *
4-star by Morningstar/1/
(For overall period ended June 30, 1998)
- --------------------------------------------------------------------------------
Performance and Returns*
- --------------------------------------------------------------------------------
Class A Class B Class C
Inception Date 12/30/94 7/1/91 2/1/93
................................................................................
Average Annual Returns
................................................................................
1 year with sales charge 1.82% (0.54%) 3.54%
................................................................................
1 year w/o sales charge 5.24% 4.42% 4.53%
................................................................................
3 years 4.93% 4.44% 5.39%
................................................................................
5 years -- 4.09% 4.45%
................................................................................
Since Inception 5.67% 4.50% 4.55%
................................................................................
Maximum Sales Charge 3.25% 5.00% 1.00%
Front End CDSC CDSC
................................................................................
30-day SEC Yield 5.13% 4.38% 4.37%
................................................................................
12-month distributions per share $ 0.57 $ 0.49 $ 0.49
................................................................................
* Adjusted for maximum applicable sales charge
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINEGRAPH APPEARS HERE]
CPI 6 Month Treasury Bill Class B Shares
6/30/91 10,000 10,000 10,000
6/30/92 10,309 10,453 10,644
6/30/93 10,618 10,787 10,961
6/30/94 10,882 11,174 11,101
6/30/95 11,213 11,815 11,642
6/30/96 11,518 12,439 12,292
6/30/97 11,787 13,099 13,034
6/30/98 11,993 13,787 13,610
Comparison of a $10,000 investment in Evergreen Capital Preservation and Income
Fund, Class B shares, versus a similar investment in a 6-Month Treasury Bill and
the Consumer Price Index (CPI).
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. The 6-Month Treasury Bill does not include transaction costs
associated with buying and selling securities nor any management fees. The CPI
is a commonly used measure of inflation and does not represent an investment
return. It is not possible to invest directly in an index.
2
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Capital Preservation and Income Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
- --------------------------------------------------------------------------------
How did the Fund perform during the year?
- --------------------------------------------------------------------------------
The Fund had strong relative performance, despite an unfriendly environment for
investors in adjustable rate mortgages. For the 12 months that ended on June 30,
1998, the Fund's Class A shares had a total return of 5.24%, while the Class B
and C shares had total returns of 4.42% and 4.53%, respectively. These returns
are unadjusted for any applicable sales charges. All three classes of shares
were rated four-stars, the second highest rating, by Morningstar, another
monitor of mutual fund performance, as of June 30, 1998./1/
In a difficult period for adjustable rate mortgages, the Fund was able to
maintain a relatively stable net asset value. The net asset value of Class A
shares began the fiscal period at $9.80 and ended the period at $9.73.
- --------------------------------------------------------------------------------
Portfolio
Characteristics
---------------
- --------------------------------------------------------------------------------
Total Net Assets $48,050,193
..............................................................
Average Credit Quality AAA
..............................................................
Average Maturity 5.0 years
..............................................................
Average Duration 0.4 years
..............................................................
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Why was the environment for adjustable rate mortgages so difficult?
- --------------------------------------------------------------------------------
We are in an unprecedented environment for adjustable rate mortgages. We have
never seen the combination of such low interest rates and such a narrow
difference between the yields of long-term and short-term securities since
adjustable rate mortgages became a viable part of the bond market. To
illustrate, on June 30, 1998, the 10-year Treasury Bond offered a yield of
5.45%, while the 1-year Treasury Bill paid a yield of 5.37%.
This combination of low rates and narrow difference between the yields of
long-term and short-term securities has created a compelling incentive for
homeowners, particularly those with adjustable rate mortgages, to refinance into
fixed mortgages at low interest rates. As a result, prepayments of existing
mortgages, particularly adjustable rate mortgages, are coming very fast. A study
we did on certain types of adjustable rate mortgages that originated in 1995
indicated that prepayments are up 40% from their level before the current wave,
while mortgages that originated in 1988 are up 80%. The prepayments of newer
mortgages still are much higher in absolute terms, but even the holders of more
seasoned mortgages, who usually are less prone to refinancing, are considering
refinancing.
/1/ Source: Morningstar, Inc. Morningstar's proprietary ratings reflect
historical risk-adjusted performance as of June 30, 1998, for Class A, B,
and C shares. These ratings are subject to change monthly and are
calculated from the Fund's 3-, 5-, and 10-year average annual returns in
excess of 90-day Treasury bill returns with appropriate fee adjustments,
and a risk factor that reflects fund performance below 90-day T-bill
returns. The Fund's Class A shares received 4 stars for the overall and
3-year periods ended June 30, 1998. The Fund's Class B and C shares
received 4 stars for the overall, 3-, and 5-year periods ended June 30,
1998. The Fund was rated among 1,468 taxable bond funds for the 3-year
period and 890 taxable bond funds for the 5-year period ended June 30,
1998. The top 10% of rated funds in an investment category receive five
stars, the next 22.5% receive four stars. Past performance is no guarantee
of future results.
3
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Capital Preservation And Income Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
This refinancing wave is also propelled by the fact that, because interest rates
have been low for some time, mortgage brokers have had ample opportunity to
advertise to encourage refinancing. In addition, the economic recovery in the
United States has given people the opportunity either to move into larger, more
expensive homes or to refinance their existing homes without any risk to their
existing home equity. In either scenario, older mortgages were retired.
The consequence of this increased refinancing has been a very poor market for
adjustable rate mortgages. Existing mortgage-backed securities either have been
called back or they have lost part of their value. This is why the Fund's net
asset value has slipped somewhat during the 12 months.
- --------------------------------------------------------------------------------
In light of this unfriendly environment, what have been your principal
strategies?
- --------------------------------------------------------------------------------
The biggest move in our strategy has been to reduce our emphasis on adjustable
rate mortgages. We wanted to move out of the most vulnerable sector of the
environment I have just been describing. We did this to protect both the income
stream and the principal value of the Fund. We can't completely escape from the
negative effects of the environment, but we can reduce the impact while keeping
the Fund's identity and objective as an adjustable rate mortgage fund. By
prospectus, under ordinary circumstances, the Fund will invest at least 65% of
its assets in of its assets in adjustable rate securities.
During the fiscal year, the Fund reduced its emphasis on adjustable rate
mortgages from 91% of assets to 69%.
[PIE CHART APPEARS HERE]
- --------------------------------------------------------------------------------
ASSET ALLOCATION 6/30/98
- --------------------------------------------------------------------------------
(as a percentage of portfolio assets)
Adjustable Rate Mortgages -- 69%
Fixed Rate Securities -- 29%
Cash -- 2%
- --------------------------------------------------------------------------------
Asset Allocation 6/30/97
- --------------------------------------------------------------------------------
(as a percentage of portfolio assets)
Adjustable Rate Mortgages -- 91%
Fixed Rate Securities -- 6%
Cash -- 3%
Within the 29% of portfolio assets invested in fixed-rate securities on June 30,
1998, 15% were invested in fixed rate mortgages, 9% were invested in
asset-backed securities such as automobile loan receivables, 4% were invested in
Treasuries, and 1% were invested in government agency securities.
We also pursued an additional strategy to protect the performance of the Fund.
Within the adjustable rate mortgage allocation of the Fund, we sold some
seasoned adjustable rate securities to buy hybrid adjustable rate mortgages.
These are newer mortgage products that guarantee a fixed interest rate for a
stated period of time -- often either three or five years -- before the rate
starts floating. These have proven popular with homeowners, and they offer the
Fund significantly more prepayment protection than a traditional adjustable rate
security. At the end of the fiscal year, about 7% of net assets were invested in
these hybrid mortgages. Both the increased emphasis
4
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Capital Preservation And Income Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
on fixed rate securities and the allocation to hybrid mortgages helped the
Fund's performance during the fiscal year.
The Fund invested only in securities issued by the U.S. government or government
agencies or AAA-rated asset-backed and mortgage-backed securities, so the
average credit rating has remained at AAA.
- --------------------------------------------------------------------------------
What is your outlook?
- --------------------------------------------------------------------------------
We expect interest rates to remain low, with a continuation of the narrow
difference between short- and long-term interest rates. The principal factors
driving interest rates are inflation and growth. We expect inflation to remain
restrained and economic growth to be moderate or even slower than at the present
time. In addition, the U.S. government's budget surplus means that the Treasury
is borrowing less money and this also puts downward pressure on interest rates.
The big story continues to be Asia. The economic crisis in Asia is beginning to
have an effect on some sectors of the domestic economy, such as manufacturing.
For example, jobs in goods-producing industries grew by just 1.6% during the 12
months ending June 30, 1998, while jobs in service industries grew by 2.9%.
Moreover, the growth of jobs in goods-producing industries has started to
decline. Slower economic growth tends to keep interest rates low.
In such an environment, prepayments of adjustable rate mortgages are likely to
continue to run at a faster pace than a year ago. If rates were to move even
lower, we probably would see renewed pressure on adjustable rate mortgage
securities.
Given this outlook, we do not anticipate increasing the Fund's allocation to
adjustable rate mortgages beyond the present allocation. Although the prices of
these securities have declined significantly, we are not ready to start buying
more until we see a change in interest rate trends.
If we were to see more concrete signs that Asian countries were beginning to
introduce meaningful economic reforms, it is possible that interest rates could
turn around as investors would again become concerned about the level of growth
in the United States. If interest rates were to start moving up, prepayments of
adjustable rate mortgages would start to decline and the sector would stabilize.
5
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Intermediate Term Bond Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of June 30, 1998
Two significant steps we took during the past six months were to invest in
European mortgage-backed securities and to reduce substantially the emphasis on
U.S. mortgage-related securities.
Portfolio
Management
- ----------
[PHOTO APPEARS HERE]
Chris Conkey
Tenure: January 1998
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE
- --------------------------------------------------------------------------------
Quality Duration
Short Intermediate Long
High
Medium X
Low
Morningstar's Style Box is based on a portfolio date as of 6/30/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C Class Y**
Inception Date 2/13/87 2/1/93 2/1/93 1/26/98
................................................................................
Average Annual Returns
................................................................................
1 year with sales charge 5.28% 2.89% 7.01% n/a
................................................................................
1 year w/o sales charge 8.82% 7.89% 8.01% --
................................................................................
3 years 6.13% 5.60% 6.49% --
................................................................................
5 years 5.27% 4.84% 5.18% --
................................................................................
10 years 7.19% -- -- --
................................................................................
Since Inception 6.43% 5.37% 5.52% 2.58%
................................................................................
Maximum Sales Charge 3.25% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
30-day SEC Yield 5.50% 4.94% 4.94% 5.94%
................................................................................
12-month distributions per share $ 0.62 $ 0.55 $ 0.55 $ 0.24
................................................................................
* Adjusted for maximum applicable sales charge
** Class Y shares were introduced in January 1998 and do not have any annual
returns yet.
- --------------------------------------------------------------------------------
Long Term Growth
- --------------------------------------------------------------------------------
CPI LBITGCBI Class A Shares
6/30/88 10,000 10,000 9,675
6/30/89 10,517 11,022 10,196
6/30/90 11,008 11,884 10,688
6/30/91 11,525 13,135 11,710
6/30/92 11,881 14,864 13,373
6/30/93 12,237 16,424 14,980
6/30/94 12,542 16,382 14,805
6/30/95 12,924 18,082 16,205
6/30/96 13,275 18,987 16,905
6/30/97 13,585 20,359 18,398
6/30/98 13,822 22,088 20,021
Comparison of a $10,000 investment in Evergreen Intermediate Term Bond Fund,
Class A shares, versus a similar investment in the Lehman Brothers Intermediate
Government/Corporate Bond Index (LBIGCBI) and the Consumer Price Index (CPI).
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. The LBIGCBI is an unmanaged index and does not include
transaction costs associated with buying and selling securities nor any
management fees. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
6
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Intermediate Term Bond Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
- --------------------------------------------------------------------------------
How did the Fund perform during the 12-month period that ended on June 30, 1998?
- --------------------------------------------------------------------------------
The Fund performed well relative to the intermediate-term bond market. For the
fiscal year ending June 30, the Fund's Class A shares had a total return of
8.82%. During the same period, the Fund's Class B and C shares had returns of
7.89% and 8.01%, respectively. These returns are unadjusted for any applicable
sales charges. During the same 12-month period, the Lehman Brothers Intermediate
Government/Corporate Bond Index had a return of 8.54%.
- --------------------------------------------------------------------------------
Portfolio
Characteristics
---------------
- --------------------------------------------------------------------------------
Total Net Assets $203,645,350
................................................................................
Average Credit Quality A+
................................................................................
Average Maturity 7.2 years
................................................................................
Average Duration 4.7 years
................................................................................
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
How would you describe the investment environment during the period?
- --------------------------------------------------------------------------------
It was a very positive environment for fixed income investments. Interest rates
fell significantly over the year, with a dramatic flattening of the yield curve.
Flattening of the yield curve occurs when long-term bond yields fall by more
than short-term yields in a declining rate environment. It also could happen if
short-term yields rose by more than long-term yields in a rising rate
environment. During the 12 months ended June 30, 1998, the yield on a one-year
Treasury fell by 0.28%, from 5.65% to 5.37%. At the same time, the yield on a
30-year Treasury fell by 1.15%, from 6.78% to 5.63%. This was clearly a
significant event, with bond prices tending to rise as rates fell. It also
benefited bonds with longer maturities, which performed better than bonds with
short- or intermediate-term maturities. During the year, higher-quality
securities tended to outperform lower-quality securities within the investment
grade bond universe. In general, higher quality bonds tend to do better when
rates fall.
There also were other factors that impacted the returns of the financial markets
during the period. One was very low inflation -- the lowest since the 1960s.
This was partly the result of the tight monetary and tight fiscal policies in
the United States. The federal government now has a budget surplus -- the first
since 1969. All things being equal, a budget surplus is disinflationary. The
second factor affecting the bond market is the impact of the Asian financial
crisis.
- --------------------------------------------------------------------------------
How is the financial and currency crisis in Asia affecting the bond market in
the United States?
- --------------------------------------------------------------------------------
There are several ways the crisis in Asia is affecting the bond market. The
first influence was to lower expectations of inflation, which helped stimulate
the decline in long-term interest rates and the rise in bond prices. Currency
depreciation in Asia has translated into currency appreciation in other
countries, particularly the United States. A stronger currency makes goods
manufactured in foreign countries cheaper in the United States, so the impact of
the currency depreciation in Asia over the past year has been essentially
disinflationary. While this is positive for U.S. consumers of imported products,
it is negative for U.S. firms that compete with Asian exporters. So the initial
impact of lower inflation expectations was obviously a boon to consumers and
corporations, stimulating the housing market and capital spending by business.
In the longer run, however, slower growth in Asian economies will sharply reduce
our exports to these nations, which had been experiencing the fastest growth in
the world in recent years. This should cause a very noticeable slowdown in the
manufacturing sector at the same time that Asian
7
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Intermediate Term Bond Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
manufacturers will have a price advantage for their goods here in the U.S. So,
while economic growth was impressive at the start of 1998, we expect it to slow
in the second half of the year as the impact of the manufacturing slowdown and a
larger trade deficit begins to work its way through the domestic economy.
- --------------------------------------------------------------------------------
Portfolio Composition
- --------------------------------------------------------------------------------
(as a percentage of net assets)
[PIE CHART APPEARS HERE]
Corporate Notes/Bonds -- 50.7%
Foreign Bond -- 20.0%
U.S. Treasury/Agency -- 15.5%
CMO & Mortgage-Backed Securities 10.6%
Asset-Backed Securities -- 2.9%
Repurchase Agreements/Other assets and liabilities (net) -- 0.3%
- --------------------------------------------------------------------------------
The Fund has grown substantially during the year as a result of the merger of
the two Evergreen intermediate term bond funds and also the merger with the
former Blanchard Short-Term Flexible Income Fund. The resulting fund is now more
than $200 million in size. How have these mergers affected the portfolio?
- --------------------------------------------------------------------------------
The mergers were significant events in the history of the Fund. As a result of
the merger with the Blanchard Fund, the Fund has taken a position in high yield
bonds for the first time. At the close of the fiscal year, these high yield
investments accounted for about 21% of net assets. We have emphasized better
quality high yield bonds, with credit ratings of BB and higher. We also have
concentrated in non-cyclical industries -- or companies that would not be highly
affected if economic growth were to slow. These include cable, media, aerospace
and telecommunications.
We have maintained an investment in high yield because this sector has been one
of the best performing areas in the bond market. And this good performance has
come with lower volatility than that of very high-grade investments because the
high yield market is less affected by changes in interest rates. We are bullish
on the U.S. economy, and so we believe it makes sense to have a portion of the
portfolio in the upper areas of the high yield market, where we can take
advantage of investments in companies with healthy balance sheets and rising
earnings.
Even with the addition of high yield bonds, the average credit quality
of the Fund has not changed significantly. It still is A+, down just slightly
from the AA-average credit quality on December 31, 1997. We have accomplished
this by increasing the allocation to U.S. Treasuries, which were 13.7% of assets
at the end of the period, balancing a higher position in government securities
with the Fund's position in lower-rated securities.
- --------------------------------------------------------------------------------
Quality Allocation
- --------------------------------------------------------------------------------
BB or less BBB A AA Gov't/AAA
31-Dec-97 0 15 34 15 36
31-Jan-98 11 7 23 8 51
28-Feb-98 18 7 17 10 48
31-Mar-98 18 15 21 20 26
30-Apr-98 18 12 22 20 28
31-May-98 22 12 21 17 28
30-Jun-98 21 12 20 16 31
8
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Intermediate Term Bond Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
- --------------------------------------------------------------------------------
What were your principal investment strategies during the year in addition to
investing in better quality high yield bonds?
- --------------------------------------------------------------------------------
Especially in recent months, we have been anticipating that economic growth
would slow and interest rates would decline. As a result, within the investment
grade and high-grade portion of the portfolio, we have upgraded credit quality
and increased the emphasis on government securities. We have done this both to
take advantage of falling rates and to reduce credit risk in the event of an
economic slowdown. As I mentioned earlier, we have maintained a position in high
yield bonds because we are bullish on this sector over the long term.
Maturity and duration -- measures of the Fund's sensitivity to changes in
interest rates -- have remained essentially unchanged. On June 30, 1998, average
weighted maturity was 7.2 years and the effective duration of the portfolio was
4.7 years.
Two significant steps we took during the past six months were to invest in
European mortgage-backed securities and to reduce substantially the emphasis on
U.S. mortgage-related securities.
Overall, we have invested about 12% of the portfolio in European bonds, with the
major portion (9%) in mortgage-securities in Denmark. These investments have
been hedged to protect against currency risk. We invested in these bonds to take
advantage of significantly higher interest rates in Europe. These investments
have an average credit quality of AA.
During the past six months, we have substantially reduced the emphasis on U.S.
mortgage-backed securities, from 33.6% of assets on December 31, 1997 to 10.6%
on June 30. We have done this because U.S. mortgage-related securities tend to
underperform in a falling interest rate environment as homeowners prepay their
existing mortgages to take advantage of lower rates. When this happens,
investors in mortgage-backed securities lose the income from prepaid mortgages
and are forced to reinvest in securities with lower yields.
- --------------------------------------------------------------------------------
What is your outlook?
- --------------------------------------------------------------------------------
We expect the growth in the domestic economy to slow during the second half of
the year, with an average annualized growth rate of perhaps 2%. This will be due
to a combination of factors, including: a rising trade deficit brought on by the
currency crisis in Asia; the need for American companies to reduce the large
inventories they amassed early in the year; and a likely slowdown in consumer
spending.
This should be very good for the bond market. We expect interest rates to fall.
Long-term interest rates are likely to fall first. We anticipate the Federal
Reserve Board, as it sees economic growth slowing, will ease its monetary
policy, resulting in declines in rates among short-term and intermediate-term
securities. Intermediate-term rates have the potential to fall more than
longer-term rates, and intermediate term bonds should be among the best
performers in the fixed income market.
With this outlook, we believe we are very well positioned to benefit from the
anticipated decline in short-term and intermediate-term rates. Our emphasis on
investments in government bonds and in corporate bonds from non-cyclical
industries should help the Fund perform very well in a slowing economy.
9
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Intermediate Term Government Securities Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of June 30, 1998
Duration was kept relatively neutral to its benchmark during the fiscal year and
closed at 3.06 years, or 101% of the benchmark.
Portfolio
Management
- ----------
[PHOTO APPEARS HERE]
L. Robert Cheshire
Tenure: January 1994
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE
- --------------------------------------------------------------------------------
Quality Duration
Short Intermediate Long
High X
Medium
Low
Morningstar's Style Box is based on a portfolio date as of 6/30/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
Performance and Returns*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
<S> <C> <C> <C> <C>
Inception Date 5/2/95 2/9/96 4/10/96 11/1/91
.........................................................................................
Average Annual Returns
.........................................................................................
1 year with sales charge 4.05% 1.57% 5.57% n/a
.........................................................................................
1 year w/o sales charge 7.55% 6.57% 6.57% 7.63%
.........................................................................................
3 years 4.66% -- -- 5.88%
.........................................................................................
5 years -- -- -- 5.08%
.........................................................................................
Since Inception 5.37% 2.77% 5.62% 6.09%
.........................................................................................
Maximum Sales Charge 3.25% 5.00% 1.00% n/a
Front End CDSC CDSC
.........................................................................................
30-day SEC Yield 5.16% 4.39% 4.39% 5.39%
.........................................................................................
12-month distributions per share $ 0.55 $ 0.46 $ 0.46 $ 0.56
.........................................................................................
</TABLE>
* Adjusted for maximum applicable sales charge long term growth
- --------------------------------------------------------------------------------
Long Term Growth
- --------------------------------------------------------------------------------
Class A LBITGBI CPI
5/2/95 9,675 10,000 10,000
6/30/95 9,959 10,064 10,020
12/31/95 10,421 10,561 10,079
6/30/96 10,353 10,559 10,292
12/31/96 10,735 10,990 10,420
6/30/97 10,974 11,293 10,532
12/31/97 11,456 11,838 10,598
6/30/98 11,803 12,233 10,716
Comparison of a $10,000 investment in Evergreen Intermediate Term Government
Securities Fund, Class A shares, versus a similar investment in the Lehman
Brothers Intermediate Government Bond Index (LBIGBI) and the Consumer Price
Index (CPI).
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. The LBIGBI is an unmanaged index and does not include
transaction costs associated with buying and selling securities nor any
management fees. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
10
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Intermediate Term Government Securities Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
- --------------------------------------------------------------------------------
How did the Fund perform during the fiscal period?
- --------------------------------------------------------------------------------
For the fiscal year ending June 30, 1998, the Evergreen Intermediate Term
Government Securities Fund Class Y shares posted a 7.63% total return, while
Class A shares returned 7.55%. Class B and C shares both returned 6.57%. These
returns are unadjusted for any applicable sales charges. This performance
modestly trailed that of the Lehman Brothers Intermediate Government Bond Index,
but still ranks in the top 30% of all Short/Intermediate U.S. Government Funds
tracked by Lipper Analytical Services. The Fund's Class Y and A shares ranked 27
and 31, respectively, out of the 99 Short-Intermediate U.S. Government Funds
tracked by Lipper for the one-year period ended June 30, 1998. Class B and C
shares ranked 73 out of the 99 funds for the same period.
The Fund's strong performance relative to its peers can be partially attributed
to an increased duration which positively impacted returns within a declining
interest rate environment.
- --------------------------------------------------------------------------------
Portfolio
Characteristics
---------------
Total Net Assets $181,941,246
......................................................
Average Credit Quality AAA
......................................................
Average Maturity 4.39 years
......................................................
Average Duration 3.06 years
......................................................
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
What was the investment environment like during the fiscal period?
- --------------------------------------------------------------------------------
The past twelve months has been a very favorable period for fixed income
investors. Healthy economic growth and benign inflation allowed interest rates
to trend lower, in turn boosting bond prices. During the fiscal period, the
yield on the bellwether 30-year Treasury Bond declined steadily from 6.78% to
5.63%.
The only major dilemma began in late 1997 when the well-publicized financial
crisis -- dubbed the "Asian Contagion" --flared up in several Asian countries.
Despite initial dire headlines, the turmoil initiated a flight to quality U.S.
fixed income markets which had a generally positive effect on domestic bond
prices. Foreign investors leaving this region's markets sought shelter from the
volatility, prompting huge demand for the perceived safety of U.S. Treasuries
which, consequently, was the best performing sector in the final months of the
fiscal period. Conversely, because of the potential negative impact on U.S.
corporate earnings, U.S. corporate bonds were penalized and subsequently
underperformed during the final months of the period.
- --------------------------------------------------------------------------------
PORTFOLIO MATURITY
- --------------------------------------------------------------------------------
(as a percentage of portfolio assets)
[PIE CHART APPEARS HERE]
1-5 Years -- 58%
5-10 Years -- 36%
0-1 Year -- 6%
/1/ Source: Lipper Analytical Services, Inc., an independent mutual fund
performance monitoring company. The rankings are based on total return and do
not include the effect of a sales charge. Past performance is no guarantee of
future results.
11
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Intermediate Term Government Securities Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
- --------------------------------------------------------------------------------
What was your strategy during the fiscal period?
- --------------------------------------------------------------------------------
Duration was kept relatively neutral to its benchmark during the fiscal year and
closed at 3.06 years, or 101% of the benchmark. Early in the period, signs of
increasing prices, a tight labor market and rising wages all pointed to higher
interest rates. Although several underlying fundamentals supported stable rates,
we felt that the best strategy within that environment of uncertainty was a
defensive stance. As a result, we kept duration near that of the benchmark.
From a sector standpoint, we made some significant adjustments during the
period. The portfolio's exposure to Treasuries was reduced significantly and
closed the period at a 39% weighting. Conversely, our weighting of
mortgage-backed securities more than doubled to 45%. We feel that spreads in the
mortgage sector are attractive, and we anticipate maintaining this strong
weighting going forward. Because homeowners tend to refinance their mortgage as
interest rates fall, we have emphasized non-callable issues within this sector
in an effort to reduce the portfolio's prepayment risk should rates continue to
decline.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(as a percentage of net assets)
[PIE CHART APPEARS HERE]
Mortgage Backed Securities -- 44.7%
Treasury Notes/Bonds -- 39.4%
Government Agency Notes/Bonds -- 13.9%
Repurchase Agreements and
Other assets less liabilities (net) -- 2.0%
- --------------------------------------------------------------------------------
What is your outlook?
- --------------------------------------------------------------------------------
Our long-term outlook for the bond market remains extremely positive as a number
of economic forces continue to bode well for low interest rates and benign
inflation over the long term. In the short term, however, uncertain investors
are currently struggling to gauge which of the "countervailing forces" -- strong
U.S. growth or the tempering effect from the Asian crisis -- will prevail. This
uncertainty is likely to cause increased volatility in the near term as the
situation and its effects unfold.
Consequently, we will anticipate maintaining a neutral duration in order to
protect the portfolio from potential volatility. The Fund's overweighted
position in mortgage-backed securities will serve to increase current yield and
also provide a degree of protection in the event of fluctuating interest rates
in the near term.
12
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Short Intermediate Bond Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of May 31, 1998
Our decision to maintain a "barbell" portfolio throughout most of the fiscal
year had a positive impact on performance.
Portfolio
Management
- ----------
[PHOTO APPEARS HERE]
Thomas L. Ellis
Tenure: January 1989
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE
- --------------------------------------------------------------------------------
Quality Duration
Short Intermediate Long
High
Medium X
Low
Morningstar's Style Box is based on a portfolio date as of 6/30/98.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
Performance and Returns*
- --------------------------------------------------------------------------------
Class A Class B Class C Class Y
Inception Date 1/28/89 1/25/93 9/6/94 1/4/91
.............................................................
Average Annual Returns
.............................................................
1 year with sales charge 3.60% 1.11% 5.11% n/a
.............................................................
1 year w/o sales charge 7.08% 6.11% 6.11% 7.19%
.............................................................
3 years 4.93% 4.26% 5.13% 6.22%
.............................................................
5 years 4.59% 4.09% -- 5.42%
.............................................................
Since Inception 7.14% 4.68% 5.83% 7.04%
.............................................................
Maximum Sales Charge 3.25% 5.00% 1.00% n/a
Front End CDSC CDSC
.............................................................
30-day SEC Yield 5.56% 4.83% 4.83% 5.85%
.............................................................
12-month distributions
per share $0.61 $0.52 $0.52 $0.62
.............................................................
* Adjusted for maximum applicable sales charge
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
CPI LBITGCBI Class A Shares
1/31/89 10,000 10,000 9,675
6/30/89 10,248 10,666 10,275
6/30/90 10,727 11,500 10,902
6/30/91 11,230 12,710 12,007
6/30/92 11,577 14,384 13,524
6/30/93 11,924 15,893 14,802
6/30/94 12,221 15,853 14,680
6/30/95 12,593 17,498 16,034
6/30/96 12,935 18,374 16,747
6/30/97 13,237 19,701 17,881
6/30/98 13,468 21,735 19,147
Comparison of a $10,000 investment in Evergreen Short Intermediate Bond Fund,
Class A shares, versus a similar investment in the Lehman Brothers Intermediate
Government/Corporate Bond Index (LBIGCBI) and the Consumer Price Index (CPI).
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. The LBIGCBI is an unmanaged index and does not include
transaction costs associated with buying and selling securities nor any
management fees. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
13
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Short Intermediate Bond Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
- --------------------------------------------------------------------------------
How did the Fund perform during the fiscal period?
- --------------------------------------------------------------------------------
The Evergreen Short Intermediate Bond Fund Class Y shares posted a total return
of 7.19% for the fiscal year ending June 30, 1998, while Class A shares had a
return of 7.08%. Class B and C shares both had a 6.11% return. The returns are
unadjusted for any applicable sales charges. These returns trailed the benchmark
Lehman Brothers Intermediate Government/Corporate Bond Index return of 8.50%,
but were in line with the 7.20% average return of 94 Short Intermediate
Investment Grade Funds tracked by Lipper Analytical Services, an independent
mutual fund performance monitoring company.
- --------------------------------------------------------------------------------
Portfolio
Characteristics
---------------
Total Net Assets $389,015,067
...............................................
Average Credit Quality AA
...............................................
Average Maturity 4.6 years
...............................................
Average Duration 3.6 years
...............................................
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
What was the investment climate like during the Fund's fiscal period ended June
30, 1998?
- --------------------------------------------------------------------------------
The twelve months ending June 30, was a very positive period for fixed income
investors. The main event in the financial markets was the crisis in Asia --
dubbed the "Asian Contagion" -- which devalued this region's currencies and
caused concern of lower earnings of multi-national U.S. companies. As positive
side-effects, however, the situation effectively calmed inflation (by way of
lower import prices); initiated a "flight-to-quality" whereby foreign investors
flocked to the perceived safety of U.S. securities; and allowed interest rates
to trend lower. During the fiscal period, the yield on the bellwether 30-year
Treasury Bond declined steadily from 6.78% to 5.63%.
- --------------------------------------------------------------------------------
What was your strategy?
- --------------------------------------------------------------------------------
Our decision to maintain a "barbell" portfolio throughout most of the fiscal
year had a positive impact on performance. A barbell structure is distinguished
by holding securities on both ends of the yield curve rather than in the middle.
This strategy tends to enhance performance when the yield curve flattens, a
scenario which transpired in the second half of the fiscal year as yields on the
long end of the curve fell more sharply than those at the short end.
- --------------------------------------------------------------------------------
PORTFOLIO MATURITY
- --------------------------------------------------------------------------------
(as a percentage of portfolio assets)
[PIE CHART APPEARS HERE]
1-5 Years -- 50%
5-10 Years -- 33%
0-1 Year -- 17%
Our decision to extend duration also enhanced performance. A duration stance
longer than that of the benchmark fuels performance during periods of declining
interest rates. Duration was increased from 3.0 years to 3.6 years during the
twelve months and, as of June 30, duration stood at 108% of the benchmark Lehman
Brothers Intermediate Government/Corporate Bond Index. This extended duration
positively impacted performance as interest rates trended significantly lower.
14
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Short Intermediate Bond Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
These strategies were especially effective during the final six months of the
fiscal year during which the Fund returned 3.44%. This return outperformed the
3.05% average return of the Lipper short intermediate investment grade funds
category during the same period.
- --------------------------------------------------------------------------------
PORTFOLIO QUALITY
- --------------------------------------------------------------------------------
(as a percentage of portfolio assets)
[PIE CHART APPEARS HERE]
Government/Agency -- 43.0%
A -- 24.0%
AAA -- 21.0%
BAA -- 8.0%
AA -- 2.0%
BA -- 2.0%
- --------------------------------------------------------------------------------
What is your outlook?
- --------------------------------------------------------------------------------
Although long term market fundamentals remain favorable and support lower
interest rates, many troubled foreign economies are showing signs of worsening,
which likely would negatively impact U.S. financial markets. As a positive side
effect, however, softer foreign economies and declining import prices would
likely reward investors with benign inflation and stable interest rates.
As a result, we expect to maintain a duration longer than that of our benchmark
in the coming months. On the flip side, should Asian economies continue their
downward spiral, U.S. corporate earnings will certainly be adversely affected.
In response, we anticipate paring back our weighting of corporate bonds, a
sector we feel may underperform going forward.
15
<PAGE>
Evergreen Funds
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Tax Free Fund
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Income
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Fund for Total Return
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59119
543693 RVO 8/98
-------------
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-------------
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