Evergreen
Long Term
Bond Funds
April 30, 1998
Annual Report
(Photo appears here of cars,
buildings, clocks)
(Evergreen Funds (SM) since 1932
logo appears here)
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Letter to Shareholders ................... 1
Evergreen Diversified Bond Fund
Fund at a Glance ...................... 2
Portfolio Manager Interview ........... 3
Evergreen High Yield Bond Fund
Fund at a Glance ...................... 6
Portfolio Manager Interview ........... 7
Evergreen Strategic Income Fund
Fund at a Glance ...................... 9
Portfolio Manager Interview ........... 10
Evergreen U.S. Government Fund
Fund at a Glance ...................... 13
Portfolio Manager Interview ........... 14
</TABLE>
<TABLE>
<S> <C>
Financial Highlights
Evergreen Diversified Bond Fund ....... 16
Evergreen High Yield Bond Fund ........ 19
Evergreen Strategic Income Fund ....... 22
Evergreen U.S. Government Fund ........ 25
Schedules of Investments
Evergreen Diversified Bond Fund ....... 27
Evergreen High Yield Bond Fund ........ 33
Evergreen Strategic Income Fund ....... 38
Evergreen U.S. Government Fund ........ 43
Statements of Assets and Liabilities ..... 44
Statements of Operations ................. 45
Statements of Changes in Net Assets ...... 47
Combined Notes to Financial
Statements .............................. 50
Independent Auditors' Report:
KPMG Peat Marwick LLP ................. 60
Additional Information (Unaudited) ....... 61
</TABLE>
- --------------------------------------------------------------------------------
Evergreen Funds
Evergreen Funds is one of the nation's fastest growing investment companies
with more than $47 billion in assets under management.
With over 80 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.
<TABLE>
<S> <C>
Mutual Funds:
ARE NOT FDIC INSURED May lose value o Are not bank guaranteed
</TABLE>
Evergreen Distributor, Inc.
Evergreen(SM) is a Service Mark of Evergreen Investment Services, Inc. Copyright
1998.
<PAGE>
Letter to Shareholders
June 1998
Dear Shareholders:
(Photo of William M.Ennis It has been an extraordinarily unusual and
appears here) rewarding time to be invested in Evergreen Long
Term Bond Funds. The fiscal year that ended on
April 30, 1998 was truly remarkable, with
strong performance posted both by high
William M. Ennis grade, government-oriented bond funds
Managing Director and by corporate bond funds.
Ideal Conditions
During the year, the U.S. economy grew at a very healthy rate, with gross
domestic product increasing at an annualized rate of more than 3%. Normally,
that is very good for corporate bond funds, especially higher yielding funds
that invest in lower-rated securities. In fact, the Merrill Lynch High Yield
Index rose by 14.01% for the period.
Usually, when economic growth is strong, inflationary pressures rise and
interest rates tend to jump. This hurts the performance of higher grade fixed
income securities, especially government bonds, as their prices tend to decline
as interest rates rise. This didn't happen over the 12 months, however.
Inflation did not appear as a problem. In addition, the first federal budget
surplus in 29 years reduced the need for new federal borrowing, which lowered
the interest rates of new bonds and contributed to higher bond prices for older
bonds with higher "coupons." Interest rates fell significantly, with the
30-year Treasury Bond leading the decline, dropping from 6.96% to 5.95%. That
meant strong performance by government bonds, with the Lehman Brothers
Government Bond Index rising by 11.05%.
Despite inevitable periods of short-term market corrections, it has been a year
when even the bad news has often been good news for the U.S. bond market.
Uncertainty abroad -- particularly the Asian financial and currency crisis --
has tended to increase the relative attractiveness of the U.S. currency and the
relative safety of dollar-based bonds.
Looking Ahead
While our economic outlook does not foresee any immediate problems,
shareholders should be mindful that the investment environment is continually
changing. In particular, the economic and currency crisis in Asia could slow
down the growth of the U.S. economy and have an impact on corporate bonds. We
do not see this possibility as cause for alarm, particularly in light of the
economic health of Western Europe acting somewhat as a counter-force. We do
think it is important, however, to remind shareholders of these possibilities
and that the most successful investors are those who adhere to a consistent
long-term strategy through changing economic conditions.
At Evergreen Funds, we are committed to providing a strong 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.
We can assist by providing the information you need about Evergreen mutual
funds. If you have any questions about the Evergreen Long 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 in Evergreen Funds.
Sincerely,
(Signature of William M. Ennis appears here)
William M. Ennis
Managing Director
Evergreen Funds
1
<PAGE>
EVERGREEN
Diversified Bond Fund
Fund at a Glance as of April 30, 1998
We underweighted
government bonds and
tended to emphasize
corporate bonds, with some
international investments.
Portfolio
Management
- ----------------------------------------
(Photo of Christopher Conkey, CFA appears here)
Christopher Conkey,CFA
Tenure: January 1994
-------------------------------------------------------
CURRENT INVESTMENT STYLE
(Table with cube-shaped blocks appears below showing medium quality and
intermediate duration.)
Duration Quality
Short High
Int Med
Long Low
Morningstar's Style Box is based on a
portfolio date as of 3/31/98.
The Fixed-Income Style Box placement is
based on a fund's average effective maturity
or duration and the average credit rating of
the bonds within the portfolio.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
<TABLE>
<CAPTION>
Class B
<S> <C>
Inception Date 9/11/35
.......................................
Average Annual Returns
.......................................
1 year with sales charge 7.78%
.......................................
1 year w/o sales charge 12.78%
.......................................
3 years 8.22%
.......................................
5 years 6.34%
.......................................
10 years 7.61%
.......................................
Since Inception 6.99%
.......................................
Maximum Sales Charge 5.00%
CDSC
.......................................
30-day SEC Yield 5.46%
.......................................
12-month dividends per share $ 0.91
.......................................
</TABLE>
*Adjusted for maximum sales charge.
The Fund's Class A, C, and Y shares were introduced in 1998 and have no
historical performance to quote.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
(Plot Points appear below for Long Term Growth chart)
4/88 4/90 4/92 4/94 4/96 4/98
Class B Shares 10,000 10,721 13,289 15,490 16,938 20,828
LBABI 10,000 11,769 15,048 17,189 20,040 23,785
CPI 10,000 11,008 11,913 12,587 13,337 13,877
Comparison of a $10,000 investment in Evergreen Diversified Bond Fund, Class B
shares, versus a similar investment in the Lehman Brothers Aggregate Bond Index
(LBABI) 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 Lehman Brothers Aggregate Bond Index is an
unmanaged index and does not include transaction costs associated with buying
and selling securities nor any management fees. The Consumer Price Index, a
measure of inflation, is through April 30, 1998.
2
<PAGE>
EVERGREEN
Diversified Bond Fund
Portfolio Manager Interview
- --------------------------------------------------------------------------------
How did the Fund perform for the fiscal
year?
The Fund did very well. The Evergreen Diversified Bond Fund's Class B
shares had a total return of 12.78% for the 12-month period ending April
30, 1998, unadjusted for any applicable sales charge. By comparison, the
Lehman Brothers Aggregate Bond Index had a return of
10.91% for the same period.
Portfolio Characteristics
- -------------------------
Total Net Assets $571,688,894
Average Credit Quality A
Average Maturity 12.7 years
Average Duration 5.8 years
- --------------------------------------------------------------------------------
What was the investment environment
like during the 12 months?
It was a great environment for bonds for two principal reasons: interest
rates fell and the economy continued to grow. The yield on the 30-year
Treasury Bond declined nearly 1%, from 6.96% to 5.95%. Short-term rates
also fell, but not by as much. The yield on one-year Treasury Bills dipped
from 5.89% to 5.38%. This meant it was a very positive environment for
bond prices, because when interest rates fall, bond prices generally rise.
We also had a healthy economic environment. Typically, interest rates
decline when an economy slows; however, this was an unusual period in
which interest rates fell despite a growing economy in which corporate
profits rose at a healthy pace.
Two key factors occurred to create this favorable backdrop for bond
investing. The first was that we had very low inflation in the face of
relatively strong growth. This low inflation was caused by the strength of
the U.S. dollar versus other currencies, very low commodity prices
worldwide and continued restraint in wage growth. The second factor was a
significant change in the federal budget. In 1998, we are expected to have
the first budget surplus since 1969. Several factors helped, including the
tax increases passed in the early 1990s and the large increases in capital
gains tax payments as investors took some of the significant gains from
stock market investments. As a result, the Treasury has had less reason to
borrow, which has meant lower interest rates on newer bonds and higher
prices on existing bonds.
It is unusual when both interest rate risk, as reflected in government
bonds, and credit risk, as reflected in corporate bonds, are rewarded at
the same time. This phenomenon occurred during the year; we had a healthy
economy and declining interest rates, so high grade, government bonds and
lower grade corporate bonds both did very well.
--------------------------------------------------------------------
PORTFOLIO COMPOSITION
(as a percentage of net assets)
(Pie chart appears below illustrating the following amounts:)
Corporate Bonds - 51.8%
Collateralized Mortgage Obligations - 17.8%
Foreign Corporate Bonds - 16.3%
U.S. Treasury Obligations - 7.5%
Other Investments and
Other Assets and Liabilities (net) - 6.6%
- --------------------------------------------------------------------------------
What contributed to the strong performance of the Fund relative to market
indexes?
We underweighted government bonds and tended to emphasize corporate bonds,
with some international investments. We maintained our weighting in U.S.
Treasuries at 10% or less. In fact, Treasuries accounted
3
<PAGE>
EVERGREEN
Diversified Bond Fund
Portfolio Manager Interview
for just 7.5% of net assets at the close of the fiscal year on April 30.
We had a higher sensitivity to changing credit conditions, with a majority
of assets in corporate bonds. Healthy corporate profits increased the
value of corporate bonds. In investment grade bonds, the highest
concentration was in the finance sector because of our outlook for lower
interest rates. Banks tend to do well as interest rates decline. In
addition, consolidation among banks improved the credit quality of
bank-issued debt. We also had significant investments in bonds from
securities firms. These companies were very profitable during a period
when the capital markets flourished.
At the close of the period, 23% of the Fund's net assets was invested in
high yield securities. We focused on the higher credit quality sector of
the high yield universe, with most holdings rated BB or B. Our investments
in industrial bonds, emphasized telecommunications, cable and media.
Companies in these non-cyclical industries tend to be relatively less
affected by changes in the business cycle, so the value of their bonds is
less volatile and more stable than the bonds from more cyclical
companies.
--------------------------------------------------------------------
PORTFOLIO CREDIT QUALITY
(as a percentage of portfolio assets)
(Pie chart illustrating the following amounts appears below:)
A - 25.1%
B - 19.2%
BBB - 16.2%
BB - 15.8%
AA - 14.8%
AAA - 6.2%
Not Rated - 2.7%
- --------------------------------------------------------------------------------
What were your primary strategies that
helped the strong performance?
In addition to emphasizing corporate bonds and de-emphasizing Treasuries,
we maintained overall credit quality at about the same level, with average
credit quality at A at the end of the period. As interest rates declined,
we decreased interest rate sensitivity somewhat. At the close of the
fiscal period, duration was 5.8 years and average weighted maturity was
12.7 years.
We decreased mortgage-backed securities somewhat, because mortgages
typically do not perform as well when interest rates decline. At the close
of the fiscal period, collateralized mortgage-backed securities were 18%
of net assets. Within the mortgage sector, we looked at structure, or the
extent to which securities can be called back by their issuers. We tended
to invest in mortgages with call protection, meaning that they could not
be recalled for specified periods of time. Specifically, we invested in
commercial, mortgage-backed securities that normally feature principal
pay-down, lock-out provisions.
We also increased our emphasis on foreign bonds, to about 16% of net
assets. Our largest commitment was to mortgage securities from Denmark, 6%
of net assets. We found these bonds very attractive on both a total return
and current yield basis. We also maintained positions in securities from
the Republic of Greece (2%), seeking to benefit from the tighter fiscal
and monetary policies being implemented to prepare that nation to join the
European Monetary Union in 2002. The Fund also had telecommunications
industry bonds from Latin America and Canada.
All the foreign investments were hedged to protect against currency risk,
with the exception of the Greek securities because that nation's currency
was recently devalued and has the potential to strengthen against other
currencies.
4
<PAGE>
EVERGREEN
Diversified Bond Fund
Portfolio Manager Interview
- --------------------------------------
The financial and currency crisis in Asia was a major event in the world
economy during the past year. What effect has that had on the bond market
in the United States?
The immediate impact, during the first half of 1998, has been positive in
the United States. The Asian financial crisis has caused lower interest
rates and pushed inflation down. This has been a boon to the American
consumer; however, I am not as sanguine for the rest of the year. I think
the Asian situation will cause a weakening of the manufacturing sector in
the United States and a slowdown in economic growth. Asian products will
become more competitive in international trade, but Asia will be importing
less from the United States.
This slowing effect will be offset, to a certain extent, by the effects of
the economic recovery in Europe, but, Asia will have an impact. Investors
should not be lulled into complacency by the positive things that have
happened, because there may be some longer-term negatives.
- --------------------------------------
What is your outlook?
We expect economic growth may slow during the second half of the year as a
result of the impact from Asia mentioned above. We don't expect recession,
however; rather, annualized growth in Gross Domestic Product in the United
States may decline from 4% to about 2%. Corporate profit margins may
narrow, and inflation should stay low. We also believe investors will
continue to be pleased by announcements from Washington about the size of
the Treasury surplus. Within this environment, it is possible for interest
rates to fall some more.
The slower economic growth and lower profit margins, however, have the
potential to increase the risk of investing in corporate bonds. Given this
scenario, the Fund may decrease its commitment to corporate bonds,
especially high yield bonds. The Fund's high yield bonds currently are
concentrated in non-cyclical industries, so they should not be as affected
by slowing economic growth as bonds from more cyclical industries. We
believe the Fund is well structured for this outlook of potentially
slowing economic growth.
Please note that we changed the fiscal year end of the Diversified Bond Fund
from August 31 to April 30. The next report for this Fund will be the
semiannual report as of October 31, 1998 which will mail by the end of
December 1998.
5
<PAGE>
EVERGREEN
High Yield Bond Fund
Fund at a Glance as of April 30, 1998
We selected top-performing companies primarily in the U.S., within industries
that we believed had the best growth prospects and would benefit from the stock
market's strength.
Portfolio
Management
- ----------------------------------------
(Photo of Prescott B. Crocker, CFA
appears below)
Prescott B. Crocker, CFA
Tenure: February 1997
-------------------------------------------------------
CURRENT INVESTMENT STYLE
(Table with cube-shaped blocks appears below showing low quality and
intermediate duration)
Duration Quality
Short High
Int Med
Long Low
Morningstar's Style Box is based on a
portfolio date as of 3/31/98.
The Fixed-Income Style Box placement is
based on a fund's average effective maturity
or duration and the average credit rating of
the bonds within the portfolio.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
<TABLE>
<CAPTION>
Class B
<S> <C>
Inception Date 9/11/35
.......................................
Average Annual Returns
.......................................
1 year with sales charge 12.02%
.......................................
1 year w/o sales charge 17.02%
.......................................
3 years 9.83%
.......................................
5 years 7.42%
.......................................
10 years 7.57%
.......................................
Since Inception 8.52%
.......................................
Maximum Sales Charge 5.00%
CDSC
.......................................
30-day SEC Yield 6.42%
.......................................
12-month dividends per share $ 0.33
.......................................
</TABLE>
*Adjusted for maximum sales charge.
The Fund's Class A, C, and Y shares were introduced in 1998 and have no
historical performance to quote.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
(Plot points appear below for Long Term Growth chart)
4/88 4/90 4/92 4/94 4/96 4/98
Class B Shares 10,000 9,498 12,177 16,089 16,227 20,738
LBABI 10,000 11,769 15,048 17,189 20,040 23,785
MLHYMI 10,000 11,018 15,611 19,609 24,442 31,094
CPI 10,000 11,008 11,913 12,587 13,337 13,877
Comparison of a $10,000 investment in Evergreen High Yield Bond Fund, Class B
shares, versus a similar investment in the Lehman Brothers Aggregate Bond Index
(LBABI), the Merrill Lynch High Yield Master Index (MLHYMI) 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 Lehman Brothers Aggregate Bond Index and the
Merrill Lynch High Yield Master Index are unmanaged indices and do not include
transaction costs associated with buying and selling securities nor any
management fees. The Consumer Price Index, a measure of inflation, is through
April 30, 1998.
Although the Fund's yield may be significantly higher than that of other fixed
income funds that purchase higher rated securities, it is generally based upon
greater risk of share price decline.
6
<PAGE>
EVERGREEN
High Yield Bond Fund
Portfolio Manager Interview
- --------------------------------------------------------------------------------
How did the Fund perform during the
period?
The Fund's Class B shares produced a total return of 17.02%, unadjusted
for any sales charge, during the twelve months ended April 30, 1998. This
compares favorably with both the Chase High Yield Index at 14.81% and the
Lehman Brothers Aggregate Bond Index at 10.91%, for the same period. We
were particularly pleased with the Fund's performance versus these
indices, because unlike a mutual fund, an index incurs
no operating expenses.
Portfolio Characteristics
- -------------------------
Total Net Assets $518,488,574
Average Credit Quality B
Average Maturity 8.2 years
Average Duration 4.7 years
- --------------------------------------------------------------------------------
What was the environment like for high
yield bonds over the past twelve months?
The environment remained extremely positive. High yield bond prices rose
on news of a rising equity market, a favorable economy and interest rate
climate, along with positive events such as mergers and acquisitions, and
strong demand.
The sharp rise in stock prices was very favorable for high yield bonds
because of the strong correlation between the two markets. Much like
stocks, high yield bonds are more sensitive to credit developments within
the issuing company rather than interest rate movement, which drives the
performance of higher-rated bonds. The combination of steady economic
growth and low inflation provided an atmosphere that enabled companies to
improve from a credit standpoint, reducing the risk that accompanies
investing in lower-rated securities.
1 Source: Chase Securities, Inc. (CSI)
As a consequence, at 1.6%, the default rate is still very low by
historical standards. Healthy economic and stock market conditions also
facilitated refinancings and consolidation in industries such as
telecommunications, cable and gaming. These activities often presented
opportunities for investors to sell their bonds at prices higher than
market rates.
High yield bonds experienced unprecedented demand. With higher-quality
bonds achieving considerably lower returns, the performance of high yield
bonds captured the attention of income-oriented investors who sought
higher returns in this low interest rate environment. Further, investors
were willing to take on additional credit risk in light of the solid
economy. The market for buyers expanded and broadened. Based on mutual
fund cash flows, demand for high yield bonds was nearly ten times that of
its higher-rated counterparts in 1997. For the twelve months ended April
30, 1998, a record $23.87 billion of cash poured into high yield bond
mutual funds. Demand intensified in the early months of 1998 when cash
flowed in to high yield bond mutual funds at a pace of $2.5 billion per
month -- twice the pace of a year earlier.1
--------------------------------------------------------------------
PORTFOLIO COMPOSITION
(as a percentage of net assets)
(Pie chart appears below illustrating the following amounts:)
Corporate Bonds - 76.2%
Repurchase Agreement and
Other Assets and Liabilities (net) - 10.0%
Foreign Corporate Bonds - 7.9%
Preferred Stocks - 5.0%
Common Stocks & Warrants - 0.9%
7
<PAGE>
EVERGREEN
High Yield Bond Fund
Portfolio Manager Interview
- --------------------------------------
What strategies did you use in managing
the Fund?
We selected what we believe to be top-performing companies primarily in
the U.S., within industries that we believed had the best growth prospects
and would benefit from the stock market's strength. The gains in equities
improved the balance sheets of high yield bond issuers and because of the
close relationship of the two markets, good news in equities "spilled
over" into the high yield bond sector. We managed the Fund's inter-national
holdings very cautiously due to developments in Asia. Prior to the Asian
crisis, we reduced the Fund's investment in emerging markets from 15% to
2% and eliminated its 5% holding in Asia.
In the U.S., we focused on industries including telecommunications, cable
and wireless communications, food and tobacco, and energy. We limited the
Fund's investments in commodities such as steel, metal, and paper and
forest products. These sectors underperformed because investors assumed
demand and pricing for commodity products would slow due to the situation
in Asia.
--------------------------------
PORTFOLIO CREDIT QUALITY
(as a percentage of portfolio assets)
(Pie chart appears below illustrating the following amounts)
B - 68.3%
Not Rated - 20.0%
CCC - 7.7%
BB - 4.0%
We also emphasized bonds that were rated "B". B-rated bonds offered higher
yields and in our opinion, better potential for price appreciation -- a
combination which helped them generate strong performance relative to
other rating categories, during the past twelve months. Investor demand
for higher yields, as well as lower credit risk because of the favorable
economic environment, resulted in lower-rated securities outperforming
their higher-rated counterparts. As of April 30, 1998, the Fund's average
quality was "B" and its average maturity stood at 8.2 years.
- --------------------------------------
What is your outlook for high yield bonds
over the next six months?
We continue to have a favorable outlook for high yield
bonds. We expect economic growth to remain broad-based and strong, and for
inflation to stay low -- an environment which is extremely positive for
earnings. With that kind of backdrop, companies can thrive from a credit
standpoint.
However, we anticipate some interest rate risk associated with this
economic strength. With the economy in the eighth year of an expansion and
interest rates at historically low levels, the Federal Reserve Board is
clearly monitoring signs of inflation -- particularly in the area of
income and wage pressures. Unemployment is near a thirty-year low. We
would not be surprised to see interest rates move somewhat higher, which
could have a negative effect on stocks -- and because of their close
relationship, on high yield bonds.
In anticipation of this environment, we intend to emphasize U.S.
industries with established earnings records -- such as oil and gas,
metals and manufacturing -- which could benefit from the economy's
strength. We also believe these types of businesses would be better able
to stand on their own merits and be less dependent on the stock market's
performance. We expect to de-emphasize industries -- such as
telecommunications -- and companies whose limited earnings histories would
give them less demonstrated independence from the stock market.
Please note that we changed the fiscal year end of the High Yield Bond Fund
from July 31 to April 30. The next report for this Fund will be the semiannual
report as of October 31, 1998 which will mail at the end of December 1998.
8
<PAGE>
EVERGREEN
Strategic Income Fund
Fund at a Glance as of April 30, 1998
We look forward to the investment opportunities that change can present,
believing the Fund's flexible investment philosophy enables its investors to
participate to the fullest extent in the most attractive opportunities in the
international marketplace.
Portfolio
Management
- ----------------------------------------
(Photo appears below of Prescott B. Crocker, CFA)
Prescott B. Crocker, CFA
Tenure: February 1997
-------------------------------------------------------
CURRENT INVESTMENT STYLE
(Table with cube-shaped blocks appears below illustrating medium quality and
intermediate duration.)
Duration Quality
Short High
Int Med
Long Low
Morningstar's Style Box is based on a
portfolio date as of 3/31/98.
The Fixed-Income Style Box placement is
based on a fund's average effective maturity
or duration and the average credit rating of
the bonds within the 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 4/14/87 2/1/93 2/1/93 1/13/97
................................................................................
Average Annual Returns
................................................................................
1 year with sales charge 7.82% 7.47% 11.48% n/a
................................................................................
1 year w/o sales charge 13.20% 12.47% 12.48% 13.46%
................................................................................
3 years 9.08% 9.24% 10.08% --
................................................................................
5 years 6.97% 7.00% 7.28% --
................................................................................
10 years 7.95% -- -- --
................................................................................
Since Inception 7.43% 8.27% 8.38% 7.80%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
30-day SEC Yield 6.18% 5.42% 5.42% 6.45%
................................................................................
12-month dividends per share $ 0.49 $ 0.43 $ 0.43 $ 0.48
................................................................................
</TABLE>
*Adjusted for maximum sales charge.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
(Plot points appear below for Long Term Growth chart)
4/88 4/90 4/92 4/94 4/96 4/98
Class A Shares 9,525 9,473 12,055 16,363 17,368 21,483
LBABI 10,000 11,769 15,048 17,189 20,040 23,785
CPI 10,000 11,008 11,913 12,587 13,337 13,877
Comparison of a $10,000 investment in Evergreen Strategic Income Fund, Class A
shares, versus a similar investment in the Lehman Brothers Aggregate Bond Index
(LBABI) 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 Lehman Brothers Aggregate Bond Index is an
unmanaged index and does not include transaction costs associated with buying
and selling securities nor any management fees. The Consumer Price Index, a
measure of inflation, is through April 30, 1998.
9
<PAGE>
EVERGREEN
Strategic Income Fund
Portfolio Manager Interview
- --------------------------------------------------------------------------------
How was the Fund's performance for the
12 months ended April 30, 1998?
We were pleased with the Fund's performance. The Fund's Class A shares
generated a total return of 13.20%, unadjusted for sales charges, during
the fiscal year versus the average return of 11.45% produced by the
multi-sector income funds followed by Lipper Analytical Services. The
Fund's Class A shares ranked number 13 out of the 82 multi-sector income
funds, or the top 16%, tracked by Lipper.1 The Fund's Class A shares also
outperformed its benchmark, the Lehman Brothers Aggregate Bond Index which
returned 10.91% for the 12 months ended April 30, 1998.
Portfolio Characteristics
- -------------------------
Total Net Assets $327,835,036
Average Credit Quality BBB
Average Maturity 8.9 years
Average Duration 6.3 years
- --------------------------------------------------------------------------------
How were the Fund's assets invested as
of the end of the reporting period?
The Fund was invested as follows: high yield corporate bonds - 32%; U.S.
Treasury obligations and agency securities - 25%; foreign bonds - 28%; and
other investments and other assets and liabilities (net) - 15%. Foreign
holdings included the governments of Germany and the United Kingdom, as
well as Danish mortgage-backed securities; and corporate bond investments
in Mexico, Brazil, Canada and Sweden.2
1Source: Lipper Analytical Services, Inc., an independent mutual fund
rating company. The rankings are based on total return and do not include
the effect of a sales charge. For the 5-year period ended April 30, 1998,
the Fund's Class A shares ranked 12 out of 20 funds in the category. For
the 10-year period ended April 30, 1998, the Fund's Class A shares ranked
number 5 out of 5 funds in the category. Past performance is no guarantee
of future results.
2International investing involves increased risk and volatility.
- --------------------------------------------------------------------------------
What strategies did you use in managing
the Fund?
We emphasized investments that we believed would benefit from the
favorable economic and interest rate environment in the U.S., and took
advantage of the potential for appreciation in the so-called "high yield"
European countries and limited risk in emerging markets. The Fund also was
active in currency transactions, capitalizing on the strength of the U.S.
dollar.
During the year, U.S. investments ranged from 65% - 80% of net assets. We
focused on the high yield bond market, which in our opinion, provided the
Fund with higher yields and greater potential for price appreciation than
higher-rated bonds. High yield bonds was the top-performing U.S.
fixed-income sector over the past twelve months, benefiting from a rising
stock market and economic conditions that enabled the underlying issuers
to improve from a credit standpoint.3 We selected industries such as
cable, radio and broadcasting, telecommunications and energy.
The Fund also maintained a substantial position in U.S. Treasury
securities. We invested in bonds with longer maturities, which maximized
price appreciation when interest rates fell. During the year, the yield on
the benchmark 30-year U.S. Treasury bond fell from 6.96% on April 30, 1997
to 5.95% on April 30, 1998. The Fund also held a core position of U.S.
government and agency securities with 5-10 year maturities. Like the high
yield bond sector, U.S. Treasuries benefited from the steady growth of the
domestic economy and low inflation. U.S. Treasuries were sought by
international investors when excess liquidity prompted them to seek the
higher yields and favorable investment climate available in the U.S. The
sector's value increased significantly further when international
investors selected U.S. Treasuries as a safe haven from turmoil in Asia.
3Source: Chase Securities, Inc. (CSI)
10
<PAGE>
EVERGREEN
Strategic Income Fund
Portfolio Manager Interview
--------------------------------------------------------------------
PORTFOLIO COMPOSITION
(as a percentage of net assets)
(Pie chart appears below illustrating the following amounts:)
Corporate Bonds - 31.7%
Foreign Corporate Bonds - 28.4%
U.S. Treasury Obligations - 24.8%
Mortgage-Backed Securities - 11.8%
Other Assets and Liabilities (net) - 1.9%
Asset-Backed Securities - 0.6%
Common Stocks and Warrants - 0.5%
Preferred Stock - 0.3%
The Fund's foreign investments concentrated on the "high yield" European
countries, particularly Italy and Spain. Bond yields in these countries
fell -- pushing their prices higher -- relative to the benchmark, Germany,
as these countries prepared for entry into the European Monetary Union
(EMU). As of January 1, 1999, the "Euro" will be the single common
currency for eleven countries, although for three years assets will be
priced in both the "Euro" and the countries' existing currencies. We also
maintained a substantial position in Danish mortgage-backed securities,
bonds that carried the implicit guarantee of the Danish government but
whose yield was 1% higher than Danish government bonds with comparable
maturities. The Fund was an active investor in foreign currency
transactions. We took advantage of the U.S. dollar's strength when its
value was rising relative to other currencies and implemented a hedging
strategy when the U.S. dollar weakened. We believe these foreign exchange
transactions contributed favorably to the Fund's total return.
We exercised caution in emerging market investments. Although providing
attractive returns in the first part of the Fund's fiscal period, prices
on emerging market debt fell sharply during the Asian crisis. We had
reduced the Fund's holdings in emerging markets by 50% prior to the Asian
situation, eliminating holdings in Indonesia and selling 80% of the
holdings in Brazil. As of the close of the Fund's fiscal period, the
investment climate in emerging markets had improved considerably, but
remained unsettled. As of April 30, 1998, less than 5% of the Fund was
invested in the debt of emerging market countries.
--------------------------------------------------------------------
PORTFOLIO CREDIT QUALITY
(as a percentage of portfolio assets)
(Pie chart appears below illustrating the following amounts:)
AAA - 42.0%
B - 27.4%
Not Rated - 15.6%
BB - 12.9%
CCC - 1.6%
BBB - 0.5%
- --------------------------------------------------------------------------------
What is your outlook for each of these
sectors over the next six months?
Our outlook is favorable, although we believe the dynamics within each
sector could change somewhat. In the U.S., we expect a continuation of
steady economic growth and low inflation -- an environment which is very
positive for high yield bonds. However, with the economy in the eighth
year of an expansion and unemployment near a thirty-year low, the Federal
Reserve Board is closely monitoring signs of inflation --
particularly in the areas of income and wages. If economic activity
remains strong, we would not be surprised to see interest rates rise from
their currently historically low levels.
In Europe, fiscal policies and lower interest rates have stimulated
economic activity from the slow pace that has prevailed for the past three
years. Long-term interest rates in the "high yield" countries have fallen
between 4% - 6% over the past three years, as countries implemented
stringent fiscal and monetary policies
11
<PAGE>
EVERGREEN
Strategic Income Fund
Portfolio Manager Interview
required for entry into EMU. The yield advantages provided by the
government bonds of the "high yield" countries, as well as their potential
for price appreciation has diminished, as the start of EMU has approached.
We expect the creation of the EMU to bring back strength to the European
currencies, relative to the U.S. dollar, as investors anticipate the
continuation of economic recovery in Europe and a coordinated effort to
create a strong single European currency. In light of these changes, we
have increased the potential for total return from European currencies by
keeping the Fund's position in them unhedged. Further, we expect to find
increased opportunity in the corporate sector of these markets rather than
in their government bonds and intend to shift assets accordingly.
We continue to monitor developments in the emerging markets. While the
investment environment in that sector remains unsettled, we recognize the
improvement that has taken place and believe some prices have fallen to
the point that they are beginning to represent attractive value. We intend
to exercise prudence, taking advantage of selected opportunities.
We look forward to the investment opportunities that change can present,
believing the Fund's flexible investment philosophy enables its investors
to participate to the fullest extent in the most attractive opportunities
in the international marketplace.
12
<PAGE>
EVERGREEN
U.S. Government Fund
Fund at a Glance as of April 30, 1998
We will continue to monitor emerging data and will respond to any changes in
the economy by adjusting the Fund's duration and sector allocations
accordingly.
Portfolio
Management
- ----------------------------------------
(Photo appears below of
Rollin C. Williams, CFA)
Rollin C. Williams, CFA
Tenure: January 1993
-------------------------------------------------------
CURRENT INVESTMENT STYLE
(Table with cube-shaped blocks appears below illustrating high quality and
intermediate duration.)
Duration Quality
Short High
Int Med
Long Low
Morningstar's Style Box is based on a
portfolio date as of 3/31/98.
The Fixed-Income Style Box placement is
based on a fund's average effective maturity
or duration and the average credit rating of
the bonds within the 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 1/11/93 1/11/93 9/2/94 9/2/93
........................................................................
Average Annual Returns
........................................................................
1 year with sales charge 4.56% 3.96% 7.96% n/a
........................................................................
1 year w/o sales charge 9.78% 8.96% 8.96% 10.05%
........................................................................
3 years 6.11% 6.17% 7.05% 8.12%
........................................................................
5 years 4.91% 4.91% -- --
........................................................................
Since Inception 5.31% 5.43% 6.94% 5.89%
........................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
........................................................................
30-day SEC yield 5.01% 4.51% 4.51% 5.52%
........................................................................
12-month dividends per share $0.61 $ 0.53 $ 0.53 $ 0.63
........................................................................
</TABLE>
*Adjusted for maximum sales charge
- --------------------------------------------------------------------------------
LONG TERM GROWTH
(Plot points appear below for Long Term Growth chart)
1/93 4/93 4/94 4/95 4/96 4/97 4/98
Class A Shares 9,525 9,748 9,737 10,368 11,137 11,847 13,154
LBITGBI 10,000 10,280 10,383 11,059 11,927 12,693 13,818
CPI 10,000 10,098 10,337 10,652 10,952 11,234 11,396
Comparison of a $10,000 investment in Evergreen U.S. Government Fund, Class A
shares, versus a similar investment in the Lehman Brothers Intermediate Term
Government Bond Index (LBITGBI) 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 Lehman Brothers Intermediate Term Government Bond
Index is an unmanaged index and does not include transaction costs associated
with buying and selling securities nor any management fees. The Consumer Price
Index, a measure of inflation, is through April 30, 1998.
13
<PAGE>
EVERGREEN
U.S. Government Fund
Portfolio Manager Interview
- --------------------------------------------------------------------------------
How did the Fund perform during the
fiscal year?
The Evergreen U.S. Government Fund's Class A shares posted a 9.78% total
return, unadjusted for any sales charge, for the twelve months ended April
30, 1998. This performance compares favorably to the 8.68% total return
for its benchmark, the Lehman Brothers Intermediate Term Government Bond
Index.
Portfolio Characteristics
- -------------------------
Total Net Assets $332,245,277
Average Credit Quality AAA
Average Maturity 8.8 years
Average Duration 4.4 years
- --------------------------------------------------------------------------------
What was the economic environment like
during the past twelve months?
The past year has been very positive for fixed income investors. The
period was marked by healthy domestic economic growth that showed few
signs of inflation. As a result, interest rates declined steadily which,
in turn, boosted bond prices.
The most noteworthy event for investors during the period was the
financial crisis that struck the economies and financial markets of
Southeast Asia. Although the "Asian flu" filtered back to the United
States in the form of volatility, the effects to the financial markets
were generally positive.
Prices of imports to the U.S. declined while domestic export growth slowed
due to reduced demand from overseas economies. The combination of these
two factors calmed investors' inflationary fears and prompted domestic
interest rates to trend lower. The yield on the bellwether 30-year
Treasury Bond declined by nearly one percentage point -- from 6.96% to
5.95% -- during the fiscal year.
--------------------------------------------------------------------
MATURITY BREAKDOWN
(as a percentage of portfolio assets)
(Pie chart appears below illustrating the following amounts:)
20+ years - 55.0%
1 - 10 years - 25.1%
10 - 20 years - 13.3%
0 - 1 years - 6.6%
- --------------------------------------------------------------------------------
How did your investment strategies
affect the portfolio?
Our primary strategy to lengthen the Fund's duration was in response to
our expectation of declining interest rates. Duration was increased from
4.27 years to 4.40 years during the twelve months. Consistent with our
forecast, economic data indicated benign inflation and moderating economic
growth, prompting interest rates to trend lower throughout the fiscal
year. Consequently, the portfolio's duration stance -- nearly 50% longer
than the benchmark Lehman Brothers Intermediate Term Government Bond Index
-- enhanced the Fund's total return and contributed to outperformance of
1.1%.
In addition, the portfolio's weighting of mortgage-backed securities was
reduced. As interest rates fall, this sector is especially vulnerable to
underperformance as homeowners refinance their mortgages to take
14
<PAGE>
EVERGREEN
U.S. Government Fund
Portfolio Manager Interview
advantage of lower rates. Our declining-rate forecast prompted us to cut
our mortgage exposure from 48% to 42% during the final six months of the
fiscal period. This reduced weighting enhanced performance while
mitigating the portfolio's exposure to pre-payment risk.
--------------------------------------------------------------------
PORTFOLIO COMPOSITION
(as a percentage of net assets)
(Pie chart appears below illustrating the following amounts:)
U.S. Treasury Olibgations - 55.4%
Mortgage-Backed Securities - 42.4%
Other Assets and Liabilities (net) - 2.0%
Repurchase Agreement - 0.2%
- --------------------------------------------------------------------------------
Were there any other noteworthy events during the fiscal period relating
to the Fund?
In August of 1997, the Evergreen U.S. Government Fund merged with the
Keystone Government Securities Fund. Net assets in the Fund increased over
$40 million as a result of the merger. This combination was undertaken
because the funds' respective objectives were virtually identical,
allowing us to merge and manage the combined fund more efficiently and
cost-effectively. Following the merger, a number of smaller mortgage-backed
securities were liquidated to reduce the number of holdings in the
combined fund.
- --------------------------------------------------------------------------------
What is your outlook going forward?
The overriding question now facing the market is whether the U.S. economy
will continue its expansion or will it finally begin to slow? Will low
unemployment and rising wages ignite inflation or will the slowdown in the
Asian markets slow the U.S. economy and calm inflationary pressure?
Although the answers to these questions are still unknown, the Federal
Reserve Board recently suggested that an increase in interest rates may be
necessary as a preventative measure to tackle inflation.
Our view is that underlying market fundamentals support low interest rates
over the long term. Short term we expect a bit of volatility, but feel
that the Fed will hold off on increasing rates until the effects of the
Asian crisis becomes more clear. A pre-emptive rate ease in the latter
part of the year is even possible should the U.S. economy slow more than
is currently expected. We will continue to monitor emerging data and will
respond to any changes in the economy by adjusting the Fund's duration and
sector allocations accordingly.
15
<PAGE>
EVERGREEN
Diversified Bond Fund
Financial Highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
January 20, 1998
(Commencement of
Class Operations)
to April 30, 1998
<S> <C>
CLASS A SHARES
Net asset value beginning of period $ 16.08
===========
............................................................................................................
Income from investment operations
Net investment income 0.30 (b)
............................................................................................................
Net realized and unrealized loss on investments, futures contracts and foreign currency
related transactions (0.16)(d)
-----------
............................................................................................................
Total from investment operations 0.14
-----------
............................................................................................................
Less distributions from net investment income (0.30)
-----------
............................................................................................................
Net asset value end of period $ 15.92
===========
............................................................................................................
Total return (a) 0.85%
............................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.08%(c)
............................................................................................................
Expenses excluding indirectly paid expenses 1.07%(c)
............................................................................................................
Net investment income 6.68%(c)
............................................................................................................
Portfolio turnover rate 109%
............................................................................................................
Net assets end of period (thousands) $ 501,547
............................................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Calculation based on average shares outstanding.
(c) Annualized.
(d) The amount shown for a share outstanding throughout the period may not
accord with the change in the aggregate gains and losses in the portfolio
securities for the period because of the timing of sales and repurchases of
the Fund's shares in relation to the fluctuation of market value for the
portfolio.
See Combined Notes to Financial Statements.
16
<PAGE>
EVERGREEN
Diversified Bond Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Eight Months Ended
April 30, 1998 (d)
<S> <C>
CLASS B SHARES
Net asset value beginning of period $ 15.42
------------
...................................................................................
Income from investment operations
Net investment income 0.61 (b)
...................................................................................
Net realized and unrealized gain (loss) on investments, futures
contracts and foreign currency related transactions 0.50
------------
...................................................................................
Total from investment operations 1.11
------------
...................................................................................
Less distributions from
Net investment income (0.61)
...................................................................................
In excess of net investment income 0
...................................................................................
Net realized gain on investments 0
...................................................................................
Tax basis return of capital 0
------------
...................................................................................
Total distributions (0.61)
------------
...................................................................................
Net asset value end of period $ 15.92
------------
...................................................................................
Total return (a) 7.26%
...................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.93%(c)
...................................................................................
Expenses excluding indirectly paid expenses 1.92%(c)
...................................................................................
Net investment income 5.74%(c)
...................................................................................
Portfolio turnover rate 109%
...................................................................................
Net assets end of period (thousands) $ 70,113
...................................................................................
<CAPTION>
Year Ended August 31,
---------------------------------------------------
1997 1996 1995 1994
<S> <C> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of period $ 14.65 $ 15.09 $ 15.28 $ 17.06
-------- -------- -------- --------
..................................................................................................................
Income from investment operations
Net investment income 0.91 0.95 1.06 1.06
..................................................................................................................
Net realized and unrealized gain (loss) on investments, futures
contracts and foreign currency related transactions 0.84 (0.35) 0.11 (1.62)
-------- -------- -------- --------
..................................................................................................................
Total from investment operations 1.75 0.60 1.17 (0.56)
-------- -------- -------- --------
..................................................................................................................
Less distributions from
Net investment income (0.93) (0.96) (1.06) (1.22)
..................................................................................................................
In excess of net investment income (0.05) 0 (0.22) 0
..................................................................................................................
Net realized gain on investments 0 0 0 0
..................................................................................................................
Tax basis return of capital 0 (0.08) (0.08) 0
-------- -------- -------- --------
..................................................................................................................
Total distributions (0.98) (1.04) (1.36) (1.22)
-------- -------- -------- --------
..................................................................................................................
Net asset value end of period $ 15.42 $ 14.65 $ 15.09 $ 15.28
-------- -------- -------- --------
..................................................................................................................
Total return (a) 12.25% 4.03% 8.13% (3.53%)
..................................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.88% 1.84% 1.81% 1.75%
..................................................................................................................
Expenses excluding indirectly paid expenses 1.87% 1.83% -- --
..................................................................................................................
Net investment income 6.07% 6.42% 7.05% 6.48%
..................................................................................................................
Portfolio turnover rate 138% 246% 178% 200%
..................................................................................................................
Net assets end of period (thousands) $457,701 $559,792 $734,837 $814,245
..................................................................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended August 31,
---------------------------
1993 1992
<S> <C> <C>
CLASS B SHARES
Net asset value beginning of period $ 16.44 $ 15.37
--------- --------
..................................................................................
Income from investment operations
Net investment income 1.28 1.33
..................................................................................
Net realized and unrealized gain (loss) on investments,
futures contracts and foreign currency related
transactions 0.70 1.14
--------- --------
..................................................................................
Total from investment operations 1.98 2.47
--------- --------
..................................................................................
Less distributions from
Net investment income (1.28) (1.33)
..................................................................................
In excess of net investment income (0.08) (0.07)
..................................................................................
Net realized gain on investments 0 0
..................................................................................
Tax basis return of capital 0 0
---------- --------
..................................................................................
Total distributions (1.36) (1.40)
---------- --------
..................................................................................
Net asset value end of period $ 17.06 $ 16.44
---------- --------
..................................................................................
Total return (a) 12.73% 16.88%
..................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.89% 1.99%
..................................................................................
Expenses excluding indirectly paid expenses -- --
..................................................................................
Net investment income 7.73% 8.29%
..................................................................................
Portfolio turnover rate 133% 117%
..................................................................................
Net assets end of period (thousands) $1,004,393 $902,339
..................................................................................
<CAPTION>
Year Ended August 31,
-----------------------------------------------------
1991 1990 1989 1988
<S> <C> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of period $ 15.51 $ 17.74 $ 17.99 $ 18.91
-------- -------- --------- --------
............................................................................................................
Income from investment operations
Net investment income 1.33 1.53 1.71 1.78
............................................................................................................
Net realized and unrealized gain (loss) on investments,
futures contracts and foreign currency related
transactions 0.17 (1.94) (0.13) (0.81)
-------- -------- ---------- --------
............................................................................................................
Total from investment operations 1.50 (0.41) 1.58 0.97
-------- -------- ---------- --------
............................................................................................................
Less distributions from
Net investment income (1.63) (1.61) (1.83) (1.85)
............................................................................................................
In excess of net investment income (0.01) (0.21) 0 0
............................................................................................................
Net realized gain on investments 0 0 0 (0.04)
............................................................................................................
Tax basis return of capital 0 0 0 0
-------- -------- ---------- --------
............................................................................................................
Total distributions (1.64) (1.82) (1.83) (1.89)
-------- -------- ---------- --------
............................................................................................................
Net asset value end of period $ 15.37 $ 15.51 $ 17.74 $ 17.99
-------- -------- ---------- --------
............................................................................................................
Total return (a) 10.58% (2.44%) 9.23% 5.61%
............................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.94% 1.89% 1.84% 1.68%
............................................................................................................
Expenses excluding indirectly paid expenses -- -- -- --
............................................................................................................
Net investment income 8.74% 9.26% 9.52% 9.82%
............................................................................................................
Portfolio turnover rate 101% 43% 47% 46%
............................................................................................................
Net assets end of period (thousands) $814,528 $860,615 $1,000,305 $838,892
............................................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Calculations based on average shares outstanding.
(c) Annualized.
(d) The Fund changed its fiscal year end from August 31 to April 30 during the
period.
See Combined Notes to Financial Statements.
17
<PAGE>
EVERGREEN
Diversified Bond Fund
Financial Highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
April 7, 1998
(Commencement of
Class Operations)
to April 30, 1998
<S> <C>
CLASS C SHARES
Net asset value beginning of period $ 16.06
===========
............................................................................................................
Income from investment operations
Net investment income 0.04 (b)
............................................................................................................
Net realized and unrealized loss on investments, futures contracts and foreign currency
related transactions (0.14)(d)
-----------
............................................................................................................
Total from investment operations (0.10)
-----------
............................................................................................................
Less distributions from net investment income (0.04)
-----------
............................................................................................................
Net asset value end of period $ 15.92
===========
............................................................................................................
Total return (a) (0.60%)
............................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.88%(c)
............................................................................................................
Expenses excluding indirectly paid expenses 1.88%(c)
............................................................................................................
Net investment income 6.11%(c)
............................................................................................................
Portfolio turnover rate 109%
............................................................................................................
Net assets end of period (thousands) $ 23
............................................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Calculation based on average shares outstanding.
(c) Annualized.
(d) The amount shown for a share outstanding throughout the period may not
accord with the change in the aggregate gains and losses in the portfolio
securities for the period because of the timing of sales and repurchases of
the Fund's shares in relation to the fluctuation of market value for the
portfolio.
<TABLE>
<CAPTION>
February 11, 1998
(Commencement of
Class Operations)
to April 30, 1998
<S> <C>
CLASS Y SHARES
Net asset value beginning of period $ 16.03
===========
............................................................................................................
Income from investment operations
Net investment income 0.24 (a)
............................................................................................................
Net realized and unrealized loss on investments, futures contracts and foreign currency
related transactions (0.11)(c)
-----------
............................................................................................................
Total from investment operations 0.13
-----------
............................................................................................................
Less distributions from net investment income (0.24)
-----------
............................................................................................................
Net asset value end of period $ 15.92
===========
............................................................................................................
Total return 0.80%
............................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 0.83%(b)
............................................................................................................
Expenses excluding indirectly paid expenses 0.82%(b)
............................................................................................................
Net investment income 6.89%(b)
............................................................................................................
Portfolio turnover rate 109%
............................................................................................................
Net assets end of period (thousands) $ 7
............................................................................................................
</TABLE>
(a) Calculation based on average shares outstanding.
(b) Annualized.
(c) The amount shown for a share outstanding throughout the period may not
accord with the change in the aggregate gains and losses in the portfolio
securities for the period because of the timing of sales and repurchases of
the Fund's shares in relation to the fluctuation of market value for the
portfolio.
See Combined Notes to Financial Statements.
18
<PAGE>
EVERGREEN
High Yield Bond Fund
Financial Highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
January 20, 1998
(Commencement of
Class Operations)
to April 30, 1998
<S> <C>
CLASS A SHARES
Net asset value beginning of period $ 4.52
---------
...........................................................................................................
Income from investment operations
Net investment income 0.11 (b)
...........................................................................................................
Net realized and unrealized gain on investments and foreign currency related transactions 0.01
---------
...........................................................................................................
Total from investment operations 0.12
---------
...........................................................................................................
Less distributions from net investment income (0.11)
---------
...........................................................................................................
Net asset value end of period $ 4.53
---------
...........................................................................................................
Total return (a) 2.57%
...........................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.24%(c)
...........................................................................................................
Expenses excluding indirectly paid expenses 1.23%(c)
...........................................................................................................
Net investment income 8.48%(c)
...........................................................................................................
Portfolio turnover rate 155%
...........................................................................................................
Net assets end of period (thousands) $ 420,778
...........................................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Calculation based on average shares outstanding.
(c) Annualized.
See Combined Notes to Financial Statements.
19
<PAGE>
EVERGREEN
High Yield Bond Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Nine Months Ended
April 30, 1998 (d)
<S> <C>
CLASS B SHARES
Net asset value beginning of period $ 4.37
----------
.....................................................................................
Income from investment operations
Net investment income 0.25 (b)
.....................................................................................
Net realized and unrealized gain (loss) on investments and
foreign currency related transactions 0.16
----------
.....................................................................................
Total from investment operations 0.41
----------
.....................................................................................
Less distributions from
Net investment income (0.25)
.....................................................................................
In excess of net investment income 0
.....................................................................................
Tax basis return of capital 0
----------
.....................................................................................
Total distributions (0.25)
----------
.....................................................................................
Net asset value end of period $ 4.53
----------
.....................................................................................
Total return (a) 9.57%
.....................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.94%(c)
.....................................................................................
Expenses excluding indirectly paid expenses 1.93%(c)
.....................................................................................
Net investment income 7.27%(c)
.....................................................................................
Portfolio turnover rate 155%
.....................................................................................
Net assets end of period (thousands) $ 96,535
.....................................................................................
<CAPTION>
Year Ended July 31,
-------------------------------------------------
1997 1996 1995 1994
<S> <C> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of period $ 4.10 $ 4.42 $ 4.68 $ 5.13
------- ------- ------- -------
...................................................................................................................
Income from investment operations
Net investment income 0.32 0.32 0.38 0.38
...................................................................................................................
Net realized and unrealized gain (loss) on investments and
foreign currency related transactions 0.28 (0.27) (0.15) (0.38)
------- -------- -------- -------
...................................................................................................................
Total from investment operations 0.60 0.05 0.23 0
------- -------- -------- -------
...................................................................................................................
Less distributions from
Net investment income (0.32) (0.31) (0.37) (0.38)
...................................................................................................................
In excess of net investment income (0.01) (0.06) (0.02) (0.07)
...................................................................................................................
Tax basis return of capital 0 0 (0.10) 0
-------- -------- -------- -------
...................................................................................................................
Total distributions (0.33) (0.37) (0.49) (0.45)
-------- -------- -------- -------
...................................................................................................................
Net asset value end of period $ 4.37 $ 4.10 $ 4.42 $ 4.68
-------- -------- -------- -------
...................................................................................................................
Total return (a) 15.32% 1.38% 5.66% (0.41%)
...................................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.96% 1.94% 2.03% 1.84%
...................................................................................................................
Expenses excluding indirectly paid expenses 1.95% 1.93% -- --
...................................................................................................................
Net investment income 7.63% 7.92% 8.64% 7.57%
...................................................................................................................
Portfolio turnover rate 138% 116% 82% 110%
...................................................................................................................
Net assets end of period (thousands) $547,390 $593,681 $764,965 $766,283
...................................................................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended July 31,
-----------------------------------
1993 1992 1991
<S> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of period $ 4.74 $ 4.19 $ 5.02
------- ------- -------
.....................................................................................................
Income from investment operations
Net investment income 0.45 0.49 0.61
.....................................................................................................
Net realized and unrealized gain (loss) on investments and
foreign currency related transactions 0.44 0.58 ( 0.72)
------- ------- --------
.....................................................................................................
Total from investment operations 0.89 1.07 ( 0.11)
------- ------- --------
.....................................................................................................
Less distributions from
Net investment income ( 0.45) ( 0.50) ( 0.72)
.....................................................................................................
In excess of net investment income ( 0.05) ( 0.02) 0
.....................................................................................................
Tax basis return of capital 0 0 0
-------- -------- --------
.....................................................................................................
Total distributions ( 0.50) ( 0.52) ( 0.72)
-------- -------- --------
.....................................................................................................
Net asset value end of period $ 5.13 $ 4.74 $ 4.19
-------- -------- --------
.....................................................................................................
Total return (a) 20.28% 27.25% 0.03%
.....................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 2.06% 2.17% 2.34%
.....................................................................................................
Expenses excluding indirectly paid expenses -- -- --
.....................................................................................................
Net investment income 9.30% 10.86% 14.64%
.....................................................................................................
Portfolio turnover rate 125% 94% 78%
.....................................................................................................
Net assets end of period (thousands) $972,164 $841,757 $710,590
.....................................................................................................
<CAPTION>
Year Ended July 31,
-------------------------------------------
1990 1989 1988
<S> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of period $ 6.38 $ 6.91 $ 7.66
-------- -------- --------
.....................................................................................................
Income from investment operations
Net investment income 0.68 0.83 0.80
.....................................................................................................
Net realized and unrealized gain (loss) on investments and
foreign currency related transactions ( 1.18) ( 0.51) ( 0.71)
-------- -------- --------
.....................................................................................................
Total from investment operations ( 0.50) 0.32 0.09
-------- -------- --------
.....................................................................................................
Less distributions from
Net investment income ( 0.78) ( 0.85) ( 0.84)
.....................................................................................................
In excess of net investment income ( 0.08) 0 0
.....................................................................................................
Tax basis return of capital 0 0 0
-------- -------- --------
.....................................................................................................
Total distributions ( 0.86) ( 0.85) ( 0.84)
-------- -------- --------
.....................................................................................................
Net asset value end of period $ 5.02 $ 6.38 $ 6.91
======== ======== ========
.....................................................................................................
Total return (a) ( 7.84%) 4.95% 1.66%
.....................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 2.06% 1.97% 1.82%
.....................................................................................................
Expenses excluding indirectly paid expenses -- -- --
.....................................................................................................
Net investment income 12.77% 12.36% 11.29%
.....................................................................................................
Portfolio turnover rate 45% 75% 81%
.....................................................................................................
Net assets end of period (thousands) $820,940 $1,188,660 $1,274,673
.....................................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Calculation based on average shares outstanding.
(c) Annualized.
(d) The Fund changed its fiscal year end from July 31 to April 30 during the
period.
See Combined Notes to Financial Statements.
20
<PAGE>
EVERGREEN
High Yield Bond Fund
Financial Highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
January 22, 1998
(Commencement of
Class Operations)
to April 30, 1998
<S> <C>
CLASS C SHARES
Net asset value beginning of period $ 4.52
---------
...........................................................................................................
Income from investment operations
Net investment income 0.10 (b)
...........................................................................................................
Net realized and unrealized gain on investments and foreign currency related transactions 0.01
---------
...........................................................................................................
Total from investment operations 0.11
---------
...........................................................................................................
Less distributions from net investment income ( 0.10)
---------
...........................................................................................................
Net asset value end of period $ 4.53
---------
...........................................................................................................
Total return (a) 2.35%
...........................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 2.04%(c)
...........................................................................................................
Expenses excluding indirectly paid expenses 2.01%(c)
...........................................................................................................
Net investment income 7.51%(c)
...........................................................................................................
Portfolio turnover rate 155%
...........................................................................................................
Net assets end of period (thousands) $ 1,155
...........................................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Calculation based on average shares outstanding.
(c) Annualized.
<TABLE>
<CAPTION>
April 14, 1998
(Commencement of
Class Operations)
to April 30, 1998
<S> <C>
CLASS Y SHARES
Net asset value beginning of period $ 4.56
---------
...........................................................................................................
Income from investment operations
Net investment income 0.02 (a)
...........................................................................................................
Net realized and unrealized loss on investments and foreign currency related transactions ( 0.03)(c)
----------
...........................................................................................................
Total from investment operations ( 0.01)
----------
...........................................................................................................
Less distributions from net investment income ( 0.02)
----------
...........................................................................................................
Net asset value end of period $ 4.53
----------
...........................................................................................................
Total return ( 0.27%)
...........................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.09%(b)
...........................................................................................................
Expenses excluding indirectly paid expenses 1.09%(b)
...........................................................................................................
Net investment income 8.21%(b)
...........................................................................................................
Portfolio turnover rate 155%
...........................................................................................................
Net assets end of period (thousands) $ 20
...........................................................................................................
</TABLE>
(a) Calculation based on average shares outstanding.
(b) Annualized.
(c) The amount shown for a share outstanding throughout the period may not
accord with the change in the aggregate gains and losses in the portfolio
securities for the period because of the timing of sales and repurchases of
the Fund's shares in relation to the fluctuation of market value for the
portfolio.
See Combined Notes to Financial Statements.
21
<PAGE>
EVERGREEN
Strategic Income Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Nine Months
Ended Ended
April 30, 1998 April 30, 1997 (d)
<S> <C> <C>
CLASS A SHARES
Net asset value beginning of year $ 6.82 $ 6.77
---------- ----------
...............................................................................................
Income from investment operations
Net investment income 0.50 (b) 0.37
...............................................................................................
Net realized and unrealized gain (loss) on investments and
foreign currency related transactions 0.38 0.09
---------- ----------
...............................................................................................
Total from investment operations 0.88 0.46
---------- ----------
...............................................................................................
Less distributions from
Net investment income ( 0.49) ( 0.38)
...............................................................................................
In excess of investment income 0 ( 0.03)
...............................................................................................
Tax basis return of capital 0 0
...............................................................................................
Net realized gains on investments 0 0
---------- ----------
...............................................................................................
Total distributions ( 0.49) ( 0.41)
---------- ----------
...............................................................................................
Net asset value end of year $ 7.21 $ 6.82
---------- ----------
...............................................................................................
Total return (a) 13.20% 6.80%
...............................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.27% 1.28%(c)
...............................................................................................
Expenses excluding indirectly paid expenses 1.26% 1.26%(c)
...............................................................................................
Expenses excluding reimbursement 1.27% 1.28%(c)
...............................................................................................
Net investment income 6.80% 7.28%(c)
...............................................................................................
Portfolio turnover rate 237% 86%
...............................................................................................
Net assets end of year (thousands) $ 193,618 $ 58,725
...............................................................................................
<CAPTION>
Year Ended July 31,
----------------------------------------------------
1996 1995 1994 1993
<S> <C> <C> <C> <C>
CLASS A SHARES
Net asset value beginning of year $ 6.89 $ 7.35 $ 7.86 $ 7.02
------- ------- ------- -------
..............................................................................................................
Income from investment operations
Net investment income 0.54 0.64 0.61 (b) 0.69
..............................................................................................................
Net realized and unrealized gain (loss) on investments and
foreign currency related transactions ( 0.09) ( 0.45) ( 0.44) 0.89
------- ------- ------- ------
..............................................................................................................
Total from investment operations 0.45 0.19 0.17 1.58
------- ------- ------- ------
..............................................................................................................
Less distributions from
Net investment income ( 0.52) ( 0.60) ( 0.61) ( 0.72)
..............................................................................................................
In excess of investment income 0 ( 0.03) ( 0.03) ( 0.02)
..............................................................................................................
Tax basis return of capital ( 0.05) ( 0.02) ( 0.04) 0
..............................................................................................................
Net realized gains on investments 0 0 0 0
------- ------- ------- ------
..............................................................................................................
Total distributions ( 0.57) ( 0.65) ( 0.68) ( 0.74)
------- ------- ------- ------
..............................................................................................................
Net asset value end of year $ 6.77 $ 6.89 $ 7.35 $ 7.86
------- ------- ------- -------
..............................................................................................................
Total return (a) 6.84% 3.00% 1.86% 24.13%
..............................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.30% 1.33% 1.32% 1.80%
..............................................................................................................
Expenses excluding indirectly paid expenses 1.28% -- -- --
..............................................................................................................
Expenses excluding reimbursement 1.30% 1.33% 1.32% 1.80%
..............................................................................................................
Net investment income 8.05% 9.31% 7.79% 9.50%
..............................................................................................................
Portfolio turnover rate 101% 95% 92% 151%
..............................................................................................................
Net assets end of year (thousands) $68,118 $85,970 $ 105,181 $85,793
..............................................................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended July 31,
------------------------------------------------------------
1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
Net asset value beginning of year $ 6.10 $ 7.17 $ 9.02 $ 9.36 $ 10.04
------- ------- ------- ------- --------
......................................................................................................................
Income from investment operations
Net investment income 0.78 0.89 1.03 1.10 1.05
......................................................................................................................
Net realized and unrealized gain (loss) on investments and
foreign currency related transactions 0.89 ( 1.01) ( 1.79) ( 0.31) ( 0.65)
------- ------- ------- ------- --------
......................................................................................................................
Total from investment operations 1.67 ( 0.12) ( 0.76) 0.79 0.40
------- ------- ------- ------- --------
......................................................................................................................
Less distributions from
Net investment income ( 0.75) ( 0.89) ( 1.04) ( 1.11) ( 1.08)
......................................................................................................................
In excess of investment income 0 ( 0.06) ( 0.05) 0 0
......................................................................................................................
Tax basis return of capital 0 0 0 0 0
......................................................................................................................
Net realized gains on investments 0 0 0 ( 0.02) 0
------- ------- ------- ------- --------
......................................................................................................................
Total distributions ( 0.75) ( 0.95) ( 1.09) ( 1.13) ( 1.08)
------- ------- ------- ------- --------
......................................................................................................................
Net asset value end of year $ 7.02 $ 6.10 $ 7.17 $ 9.02 $ 9.36
------- ------- ------- ------- --------
......................................................................................................................
Total return (a) 28.73% 0.54% ( 8.55%) 9.00% 4.49%
......................................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 2.09% 2.00% 2.00% 1.81% 1.28%
......................................................................................................................
Expenses excluding indirectly paid expenses -- -- -- -- --
......................................................................................................................
Expenses excluding reimbursement 2.12% 2.25% 2.01% 1.90% 2.08%
......................................................................................................................
Net investment income 11.73% 15.23% 12.91% 12.06% 10.98%
......................................................................................................................
Portfolio turnover rate 95% 82% 36% 73% 46%
......................................................................................................................
Net assets end of year (thousands) $70,459 $70,246 $83,106 $138,499 $114,310
......................................................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Calculation based on average shares outstanding.
(c) Annualized.
(d) The Fund changed its fiscal year end from July 31 to April 30 during the
period.
See Combined Notes to Financial Statements.
22
<PAGE>
EVERGREEN
Strategic Income Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Nine Months
Ended Ended
April 30, 1998 April 30, 1997 (d)
<S> <C> <C>
CLASS B SHARES
Net asset value beginning of year $ 6.85 $ 6.81
--------- ----------
............................................................................................
Income from investment operations
Net investment income 0.44 (b) 0.34
............................................................................................
Net realized and unrealized gain (loss) on
investments and foreign currency related
transactions 0.39 0.07
--------- ----------
............................................................................................
Total from investment operations 0.83 0.41
--------- ----------
............................................................................................
Less distributions from
Net investment income ( 0.43) ( 0.34)
............................................................................................
In excess of net investment income 0 ( 0.03)
............................................................................................
Tax basis return of capital 0 0
--------- ----------
............................................................................................
Total distributions ( 0.43) ( 0.37)
--------- ----------
............................................................................................
Net asset value end of year $ 7.25 $ 6.85
--------- ----------
............................................................................................
Total return (a) 12.47% 6.06%
............................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 2.05% 2.04%(c)
............................................................................................
Expenses excluding indirectly paid expenses 2.04% 2.02%(c)
............................................................................................
Net investment income 6.08% 6.52%(c)
............................................................................................
Portfolio turnover rate 237% 86%
............................................................................................
Net assets end of year (thousands) $ 113,136 $ 110,082
............................................................................................
<CAPTION>
February 1, 1993
Year Ended July 31, (Commencement of
---------------------------------------- Class Operations)
1996 1995 1994 to July 31, 1993
<S> <C> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of year $ 6.92 $ 7.38 $ 7.89 $ 7.07
------- ------- --------- ----------
.......................................................................................................
Income from investment operations
Net investment income 0.50 0.60 0.55 (b) 0.24
.......................................................................................................
Net realized and unrealized gain (loss) on
investments and foreign currency related
transactions ( 0.09) ( 0.47) ( 0.44) 0.92
-------- -------- --------- ----------
.......................................................................................................
Total from investment operations 0.41 0.13 0.11 1.16
-------- -------- --------- ----------
.......................................................................................................
Less distributions from
Net investment income ( 0.47) ( 0.55) ( 0.55) ( 0.24)
.......................................................................................................
In excess of net investment income 0 ( 0.03) ( 0.03) ( 0.10)
.......................................................................................................
Tax basis return of capital ( 0.05) ( 0.01) ( 0.04) 0
-------- -------- --------- ----------
.......................................................................................................
Total distributions ( 0.52) ( 0.59) ( 0.62) ( 0.34)
-------- -------- --------- ----------
.......................................................................................................
Net asset value end of year $ 6.81 $ 6.92 $ 7.38 $ 7.89
-------- -------- --------- ----------
.......................................................................................................
Total return (a) 6.21% 2.12% 1.10% 16.75%
.......................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 2.07% 2.06% 2.07% 2.37%(c)
.......................................................................................................
Expenses excluding indirectly paid expenses 2.05% -- -- --
.......................................................................................................
Net investment income 7.28% 8.58% 7.11% 7.18%(c)
.......................................................................................................
Portfolio turnover rate 101% 95% 92% 151%
.......................................................................................................
Net assets end of year (thousands) $123,389 $149,091 $ 162,866 $ 35,415
.......................................................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Nine Months
Ended Ended
April 30, 1998 April 30, 1997 (d)
<S> <C> <C>
CLASS C SHARES
Net asset value beginning of year $ 6.84 $ 6.80
---------- ----------
............................................................................................
Income from investment operations
Net investment income 0.44 (b) 0.33
............................................................................................
Net realized and unrealized gain (loss) on
investments and foreign currency related
transactions 0.39 0.08
---------- ----------
............................................................................................
Total from investment operations 0.83 0.41
---------- ----------
............................................................................................
Less distributions from
Net investment income ( 0.43) ( 0.34)
............................................................................................
In excess of net investment income 0 ( 0.03)
............................................................................................
Tax basis return of capital 0 0
---------- ----------
............................................................................................
Total distributions ( 0.43) ( 0.37)
---------- ----------
............................................................................................
Net asset value end of year $ 7.24 $ 6.84
---------- ----------
............................................................................................
Total return (a) 12.48% 6.07%
............................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 2.05% 2.04%(c)
............................................................................................
Expenses excluding indirectly paid expenses 2.05% 2.03%(c)
............................................................................................
Net investment income 6.10% 6.52%(c)
............................................................................................
Portfolio turnover rate 237% 86%
............................................................................................
Net assets end of year (thousands) $ 19,639 $ 24,304
............................................................................................
<CAPTION>
February 1, 1993
Year Ended July 31, (Commencement of
---------------------------------------- Class Operations)
1996 1995 1994 to July 31, 1993
<S> <C> <C> <C> <C>
CLASS C SHARES
Net asset value beginning of year $ 6.92 $ 7.37 $ 7.88 $ 7.07
------- ------- --------- ----------
.......................................................................................................
Income from investment operations
Net investment income 0.49 0.59 0.55 (b) 0.24
.......................................................................................................
Net realized and unrealized gain (loss) on
investments and foreign currency related
transactions ( 0.09) ( 0.45) ( 0.44) 0.91
------- ------- --------- ----------
.......................................................................................................
Total from investment operations 0.40 0.14 0.11 1.15
------- ------- --------- ----------
.......................................................................................................
Less distributions from
Net investment income ( 0.47) ( 0.55) ( 0.55) ( 0.24)
.......................................................................................................
In excess of net investment income 0 ( 0.03) ( 0.03) ( 0.10)
.......................................................................................................
Tax basis return of capital ( 0.05) ( 0.01) ( 0.04) 0
------- ------- --------- ----------
.......................................................................................................
Total distributions ( 0.52) ( 0.59) ( 0.62) ( 0.34)
------- ------- --------- ----------
.......................................................................................................
Net asset value end of year $ 6.80 $ 6.92 $ 7.37 $ 7.88
------- ------- --------- ----------
.......................................................................................................
Total return (a) 6.07% 2.27% 1.09% 16.61%
.......................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 2.07% 2.08% 2.07% 2.25%(c)
.......................................................................................................
Expenses excluding indirectly paid expenses 2.05% -- -- --
.......................................................................................................
Net investment income 7.29% 8.56% 7.09% 7.35%(c)
.......................................................................................................
Portfolio turnover rate 101% 95% 92% 151%
.......................................................................................................
Net assets end of year (thousands) $31,816 $46,221 $ 59,228 $ 19,706
.......................................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Calculation based on average shares outstanding.
(c) Annualized.
(d) The Fund changed its fiscal year end from July 31 to April 30 during the
period.
See Combined Notes to Financial Statements.
23
<PAGE>
EVERGREEN
Strategic Income Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
January 13, 1997
Year (Commencement of
Ended Class Operations)
April 30, 1998 to April 30, 1997
<S> <C> <C>
CLASS Y SHARES
Net asset value beginning of year $ 6.65 $ 7.03
--------- ----------
.............................................................................................................................
Income from investment operations
Net investment income 0.46 (b) 0
.............................................................................................................................
Net realized and unrealized gain (loss) on investments and 0.41 ( 0.20)
--------- ----------
foreign currency related transactions
.............................................................................................................................
Total from investment operations 0.87 ( 0.20)
--------- ----------
.............................................................................................................................
Less distributions from
Net investment income ( 0.48) ( 0.17)
.............................................................................................................................
In excess of net investment income 0 ( 0.01)
--------- ----------
.............................................................................................................................
Total distributions ( 0.48) ( 0.18)
--------- ----------
.............................................................................................................................
Net asset value end of year $ 7.04 $ 6.65
--------- ----------
.............................................................................................................................
Total return 13.46% ( 2.87)%
.............................................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.01% 0.00%(a)
.............................................................................................................................
Expenses excluding indirectly paid expenses 1.00% 0.00%(a)
.............................................................................................................................
Net investment income 6.83% 0.00%(a)
.............................................................................................................................
Portfolio turnover rate 237% 86%
.............................................................................................................................
Net assets end of period (thousands) $ 1,442 $ 0
.............................................................................................................................
</TABLE>
(a) Annualized.
(b) Calculation based on average shares outstanding.
See Combined Notes to Financial Statements.
24
<PAGE>
EVERGREEN
U.S. Government Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ten Months Year
Ended Ended Ended
April 30, 1998 April 30, 1997 (d) June 30, 1996
<S> <C> <C> <C>
CLASS A SHARES
Net asset value
beginning of year $ 9.39 $ 9.42 $ 9.65
-------- ---------- --------
.................................................................................
Income from investment
operations
Net investment income 0.61 0.52 0.63
.................................................................................
Net realized and unrealized
gain (loss) on investments 0.29 ( 0.03) ( 0.23)
-------- ---------- --------
.................................................................................
Total from investment
operations 0.90 0.49 0.40
-------- ---------- --------
.................................................................................
Less distributions from net
investment income ( 0.61) ( 0.52) ( 0.63)
-------- ---------- --------
.................................................................................
Net asset value end of year $ 9.68 $ 9.39 $ 9.42
-------- ---------- --------
.................................................................................
Total return (a) 9.78% 5.30% 4.28%
.................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.03% 0.98%(b) 0.99%
.................................................................................
Expenses excluding
indirectly paid expenses 1.03% 0.98%(b) --
.................................................................................
Expenses excluding waivers
and/or reimbursements 1.03% 0.98%(b) 0.99%
.................................................................................
Net investment income 6.25% 6.60%(b) 6.61%
.................................................................................
Portfolio turnover rate 21% 12% 23%
.................................................................................
Net assets end of year
(thousands) $ 40,136 $ 17,913 $ 20,345
.................................................................................
<CAPTION>
January 11, 1993
Six Months Year (Commencement of
Ended Ended Class Operations) to
June 30, 1995 (c) December 31, 1994 December 31, 1993
<S> <C> <C> <C>
CLASS A SHARES
Net asset value
beginning of year $ 9.07 $ 10.05 $ 10.00
---------- ---------- -----------
.........................................................................................
Income from investment
operations
Net investment income 0.33 0.66 0.68
.........................................................................................
Net realized and unrealized
gain (loss) on investments 0.58 ( 0.98) 0.05
---------- ---------- -----------
.........................................................................................
Total from investment
operations 0.91 ( 0.32) 0.73
---------- ---------- -----------
.........................................................................................
Less distributions from net
investment income ( 0.33) ( 0.66) ( 0.68)
---------- ---------- -----------
.........................................................................................
Net asset value end of year $ 9.65 $ 9.07 $ 10.05
---------- ---------- -----------
.........................................................................................
Total return (a) 10.17% ( 3.18)% 7.43%
.........................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.04%(b) 0.96% 0.68%(b)
.........................................................................................
Expenses excluding
indirectly paid expenses -- -- --
.........................................................................................
Expenses excluding waivers
and/or reimbursements 1.05%(b) 1.00% 0.99%(b)
.........................................................................................
Net investment income 7.07%(b) 6.97% 6.93%(b)
.........................................................................................
Portfolio turnover rate 0% 19% 39%
.........................................................................................
Net assets end of year
(thousands) $ 22,445 $ 23,706 $ 38,851
.........................................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ten Months Year
Ended Ended Ended
April 30, 1998 April 30, 1997 (d) June 30, 1996
<S> <C> <C> <C>
CLASS B SHARES
Net asset value
beginning of year $ 9.39 $ 9.42 $ 9.65
-------- ---------- --------
.................................................................................
Income from investment
operations
Net investment income 0.53 0.46 0.56
.................................................................................
Net realized and unrealized
gain (loss) on investments 0.29 ( 0.03) ( 0.23)
-------- ---------- --------
.................................................................................
Total from investment
operations 0.82 0.43 0.33
-------- ---------- --------
.................................................................................
Less distributions from net
investment income ( 0.53) ( 0.46) ( 0.56)
-------- ---------- --------
.................................................................................
Net asset value end of year $ 9.68 $ 9.39 $ 9.42
-------- ---------- --------
.................................................................................
Total return (a) 8.96% 4.65% 3.50%
.................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.78% 1.73%(b) 1.74%
.................................................................................
Expenses excluding
indirectly paid expenses 1.78% 1.73%(b) --
.................................................................................
Expenses excluding waivers
and/or reimbursements 1.78% 1.73%(b) 1.74%
.................................................................................
Net investment income 5.56% 5.85%(b) 5.85%
.................................................................................
Portfolio turnover rate 21% 12% 23%
.................................................................................
Net assets end of year
(thousands) $130,576 $ 142,371 $165,988
.................................................................................
<CAPTION>
January 11, 1993
Six Months Year (Commencement of
Ended Ended Class Operations) to
June 30, 1995 (c) December 31, 1994 December 31, 1993
<S> <C> <C> <C>
CLASS B SHARES
Net asset value
beginning of year $ 9.07 $ 10.05 $ 10.00
---------- ---------- -----------
.........................................................................................
Income from investment
operations
Net investment income 0.29 0.61 0.63
.........................................................................................
Net realized and unrealized
gain (loss) on investments 0.58 ( 0.98) 0.05
---------- ---------- -----------
.........................................................................................
Total from investment
operations 0.87 ( 0.37) 0.68
---------- ---------- -----------
.........................................................................................
Less distributions from net
investment income ( 0.29) ( 0.61) ( 0.63)
---------- ---------- -----------
.........................................................................................
Net asset value end of year $ 9.65 $ 9.07 $ 10.05
---------- ---------- -----------
.........................................................................................
Total return (a) 9.76% ( 3.75)% 6.91%
.........................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.79%(b) 1.54% 1.19%(b)
.........................................................................................
Expenses excluding
indirectly paid expenses -- -- --
.........................................................................................
Expenses excluding waivers
and/or reimbursements 1.80%(b) 1.58% 1.50%(b)
.........................................................................................
Net investment income 6.32%(b) 6.42% 6.44%(b)
.........................................................................................
Portfolio turnover rate 0% 19% 39%
.........................................................................................
Net assets end of year
(thousands) $ 192,490 $ 195,571 $ 236,696
.........................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
(c) The Fund changed its fiscal year end from December 31 to June 30.
(d) The Fund changed its fiscal year end from June 30 to April 30.
See Combined Notes to Financial Statements.
25
<PAGE>
EVERGREEN
U.S. Government Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ten Months
Ended Ended
April 30, 1998 April 30, 1997 (d)
<S> <C> <C>
CLASS C SHARES
Net asset value beginning of year $ 9.39 $ 9.42
-------- ----------
...........................................................................................
Income from investmet operations
Net investment income 0.53 0.46
...........................................................................................
Net realized and unrealized gain (loss) on investments 0.29 ( 0.03)
-------- ----------
...........................................................................................
Total from investment operations 0.82 0.43
-------- ----------
...........................................................................................
Less distributions from net investment income ( 0.53) ( 0.46)
--------- ----------
...........................................................................................
Net asset value end of year $ 9.68 $ 9.39
--------- ----------
...........................................................................................
Total return (a) 8.96% 4.65%
...........................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.78% 1.73%(b)
...........................................................................................
Expenses excluding indirectly paid expenses 1.78% 1.73%(b)
...........................................................................................
Expenses excluding waivers and/or reimbursements 1.78% 1.73%(b)
...........................................................................................
Net investment income 5.49% 5.85%(b)
...........................................................................................
Portfolio turnover rate 21% 12%
...........................................................................................
Net assets end of year (thousands) $ 5,697 $ 455
...........................................................................................
<CAPTION>
September 2, 1994
Year Six Months (Commencement of
Ended Ended Class Operations) to
June 30, 1996 June 30, 1995 (c) December 31, 1994
<S> <C> <C> <C>
CLASS C SHARES
Net asset value beginning of year $ 9.65 $ 9.07 $ 9.39
-------- ---------- -----------
...............................................................................................................
Income from investmet operations
Net investment income 0.56 0.29 0.20
...............................................................................................................
Net realized and unrealized gain (loss) on investments ( 0.23) 0.58 ( 0.32)
--------- ---------- -----------
...............................................................................................................
Total from investment operations 0.33 0.87 ( 0.12)
--------- ---------- -----------
...............................................................................................................
Less distributions from net investment income ( 0.56) ( 0.29) ( 0.20)
--------- ---------- -----------
...............................................................................................................
Net asset value end of year $ 9.42 $ 9.65 $ 9.07
--------- ---------- -----------
...............................................................................................................
Total return (a) 3.50% 9.76% ( 1.30)%
...............................................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 1.74% 1.79%(b) 1.71%(b)
...............................................................................................................
Expenses excluding indirectly paid expenses -- -- --
...............................................................................................................
Expenses excluding waivers and/or reimbursements 1.74% 1.80%(b) 1.75%(b)
...............................................................................................................
Net investment income 5.87% 6.36%(b) 6.70%(b)
...............................................................................................................
Portfolio turnover rate 23% 0% 19%
...............................................................................................................
Net assets end of year (thousands) $ 649 $ 350 $ 266
...............................................................................................................
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
(c) The Fund changed its fiscal year end from December 31 to June 30.
(d) The Fund changed its fiscal year end from June 30 to April 30.
<TABLE>
<CAPTION>
Year Ten Months Year
Ended Ended Ended
April 30, 1998 April 30, 1997 (c) June 30, 1996
<S> <C> <C> <C>
CLASS Y SHARES
Net asset value
beginning of year $ 9.39 $ 9.42 $ 9.65
-------- ---------- --------
.................................................................................
Income from investment
operations
Net investment income 0.63 0.54 0.66
.................................................................................
Net realized and unrealized
gain (loss) on investments 0.29 ( 0.03) ( 0.23)
-------- ---------- --------
.................................................................................
Total from investment
operations 0.92 0.51 0.43
-------- ---------- --------
.................................................................................
Less distributions from net
investment income ( 0.63) ( 0.54) ( 0.66)
-------- ---------- --------
.................................................................................
Net asset value end of year $ 9.68 $ 9.39 $ 9.42
-------- ---------- --------
.................................................................................
Total return 10.05% 5.52% 4.54%
.................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 0.78% 0.73%(a) 0.74%
.................................................................................
Expenses excluding
indirectly paid expenses 0.78% 0.73%(a) --
.................................................................................
Expenses excluding waivers
and/or reimbursements 0.78% 0.73%(a) 0.74%
.................................................................................
Net investment income 6.55% 6.85%(a) 6.86%
.................................................................................
Portfolio turnover rate 21% 12% 23%
.................................................................................
Net assets end of year
(thousands) $155,836 $ 127,099 $121,569
.................................................................................
<CAPTION>
September 2, 1993
Six Months Year (Commencement of
Ended Ended Class Operations) to
June 30, 1995 (b) December 31, 1994 December 31, 1993
<S> <C> <C> <C>
CLASS Y SHARES
Net asset value
beginning of year $ 9.07 $ 10.05 $ 10.25
---------- ---------- -----------
.........................................................................................
Income from investment
operations
Net investment income 0.34 0.69 0.25
.........................................................................................
Net realized and unrealized
gain (loss) on investments 0.58 ( 0.98) ( 0.20)
---------- ---------- -----------
.........................................................................................
Total from investment
operations 0.92 ( 0.29) 0.05
---------- ---------- -----------
.........................................................................................
Less distributions from net
investment income ( 0.34) ( 0.69) ( 0.25)
---------- ---------- -----------
.........................................................................................
Net asset value end of year $ 9.65 $ 9.07 $ 10.05
---------- ---------- -----------
.........................................................................................
Total return 10.30% ( 2.94)% 0.49%
.........................................................................................
Ratios/supplemental data
Ratios to average net assets
Expenses 0.79%(a) 0.71% 0.48%(a)
.........................................................................................
Expenses excluding
indirectly paid expenses -- -- --
.........................................................................................
Expenses excluding waivers
and/or reimbursements 0.80%(a) 0.75% 0.79%(a)
.........................................................................................
Net investment income 7.31%(a) 7.27% 7.20%(a)
.........................................................................................
Portfolio turnover rate 0% 19% 39%
.........................................................................................
Net assets end of year
(thousands) $ 16,934 $ 15,595 $ 14,486
.........................................................................................
</TABLE>
(a) Annualized.
(b) The Fund changed its fiscal year end from December 31 to June 30.
(c) The Fund changed its fiscal year end from June 30 to April 30.
See Combined Notes to Financial Statements.
26
<PAGE>
EVERGREEN
Diversified Bond Fund
Schedule of Investments
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
ASSET-BACKED SECURITIES -- 6.5%
$3,500,000 Carco Auto Loan Master Trust,
Series 1997-1, Class A,
(Est. Maturity 2004) (a),
6.689%, 8/15/04 .... ..................... $ 3,514,770
3,100,000 Corestates Home Equity Trust,
Series 1996-1, Class A4,
(Est. Maturity 2003) (a),
7.00%, 6/15/12 ........................... 3,137,297
Merrill Lynch Mortgage Investors,
Incorporated:
156 Series 1991-D, Class A
(Est. Maturity 1998) (a),
9.00%, 7/15/11 ........................... 158
3,203,181 Series 1991-G, Class B
(Est. Maturity 2000) (a),
9.15%, 10/15/11 .......................... 3,257,218
1,639,411 Series 1992-B, Class B
(Est. Maturity 1999) (a),
8.50%, 4/15/12 ........................... 1,642,985
3,806,330 Series 1992-D, Class B
(Est. Maturity 2001) (a),
8.50%, 7/15/17 ........................... 4,031,627
5,000,000 Series 1996-C1, Class B
(Est. Maturity 2006) (a),
7.42%, 4/25/28 ........................... 5,240,625
3,300,000 Southern Pacific Secured Assets
Corporation,
Series 1996-3, Class A4,
(Est. Maturity 2002) (a),
7.60%, 10/25/27 .......................... 3,377,344
555,000 University Support Services,
Incorporated,
(Est. Maturity 1999) (a),
8.975%, 11/1/07 .......................... 553,266
5,000,000 Western Financial Owner Trust,
Series 1997-C, Class CTFS,
(Est. Maturity 2001) (a),
6.30%, 3/20/05 ........................... 4,990,937
2,100,000 World Omni Automobile Lease,
Securitization Trust,
Series 1997-A, Class A4,
(Est. Maturity 2001) (a),
6.90%, 6/25/03 ........................... 2,134,125
5,000,000 Zale Funding Trust,
Series 94-1, Class A2,
(Est. Maturity 1999) (a),
7.325%, 3/15/03 .......................... 5,070,312
----------
Total Asset-Backed Securities
(cost $36,167,469)........................ 36,950,664
----------
CORPORATE BONDS -- 51.8%
Advertising & Related
Services -- 1.3%
2,800,000 Hollinger International,
Sr. Notes (Subord.),
9.25%, 2/1/06 ............................ 2,912,000
3,000,000 K-III Communications Corporation,
Sr. Notes,
8.50%, 2/1/06 ............................ 3,045,000
1,250,000 Lamar Advertising Company,
Sr. Notes (Subord.),
9.625%, 12/1/06 .......................... 1,331,250
----------
7,288,250
----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Aerospace & Defense -- 1.6%
$5,000,000 Northrop Grumman Corporation,
Deb.,
9.375%, 10/15/24 ......................... $5,903,500
3,000,000 Raytheon Company,
Deb.,
6.75%, 3/15/18 ........................... 3,001,950
----------
8,905,450
----------
Automotive Equipment &
Manufacturing -- 0.3%
2,000,000 Walbro Corporation,
Sr. Notes,
10.125%, 12/15/07 (c) ...................... 2,015,000
----------
Building, Construction &
Furnishings -- 0.7%
3,000,000 Glenborough Realty Trust,
Sr. Notes,
7.625%, 3/15/05 (c) ...................... 2,987,344
750,000 MDC Holdings, Incorporated,
Sr. Notes,
8.375%, 2/1/08 ........................... 751,875
----------
3,739,219
----------
Cable / Other Video
Distribution -- 0.8%
2,000,000 Galaxy Telecom, LP,
Sr. Notes (Subord.),
12.375%, 10/1/05 ......................... 2,220,000
2,000,000 Pegasus Communications
Corporation,
Series B, Sr. Notes,
9.625%, 10/15/05 ......................... 2,090,000
----------
4,310,000
----------
Chemical & Agricultural
Products -- 2.0%
1,450,000 Huntsman Polymers Corporation,
Sr. Notes,
11.75%, 12/1/04 .......................... 1,595,000
3,850,000 Occidental Petroleum
Corporation,
Deb.,
9.25%, 8/1/19 ............................ 4,675,286
1,250,000 Polymer Group,
Incorporated,
Series B, Sr. Notes
(Subord.),
9.00%, 7/1/07 ............................ 1,284,375
3,500,000 Waste Management,
Incorporated,
Deb.,
7.65%, 3/15/11 ........................... 3,694,355
----------
11,249,016
----------
Communication Systems &
Services -- 0.2%
950,000 TCI Communications,
Incorporated,
Deb.,
8.75%, 8/1/15 ............................ 1,103,501
----------
Consumer Products &
Services -- 1.9%
1,000,000 Consumers International,
Incorporated,
Sr. Secd. Notes,
10.25%, 4/1/05 (c) ....................... 1,100,000
</TABLE>
27
<PAGE>
EVERGREEN
Diversified Bond Fund
Schedule of Investments (continued)
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Consumer Products &
Services -- continued
$ 2,500,000 Coty, Incorporated,
Sr. Notes (Subord.),
10.25%, 5/1/05 ........................... $ 2,650,000
1,975,000 Dryper's Corporation,
Series B, Sr. Notes,
10.25%, 6/15/07 .......................... 2,034,250
2,000,000 ISP Holdings,
Incorporated,
Series B, Sr. Notes,
9.75%, 2/15/02 ........................... 2,112,500
3,000,000 Scotts and Sons
Company,
Sr. Notes (Subord.),
9.875%, 8/1/04 ........................... 3,206,250
-----------
11,103,000
-----------
Diversified Companies -- 1.0%
5,000,000 Grand Metropolitan Investment
Corporation,
Guaranteed Sr. Notes,
7.45%, 4/15/35 ........................... 5,597,950
-----------
Finance &
Insurance -- 17.4%
4,750,000 Amsouth
Bancorporation,
Deb. (Subord.),
6.75%, 11/1/25 ........................... 4,881,242
5,000,000 Commercial Credit
Group,
Incorporated,
Notes,
10.00%, 5/15/09 .......................... 6,349,850
4,000,000 IBJ Preferred Capital
Corporation,
8.79%, 12/29/49 (c) ...................... 3,875,000
9,000,000 John Hancock Mutual
Life
Insurance Company,
Notes
7.375%, 2/15/24 (c) ...................... 9,529,470
4,000,000 Liberty Mutual
Insurance Company,
Notes,
7.697%, 10/15/2097 (c) ................... 4,230,800
10,500,000 MBIA, Incorporated,
Deb.,
9.375%, 2/15/11 .......................... 13,004,040
9,000,000 Mellon Bank Capital
II,
Series B, Deb.,
7.995%, 1/15/27 .......................... 9,523,440
1,500,000 National Westminster
Bancorp,
Deb.,
9.375%, 11/15/03 ......................... 1,708,305
10,000,000 Nationwide CSN Trust,
Sr. Notes, (c),
9.875%, 2/15/25 .......................... 11,510,500
Paine Webber Group,
Incorporated:
3,000,000 Notes,
8.25%, 5/1/02 ............................ 3,191,160
5,000,000 Notes (Subord.),
7.75%, 9/1/02 ............................ 5,233,700
6,300,000 Prudential Life
Insurance Corporation,
Notes,
7.125%, 7/1/07 (c) ....................... 6,533,919
3,250,000 Reliance Group
Holdings,
Incorporated,
Sr. Deb. (Subord.),
9.75%, 11/15/03 .......................... 3,391,960
5,250,000 Southtrust Bank,
Notes (Subord.),
6.565%, 12/15/27 ......................... 5,406,450
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Finance & Insurance -- continued
$ 10,000,000 SunLife Canada US
Capital Trust I,
Capital Securities,
8.526%, 5/29/49 (c) ...................... $11,125,500
-----------
99,495,336
-----------
Food & Beverage
Products -- 0.6%
Aurora Foods,
Incorporated:
2,000,000 Series B, Sr. Notes (Subord.),
9.875%, 2/15/07 .......................... 2,150,000
1,000,000 Series D, Sr. Notes
(Subord.),
9.875%, 2/15/07 .......................... 1,075,000
-----------
3,225,000
-----------
Gaming -- 1.4%
3,300,000 Boyd Gaming
Corporation,
Sr. Notes (Subord.),
9.50%, 7/15/07 ........................... 3,489,750
Horseshoe Gaming,
Series B, Sr. Notes
(Subord.):
1,250,000 9.375%, 6/15/07 ......................... 1,340,625
3,000,000 12.75%, 9/30/00 ......................... 3,315,000
-----------
8,145,375
-----------
Healthcare Products &
Services -- 2.9%
3,000,000 Bayer Corporation,
Notes,
7.125%, 10/1/15 (c) ...................... 3,130,260
3,000,000 Boston Scientific
Corporation,
Notes,
6.625%, 3/15/05 .......................... 3,009,600
2,800,000 Genesis Health
Ventures,
Incorporated,
Sr. Notes (Subord.),
9.25%, 10/1/06 ........................... 2,884,000
5,000,000 Medpartners,
Incorporated,
Sr. Notes (Subord.),
6.875%, 9/1/00 ........................... 4,768,900
2,550,000 Paragon Health
Network,
Incorporated,
Sr. Notes (Subord.),
9.50%, 11/1/07 ........................... 2,588,250
-----------
16,381,010
-----------
Industrial Specialty
Products &
Services -- 0.2%
1,000,000 Morris Materials
Handling,
Incorporated,
Sr. Notes,
9.50%, 4/1/08 (c) ........................ 995,000
-----------
Information Services &
Technology -- 1.4%
3,500,000 Comdisco,
Incorporated,
Notes,
6.125%, 1/15/03 .......................... 3,448,025
3,800,000 Unisys Corporation,
Sr. Notes,
11.75%, 10/15/04 ......................... 4,370,000
-----------
7,818,025
-----------
</TABLE>
28
<PAGE>
EVERGREEN
Diversified Bond Fund
Schedule of Investments (continued)
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Leisure & Tourism -- 0.4%
$ 2,250,000 Six Flags Theme Parks, Incorporated,
Series A, Sr. Disc. Notes,
Step Bond,
(Eff. Yield 9.61%) (b),
0.00%, 6/15/05 ..................... $ 2,528,438
-----------
Machinery -- Diversified -- 1.8%
800,000 Eagle Picher Industrial Incorporated,
Sr. Notes (Subord.),
9.375%, 3/1/08 (c) ................. 814,000
8,850,000 John Deere Capital Corporation,
Deb.,
8.625%, 8/1/19 ..................... 9,644,730
-----------
10,458,730
-----------
Metals & Mining -- 0.2%
1,500,000 WHX Corporation,
Sr. Notes,
10.50%, 4/15/05 (c) ................ 1,530,000
-----------
Metal Products & Services -- 0.5%
2,000,000 AK Steel Corporation,
Sr. Notes,
10.75%, 4/1/04 ..................... 2,137,500
1,000,000 Ameristeel Corporation,
Sr. Notes,
8.75%, 4/15/08 (c) ................. 1,007,500
-----------
3,145,000
-----------
Oil / Energy -- 4.0%
2,500,000 Atlantic Richfield Company,
Deb.,
9.875%, 3/1/16 ..................... 3,339,525
2,800,000 Benton Oil and Gas Company,
Sr. Notes,
9.375%, 11/1/07 .................... 2,800,000
2,250,000 Cross Timbers Oil Company,
Series B, Sr. Notes (Subord.),
8.75%, 11/1/09 ..................... 2,295,000
1,050,000 HS Resources, Incorporated,
Sr. Notes (Subord.),
9.25%, 11/15/06 (e) ................ 1,081,500
3,000,000 Petroleum Geo Services ASA,
Sr. Notes,
6.625%, 3/30/08 .................... 2,993,490
2,000,000 R & B Falcon Corporation,
Sr. Notes,
6.95%, 4/15/08 (c) ................. 1,981,600
1,500,000 Transamerican Energy Corporation,
Series B, Sr. Secd. Notes,
11.50%, 6/15/02 .................... 1,488,750
Transocean Offshore, Incorporated:
2,500,000 Deb.,
8.00%, 4/15/27 ..................... 2,833,750
4,000,000 Notes,
7.45%, 4/15/27 ..................... 4,302,320
-----------
23,115,935
-----------
Publishing, Broadcasting &
Entertainment -- 2.3%
1,800,000 American Lawyer Media,
Incorporated,
Sr. Notes,
9.75%, 12/15/07 (c) ................ 1,890,000
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Publishing, Broadcasting &
Entertainment -- continued
$ 2,000,000 SFX Broadcasting,
Incorporated,
Series B, Sr. Notes (Subord.),
10.75%, 5/15/06 .................... $ 2,200,000
3,300,000 Sinclair Broadcast Group,
Incorporated,
Sr. Notes (Subord.),
10.00%, 9/30/05 (e) ................ 3,531,000
Time Warner, Incorporated:
7,000,000 Deb. (Eff. Yield 5.74%) (b),
0.00%, 1/15/36 ..................... 2,326,170
1,750,000 Deb.,
6.95%, 1/15/28 ..................... 1,712,550
1,250,000 Deb.,
8.05%, 1/15/16 ..................... 1,347,150
-----------
13,006,870
-----------
Retailing & Wholesale -- 0.4%
1,800,000 Sears Roebuck and Company,
Notes,
10.00%, 2/3/12 ..................... 2,370,384
-----------
Telecommunication Services &
Equipment -- 4.2%
10,250,000 Bellsouth Capital Funding Corporation,
Deb.,
7.12%, 7/15/2097 ................... 10,753,582
1,800,000 Centennial Cellular Corporation,
Sr. Notes,
8.875%, 11/1/01 .................... 1,854,000
1,800,000 Century Communications Corporation,
Sr. Disc. Notes,
(Eff. Yield 9.05%) (b),
0.00%, 1/15/08 ..................... 787,500
2,500,000 General Electric Capital Corporation,
Deb.,
8.75%, 5/21/07 ..................... 2,924,925
2,500,000 GTE Florida, Incorporated,
Deb.,
6.86%, 2/1/28 ...................... 2,533,050
2,000,000 Pacific Bell,
Notes,
6.125%, 2/15/08 (e) ................ 1,977,800
2,000,000 Talton Holdings, Incorporated,
Series B, Sr. Notes,
11.00%, 6/30/07 .................... 2,180,000
1,150,000 Telewest PLC,
Sr. Disc. Deb., Step Bond,
(Eff. Yield 9.82%) (b),
0.00%, 10/1/07 ..................... 925,750
-----------
23,936,607
-----------
Textile & Apparel -- 0.5%
2,800,000 Delta Mills, Incorporated,
Series B, Sr. Notes,
9.625%, 9/1/07 ..................... 2,856,000
-----------
Transportation -- 3.8%
2,000,000 Airplanes Pass Through Trust,
Series 1, Class D,
10.875%, 3/15/19 ................... 2,253,160
2,000,000 Coach USA, Incorporated,
Series B, Sr. Notes (Subord.),
9.375%, 7/1/07 ..................... 2,080,000
</TABLE>
29
<PAGE>
EVERGREEN
Diversified Bond Fund
Schedule of Investments (continued)
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Transportation -- continued
$ 7,000,000 Golden State Petroleum
Transportation Corporation,
1st Mtge. Notes,
8.04%, 2/1/19 ....................... $ 7,319,375
2,000,000 Hayes Wheels International,
Series B, Sr. Notes (Subord.),
9.125%, 7/15/07 ..................... 2,110,000
2,700,000 Hvide Marine, Incorporated,
Sr. Notes,
8.375%, 2/15/08 (c) ................. 2,629,125
5,250,000 Norfolk Southern Corporation,
Notes,
7.05%, 5/1/37 ....................... 5,533,658
-----------
21,925,318
-----------
Total Corporate Bonds
(cost $287,934,003).................. 296,244,414
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 17.8%
5,000,000 Credit Suisse First Boston Mortgage,
Series 1997-C1, Class A1C,
(Est. Maturity 2006) (a),
7.24%, 4/20/07 ...................... 5,215,625
6,249,571 Criimi Mae Financial Corporation,
Series 1, Class A,
(Est. Maturity 2004) (a),
7.00%, 1/1/33 ....................... 6,241,759
1,000,000 FFCA Secured Lending Corporation,
Series 1997-1, Class B1,
(Est. Maturity 2009) (a),
7.74%, 6/18/13 ...................... 1,057,344
FHA Charles River Mortgage,
(Est. Maturity 2001) (a):
6,719,219 9.125%, 8/1/34 ..................... 7,235,591
4,987,979 10.25%, 8/1/34 ..................... 5,284,166
5,000,000 FHLMC,
Series 47, Class A,
(Est. Maturity 2004) (a),
5.00%, 2/25/22 ...................... 4,617,188
2,708,038 Financial Asset Securitization
Incorporated,
Series 1997-NAM2, Class B2,
(Est. Maturity 2005) (a),
7.88%, 7/25/27 ...................... 2,758,374
12,510,527 FNMA,
Series 1993-248, Class SA,
(Est. Maturity 2004) (a),
4.068%, 8/25/23 ..................... 10,507,216
3,745,000 GE Capital Mortgage Services
Incorporated,
Series 1994-27, Class A6,
(Est. Maturity 2014) (a),
6.50%, 7/25/24 ...................... 3,533,145
9,871,803 Independent National Mortgage
Corporation,
Series 1997-A, Class A,
(Est. Maturity 2004) (a),
7.79%, 12/26/26 (c) ................. 9,926,666
1,059,428 KS Mortgage Capital, LP,
Series 1995-1, Class A1,
(Est. Maturity 2001) (a),
7.24%, 4/20/02 (c) .................. 1,067,042
2,064,103 Marine Midland Bank,
Series 1991-3, Class B1,
(Est. Maturity 1998) (a),
8.00%, 12/25/22 ..................... 2,072,488
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -- continued
$ 3,000,000 Merrill Lynch Mortgage Investors,
Incorporated,
Series 1997-C2, Class B,
(Est. Maturity 2008) (a),
6.63%, 12/10/29 ..................... $ 3,037,969
2,700,000 Merrill Lynch Trust,
Series 35, Class G,
(Est. Maturity 2001) (a),
8.45%, 11/1/18 ...................... 2,816,424
923,825 Mid State Trust,
Series 6, Class A3,
(Est. Maturity 2005) (a),
7.54%, 7/1/35 ....................... 941,821
3,300,000 Morgan Stanley Capital I Incorporated,
Commercial Mtge. Certificate
Series 1997-C1, Class B,
(Est. Maturity 2007) (a),
7.69%, 2/15/20 ...................... 3,539,250
1,000,000 Nomura Asset Securities Corporation,
Series 1998-D6, Class A3,
(Est. Maturity 2013) (a),
6.98%, 3/17/28 (c) .................. 1,008,750
12,204,557 Nomura Depositor Trust,
Series 1998-STIA, Class A1,
(Est. Maturity 2003) (a),
5.91%, 1/15/03 ...................... 12,254,138
Paine Webber Mortgage Acceptance
Corporation IV:
2,808,487 Series 1993-4, Class M1
(Est. Maturity 2003) (a),
7.50%, 5/25/23 ...................... 2,833,939
95,987 Series 1993-5, Class A3
(Est. Maturity 1998) (a),
6.875%, 6/25/08 ..................... 95,689
PNC Mortgage Securities Corporation:
6,825,948 Series 1997-4, Class 2PP1,
(Est. Maturity 2000) (a),
7.50%, 7/25/27 ...................... 6,892,074
2,482,051 Series 1997-4, Class 2PP3,
(Est. Maturity 2008) (a),
7.25%, 7/25/27 ...................... 2,467,345
5,000,000 Residential Asset Securitization Trust,
Series 1996-A3, Class A9,
(Est. Maturity 2004) (a),
7.50%, 7/25/26 ...................... 5,089,062
1,500,000 Resolution Trust Corporation,
Series 1995-1, Class A2C,
(Est. Maturity 1999) (a),
7.50%, 10/25/28 ..................... 1,518,516
-----------
Total Collateralized Mortgage
Obligations (cost $99,014,033)....... 102,011,581
-----------
FOREIGN BONDS (U.S. DOLLARS) -- 7.2%
2,650,000 Aztec Holdings SA DE CV,
Sr. Secd. Notes,
11.00%, 6/15/02 ..................... 2,742,750
500,000 Eletson Holdings, Incorporated,
1st Preferred Mtge. Notes,
9.25%, 11/15/03 ..................... 512,500
1,175,000 Fundy Cable Ltd.,
Sr. Secd. 2nd Priority Notes,
11.00%, 11/15/05 .................... 1,298,375
3,000,000 Glencore Nickel Property,
Sr. Secd. Bonds,
9.00%, 12/1/14 (c) .................. 2,955,000
</TABLE>
30
<PAGE>
EVERGREEN
Diversified Bond Fund
Schedule of Investments (continued)
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
FOREIGN BONDS (U.S. DOLLARS) -- continued
$ 750,000 Globo Communicacoes,
10.625%, 12/5/08 (c) ............... $ 757,500
1,000,000 Great Central Mines Ltd.,
Sr. Notes,
8.875%, 4/1/08 (c) ................. 998,750
3,500,000 Grupo Televisa SA DE CV,
Sr. Notes,
11.875%, 5/15/06 (e) ............... 3,990,000
2,000,000 Microcell Telecommunications,
Series B, Sr. Disc. Notes,
Step Bond,
(Eff. Yield 9.68%) (b),
0.00%, 6/1/06 (e) .................. 1,500,000
7,000,000 Republic of Colombia,
8.625%, 4/1/08 ..................... 6,949,390
650,000 Rogers Cablesystems Limited,
Sr. Secd. 2nd Priority Notes,
10.00%, 3/15/05 .................... 715,000
1,800,000 Rogers Communications
Incorporated,
Sr. Notes,
8.875%, 7/15/07 .................... 1,809,000
750,000 Satelites Mexicanos SA DE CV,
Sr. Notes,
10.125%, 11/1/04 (c) ............... 763,125
5,000,000 South Africa Republic,
8.50%, 6/23/17 ..................... 4,843,000
2,750,000 Stena AB,
Sr. Notes,
10.50%, 12/15/05 ................... 3,011,250
1,500,000 TBS Shipping International
1st Mtge. Notes,
10.00%, 5/1/05 (c) ................. 1,393,860
2,000,000 Tevecap SA,
Sr. Notes,
12.625%, 11/26/04 .................. 2,010,000
5,000,000 YPF Sociedad Anonima,
Sr. Notes,
7.25%, 3/15/03 ..................... 4,959,450
----------
Total Foreign Bonds (U.S. Dollars)
(cost $40,802,663).................. 41,208,950
----------
FOREIGN BONDS (NON U.S. DOLLARS) -- 9.1%
Greece (Republic of):
7,200,000 Deb.,
DEM 6.75%, 11/13/06 ................... 4,323,089
1,840,000,000 Deb.,
GRD 8.60%, 3/26/08 .................... 6,130,602
154,402,000 Nykredit,
DKK 6.00%, 10/1/26 .................... 22,141,073
98,000,000 Realkredit Danmark,
DKK 6.00%, 10/1/26 .................... 14,091,756
60,000,000 Skandinaviska Enskilda,
SEK (Eff. Yield 7.14%) (b),
0.00%, 5/26/33 ..................... 5,214,000
----------
Total Foreign Bonds (Non U.S. Dollars)
(cost $50,906,663).................. 51,900,520
----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MUNICIPAL BONDS -- 0.8%
(cost $4,135,689)
$ 4,135,689 Los Angeles, California, Improvement
Bond Act,
Assessment District #1,
8.48%, 9/2/15 (c) .................. $4,483,345
----------
U.S. TREASURY OBLIGATIONS -- 7.5%
21,050,000 U.S. Treasury Bond STRIPS
(Eff.Yield 8.71%) (b),
0.00%, 11/15/21 (c) (e) ............ 5,058,526
U.S. Treasury Bonds:
19,250,000 6.125%, 11/15/27 ................. 19,695,060
10,700,000 6.375%, 8/15/27 .................. 11,258,433
U.S. Treasury Notes:
6,000,000 6.125%, 8/15/07 .................. 6,162,180
500,000 6.625%, 5/15/07 .................. 530,155
----------
Total U.S. Treasury Obligations
(cost $42,117,904).................. 42,704,354
----------
</TABLE>
<TABLE>
<CAPTION>
Shares
<S> <C> <C>
PREFERRED STOCKS -- 0.8%
16,000 Adelphia Communications
Corporation ................ 1,904,000
100,000 California Federal Preferred
Capital Corporation ........ 2,700,000
------------
Total Preferred Stocks
(cost $4,275,000)........... 4,604,000
------------
MUTUAL FUND SHARES -- 1.5% (cost $8,642,617)
8,642,617 Navigator Prime Portfolio (f) 8,642,617
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
<S> <C> <C> <C>
REPURCHASE AGREEMENT -- 0.5% (cost $2,705,000)
$ 2,705,000 Keystone Joint Repurchase
Agreement (Investments in
repurchase agreements, in a joint
trading account, dated 4/30/98,
maturity value $2,705,415) (d),
5.52%, 5/1/98 ........................... 2,705,000
---------
Total Investments --
(cost $576,701,041).......... 103.5% 591,455,445
Other Assets and
Liabilities -- net .......... ( 3.5) (19,766,551)
----- -----------
Net Assets .................. 100.0% $571,688,894
===== ============
</TABLE>
31
<PAGE>
EVERGREEN
Diversified Bond Fund
Schedule of Investments (continued)
April 30, 1998
(a) The estimated maturity of a Collateralized Mortgage Obligation ("CMO"), an
adjustable rate mortgage security or an asset-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.
(b) Effective yield (calculated at the date of purchase) is the yield at which
the bond accretes on an annual basis until maturity date.
(c) Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pursuant to Section 4(2) of the Securities
Act of 1933, as amended. These securities have been determined to be liquid
under guidelines established by the Board of Trustees.
(d) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at April 30, 1998.
(e) A portion of this security is currently on loan (see Note 4).
(f) Represents investment of cash collateral received for securities on loan.
Legend of Portfolio Abbreviations:
DEM Deutsche Mark
DKK Danish Krone
FFCA Federal Farm Credit Association
FHA Federal Housing Authority
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
GRD Greek Drachma
SEK Swedish Krona
STRIPS Separate Trading of Registered Interest and Principal of Securities
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Forward foreign currency exchange contracts to sell:
<TABLE>
<S> <C> <C> <C> <C> <C>
Exchange U.S. $ Value at In Exchange Net Unrealized
Date Contracts to Deliver April 30, 1998 for U.S. $ Depreciation
- ------- ------------------------------ ----------------- ------------- ---------
6/26/98 8,115,000 Deutsche Mark 4,536,497 4,460,580 $ (75,917)
7/16/98 251,844,000 Danish Krone 36,937,114 36,816,607 (120,507)
---------
$(196,424)
=========
</TABLE>
See Combined Notes to Financial Statements.
32
<PAGE>
EVERGREEN
High Yield Bond Fund
Schedule of Investments
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- 76.2%
Automotive Equipment &
Manufacturing -- 2.0%
$ 5,833,000 Exide Corporation,
Sr. Notes (Subord.),
2.90%, 12/15/05 (d) ...................... $3,616,460
7,000,000 Walbro Corporation,
Sr. Notes,
10.125%, 12/15/07 (d) .................... 7,052,500
----------
10,668,960
----------
Cable / Other Video
Distribution -- 10.2%
5,500,000 Acme Television LLC,
Series B, Sr. Disc.
Notes,
Step Bond,
(Eff. Yield 10.49%)
(c),
0.00%, 9/30/04 ........................... 4,510,000
Adelphia Communications
Corporation, Sr. Notes,
Series B:
5,710,000 9.875%, 3/1/07 .......................... 6,166,800
750,000 10.50%, 7/15/04 ......................... 813,750
7,000,000 Benedek Communications
Corporation,
Sr. Disc. Notes, Step
Bond,
(Eff. Yield 11.79%)
(c),
0.00%, 5/15/06 ........................... 5,547,500
5,000,000 Charter Communications,
LP,
Series B, Sr. Notes,
11.25%, 3/15/06 .......................... 5,512,500
5,250,000 Galaxy Telecom LP,
Sr. Notes (Subord.),
12.375%, 10/1/05 ......................... 5,827,500
6,000,000 Iridium Capital
Corporation,
Series B, Sr. Notes,
14.00%, 7/15/05 .......................... 6,750,000
5,500,000 Lodgenet Entertainment
Corporation,
Sr. Notes,
10.25%, 12/15/06 ......................... 5,706,250
5,000,000 Pegasus Communications
Corporation,
Series B, Sr. Notes,
9.625%, 10/15/05 ......................... 5,225,000
5,000,000 Star Choice
Communications,
Incorporated,
Sr. Notes,
13.00%, 12/15/05 (d) ..................... 5,075,000
3,000,000 United International
Holdings
Incorporated,
Series B, Sr. Disc.
Notes,
Step Bond,
(Eff. Yield 9.77%) (c),
0.00%, 2/15/08 ........................... 1,897,500
----------
53,031,800
----------
Chemical & Agricultural
Products -- 1.0%
3,100,000 Polymer Group,
Incorporated,
Series B, Sr. Notes
(Subord.),
9.00%, 7/1/07 ............................ 3,185,250
2,000,000 Texas Petrochemical
Corporation,
Series B, Sr. Notes
(Subord.),
11.125%, 7/1/06 .......................... 2,200,000
----------
5,385,250
----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Consumer Products &
Services -- 6.3%
Affinity Group,
Incorporated:
$ 4,000,000 Sr. Notes,
11.00%, 4/1/07 ........................... $4,360,000
1,000,000 Sr. Notes (Subord.),
11.50%, 10/15/03 ......................... 1,058,750
5,000,000 Apcoa Incorporated,
Sr. Notes (Subord.),
9.25%, 3/15/08 (d) ....................... 4,987,500
Dryper's Corporation,
Sr. Notes:
2,000,000 10.25%, 6/15/07 (d) ..................... 2,080,000
2,950,000 Series B,
10.25%, 6/15/07 .......................... 3,038,500
4,500,000 French Fragrances,
Incorporated,
Series B, Sr. Notes,
10.375%, 5/15/07 ......................... 4,747,500
4,000,000 Global Health Sciences,
Incorporated,
Sr. Notes,
11.00%, 5/1/08 (d) ....................... 3,920,000
10,935,000 Revlon Worldwide
Corporation,
Series B, Sr. Secd.
Disc. Notes,
Step Bond,
(Eff. Yield 9.82%) (c),
0.00%, 3/15/01 ........................... 8,365,275
----------
32,557,525
----------
Electrical Equipment &
Services -- 0.8%
4,000,000 Samsung Electronics,
Incorporated,
Sr. Notes,
9.75%, 5/1/03 (d) ........................ 4,000,000
----------
Environmental
Services -- 1.0%
7,000,000 Allied Waste
Industries,
Incorporated,
Sr. Disc. Notes, Step
Bond,
(Eff. Yield 9.85%) (c),
0.00%, 6/1/07 ............................ 5,162,500
----------
Finance &
Insurance -- 0.6%
3,000,000 Unicco Service Company,
Sr. Notes (Subord.),
9.875%, 10/15/07 (d) ..................... 3,067,500
----------
Food & Beverage Products -- 2.8%
5,000,000 Aurora Foods,
Incorporated,
Series D, Sr. Notes
(Subord.),
9.875%, 2/15/07 .......................... 5,375,000
3,500,000 RAB Enterprises,
Incorporated,
Sr. Notes,
10.50%, 5/1/05 (d) ....................... 3,500,000
5,000,000 Sun World
International,
Incorporated,
Series B, 1st Mtge.
Notes,
11.25%, 4/15/04 .......................... 5,450,000
----------
14,325,000
----------
</TABLE>
33
<PAGE>
EVERGREEN
High Yield Bond Fund
Schedule of Investments (continued)
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Gaming -- 2.8%
$ 2,000,000 Ameristar Casinos,
Incorporated,
Series B, Sr. Notes
(Subord.),
10.50%, 8/1/04 .......................... $2,120,000
5,750,000 Boyd Gaming
Corporation,
Sr. Notes (Subord.),
9.50%, 7/15/07 .......................... 6,080,625
5,750,000 Horseshoe Gaming,
Series B, Sr. Notes
(Subord.),
9.375%, 6/15/07 ......................... 6,166,875
----------
14,367,500
----------
Healthcare Products &
Services -- 0.8%
4,000,000 Genesis Health,
Sr. Notes (Subord.),
9.75%, 6/15/05 .......................... 4,180,000
----------
Industrial Specialty
Products &
Services -- 1.0%
5,000,000 Morris Material
Handling,
Incorporated,
Sr. Notes,
9.50%, 4/1/08 (d) ....................... 4,975,000
----------
Information Services &
Technology -- 1.1%
5,000,000 Unisys Corporation,
Sr. Notes,
11.75%, 10/15/04 ........................ 5,750,000
----------
Leisure &
Tourism -- 2.4%
5,000,000 Cinemark USA,
Incorporated,
Series B, Sr. Notes
(Subord.),
9.625%, 8/1/08 .......................... 5,225,000
5,000,000 Premier Cruise Ltd.,
Sr. Notes,
11.00%, 3/15/08 (d) ..................... 5,025,000
2,150,000 Six Flags Theme Parks,
Incorporated,
Series A, Sr. Notes
(Subord.),
Step Bond,
(Eff. Yield 10.70%)
(c),
12.25%, 6/15/05 ......................... 2,416,062
----------
12,666,062
----------
Machinery -- Diversifi
-- 1.6%
3,750,000 Eagle Picher
Industries,
Incorporated,
Sr. Notes (Subord.),
9.375%, 3/1/08 (d) ...................... 3,815,625
4,000,000 Motors and Gears,
Incorporated,
Series D, Sr. Notes,
10.75%, 11/15/06 ........................ 4,355,000
----------
8,170,625
----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Metals &
Mining -- 3.3%
$ 5,000,000 Acme Metals,
Incorporated,
Sr. Notes,
10.875%, 12/15/07 (d)..................... $4,962,500
5,050,000 Anker Coal Group,
Incorporated,
Series B, Sr. Notes,
9.75%, 10/1/07 ........................... 4,860,625
2,500,000 JTM Industries,
Incorporated,
Sr. Notes (Subord.),
10.00%, 4/15/08 (d) ...................... 2,525,000
5,000,000 NSM Steel, Incorporated,
Sr. Mtge. Notes,
12.00%, 2/1/06 (d) ....................... 4,737,500
----------
17,085,625
----------
Oil / Energy -- 9.8%
5,000,000 Benton Oil and Gas
Company,
Sr. Notes,
9.375%, 11/1/07 .......................... 5,000,000
4,000,000 Chiles Offshore LLC,
Sr. Notes,
10.00%, 5/1/08 (d) ....................... 4,030,000
4,700,000 Cross Timbers Oil
Company,
Series B, Sr. Notes
(Subord.),
8.75%, 11/1/09 ........................... 4,794,000
4,750,000 Energy Corporation of
America,
Series A, Sr. Notes
(Subord.),
9.50%, 5/15/07 ........................... 4,761,875
4,850,000 Giant Industries,
Incorporated,
Sr. Notes (Subord.),
9.00%, 9/1/07 ............................ 4,995,500
5,000,000 Gothic Production
Corporation,
Sr. Notes,
11.125%, 5/1/05 (d) ...................... 5,068,750
3,000,000 Houston Exploration
Company,
Sr. Notes (Subord.),
8.625%, 1/1/08 (d) ....................... 3,000,000
7,700,000 HS Resources,
Incorporated,
Sr. Notes (Subord.),
9.25%, 11/15/06 .......................... 7,931,000
4,940,000 Rutherford Moran Oil Corporation,
Sr. Notes (Subord.),
10.75%, 10/1/04 .......................... 5,261,100
5,500,000 Transamerican Refining
Corporation,
Sr. Notes (Subord.),
16.00%, 6/30/03 .......................... 5,912,500
----------
50,754,725
----------
Paper &
Packaging -- 1.9%
4,150,000 Printpack,
Incorporated,
Series B, Sr. Notes
(Subord.),
10.625%, 8/15/06 ......................... 4,482,000
5,000,000 Riverwood
International
Corporation,
Sr. Notes,
10.25%, 4/1/06 ........................... 5,175,000
----------
9,657,000
----------
</TABLE>
34
<PAGE>
EVERGREEN
High Yield Bond Fund
Schedule of Investments (continued)
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Publishing, Broadcasting &
Entertainment -- 3.7%
$ 5,000,000 American Lawyer Media,
Incorporated,
Sr. Notes,
9.75%, 12/15/07 (d) .............. $ 5,250,000
4,000,000 Big Flower Press Holdings,
Incorporated,
Sr. Notes (Subord.),
8.875%, 7/1/07 ................... 4,120,000
6,925,000 Capstar Broadcasting Partners,
Sr. Disc. Notes,
12.75%, 2/1/09 ................... 5,159,125
8,000,000 Nextel International, Incorporated,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 10.00%) (c),
0.00%, 4/15/08 (d) ............... 4,920,000
-----------
19,449,125
-----------
Retailing & Wholesale -- 5.4%
5,000,000 Advance Stores Company,
Sr. Notes (Subord.),
10.25%, 4/15/08 (d) .............. 5,075,000
4,350,000 AFC Enterprises, Incorporated,
Sr. Notes (Subord.),
10.25%, 5/15/07 .................. 4,567,500
3,500,000 FRD Acquisition Company,
Series B, Sr. Notes,
12.50%, 7/15/04 .................. 3,867,500
3,000,000 Friendly's Ice Cream Corporation,
Sr. Notes,
10.50%, 12/1/07 .................. 3,202,500
5,750,000 Pamida, Incorporated,
Sr. Notes (Subord.),
11.75%, 3/15/03 .................. 5,922,500
5,000,000 Perkins Family Restaurant,
Series B, Sr. Notes,
10.125%, 12/15/07 ................ 5,300,000
-----------
27,935,000
-----------
Telecommunication Services &
Equipment -- 11.6%
5,000,000 Centennial Cellular Corporation,
Sr. Notes,
8.875%, 11/1/01 .................. 5,150,000
4,000,000 Econophone, Incorporated,
Sr. Notes,
13.50%, 7/15/07 .................. 4,520,000
2,000,000 GST Telecommunications,
Incorporated,
Sr. Notes (Subord.),
12.75%, 11/15/07 ................. 2,380,000
2,000,000 Hyperion Telecommunications,
Incorporated,
Series B, Sr. Notes,
12.25%, 9/1/04 ................... 2,220,000
5,000,000 Intermedia Capital Partners,
Sr. Notes,
11.25%, 8/1/06 ................... 5,612,500
2,500,000 Jordan Telecommunication Products,
Series B, Sr. Notes,
9.875%, 8/1/07 ................... 2,631,250
750,000 Metronet Communications
Corporation,
Sr. Notes,
12.00%, 8/15/07 .................. 862,500
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Telecommunication Services &
Equipment -- continued
$ 4,500,000 Mobile Telecommunication
Technology,
Sr. Notes,
13.50%, 12/15/02 ................. $ 5,276,250
4,000,000 Paging Network Incorporated,
Sr. Notes (Subord.),
10.00%, 10/15/08 ................. 4,160,000
3,500,000 Price Communications Cellular,
Series B, Sr. Disc. Notes,
Step Bond,
(Eff. Yield 12.45%) (c),
0.00%, 8/1/07 .................... 2,445,625
5,750,000 Pricecellular Wireless Corporation,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 10.64%) (c),
0.00%, 10/1/03 ................... 6,210,000
3,500,000 RCN Corporation,
Sr. Notes,
10.00%, 10/15/07 ................. 3,701,250
6,025,000 Talton Holdings, Incorporated,
Series B, Sr. Notes,
11.00%, 6/30/07 .................. 6,567,250
5,000,000 USN Communications, Incorporated,
Series B, Sr. Disc. Notes,
Step Bond,
(Eff. Yield 10.23%) (c),
0.00%, 8/15/04 ................... 4,106,250
5,500,000 Winstar Communications,
Incorporated,
Sr. Disc. Notes,
Step Bond,
(Eff. Yield 9.78%) (c),
0.00%, 10/15/05 .................. 4,427,500
-----------
60,270,375
-----------
Textile & Apparel -- 1.1%
5,460,000 Delta Mills, Incorporated,
Series B, Sr. Notes,
9.625%, 9/1/07 ................... 5,569,200
-----------
Transportation -- 5.0%
5,500,000 Ermis Maritime Holdings Limited,
1st Mtge. Notes,
12.50%, 3/15/06 (d) .............. 5,445,000
4,000,000 Global Ocean Carriers Limited,
Sr. Notes,
10.25%, 7/15/07 .................. 3,740,000
4,500,000 Hvide Marine, Incorporated,
Sr. Notes,
8.375%, 2/15/08 (d) .............. 4,381,875
4,250,000 Pegasus Shipping Hellas Limited,
Sr. Notes,
11.875%, 11/15/04 (d) ............ 4,207,500
Trans World Airlines, Incorporated:
3,000,000 Notes,
11.375%, 3/1/06 (d) .............. 3,000,000
5,000,000 Sr. Notes,
11.50%, 12/15/04 ................. 5,237,500
-----------
26,011,875
-----------
Total Corporate Bonds
(cost $383,337,549)............... 395,040,647
-----------
</TABLE>
35
<PAGE>
EVERGREEN
High Yield Bond Fund
Schedule of Investments (continued)
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
FOREIGN BONDS (U.S. DOLLARS) -- 6.0%
$ 5,000,000 Algoma Steel, Incorporated,
1st Mtge. Notes,
12.375%, 7/15/05 .................... $5,875,000
1,675,000 Aztec Holdings SA DE CV,
Sr. Secd. Notes,
11.00%, 6/15/02 ..................... 1,733,625
2,000,000 Consorcio Ecuatoriano,
Series B, Notes,
14.00%, 5/1/02 ...................... 2,040,000
5,000,000 Glencore Nickel Property,
Sr. Secd. Bonds,
9.00%, 12/1/14 (d) .................. 4,925,000
5,000,000 Great Central Mines Ltd.,
Sr. Notes,
8.875%, 4/1/08 (d) .................. 4,993,750
3,000,000 Grupo Televisa SA DE CV,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 10.61%) (c),
0.00%, 5/15/08 ...................... 2,392,500
3,500,000 Microcell Telecommunications,
Series B, Sr. Disc. Notes,
Step Bond,
(Eff. Yield 9.68%) (c),
0.00%, 6/1/06 ....................... 2,625,000
2,900,000 Satelites Mexicanos SA DE CV,
Sr. Notes,
10.125%, 11/1/04 (d) ................ 2,950,750
3,500,000 TV Azteca SA DE CV,
Series B, Sr. Notes,
10.50%, 2/15/07 ..................... 3,675,000
----------
Total Foreign Bonds (U.S. Dollars)
(cost $30,539,269)................... 31,210,625
----------
FOREIGN BONDS (NON U.S. DOLLARS) -- 1.9%
3,500,000 Colt Telecom Group PLC,
DEM Sr. Notes,
8.875%, 11/30/07 .................... 2,106,378
9,500,000 Microcell Telecommunications,
CAD Series B, Sr. Disc. Notes,
Step Bond,
(Eff. Yield 10.23%) (c),
0.00%, 10/15/07 ..................... 4,301,724
5,000,000 Rogers Communications,
CAD Incorporated,
Sr. Notes,
8.75%, 7/15/07 ...................... 3,510,612
----------
Total Foreign Bonds (Non U.S. Dollars)
(cost $9,822,218).................... 9,918,714
----------
</TABLE>
<TABLE>
<CAPTION>
Shares
<S> <C> <C>
COMMON STOCKS AND WARRANTS -- 0.9%
Aerospace &
Defense -- 0.0%
76,000 CHC Helicopter
Corporation,
Warrants (a) .............................. 228,000
-------
Automotive Equipment &
Manufacturing -- 0.0%
9,500 Chatwins Group,
Incorporated,
Warrants (a) .............................. 9,500
-------
Cable / Other Video
Distribution -- 0.1%
115,800 Star Choice
Communications,
Warrants (a) .............................. 262,287
-------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS AND WARRANTS -- continued
Food & Beverage
Products -- 0.0%
131,250 Specialty Foods
Acquisition
Corporation,
Common Stock (a) ......................... $ 6,562
----------
Gaming -- 0.6%
Casino America,
Incorporated:
254,790 Common Stock (a) ........................ 895,746
47,778 Warrants (a) (b) ........................ 478
410,062 Colorado Gaming and
Entertainment
Company,
Common Stock (a) (f) ..................... 2,255,341
10,775,000 Gold River Hotel and
Casino
Corporation,
Common Stock (a) (b) ..................... 107,750
----------
3,259,315
----------
Telecommunication
Services &
Equipment -- 0.2%
4,000 Econophone,
Incorporated,
Warrants (a) (d) ......................... 96,000
750 Metronet
Communications
Corporation,
Warrants (a) (d) ......................... 3,000
Nextel
Communications,
Incorporated:
10,843 Common Stock, Class A (a) (d) ........... 310,720
9,510 Warrants (a) (d) ........................ 99,855
25,800 Price Communications
Cellular,
Warrants (a) ............................. 499,875
----------
1,009,450
----------
Total Common Stocks
and Warrants
(cost $5,955,782)......................... 4,775,114
----------
PREFERRED STOCKS -- 5.0%
Cable / Other Video
Distribution -- 0.6%
28,500 Adelphia
Communications
Corporation,
Series B ................................. 3,391,500
----------
Engineering -- 1.3%
57,351 CSC Holdings,
Incorporated,
Series M (a) ............................. 6,595,380
----------
Finance &
Insurance -- 2.7%
24,562 Ampex Incorporated (a) (b) ............... 12,452,934
12,800 Sinclair Capital ......................... 1,459,200
----------
13,912,134
----------
Publishing,
Broadcasting &
Entertainment -- 0.4%
20,000 Primedia,
Incorporated,
Series F (a) ............................. 2,040,000
----------
Total Preferred Stocks
(cost $34,820,332)........................ 25,939,014
----------
</TABLE>
36
<PAGE>
EVERGREEN
High Yield Bond Fund
Schedule of Investments (continued)
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
REPURCHASE AGREEMENT -- 3.4% (cost $17,343,000)
$ 17,343,000 Keystone Joint Repurchase
Agreement (Investments in
repurchase agreements, in a joint
trading account, dated 4/30/98,
maturity value $17,345,661) (e),
5.52%, 5/1/98 .................. $ 17,343,000
------------
Total Investments --
(cost $481,818,150).... 93.4% 484,227,114
Other Assets and
Liabilities -- net .... 6.6 34,261,460
----- ------------
Net Assets ............ 100.0% $518,488,574
===== ============
</TABLE>
(a) Non-income-producing security.
(b) All or a portion of these securities are either (1) restricted (i.e.,
securities which may not be publicly sold without registration under the
Federal Securities Act of 1933) or (2) illiquid securities, and are valued
using market quotations where readily available. In the absence of market
quotations, the securities are valued based upon their fair value
determined under procedures approved by the Board of Trustees. The Fund may
make investments in an amount up to 15% of the value of the Fund's net
assets in such securities. At April 30, 1998, the fair value of these
securities was $12,561,162 (2.42% of the Fund's net assets).
(c) Effective yield (calculated at date of purchase) is the yield at which the
bond accretes on an annual basis until maturity date.
(d) Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pursuant to Section 4(2) of the Securities
Act of 1933, as amended. These securities have been determined to be liquid
under guidelines established by the Board of Trustees.
(e) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at April 30, 1998.
(f) Affiliated issuers are those in which the Fund's holdings represents 5% or
more of the outstanding voting securities of the issuer. The Fund has never
owned enough of the outstanding voting securities of any issuer to have
control (as defined in the Investment Company Act of 1940) of that issuer.
At April 30, 1998, the fair value of these securities was $2,255,341 (0.43%
of the Fund's net assets).
Legend of Portfolio Abbreviations:
CAD Canadian Dollar
DEM Deutsche Mark
See Combined Notes to Financial Statements.
37
<PAGE>
EVERGREEN
Strategic Income Fund
Schedule of Investments
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
ASSET-BACKED SECURITIES -- 0.6% (cost $1,850,000)
$ 1,850,000 PNC Student Loan Trust, I
Series 97-2, Class A7,
6.728%, 1/25/07 ...................... $1,915,546
----------
CORPORATE BONDS -- 31.7%
Aerospace & Defense -- 0.5%
1,700,000 Sequa Corporation,
Sr. Notes,
8.75%, 12/15/01 ...................... 1,738,250
----------
Automotive Equipment &
Manufacturing -- 1.2%
1,000,000 Exide Corporation,
Sr. Notes (Subord.),
2.90%, 12/15/05 (d) .................. 620,000
1,000,000 Oxford Automotive, Incorporated,
Sr. Notes (Subord.),
10.125%, 6/15/07 ..................... 1,050,000
2,500,000 Walbro Corporation,
Sr. Notes,
10.125%, 12/15/07 (d) ................ 2,425,279
----------
4,095,279
----------
Cable / Other Video Distribution -- 2.9%
1,500,000 Acme Television LLC,
Series B, Sr. Disc. Notes,
Step Bond,
(Eff. Yield 10.39%) (c),
0.00%, 9/30/04 ....................... 1,230,000
Adelphia Communications
Corporation,
Series B, Sr. Notes:
1,550,000 9.875%, 3/1/07 ...................... 1,674,000
250,000 10.50%, 7/15/04 ..................... 271,250
1,500,000 Galaxy Telecom LP,
Sr. Notes (Subord.),
12.375%, 10/1/05 ..................... 1,665,000
Iridium Capital Corporation:
500,000 Series B, Sr. Notes,
14.00%, 7/15/05 ...................... 562,500
1,000,000 Sr. Notes,
11.25%, 7/15/05 (d) .................. 1,032,500
1,000,000 Lenfest Communications,
Incorporated,
Sr. Notes,
8.375%, 11/1/05 ...................... 1,035,000
1,000,000 Lodgenet Entertainment Corporation,
Sr. Notes,
10.25%, 12/15/06 ..................... 1,037,500
1,000,000 Pegasus Communications
Corporation,
Series B, Sr. Notes,
9.625%, 10/15/05 ..................... 1,045,000
----------
9,552,750
----------
Chemical & Agricultural Products -- 0.5%
1,000,000 Polymer Group, Incorporated,
Series B, Sr. Notes (Subord.),
9.00%, 7/1/07 ........................ 1,027,500
500,000 Texas Petrochemical Corporation,
Sr. Notes (Subord.),
11.125%, 7/1/06 ...................... 545,000
----------
1,572,500
----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Consumer Products & Services -- 1.4%
Dryper's Corporation:
$ 575,000 Series B, Sr. Notes,
10.25%, 6/15/07 ...................... $ 592,250
500,000 Sr. Notes,
10.25%, 6/15/07 (d) .................. 520,000
1,000,000 French Fragrances, Incorporated,
Sr. Notes,
10.375%, 5/15/07 (d) ................. 1,080,000
3,150,000 Revlon Worldwide Corporation,
Series B, Sr. Secd. Disc. Notes,
(Eff. Yield 10.75%) (c),
0.00%, 3/15/01 ....................... 2,409,750
----------
4,602,000
----------
Electrical Equipment & Services -- 0.7%
2,218,808 Tucson Electric,
Series B,
10.211%, 1/1/09 ...................... 2,318,655
----------
Finance & Insurance -- 1.3%
1,500,000 Americo Life, Incorporated,
Sr. Notes (Subord.),
9.25%, 6/1/05 ........................ 1,535,625
1,500,000 Presidential Life Corporation,
Sr. Notes,
9.50%, 12/15/00 ...................... 1,554,375
1,250,000 Reliance Group Holdings,
Incorporated,
Sr. Notes,
9.00%, 11/15/00 ...................... 1,306,525
----------
4,396,525
----------
Food & Beverage Products -- 0.5%
500,000 Chiquita Brands International,
Incorporated,
Sr. Notes,
9.625%, 1/15/04 ...................... 527,500
1,000,000 Sun World International, Incorporated,
Series B, 1st Mtge. Notes,
11.25%, 4/15/04 ...................... 1,090,000
----------
1,617,500
----------
Gaming -- 0.8%
1,500,000 Boyd Gaming Corporation,
Sr. Notes (Subord.),
9.50%, 7/15/07 ....................... 1,586,250
850,000 Horseshoe Gaming,
Series B, Sr. Notes (Subord.),
9.375%, 6/15/07 ...................... 911,625
----------
2,497,875
----------
Healthcare Products & Services -- 0.3%
1,000,000 Integrated Health Services,
Incorporated,
Series A, Sr. Notes (Subord.),
9.50%, 9/15/07 ....................... 1,045,000
----------
Information Services &
Technology -- 0.4%
1,000,000 Unisys Corporation,
Sr. Notes,
11.75%, 10/15/04 ..................... 1,150,000
----------
</TABLE>
38
<PAGE>
EVERGREEN
Strategic Income Fund
Schedule of Investments (continued)
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Leisure & Tourism -- 1.1%
$ 500,000 Cinemark USA, Incorporated,
Series B, Sr. Notes (Subord.),
9.625%, 8/1/08 ................ $ 522,500
1,000,000 Host Marriott Travel Plazas,
Incorporated,
Series B, Sr. Notes,
9.50%, 5/15/05 ................ 1,062,500
1,000,000 Premier Cruise Ltd.,
Sr. Notes,
11.00%, 3/15/08 (d) ........... 1,005,000
1,000,000 Prime Hospitality Corporation,
Series B, Sr. Notes (Subord.),
9.75%, 4/1/07 ................. 1,077,500
----------
3,667,500
----------
Metals & Mining -- 3.4%
2,000,000 Acme Metals, Incorporated,
Sr. Notes,
10.875%, 12/15/07 (d) ......... 1,985,000
500,000 Anker Coal Group, Incorporated,
Series B, Sr. Notes,
9.75%, 10/1/07 ................ 481,250
1,500,000 Armco, Incorporated,
Sr. Notes,
9.375%, 11/1/00 ............... 1,537,500
1,000,000 Bethlehem Steel Corporation,
Sr. Notes,
10.375%, 9/1/03 ............... 1,065,000
1,000,000 Envirosource, Incorporated,
Sr. Notes,
9.75%, 6/15/03 ................ 1,020,000
2,000,000 NSM Steel, Incorporated,
Sr. Mtge. Notes,
12.00%, 2/1/06 (d) ............ 1,895,000
3,000,000 WHX Corporation,
Sr. Notes,
10.50%, 4/15/05 (d) ........... 3,060,000
----------
11,043,750
----------
Oil / Energy -- 3.7%
1,500,000 Benton Oil and Gas Company,
Sr. Notes,
9.375%, 11/1/07 ............... 1,500,000
2,500,000 Chesapeake Energy Corporation,
Sr. Notes,
9.625%, 5/1/05 (d) ............ 2,518,750
1,000,000 Energy Corporation of America,
Series A, Sr. Notes (Subord.),
9.50%, 5/15/07 ................ 1,002,500
2,150,000 HS Resources, Incorporated,
Sr. Notes (Subord.),
9.25%, 11/15/06 ............... 2,214,500
2,250,000 PDV America, Incorporated,
Sr. Notes,
7.25%, 8/1/98 ................. 2,256,075
2,500,000 Petsec Energy, Incorporated,
Series B, Sr. Notes (Subord.),
9.50%, 6/15/07 ................ 2,531,250
----------
12,023,075
----------
Paper & Packaging -- 1.1%
1,000,000 Maxxam Group, Incorporated,
Sr. Notes,
11.25%, 8/1/03 ................ 1,050,000
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Paper & Packaging -- continued
$ 350,000 Printpack, Incorporated,
Series B, Sr. Notes (Subord.),
10.625%, 8/15/06 .............. $ 378,000
2,000,000 Stone Container Finance Company,
Sr. Notes,
11.50%, 8/15/06 (d) ........... 2,140,000
----------
3,568,000
----------
Publishing, Broadcasting &
Entertainment -- 2.2%
1,500,000 American Lawyer Media,
Incorporated,
Sr. Notes,
9.75%, 12/15/07 (d) ........... 1,575,000
1,000,000 Big Flower Press Holdings,
Incorporated,
Sr. Notes (Subord.),
8.875%, 7/1/07 ................ 1,030,000
1,625,000 Capstar Broadcasting Partners,
Sr. Disc. Notes,
12.75%, 2/1/09 ................ 1,210,625
1,450,000 Echostar Satellite Broadcast
Corporation,
Sr. Secd. Disc. Notes, Step Bond,
(Eff. Yield 10.05%) (c),
0.00%, 3/15/04 ................ 1,319,500
1,000,000 SFX Broadcasting, Incorporated,
Series B, Sr. Notes (Subord.),
10.75%, 5/15/06 ............... 1,100,000
1,000,000 Sinclair Broadcast Group,
Incorporated,
Sr. Notes (Subord.),
10.00%, 9/30/05 ............... 1,070,000
----------
7,305,125
----------
Retailing & Wholesale -- 2.7%
2,000,000 Advance Stores Company,
Sr. Notes (Subord.),
10.25%, 4/15/08 (d) ........... 2,030,000
825,000 AFC Enterprises, Incorporated,
Sr. Notes (Subord.),
10.25%, 5/15/07 ............... 866,250
1,500,000 FRD Acquisition Company,
Series B, Sr. Notes,
12.50%, 7/15/04 ............... 1,657,500
2,000,000 Friendly's Ice Cream Corporation,
Sr. Notes,
10.50%, 12/1/07 ............... 2,135,000
1,000,000 MTS Incorporated,
Sr. Notes (Subord.),
9.375%, 5/1/05 (d) ............ 1,000,000
1,000,000 Perkins Family Restaurant,
Series B, Sr. Notes,
10.125%, 12/15/07 ............. 1,060,000
----------
8,748,750
----------
Telecommunication Services &
Equipment -- 3.4%
1,000,000 Centennial Cellular Corporation,
Sr. Notes,
8.875%, 11/1/01 ............... 1,030,000
</TABLE>
39
<PAGE>
EVERGREEN
Strategic Income Fund
Schedule of Investments (continued)
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS -- continued
Telecommunication Services &
Equipment -- continued
$ 500,000 Intermedia Capital Partners,
Sr. Notes,
11.25%, 8/1/06 ...................... $ 561,250
2,400,000 Nextel Communications,
Incorporated,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 11.17%) (c),
0.00%, 10/31/07 ..................... 1,560,000
3,000,000 Talton Holdings, Incorporated,
Series B, Sr. Notes,
11.00%, 6/30/07 ..................... 3,270,000
Teleport Communications Group:
1,000,000 Sr. Disc. Notes, Step Bond,
(Eff. Yield 8.97%) (c)
0.00%, 7/1/07 ....................... 857,500
525,000 Sr. Notes,
9.875%, 7/1/06 ...................... 597,187
4,000,000 Winstar Communications,
Incorporated,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 9.76%) (c),
0.00%, 10/15/05 ..................... 3,220,000
-----------
11,095,937
-----------
Textile & Apparel -- 0.5%
1,500,000 Delta Mills, Incorporated,
Series B, Sr. Notes,
9.625%, 9/1/07 ...................... 1,530,000
-----------
Transportation -- 2.5%
1,000,000 Coach USA, Incorporated,
Series B, Sr. Notes (Subord.),
9.375%, 7/1/07 ...................... 1,040,000
1,750,000 Pegasus Shipping Hellas Limited,
Sr. Notes,
11.875%, 11/15/04 (d) ............... 1,732,500
Piedmont Aviation, Incorporated:
852,000 Series A,
9.90%, 1/15/01 ...................... 891,022
1,389,000 Series F,
10.15%, 3/28/03 ..................... 1,508,676
2,000,000 Transport World Airlines, Incorporated,
Notes,
11.375%, 3/1/06 (d) ................. 2,000,000
896,000 U.S. Air, Incorporated,
Series 88-B,
9.90%, 1/15/01 ...................... 937,037
-----------
8,109,235
-----------
Utilities -- 0.6%
1,000,000 Calpine Corporation,
Sr. Notes,
8.75%, 7/15/07 ...................... 1,030,000
1,000,000 Cleveland Electric Illuminating
Company,
Series B, 1st Mtge. Notes,
9.50%, 5/15/05 ...................... 1,093,960
-----------
2,123,960
-----------
Total Corporate Bonds
(cost $100,844,371).................. 103,801,666
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
FOREIGN BONDS (U.S. DOLLARS) -- 7.8%
$ 500,000 Aztec Holdings SA DE CV,
Sr. Secd. Notes,
11.00%, 6/15/02 ..................... $ 517,500
Comtel Brasileira Ltd.,
Notes:
2,000,000 10.75%, 9/26/04 .................... 2,061,000
1,500,000 10.75%, 9/26/04 (d) ................ 1,537,500
500,000 Diamond Cable Communicatoins PLC,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 10.48%) (c),
0.00%, 2/15/07 ...................... 350,000
1,000,000 Doman Industries Limited,
Sr. Notes,
8.75%, 3/15/04 ...................... 985,000
2,000,000 Eletson Holdings, Incorporated,
1st Preferred Mtge. Notes,
9.25%, 11/15/03 ..................... 2,050,000
1,000,000 Fundy Cable Ltd.,
Sr. Secd. 2nd Priority Notes,
11.00%, 11/15/05 .................... 1,105,000
1,500,000 Glencore Nickel Property,
Sr. Secd. Bonds,
9.00%, 12/1/14 (d) .................. 1,477,500
1,250,000 Great Central Mines Ltd.,
Sr. Notes,
8.875%, 4/1/08 (d) .................. 1,248,437
1,000,000 Grupo Industrial Durango S.A.,
Notes,
12.625%, 8/1/03 ..................... 1,130,000
2,000,000 Mastellone Hermanos S.A.,
Sr. Notes,
11.75%, 4/1/08 (d) .................. 2,067,200
800,000 PTC International Finance BV,
Sr. Notes (Subord.), Step Bond,
(Eff. Yield 10.14%) (c),
0.00%, 7/1/07 ....................... 548,000
1,000,000 Repap New Brunswick, Incorporated,
Sr. Notes,
9.875%, 7/15/00 ..................... 1,055,000
1,000,000 Rogers Cablesystems Limited,
Sr. Secd. Deb.,
10.125%, 9/1/12 ..................... 1,085,000
1,500,000 Sea Containers Limited,
Sr. Notes,
9.50%, 7/1/03 ....................... 1,545,000
1,425,000 TV Azteca SA DE CV,
Series B, Sr. Notes,
10.50%, 2/15/07 ..................... 1,496,250
5,000,000 United Mexican States,
Bonds,
9.875%, 1/15/07 ..................... 5,387,500
-----------
Total Foreign Bonds (U.S. Dollars)
(cost $24,920,230)................... 25,645,887
-----------
FOREIGN BONDS (NON U.S. DOLLARS) -- 20.6%
2,250,000 Australia (Commonwealth of), Deb.,
AUD 10.00%, 2/15/06 .................... 1,851,610
3,000,000 CEI Citicorp Holding,
ARS Bonds,
11.25%, 2/14/07 ..................... 2,760,400
400,000 European Investment Bank,
GBP Bonds,
7.625%, 12/7/06 ..................... 730,702
19,525,000 Germany (Republic of), Deb.,
DEM 6.875%, 5/12/05 .................... 12,105,272
</TABLE>
40
<PAGE>
EVERGREEN
Strategic Income Fund
Schedule of Investments (continued)
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
FOREIGN BONDS (NON U.S. DOLLARS) -- continued
1,845,000,000 Greece (Republic of), Deb.,
GRD 8.60%, 3/26/08 .................... $6,147,261
Italy (Republic of), Deb.:
6,595,000,000
ITL 6.75%, 2/1/07 ..................... 4,132,695
1,105,000,000
ITL 9.50%, 2/1/06 ..................... 796,179
690,000,000 Korea Development Bank,
JPY Sr. Notes,
4.70%, 3/18/04 ..................... 5,362,959
1,500,000 Microcell Telecommunications,
CAD Series B, Sr. Disc. Notes,
Step Bond,
(Eff. Yield 10.28%) (c),
0.00%, 10/15/07 .................... 679,220
3,500,000 NTL, Incorporated,
GBP Sr. Notes, Step Bond,
(Eff. Yield 9.82%) (c),
0.00%, 4/1/08 ...................... 3,600,486
80,500,000 Nykredit,
DKK 6.00%, 10/1/29 .................... 11,328,336
6,000,000 Quebec (Province of),
CAD Deb.,
9.375%, 1/16/23 .................... 5,887,444
2,000,000 Rogers Cablesystems Limited,
CAD Deb.,
9.65%, 1/15/14 ..................... 1,510,542
1,000,000 Rogers Communications,
CAD Incorporated,
Sr. Notes,
8.75%, 7/15/07 ..................... 702,122
18,000,000 Spain (Government of),
ESP Deb.,
11.45%, 8/30/98 .................... 120,670
23,000,000 Spain (Kingdom of),
ESP Deb.,
12.25%, 3/25/00 .................... 172,160
5,268,000 United Kingdom Treasury,
GBP Deb.,
7.25%, 12/7/07 ..................... 9,761,801
----------
Total Foreign Bonds (Non U.S. Dollars)
(cost $67,089,703).................. 67,649,859
----------
MORTGAGE-BACKED SECURITIES -- 11.8%
$ 4,750,000 FHLB,
5.625%, 3/19/01 .................... 4,731,428
FHLMC:
32,155 Pool #E00434,
7.00%, 5/1/11 ...................... 32,861
1,452,103 Pool #E20217,
7.00%, 1/1/11 ...................... 1,484,006
3,289,024 Pool #E20271,
7.00%, 11/1/11 ..................... 3,356,514
638,986 Pool #E64769,
7.00%, 7/1/11 ...................... 653,024
251,510 Pool #E64891,
7.00%, 7/1/11 ...................... 257,036
1,320,497 Pool #E65184,
7.00%, 8/1/11 ...................... 1,349,509
386,785 Pool #E65186,
7.00%, 8/1/11 ...................... 395,283
53,793 Pool #E65399,
7.00%, 9/1/11 ...................... 54,897
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MORTGAGE-BACKED SECURITIES -- continued
FHLMC -- continued
$ 416,067 Pool #E65450,
7.00%, 10/1/11 ..................... $ 424,605
249,678 Pool #E65454,
7.00%, 10/1/11 ..................... 254,802
133,793 Pool #E65468,
7.00%, 10/1/11 ..................... 136,539
1,907,708 Pool #E65490,
7.00%, 10/1/11 ..................... 1,946,854
268,847 Pool #E65597,
7.00%, 10/1/11 ..................... 274,363
228,227 Pool #E65645,
7.00%, 11/1/11 ..................... 232,910
520,263 Pool #E65660,
7.00%, 11/1/11 ..................... 530,939
1,482,913 Pool #E65702,
7.00%, 11/1/11 ..................... 1,515,492
877,902 Pool #E65703,
7.00%, 11/1/11 ..................... 895,917
1,824,967 Pool #E65712,
7.00%, 12/1/11 ..................... 1,862,416
285,517 Pool #E65717,
7.00%, 11/1/11 ..................... 291,375
872,798 Pool #E65723,
7.00%, 11/1/11 ..................... 891,973
389,971 Pool #E65750,
7.00%, 11/1/11 ..................... 398,539
30,448 Pool #E65759,
7.00%, 12/1/11 ..................... 31,072
27,840 Pool #G10524,
7.00%, 6/1/11 ...................... 28,452
539,858 Pool #G10556,
7.00%, 7/1/11 ...................... 551,719
268,102 Pool #G10590,
7.00%, 10/1/11 ..................... 273,992
2,708,737 FHLMC Participation Certificate,
Pool #607352,
7.862%, 4/1/22 ..................... 2,852,652
FNMA:
1,783,236 Pool #124289,
7.565%, 9/1/21 ..................... 1,866,834
2,074,579 Pool #313994,
7.565%, 12/1/23 .................... 2,121,838
79,590 Pool #403607,
7.00%, 11/1/27 ..................... 80,460
77,903 Pool #404115,
7.00%, 11/1/27 ..................... 78,755
6,859,992 GNMA,
Pool #780163,
6.50%, 7/15/09 ..................... 6,934,972
1,974,567 Independent National Mortgage
Corporation,
Series 1997-A, Class A,
7.84%, 12/26/26 (d) ................ 1,985,540
----------
Total Mortgage-Backed Securities
(cost $38,271,207).................. 38,777,568
----------
U.S. TREASURY OBLIGATIONS -- 24.8%
U.S. Treasury Bonds:
31,500,000 6.375%, 8/15/27 ................... 33,143,985
1,400,000 6.625%, 2/15/27 ................... 1,515,276
4,223,000 7.875%, 2/15/21 ................... 5,169,206
</TABLE>
41
<PAGE>
EVERGREEN
Strategic Income Fund
Schedule of Investments (continued)
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- continued
U.S. Treasury Notes:
$ 3,750,000 5.50%, 2/29/00 ............. $ 3,744,150
2,250,000 5.625%, 12/31/99 ........... 2,251,755
5,185,000 6.625%, 5/15/07 ............ 5,497,707
12,700,000 7.00%, 7/15/06 ............. 13,704,062
15,000,000 7.25%, 5/15/04 ............. 16,162,500
-----------
Total U.S. Treasury Obligations
(cost $79,277,425)........... 81,188,641
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS -- 0.5%
Gaming -- 0.4%
Casino America, Incorporated:
104,514 Common Stock (a) ................ 367,432
19,582 Warrants (a) (b) ................ 196
170,042 Colorado Gaming and Entertainment
Company,
Common Stock (a) ................. 935,231
---------
1,302,859
---------
</TABLE>
<TABLE>
<CAPTION>
Shares
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS -- continued
Telecommunication Services &
Equipment -- 0.1%
Nextel Communications,
Incorporated:
3,718 Common Stock, Class A (a) ....... $ 106,544
4,820 Warrants (a) .................... 50,610
------------
157,154
------------
Total Common Stocks and Warrants
(cost $2,134,477)................. 1,460,013
------------
PREFERRED STOCK -- 0.3% (cost $2,106,054)
Finance & Insurance -- 0.3%
2,156 Ampex Incorporated (a) (b) ....... 1,093,092
------------
Total Investments --
(cost $316,493,467)...... 98.1% 321,532,272
Other Assets and
Liabilities -- net ...... 1.9 6,302,764
----- ------------
Net Assets .............. 100.0% $327,835,036
===== ============
</TABLE>
(a) Non-income producing.
(b) All or a portion of these securities are either (1) restricted securities
(i.e., securities which may not be publicly sold without registration under
the Federal Securities Act of 1933) or (2) illiquid securities, and are
valued using market quotations where readily available. In the absence of
market quotations, the securities are valued based upon their fair value
determined under procedures approved by the Board of Trustees. The Fund may
make investments in an amount up to 15% of the value of the Fund's net
assets in such securities. At April 30, 1998, the fair value of these
securities was $1,093,288 (0.33% of the Fund's net assets).
(c) Effective yield (calculated at the date of purchase) is the yield at which
the bond accretes on an annual basis until maturity date.
(d) Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pursuant to Section 4(2) of the Securities
Act of 1933, as amended. These securities have been determined to be liquid
under guidelines established by the Board of Trustees.
Legend of Portfolio Abbreviations:
ARS Argentine Peso
AUD Australian Dollar
CAD Canadian Dollar
DEM Deutsche Mark
DKK Danish Krone
ESP Spanish Peseta
FHLB Federal Home Loan Bank
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
GBP Pound Sterling
GNMA Government National Mortgage Association
GRD Greek Drachma
ITL Italian Lira
JPY Japanese Yen
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Forward foreign currency exchange contracts to sell:
<TABLE>
<S> <C> <C> <C> <C> <C>
Exchange U.S. $ Value at In Exchange Net Unrealized
Date Contractsto Deliver April 30, 1998 for U.S. $ Depreciation
- ------ ---------------------------- ----------------- ------------- ---------------
8/4/98 70,000,000 Deutsche Mark 39,211,513 39,173,989 $(37,524)
</TABLE>
See Combined Notes to Financial Statements.
42
<PAGE>
EVERGREEN
U.S. Government Fund
Schedule of Investments
April 30, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
MORTGAGE-BACKED SECURITIES -- 42.4%
Federal Home Loan Mortgage
Corp. -- 9.0%
$ 13,035,755 6.50%, 04/01/26 ................. $ 12,959,887
1,750,000 7.80%, 09/12/16 ................. 1,919,188
4,327,409 8.00%, 07/01/17 - 04/01/22 ...... 4,521,742
3,075,501 8.50%, 10/01/17 - 04/01/23 ...... 3,240,471
2,806,679 9.00%, 11/01/19 - 04/01/21 ...... 3,003,812
1,071,841 9.50%, 09/01/20 ................. 1,160,053
1,259,265 10.00%, 12/01/19 - 08/01/21 ..... 1,376,961
1,592,069 10.50%, 12/01/19 ................ 1,742,321
------------
29,924,435
------------
Federal National Mortgage
Assn. -- 12.7%
4,365,482 6.50%, 01/01/24 ................. 4,325,922
15,711,901 7.00%, 08/01/25 - 09/01/25 ...... 15,903,397
10,094,472 7.50%, 07/01/23 - 07/01/25 ...... 10,368,920
8,971,054 8.00%, 08/01/25 ................. 9,318,414
1,343,671 9.50%, 02/01/23 ................. 1,437,309
941,145 11.00%, 01/01/16 ................ 1,043,908
------------
42,397,870
------------
Government National Mortgage
Assn. -- 20.7%
3,317,473 6.50%, 10/15/25 ................. 3,295,611
17,194,812 7.00%, 12/15/22 - 05/15/26 ...... 17,433,010
9,504,910 7.50%, 02/15/22 - 03/15/23 ...... 9,772,283
16,644,505 8.00%, 04/15/23 - 08/15/24 ...... 17,333,755
9,492,843 8.50%, 12/15/21 - 07/15/24 ...... 10,039,284
4,434,234 9.00%, 01/15/20 - 06/15/21 ...... 4,752,944
4,517,624 9.50%, 05/15/17 - 02/15/21 ...... 4,891,742
1,066,761 10.00%, 12/15/18 ................ 1,167,104
------------
68,685,733
------------
Total Mortgage-Backed Securities
(cost $138,608,340).............. 141,008,038
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
U. S. TREASURY OBLIGATIONS -- 55.4%
U.S. Treasury Bonds -- 30.4%
$ 15,500,000 6.125%, 11/15/27 ................ $ 15,877,828
5,200,000 7.625%, 2/15/07 ................. 5,520,128
7,520,000 7.875%, 2/15/21 ................. 9,209,654
12,000,000 8.25%, 5/15/05 .................. 12,577,512
8,100,000 8.50%, 2/15/20 .................. 10,497,098
3,650,000 8.75%, 11/15/08 ................. 4,150,736
3,080,000 8.75%, 8/15/20 .................. 4,094,478
14,010,000 8.875%, 8/15/17 ................. 18,528,239
6,000,000 8.875%, 2/15/19 ................. 8,002,506
9,300,000 9.25%, 2/15/16 .................. 12,569,536
------------
101,027,715
------------
U.S. Treasury Notes -- 25.0%
3,500,000 6.00%, 6/30/99 .................. 3,517,504
1,500,000 6.25%, 5/31/99 .................. 1,510,782
7,500,000 6.25%, 6/30/02 .................. 7,657,035
3,000,000 6.75%, 4/30/00 .................. 3,063,753
12,000,000 7.75%, 11/30/99 ................. 12,382,512
9,800,000 7.75%, 1/31/00 .................. 10,146,067
21,500,000 7.875%, 11/15/99 ................ 22,212,209
1,600,000 7.875%, 11/15/04 ................ 1,784,501
9,350,000 8.25%, 7/15/98 .................. 9,411,364
11,205,000 9.25%, 8/15/98 .................. 11,331,067
------------
83,016,794
------------
Total U. S. Treasury Obligations
(cost $185,438,991).............. 184,044,509
------------
REPURCHASE AGREEMENT -- 0.2% (cost $531,701)
531,701 Donaldson, Lufkin & Jenrette
Securities Corp., 5.49% dated
04/30/98, due 05/01/98, maturity
value $531,782 (collateralized by
$819,000 U.S. Treasury STRIPS,
0.00%, due 05/15/2005; value,
including accrued interest
$542,735)........................ 531,701
------------
Total Investments
(cost $324,579,032)..... 98.0% 325,584,248
Other Assets and
Liabilities -- net ..... 2.0 6,661,029
----- ------------
Net Assets ............. 100.0% $332,245,277
===== ============
</TABLE>
See Combined Notes to Financial Statements.
43
<PAGE>
EVERGREEN
Long Term Bond Funds
Statements of Assets and Liabilities
April 30, 1998
<TABLE>
<CAPTION>
Diversified
Bond
Fund
-----------------
<S> <C>
Assets
Investments at market value (identified cost -- $576,701,041,
$481,818,150, $316,493,467 and $324,579,032, respectively)................. $ 591,455,445
Cash and foreign currency, at value (identified cost -- $903, $18,854,
$662,359 and $0, respectively)............................................. 903
Receivable for investments sold ............................................ 13,770,108
Interest receivable ........................................................ 9,154,730
Receivable for Fund shares sold ............................................ 170,504
Receivable for closed forward foreign currency exchange contracts .......... 0
Prepaid expenses and other assets .......................................... 334,221
- ------------------------------------------------------------------------------ ---------------
Total assets .............................................................. 614,885,911
- ------------------------------------------------------------------------------ ---------------
Liabilities
Payable for reverse repurchase agreements .................................. 22,388,446
Payable for investments purchased .......................................... 9,079,280
Payable for securities on loan ............................................. 8,642,617
Dividends payable .......................................................... 1,327,476
Payable for Fund shares redeemed ........................................... 1,223,231
Due to related parties ..................................................... 264,509
Unrealized depreciation on forward foreign currency exchange contracts ..... 196,424
Distribution fee payable ................................................... 61,485
Accrued Trustees' fees and expenses ........................................ 13,549
Accrued expenses and other liabilities ..................................... 0
- ------------------------------------------------------------------------------ ---------------
Total liabilities ......................................................... 43,197,017
- ------------------------------------------------------------------------------ ---------------
Net assets .................................................................. $ 571,688,894
- ------------------------------------------------------------------------------ ---------------
Net assets represented by
Paid-in capital ............................................................ $ 716,267,329
Undistributed net investment income (accumulated distributions in
excess of net investment income) .......................................... 397,123
Accumulated net realized loss on investments, futures contracts and
foreign currency related transactions ..................................... (159,537,483)
Net unrealized appreciation on investments and foreign currency related
transactions .............................................................. 14,561,925
- ------------------------------------------------------------------------------ ---------------
Total net assets .......................................................... $ 571,688,894
- ------------------------------------------------------------------------------ ---------------
Net assets consists of
Class A ................................................................... $ 501,546,856
Class B ................................................................... 70,112,654
Class C ................................................................... 22,811
Class Y .................................................................. 6,573
- ------------------------------------------------------------------------------ ---------------
$ 571,688,894
- ------------------------------------------------------------------------------ ---------------
Shares outstanding
Class A ................................................................... 31,500,841
Class B ................................................................... 4,403,544
Class C ................................................................... 1,433
Class Y .................................................................. 413
- ------------------------------------------------------------------------------ ---------------
Net asset value per share
Class A ................................................................... $ 15.92
- ------------------------------------------------------------------------------ ---------------
Class A -- Offering price (based on sales charge of 4.75%) ................ $ 16.71
- ------------------------------------------------------------------------------ ---------------
Class B ................................................................... $ 15.92
- ------------------------------------------------------------------------------ ---------------
Class C ................................................................... $ 15.92
- ------------------------------------------------------------------------------ ---------------
Class Y ................................................................... $ 15.92
- ------------------------------------------------------------------------------ ---------------
<CAPTION>
High Strategic U.S.zzz
Yield Income Government
Fund Fund Fund
----------------- --------------- ---------------
<S> <C> <C> <C>
Assets
Investments at market value (identified cost -- $576,701,041,
$481,818,150, $316,493,467 and $324,579,032, respectively)................. $ 484,227,114 $ 321,532,272 $ 325,584,248
Cash and foreign currency, at value (identified cost -- $903, $18,854,
$662,359 and $0, respectively)............................................. 18,848 662,359 0
Receivable for investments sold ............................................ 48,065,630 2,698,042 0
Interest receivable ........................................................ 9,217,883 6,563,727 5,015,982
Receivable for Fund shares sold ............................................ 916,624 543,814 2,690,960
Receivable for closed forward foreign currency exchange contracts .......... 0 56,518 0
Prepaid expenses and other assets .......................................... 196,191 86,565 53,150
- ------------------------------------------------------------------------------- --------------- ------------- -------------
Total assets .............................................................. 542,642,290 332,143,297 333,344,340
- ------------------------------------------------------------------------------- --------------- ------------- -------------
Liabilities
Payable for reverse repurchase agreements .................................. 0 1,350,806 0
Payable for investments purchased .......................................... 21,612,175 702,231 0
Payable for securities on loan ............................................. 0 0 0
Dividends payable .......................................................... 1,540,504 904,330 487,192
Payable for Fund shares redeemed ........................................... 595,594 981,432 237,579
Due to related parties ..................................................... 261,204 166,684 142,662
Unrealized depreciation on forward foreign currency exchange contracts ..... 0 37,524 0
Distribution fee payable ................................................... 86,243 142,668 121,743
Accrued Trustees' fees and expenses ........................................ 16,463 10,142 17,264
Accrued expenses and other liabilities ..................................... 41,533 12,444 92,623
- ------------------------------------------------------------------------------- --------------- ------------- -------------
Total liabilities ......................................................... 24,153,716 4,308,261 1,099,063
- ------------------------------------------------------------------------------- --------------- ------------- -------------
Net assets .................................................................. $ 518,488,574 $ 327,835,036 $ 332,245,277
- ------------------------------------------------------------------------------- --------------- ------------- -------------
Net assets represented by
Paid-in capital ............................................................ $ 890,481,827 $ 398,919,207 $ 354,051,006
Undistributed net investment income (accumulated distributions in
excess of net investment income) .......................................... (1,461,940) (1,604,423) 0
Accumulated net realized loss on investments, futures contracts and
foreign currency related transactions ..................................... (372,940,765) (74,488,430) (22,810,945)
Net unrealized appreciation on investments and foreign currency related
transactions .............................................................. 2,409,452 5,008,682 1,005,216
- ------------------------------------------------------------------------------- --------------- ------------- -------------
Total net assets .......................................................... $ 518,488,574 $ 327,835,036 $ 332,245,277
- ------------------------------------------------------------------------------- --------------- ------------- -------------
Net assets consists of
Class A ................................................................... $ 420,777,850 $ 193,617,768 $ 40,136,274
Class B ................................................................... 96,535,489 113,136,319 130,575,812
Class C ................................................................... 1,155,249 19,638,532 5,696,911
Class Y ................................................................... 19,986 1,442,417 155,836,280
- ------------------------------------------------------------------------------- --------------- ------------- -------------
$ 518,488,574 $ 327,835,036 $ 332,245,277
- ------------------------------------------------------------------------------- --------------- ------------- -------------
Shares outstanding
Class A ................................................................... 92,827,579 26,845,937 4,148,338
Class B ................................................................... 21,298,722 15,614,180 13,495,849
Class C ................................................................... 254,831 2,713,720 588,802
Class Y ................................................................... 4,412 204,966 16,106,634
- ------------------------------------------------------------------------------- --------------- ------------- -------------
Net asset value per share
Class A ................................................................... $ 4.53 $ 7.21 $ 9.68
- ------------------------------------------------------------------------------- --------------- ------------- -------------
Class A -- Offering price (based on sales charge of 4.75%) ................ $ 4.76 $ 7.57 $ 10.16
- ------------------------------------------------------------------------------- --------------- ------------- -------------
Class B ................................................................... $ 4.53 $ 7.25 $ 9.68
- ------------------------------------------------------------------------------- --------------- ------------- -------------
Class C ................................................................... $ 4.53 $ 7.24 $ 9.68
- ------------------------------------------------------------------------------- --------------- ------------- -------------
Class Y ................................................................... $ 4.53 $ 7.04 $ 9.68
- ------------------------------------------------------------------------------- --------------- ------------- -------------
</TABLE>
See Combined Notes to Financial Statements.
44
<PAGE>
EVERGREEN
Long Term Bond Funds
Statements of Operations
Year Ended April 30, 1998
<TABLE>
<CAPTION>
Diversified
Bond
Fund*
--------------
<S> <C>
Investment income
Interest income (Net of foreign withholding taxes of $4,314, $23,160, $27,178
and $0, respectively)........................................................... $ 25,456,917
Dividend income ................................................................. 222,685
Other income .................................................................... 154,821
- ---------------------------------------------------------------------------------- ------------
Total investment income ........................................................ 25,834,423
- ---------------------------------------------------------------------------------- ------------
Expenses
Distribution Plan expenses ...................................................... 2,290,679
Management fee .................................................................. 1,847,478
Transfer agent fees ............................................................. 678,105
Custodian fees .................................................................. 136,488
Administrative services fees .................................................... 57,048
Professional fees ............................................................... 26,335
Trustees' fees and expenses ..................................................... 25,826
Other ........................................................................... 194,504
- ---------------------------------------------------------------------------------- ------------
Total expenses ................................................................. 5,256,463
Less: Indirectly paid expenses .................................................. (10,831)
- ---------------------------------------------------------------------------------- ------------
Net expenses ................................................................... 5,245,632
- ---------------------------------------------------------------------------------- ------------
Net investment income ........................................................... 20,588,791
- ---------------------------------------------------------------------------------- ------------
Net realized and unrealized gain (loss) on investments, futures contracts and
foreign currency related transactions
Realized gain (loss) on:
Investments .................................................................... 15,399,570
Futures contracts .............................................................. (348,801)
Foreign currency related transactions .......................................... (4,113,903)
- ---------------------------------------------------------------------------------- ------------
Net realized gain (loss) on investments, futures contracts and foreign currency
related transactions ........................................................... 10,936,866
- ---------------------------------------------------------------------------------- ------------
Net change in unrealized appreciation (depreciation) on:
Investments .................................................................... 2,869,575
Foreign currency related transactions .......................................... 676,869
- ---------------------------------------------------------------------------------- ------------
Net change in unrealized appreciation (depreciation) on investments and foreign
currency related transactions .................................................. 3,546,444
- ---------------------------------------------------------------------------------- ------------
Net realized and unrealized gain on investments, futures contracts and foreign
currency related transactions .................................................. 14,483,310
- ---------------------------------------------------------------------------------- ------------
Net increase in net assets resulting from operations ............................ $ 35,072,101
- ---------------------------------------------------------------------------------- ------------
<CAPTION>
High Strategic U.S.
Yield Income Government
Fund** Fund Fund
-------------- -------------- --------------
<S> <C> <C> <C>
Investment income
Interest income (Net of foreign withholding taxes of $4,314, $23,160, $27,178
and $0, respectively)........................................................... $36,543,259 $ 17,998,152 $23,464,920
Dividend income ................................................................. 332,283 0 0
Other income .................................................................... 327,527 165,375 0
- ----------------------------------------------------------------------------------- ----------- ------------ -----------
Total investment income ........................................................ 37,203,069 18,163,527 23,464,920
- ----------------------------------------------------------------------------------- ----------- ------------ -----------
Expenses
Distribution Plan expenses ...................................................... 3,087,747 1,587,407 1,545,471
Management fee .................................................................. 2,300,383 1,406,494 1,601,407
Transfer agent fees ............................................................. 1,035,815 539,204 402,980
Custodian fees .................................................................. 103,902 93,822 97,071
Administrative services fees .................................................... 76,786 36,278 105,681
Professional fees ............................................................... 29,319 24,213 38,748
Trustees' fees and expenses ..................................................... 30,906 21,252 11,923
Other ........................................................................... 233,116 211,897 230,735
- ----------------------------------------------------------------------------------- ----------- ------------ -----------
Total expenses ................................................................. 6,897,974 3,920,567 4,034,016
Less: Indirectly paid expenses .................................................. (51,507) (8,289) (258)
- ----------------------------------------------------------------------------------- ----------- ------------ -----------
Net expenses ................................................................... 6,846,467 3,912,278 4,033,758
- ----------------------------------------------------------------------------------- ----------- ------------ -----------
Net investment income ........................................................... 30,356,602 14,251,249 19,431,162
- ----------------------------------------------------------------------------------- ----------- ------------ -----------
Net realized and unrealized gain (loss) on investments, futures contracts and
foreign currency related transactions
Realized gain (loss) on:
Investments .................................................................... 16,545,290 7,922,358 (764,906)
Futures contracts .............................................................. 0 0 0
Foreign currency related transactions .......................................... 6,279 (2,286,641) 0
- ----------------------------------------------------------------------------------- ----------- ------------ -----------
Net realized gain (loss) on investments, futures contracts and foreign currency
related transactions ........................................................... 16,551,569 5,635,717 (764,906)
- ----------------------------------------------------------------------------------- ----------- ------------ -----------
Net change in unrealized appreciation (depreciation) on:
Investments .................................................................... 3,464,331 5,407,478 9,555,419
Foreign currency related transactions .......................................... 478 6,045 0
- ----------------------------------------------------------------------------------- ----------- ------------ -----------
Net change in unrealized appreciation (depreciation) on investments and foreign
currency related transactions .................................................. 3,464,809 5,413,523 9,555,419
- ----------------------------------------------------------------------------------- ----------- ------------ -----------
Net realized and unrealized gain on investments, futures contracts and foreign
currency related transactions .................................................. 20,016,378 11,049,240 8,790,513
- ----------------------------------------------------------------------------------- ----------- ------------ -----------
Net increase in net assets resulting from operations ............................ $50,372,980 $ 25,300,489 $28,221,675
- ----------------------------------------------------------------------------------- ----------- ------------ -----------
</TABLE>
* Eight months ended April 30, 1998. During the period, Diversified Bond Fund
changed its fiscal year end from August 31 to April 30.
** Nine months ended April 30, 1998. During the period, High Yield Fund
changed its fiscal year end from July 31 to April 30.
See Combined Notes to Financial Statements.
45
<PAGE>
EVERGREEN
Long Term Bond Funds
Statements of Operations
Prior Year End
<TABLE>
<CAPTION>
Diversified High
Bond Yield
Fund* Fund**
-------------- --------------
<S> <C> <C>
Investment income
Interest:
Unaffiliated issuers (Net of foreign withholding taxes of $0 and $693, respectively).... $40,714,972 $52,953,592
Affiliated issuers ..................................................................... 0 1,118,767
Other income ............................................................................ 107,991 466,791
- ------------------------------------------------------------------------------------------ ----------- -----------
Total investment income ............................................................... 40,822,963 54,539,150
- ------------------------------------------------------------------------------------------ ----------- -----------
Expenses
Distribution Plan expenses .............................................................. 5,106,010 5,686,181
Management fee .......................................................................... 2,835,152 3,259,222
Transfer agent fees ..................................................................... 1,203,224 1,634,507
Custodian fees .......................................................................... 252,608 289,359
Administrative services fees ............................................................ 65,837 50,161
Professional fees ....................................................................... 41,737 67,739
Trustees' fees and expenses ............................................................. 47,515 48,789
Other ................................................................................... 125,172 133,428
- ------------------------------------------------------------------------------------------ ----------- -----------
Total expenses ......................................................................... 9,677,255 11,169,386
Less: Indirectly paid expenses .......................................................... (50,654) (64,295)
- ------------------------------------------------------------------------------------------ ----------- -----------
Net expenses ........................................................................... 9,626,601 11,105,091
- ------------------------------------------------------------------------------------------ ----------- -----------
Net investment income ................................................................... 31,196,362 43,434,059
- ------------------------------------------------------------------------------------------ ----------- -----------
Net realized and unrealized gain on investments and foreign currency related transactions
Realized gain on :
Investments ............................................................................ 10,233,263 3,963,269
Foreign currency related transactions .................................................. 5,320,208 0
- ------------------------------------------------------------------------------------------ ----------- -----------
Net realized gain on investments and foreign currency related transactions .............. 15,553,471 3,963,269
- ------------------------------------------------------------------------------------------ ----------- -----------
Net change in unrealized appreciation (depreciation) on:
Investments ............................................................................ 13,588,288 33,119,281
Foreign currency related transactions .................................................. (237,516) 0
- ------------------------------------------------------------------------------------------ ----------- -----------
Net change in unrealized appreciation (depreciation) on investments and foreign currency 13,350,772 33,119,281
- ------------------------------------------------------------------------------------------ ----------- -----------
related transactions
- ------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign currency related 28,904,243 37,082,550
- ------------------------------------------------------------------------------------------ ----------- -----------
transactions
- ------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations .................................... $60,100,605 $80,516,609
- ------------------------------------------------------------------------------------------ ----------- -----------
</TABLE>
* Year ended August 31, 1997.
** Year ended July 31, 1997.
See Combined Notes to Financial Statements.
46
<PAGE>
EVERGREEN
Long Term Bond Funds
Statements of Changes in Net Assets
Year Ended April 30, 1998
<TABLE>
<CAPTION>
Diversified
Bond
Fund*
-----------------
<S> <C>
Operations
Net investment income ........................................................ $ 20,588,791
Net realized gain (loss) on investments, futures contracts and foreign
currency related transactions ............................................... 10,936,866
Net change in unrealized appreciation (depreciation) on investments and
foreign currency related transactions ....................................... 3,546,444
- ------------------------------------------------------------------------------- ---------------
Net increase in net assets resulting from operations ........................ 35,072,101
- ------------------------------------------------------------------------------- ---------------
Distributions to shareholders from net investment income
Class A ..................................................................... (9,491,102)
Class B ..................................................................... (11,097,556)
Class C ..................................................................... (35)
Class Y ..................................................................... (98)
- ------------------------------------------------------------------------------- ---------------
Total distributions to shareholders ......................................... (20,588,791)
- ------------------------------------------------------------------------------- ---------------
Capital share transactions
Proceeds from shares sold .................................................... 19,555,848
Proceeds from shares issued in connection with the acquisition of:
Evergreen Quality Bond Fund ................................................. 172,832,659
Blanchard Flexible Income Fund .............................................. 0
Keystone World Bond Fund .................................................... 0
Keystone Government Securities Fund ......................................... 0
Proceeds from reinvestment of distributions .................................. 11,421,930
Payment for shares redeemed .................................................. (104,305,708)
- ------------------------------------------------------------------------------- ---------------
Net increase (decrease) in net assets resulting from capital share
transactions ............................................................... 99,504,729
- ------------------------------------------------------------------------------- ---------------
Total increase (decrease) in net assets .................................... 113,988,039
Net assets
Beginning of period .......................................................... 457,700,855
- ------------------------------------------------------------------------------- ---------------
End of period ................................................................ $ 571,688,894
- ------------------------------------------------------------------------------- ---------------
Undistributed net investment income (accumulated distributions in excess of
net investment income) ....................................................... $ 397,123
- ------------------------------------------------------------------------------- ---------------
<CAPTION>
High Strategic
Yield Income
Fund** Fund
----------------- ------------------
<S> <C> <C>
Operations
Net investment income ........................................................ $ 30,356,602 $ 14,251,249
Net realized gain (loss) on investments, futures contracts and foreign
currency related transactions ............................................... 16,551,569 5,635,717
Net change in unrealized appreciation (depreciation) on investments and
foreign currency related transactions ....................................... 3,464,809 5,413,523
- -------------------------------------------------------------------------------- -------------- ------------
Net increase in net assets resulting from operations ........................ 50,372,980 25,300,489
- -------------------------------------------------------------------------------- -------------- ------------
Distributions to shareholders from net investment income
Class A ..................................................................... (9,975,169) (5,750,571)
Class B ..................................................................... (20,369,058) (7,053,895)
Class C ..................................................................... (12,343) (1,374,051)
Class Y ..................................................................... (32) (62,982)
- -------------------------------------------------------------------------------- -------------- ------------
Total distributions to shareholders ......................................... (30,356,602) (14,241,499)
- -------------------------------------------------------------------------------- -------------- ------------
Capital share transactions
Proceeds from shares sold .................................................... 55,707,745 52,265,456
Proceeds from shares issued in connection with the acquisition of:
Evergreen Quality Bond Fund ................................................. 0 0
Blanchard Flexible Income Fund .............................................. 0 139,705,470
Keystone World Bond Fund .................................................... 0 13,364,630
Keystone Government Securities Fund ......................................... 0 0
Proceeds from reinvestment of distributions .................................. 17,078,485 8,043,638
Payment for shares redeemed .................................................. (121,704,035) (89,713,499)
- -------------------------------------------------------------------------------- -------------- ------------
Net increase (decrease) in net assets resulting from capital share
transactions ............................................................... (48,917,805) 123,665,695
- -------------------------------------------------------------------------------- -------------- ------------
Total increase (decrease) in net assets .................................... (28,901,427) 134,724,685
Net assets
Beginning of period .......................................................... 547,390,001 193,110,351
- -------------------------------------------------------------------------------- -------------- ------------
End of period ................................................................ $ 518,488,574 $327,835,036
- -------------------------------------------------------------------------------- -------------- ------------
Undistributed net investment income (accumulated distributions in excess of
net investment income) ....................................................... ($ 1,461,940) ($ 1,604,423)
- -------------------------------------------------------------------------------- -------------- ------------
<CAPTION>
U.S.
Government
Fund
----------------
<S> <C>
Operations
Net investment income ........................................................ $ 19,431,162
Net realized gain (loss) on investments, futures contracts and foreign
currency related transactions ............................................... (764,906)
Net change in unrealized appreciation (depreciation) on investments and
foreign currency related transactions ....................................... 9,555,419
- -------------------------------------------------------------------------------- -------------
Net increase in net assets resulting from operations ........................ 28,221,675
- -------------------------------------------------------------------------------- -------------
Distributions to shareholders from net investment income
Class A ..................................................................... (2,040,357)
Class B ..................................................................... (7,875,544)
Class C ..................................................................... (261,054)
Class Y ..................................................................... (9,254,414)
- -------------------------------------------------------------------------------- -------------
Total distributions to shareholders ......................................... (19,431,369)
- -------------------------------------------------------------------------------- -------------
Capital share transactions
Proceeds from shares sold .................................................... 63,710,601
Proceeds from shares issued in connection with the acquisition of:
Evergreen Quality Bond Fund ................................................. 0
Blanchard Flexible Income Fund .............................................. 0
Keystone World Bond Fund .................................................... 0
Keystone Government Securities Fund ......................................... 41,845,369
Proceeds from reinvestment of distributions .................................. 13,377,697
Payment for shares redeemed .................................................. (83,317,244)
- -------------------------------------------------------------------------------- -------------
Net increase (decrease) in net assets resulting from capital share
transactions ............................................................... 35,616,423
- -------------------------------------------------------------------------------- -------------
Total increase (decrease) in net assets .................................... 44,406,729
Net assets
Beginning of period .......................................................... 287,838,548
- -------------------------------------------------------------------------------- -------------
End of period ................................................................ $ 332,245,277
- -------------------------------------------------------------------------------- -------------
Undistributed net investment income (accumulated distributions in excess of
net investment income) ....................................................... $ 0
- -------------------------------------------------------------------------------- -------------
</TABLE>
* Eight months ended April 30, 1998. During the period, Diversified Bond Fund
changed its fiscal year end from August 31 to April 30.
** Nine months ended April 30, 1998. During the period, High Yield Fund
changed its fiscal year end from July 31 to April 30.
See Combined Notes to Financial Statements.
47
<PAGE>
EVERGREEN
Long Term Bond Funds
Statements of Changes in Net Assets
For the Periods Indicated
<TABLE>
<CAPTION>
Diversified Bond Fund
-----------------------------------
Year Ended August 31,
1997 1996
----------------- -----------------
<S> <C> <C>
Operations
Net investment income ........................................................ $ 31,196,362 $ 42,141,831
Net realized gain on investments, closed futures contracts and foreign
currency related transactions ............................................... 15,553,471 323,307
Net change in unrealized appreciation (depreciation) on investments and
foreign currency related transactions ....................................... 13,350,772 (14,654,381)
- ------------------------------------------------------------------------------- --------------- --------------
Net increase in net assets resulting from operations ........................ 60,100,605 27,810,757
- ------------------------------------------------------------------------------- --------------- --------------
Distributions to shareholders from
Net investment income ........................................................ (31,196,362) (42,020,420)
In excess of net investment income ........................................... (1,746,263) 0
Tax basis return of capital .................................................. 0 (2,935,918)
- ------------------------------------------------------------------------------- --------------- --------------
Total distributions to shareholders ......................................... (32,942,625) (44,956,338)
- ------------------------------------------------------------------------------- --------------- --------------
Capital share transactions
Proceeds from shares sold .................................................... 33,102,013 89,671,653
Proceeds from reinvestment of distributions .................................. 18,107,160 25,564,686
Payment for shares redeemed .................................................. (180,458,236) (273,136,100)
- ------------------------------------------------------------------------------- --------------- --------------
Net decrease in net assets resulting from capital share transactions ........ (129,249,063) (157,899,761)
- ------------------------------------------------------------------------------- --------------- --------------
Total decrease in net assets ............................................... (102,091,083) (175,045,342)
Net assets
Beginning of period .......................................................... 559,791,938 734,837,280
- ------------------------------------------------------------------------------- --------------- --------------
End of period ................................................................ $ 457,700,855 $ 559,791,938
- ------------------------------------------------------------------------------- --------------- --------------
Undistributed net investment income (accumulated distributions in excess of
net investment income) ....................................................... $ 2,801,682 ($ 1,446,954)
- ------------------------------------------------------------------------------- --------------- --------------
<CAPTION>
High Yield Fund
-----------------------------------
Year Ended July 31,
1997 1996
----------------- -----------------
<S> <C> <C>
Operations
Net investment income ........................................................ $ 43,434,059 $ 53,347,924
Net realized gain on investments, closed futures contracts and foreign
currency related transactions ............................................... 3,963,269 12,528,472
Net change in unrealized appreciation (depreciation) on investments and
foreign currency related transactions ....................................... 33,119,281 (59,100,847)
- -------------------------------------------------------------------------------- -------------- --------------
Net increase in net assets resulting from operations ........................ 80,516,609 6,775,549
- -------------------------------------------------------------------------------- -------------- --------------
Distributions to shareholders from
Net investment income ........................................................ (43,434,060) (49,946,109)
In excess of net investment income ........................................... (1,323,000) (9,344,299)
Tax basis return of capital .................................................. 0 0
- -------------------------------------------------------------------------------- -------------- --------------
Total distributions to shareholders ......................................... (44,757,060) (59,290,408)
- -------------------------------------------------------------------------------- -------------- --------------
Capital share transactions
Proceeds from shares sold .................................................... 136,045,881 162,907,187
Proceeds from reinvestment of distributions .................................. 25,311,702 33,436,642
Payment for shares redeemed .................................................. (243,407,877) (315,113,110)
- -------------------------------------------------------------------------------- -------------- --------------
Net decrease in net assets resulting from capital share transactions ........ (82,050,294) (118,769,281)
- -------------------------------------------------------------------------------- -------------- --------------
Total decrease in net assets ............................................... (46,290,745) (171,284,140)
Net assets
Beginning of period .......................................................... 593,680,746 764,964,886
- -------------------------------------------------------------------------------- -------------- --------------
End of period ................................................................ $ 547,390,001 $ 593,680,746
- -------------------------------------------------------------------------------- -------------- --------------
Undistributed net investment income (accumulated distributions in excess of
net investment income) ....................................................... ($ 1,468,219) ($ 1,700,454)
- -------------------------------------------------------------------------------- -------------- --------------
</TABLE>
See Combined Notes to Financial Statements.
48
<PAGE>
EVERGREEN
Long Term Bond Funds
Statements of Changes in Net Assets
For the Periods Indicated
<TABLE>
<CAPTION>
Strategic Income Fund
-------------------------------------
Nine
Months Year
Ended Ended
April 30, July 31,
1997* 1996
------------------ ------------------
<S> <C> <C>
Operations
Net investment income ........................................................... $ 10,700,165 $ 19,336,690
Net realized gain (loss) on investments, closed futures contracts and foreign
currency related transactions .................................................. 5,462,277 (3,931,838)
Net change in unrealized appreciation (depreciation) on investments and
foreign currency related transactions .......................................... (2,698,555) 247,245
- ---------------------------------------------------------------------------------- ------------ ------------
Net increase in net assets resulting from operations ........................... 13,463,887 15,652,097
- ---------------------------------------------------------------------------------- ------------ ------------
Distributions to shareholders from
Net investment income
Class A ........................................................................ (3,484,550) (5,945,153)
Class B ........................................................................ (5,810,734) (9,706,657)
Class C ........................................................................ (1,404,882) (2,690,979)
Class Y ........................................................................ 0 0
In excess of net investment income
Class A ........................................................................ (256,701) 0
Class B ........................................................................ (428,067) 0
Class C ........................................................................ (103,495) 0
Tax basis return of capital
Class A ........................................................................ 0 (564,217)
Class B ........................................................................ 0 (921,197)
Class C ........................................................................ 0 (255,384)
- ---------------------------------------------------------------------------------- ------------ ------------
Total distributions to shareholders ............................................ (11,488,429) (20,083,587)
- ---------------------------------------------------------------------------------- ------------ ------------
Capital share transactions
Proceeds from shares sold ....................................................... 25,911,778 28,128,495
Proceeds from shares issued in acqusition of
Evergreen U.S. Government Securities Fund ...................................... 0 0
Proceeds from reinvestment of distributions ..................................... 6,009,396 10,567,921
Payment for shares redeemed ..................................................... (64,109,043) (92,224,304)
- ---------------------------------------------------------------------------------- ------------ ------------
Net increase (decrease) in net assets resulting from capital share
transactions .................................................................. (32,187,869) (53,527,888)
- ---------------------------------------------------------------------------------- ------------ ------------
Total increase (decrease) in net assets ....................................... (30,212,411) (57,959,378)
Net assets
Beginning of period ............................................................. 223,322,762 281,282,140
- ---------------------------------------------------------------------------------- ------------ ------------
End of period ................................................................... $193,110,351 $223,322,762
- ---------------------------------------------------------------------------------- ------------ ------------
Undistributed net investment income (accumulated distributions in excess of
net investment income) .......................................................... ($ 576,398) ($ 1,169,996)
- ---------------------------------------------------------------------------------- ------------ ------------
<CAPTION>
U.S. Government Fund
---------------------------------
Ten
Months Year
Ended Ended
April 30, June 30,
1997** 1996
---------------- ----------------
<S> <C> <C>
Operations
Net investment income ........................................................... $ 15,898,690 $ 18,766,488
Net realized gain (loss) on investments, closed futures contracts and foreign
currency related transactions .................................................. (3,340,851) (3,731,984)
Net change in unrealized appreciation (depreciation) on investments and
foreign currency related transactions .......................................... 2,370,773 (3,860,415)
- ----------------------------------------------------------------------------------- ------------- -------------
Net increase in net assets resulting from operations ........................... 14,928,612 11,174,089
- ----------------------------------------------------------------------------------- ------------- -------------
Distributions to shareholders from
Net investment income
Class A ........................................................................ (1,050,495) (1,406,673)
Class B ........................................................................ (7,610,760) (10,727,964)
Class C ........................................................................ (35,021) (28,511)
Class Y ........................................................................ (7,202,207) (6,603,340)
In excess of net investment income
Class A ........................................................................ 0 0
Class B ........................................................................ 0 0
Class C ........................................................................ 0 0
Tax basis return of capital
Class A ........................................................................ 0 0
Class B ........................................................................ 0 0
Class C ........................................................................ 0 0
- ----------------------------------------------------------------------------------- ------------- -------------
Total distributions to shareholders ............................................ (15,898,483) (18,766,488)
- ----------------------------------------------------------------------------------- ------------- -------------
Capital share transactions
Proceeds from shares sold ....................................................... 26,211,170 138,179,343
Proceeds from shares issued in acqusition of
Evergreen U.S. Government Securities Fund ...................................... 0 5,739,713
Proceeds from reinvestment of distributions ..................................... 10,717,216 11,871,813
Payment for shares redeemed ..................................................... (56,670,711) (71,866,685)
- ----------------------------------------------------------------------------------- ------------- -------------
Net increase (decrease) in net assets resulting from capital share
transactions .................................................................. (19,742,325) 83,924,184
- ----------------------------------------------------------------------------------- ------------- -------------
Total increase (decrease) in net assets ....................................... (20,712,196) 76,331,785
Net assets
Beginning of period ............................................................. 308,550,744 232,218,959
- ----------------------------------------------------------------------------------- ------------- -------------
End of period ................................................................... $ 287,838,548 $ 308,550,744
- ----------------------------------------------------------------------------------- ------------- -------------
Undistributed net investment income (accumulated distributions in excess of
net investment income) .......................................................... $ 207 $ 0
- ----------------------------------------------------------------------------------- ------------- -------------
</TABLE>
* During the period, the Strategic Income Fund changed its fiscal year end
from July 31 to April 30.
** During the period, the U.S. Government Fund changed its fiscal year end
from June 30 to April 30.
See Combined Notes to Financial Statements.
49
<PAGE>
Combined Notes to Financial Statements
1. ORGANIZATION
The Evergreen Long Term Bond Funds consist of Evergreen Diversified Bond Fund
("Diversified Bond Fund"), Evergreen High Yield Bond Fund ("High Yield Fund"),
Evergreen Strategic Income Fund ("Strategic Income Fund") and Evergreen U.S.
Government Fund ("U.S. Government Fund") (collectively the "Funds"). Each Fund
is a diversified series of Evergreen Fixed Income Trust (the "Trust"), a
Delaware business trust organized on September 17, 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 Class Y shares. Class A shares
are sold with a maximum front-end sales charge of 4.75%. 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 Diversified Bond Fund,
High Yield Fund and Strategic Income Fund purchased after January 1, 1997 will
automatically convert to Class A shares after seven years. Class B shares of
these Funds purchased prior to January 1, 1997 retain their existing
conversion rights. For the U.S. Government 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.
Effective January 9, 1998, the Diversified Bond Fund and High Yield Fund added
three classes of shares designated as Class A, Class C and Class Y and
designated the existing class of shares as Class B. Shareholders of these Funds
who, on January 16, 1998, held Class B shares purchased before January 1, 1995
and certain other non-commissionable Class B shares had such shares converted
to Class A shares having an aggregate value equal to that of the shareholder's
Class B shares prior to the conversion.
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 a price 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.
The Diversified Bond Fund, High Yield Fund and Strategic Income Fund value
securities traded on a national securities exchange or included on the NASDAQ
National Market System ("NMS") at the last reported sales price on the exchange
where primarily traded. Each of these Funds values securities traded on an
exchange or NMS for which there has been no sale and other securities traded in
the over-the-counter market at the mean between the last reported bid and asked
price.
Securities for which market quotations are not readily available or valuations
are not readily available from an independent pricing service (including
restricted securities) are valued at fair value as determined in good faith
according to procedures approved 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. Short term securities with
greater than 60 days to maturity are valued at market value.
B. Repurchase Agreements
Each Fund may invest in repurchase agreements. Securities pledged as collateral
for repurchase agreements are held by the custodian on the Fund's behalf. 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
50
<PAGE>
Combined Notes to Financial Statements (continued)
accrued interest. Each Fund will only enter into repurchase agreements with
banks and other financial institutions which are deemed by the investment
advisor to be creditworthy pursuant to guidelines established by the Board of
Trustees.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, each Fund, except for U.S. Government Fund, along with certain
other funds managed by Keystone Investment Management Company ("Keystone"), may
transfer uninvested cash balances into a joint trading account. These balances
are invested in one or more repurchase agreements that are fully collateralized
by U.S. Treasury and/or federal agency obligations.
C. Reverse Repurchase Agreements
To obtain short-term financing, each Fund, except for U.S. Government 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 dividends
recorded on the books of the Fund and the amount actually received and are
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 foreign currency related
transactions.
E. Futures Contracts
In order to gain exposure to or protect against changes in security values,
each Fund may buy and sell futures contracts.
The initial margin deposited with a broker when entering into a futures
transaction is subsequently adjusted by daily payments or receipts as the value
of the contract changes. Such changes are recorded as unrealized gains or
losses. Realized gains or losses are recognized on closing the contract.
Risks of entering into futures contracts include (i) the possibility of an
illiquid market for the contract, (ii) the possibility that a change in the
value of the contract may not correlate with changes in the value of the
underlying instrument or index, and (iii) the credit risk that the other party
will not fulfill their obligations under the contract. Futures contracts also
involve elements of market risk in excess of the amount reflected in the
statement of assets and liabilities.
F. Forward Foreign Currency Exchange Contracts
Each Fund, except for U.S. Government Fund, may enter into forward foreign
currency exchange contracts ("forward contracts") to settle portfolio purchases
and sales of securities denominated in a foreign currency and to hedge certain
foreign currency assets or liabilities. Forward contracts are recorded at the
forward rate and marked-to-market daily. Realized gains and losses arising from
such transactions are included in net realized gain (loss) on foreign currency
related transactions. The Fund bears the risk of an unfavorable change in the
foreign currency exchange rate underlying the forward contract and is subject
to the credit risk that the other party will not fulfill their obligations
under the contract. Forward contracts involve elements of market risk in excess
of the amount reflected in the statement of assets and liabilities.
G. Securities Lending
In order to generate income and to offset expenses, each Fund may lend
portfolio securities to brokers, dealers and other financial organizations. The
Funds' investment advisers will monitor the creditworthiness of such borrowers.
Loans of securities may not exceed 30% of total assets for Diversified Bond
Fund, 15% of total assets for High Yield Fund and Strategic Income Fund and
one-third of total assets for U.S. Government Fund. Loans 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 accrued
51
<PAGE>
Combined Notes to Financial Statements (continued)
interest. While such securities are on loan, the borrower will pay a Fund any
income accruing thereon, and the Fund may invest the collateral in portfolio
securities, thereby increasing its return. A Fund will have the right to call
any such loan and obtain the securities loaned at any time on five days'
notice. Any gain or loss in the market price of the loaned securities, which
occurs during the term of the loan, would affect a Fund and its investors. A
Fund may pay reasonable fees in connection with such loans.
H. Security Transactions and Investment Income
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premiums. Dividend income is recorded on the
ex-dividend date or in the case of some foreign securities, on the date when
the Fund is made aware of the dividend. Foreign income may be subject to
foreign withholding taxes, which are accrued as applicable.
I. Federal 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 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.
J. Distributions
Distributions from net investment income for the Funds are declared daily and
paid monthly. Distributions from net realized capital gains, if any, are paid
at least annually. Distributions to shareholders are recorded at the close of
business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles. The significant differences between financial
statement amounts available for distributions and distributions made in
accordance with income tax regulations are primarily due to differing treatment
for foreign currency related transactions and expiration of capital loss
carryovers.
K. 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.
L. Organization Expenses
U.S. Government Fund's organizational expenses were borne initially by a prior
administrator. As a result of the change in the administration agreement, First
Union purchased the remaining unreimbursed initial organizational expenses from
the prior administrator. U.S. Government Fund will reimburse First Union during
the five-year period following its commencement of operations. For the year
ended April 30, 1998, U.S. Government Fund paid $5,566 in unreimbursed
organization expenses. As of April 30, 1998, unreimbursed organization expenses
for the U.S. Government Fund have been fully amortized.
3. CAPITAL SHARE TRANSACTIONS
Each Fund has 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:
52
<PAGE>
Combined Notes to Financial Statements (continued)
DIVERSIFIED BOND FUND
<TABLE>
<CAPTION>
January 20, 1998
(Commencement
of Class Operations)
through April 30, 1998
--------------------------------
Shares Amount
--------------- ----------------
<S> <C> <C>
Class A
Shares sold ...................................... 136,952 $ 2,185,530
Shares issued in connection with the acquisition
of Evergreen Quality Bond Fund .................. 9,827,053 156,644,304
Automatic conversion of Class B shares ........... 24,126,331 387,832,940
Shares issued in reinvestment of distributions ... 362,116 5,781,141
Shares redeemed .................................. (2,951,611) (47,145,413)
- -------------------------------------------------- ------------- --------------
Net increase ..................................... 31,500,841 $ 505,298,502
- -------------------------------------------------- ------------- --------------
</TABLE>
<TABLE>
<CAPTION>
Eight Months Ended Year Ended
April 30, 1998 August 31, 1997
---------------------------------- ----------------------------------
Shares Amount Shares Amount
---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Class B
Shares sold ...................................... 1,090,412 $ 17,341,006 2,182,629 $ 33,102,013
Shares issued in connection with the acquisition
of Evergreen Quality Bond Fund .................. 1,015,574 16,188,355 0 0
Automatic conversion of shares to Class A
shares .......................................... (24,126,331) (387,832,940) 0 0
Shares issued in reinvestment of distributions ... 357,152 5,640,678 1,195,855 18,107,160
Shares redeemed .................................. (3,620,580) (57,160,295) (11,912,272) (180,458,236)
- -------------------------------------------------- -------------- --------------- -------------- ---------------
Net decrease ..................................... (25,283,773) ($ 405,823,196) (8,533,788) ($ 129,249,063)
- -------------------------------------------------- -------------- --------------- -------------- ---------------
<CAPTION>
Year Ended
August 31, 1996
----------------------------------
Shares Amount
---------------- -----------------
<S> <C> <C>
Class B
Shares sold ...................................... 5,954,123 $ 89,671,653
Shares issued in connection with the acquisition
of Evergreen Quality Bond Fund .................. 0 0
Automatic conversion of shares to Class A
shares .......................................... 0 0
Shares issued in reinvestment of distributions ... 1,709,087 25,564,686
Shares redeemed .................................. (18,152,163) (273,136,100)
- -------------------------------------------------- -------------- ---------------
Net decrease ..................................... (10,488,953) ($ 157,899,761)
- -------------------------------------------------- -------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
April 7, 1998
(Commencement
of Class Operations)
through April 30, 1998
----------------------
Shares Amount
---------- ----------
<S> <C> <C>
Class C
Shares sold ...................................... 1,432 $22,837
Shares issued in reinvestment of distributions ... 1 13
Shares redeemed .................................. 0 0
- -------------------------------------------------- -------- --------
Net increase ..................................... 1,433 $22,850
- -------------------------------------------------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
February 11, 1998
(Commencement
of Class
Operations)
through April 30,
1998
------------------
Shares Amount
-------- ---------
<S> <C> <C>
Class Y
Shares sold ...................................... 407 $6,475
Shares issued in reinvestment of distributions ... 6 98
Shares redeemed .................................. 0 0
- -------------------------------------------------- ------ -------
Net increase ..................................... 413 $6,573
- -------------------------------------------------- ------ -------
</TABLE>
53
<PAGE>
Combined Notes to Financial Statements (continued)
HIGH YIELD FUND
<TABLE>
<CAPTION>
January 20, 1998
(Commencement
of Class Operations)
through April 30, 1998
--------------------------------
Shares Amount
--------------- ----------------
<S> <C> <C>
Class A
Shares sold ....................................... 1,781,307 $ 8,100,467
Automatic conversion of Class B shares ............ 96,655,555 436,706,228
Shares issued in reinvestment of distributions .... 1,396,499 6,343,412
Shares redeemed ................................... (7,005,782) (31,868,872)
- --------------------------------------------------- ------------- --------------
Net increase ...................................... 92,827,579 $ 419,281,235
- --------------------------------------------------- ------------- --------------
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
April 30, 1998 July 31, 1997
---------------------------------- ----------------------------------
Shares Amount Shares Amount
---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Class B
Shares sold ....................................... 10,409,185 $ 46,341,356 32,280,201 $ 136,045,881
Automatic conversion of shares to Class A
shares ........................................... (96,655,555) (436,706,228) 0 0
Shares issued in reinvestment of distributions .... 2,427,463 10,723,559 5,995,434 25,311,702
Shares redeemed ................................... (20,273,137) (89,733,998) (57,681,924) (243,407,877)
- --------------------------------------------------- -------------- --------------- -------------- ---------------
Net decrease ...................................... (104,092,044) ($ 469,375,311) (19,406,289) ($ 82,050,294)
- --------------------------------------------------- -------------- --------------- -------------- ---------------
<CAPTION>
Year Ended
July 31, 1996
----------------------------------
Shares Amount
---------------- -----------------
<S> <C> <C>
Class B
Shares sold ....................................... 38,767,387 $ 162,907,187
Automatic conversion of shares to Class A
shares ........................................... 0 0
Shares issued in reinvestment of distributions .... 7,959,753 33,436,642
Shares redeemed ................................... (74,982,398) (315,113,110)
- ------------------------------------------------------------------ ---------------
Net decrease ...................................... (28,255,258) ($ 118,769,281)
- ------------------------------------------------------------------ ---------------
</TABLE>
<TABLE>
<CAPTION>
January 22, 1998
(Commencement
of Class Operations)
through April 30, 1998
--------------------------
Shares Amount
------------ -------------
<S> <C> <C>
Class C
Shares sold ....................................... 273,398 $1,240,926
Shares issued in reinvestment of distributions .... 2,527 11,482
Shares redeemed ................................... (21,094) (96,165)
- --------------------------------------------------- ---------- -----------
Net increase ...................................... 254,831 $1,156,243
- --------------------------------------------------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
April 14, 1998
(Commencement
of Class Operations)
through April 30, 1998
-----------------------
Shares Amount
----------- -----------
<S> <C> <C>
Class Y
Shares sold ....................................... 5,506 $ 24,996
Shares issued in reinvestment of distributions .... 7 32
Shares redeemed ................................... (1,101) (5,000)
- --------------------------------------------------- --------- ---------
Net increase ...................................... 4,412 $ 20,028
- --------------------------------------------------- --------- ---------
</TABLE>
54
<PAGE>
Combined Notes to Financial Statements (continued)
STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
Year Ended
April 30, 1998
----------------------------------
Shares Amount
--------------- ------------------
<S> <C> <C>
Class A
Shares sold ........................................ 1,976,718 $ 14,098,759
Shares issued in connection with
acquisition of:
Blanchard Flexible Income Fund .................... 19,367,062 139,705,470
Keystone World Bond Fund .......................... 1,077,718 7,661,303
Shares issued in reinvestment of distributions ..... 483,710 3,454,392
Shares redeemed .................................... (4,673,022) (33,390,153)
- ---------------------------------------------------- ------------- ---------------
Net increase (decrease) ............................ 18,232,186 $131,529,771
- ---------------------------------------------------- ------------- ---------------
Class B
Shares sold ........................................ 4,345,019 $ 30,951,849
Shares issued in connection with
acquisition of Keystone World Bond Fund ........... 645,853 4,612,694
Shares issued in reinvestment of distributions ..... 515,938 3,680,766
Shares redeemed .................................... (5,964,560) (42,581,723)
- ---------------------------------------------------- ------------- ---------------
Net decrease ....................................... (457,750) ($ 3,336,414)
- ---------------------------------------------------- ------------- ---------------
Class C
Shares sold ........................................ 261,961 $ 1,864,408
Shares issued in connection with
acquisition of Keystone World Bond Fund ........... 152,895 1,090,633
Shares issued in reinvestment of distributions ..... 122,073 868,861
Shares redeemed .................................... (1,375,841) (9,783,791)
- ---------------------------------------------------- ------------- ---------------
Net decrease ....................................... (838,912) ($ 5,959,889)
- ---------------------------------------------------- ------------- ---------------
<CAPTION>
Nine Months Ended Year Ended
April 30, 1997 July 31, 1996
-------------------------------- --------------------------------
Shares Amount Shares Amount
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Class A
Shares sold ........................................ 722,925 $ 5,021,195 862,737 $ 5,908,665
Shares issued in connection with
acquisition of:
Blanchard Flexible Income Fund .................... 0 0 0 0
Keystone World Bond Fund .......................... 0 0 0 0
Shares issued in reinvestment of distributions ..... 280,932 1,940,819 493,925 3,365,004
Shares redeemed .................................... (2,450,268) (16,920,382) (3,779,494) (25,781,907)
- ------------------------------------------------------------------ -------------- ------------- --------------
Net increase (decrease) ............................ (1,446,411) ($ 9,958,368) (2,422,832) ($ 16,508,238)
- ------------------------------------------------------------------ -------------- ------------- --------------
Class B
Shares sold ........................................ 2,590,485 $ 18,030,379 2,657,436 $ 18,284,154
Shares issued in connection with
acquisition of Keystone World Bond Fund ........... 0 0 0 0
Shares issued in reinvestment of distributions ..... 448,617 3,114,373 781,880 5,354,257
Shares redeemed .................................... (5,099,176) (35,510,240) (6,840,568) (46,918,273)
- ------------------------------------------------------------------ -------------- ------------- --------------
Net decrease ....................................... (2,060,074) ($ 14,365,488) (3,401,252) ($ 23,279,862)
- ------------------------------------------------------------------ -------------- ------------- --------------
Class C
Shares sold ........................................ 413,449 $ 2,860,197 573,201 $ 3,935,676
Shares issued in connection with
acquisition of Keystone World Bond Fund ........... 0 0 0 0
Shares issued in reinvestment of distributions ..... 137,625 954,204 270,184 1,848,660
Shares redeemed .................................... (1,679,415) (11,678,421) (2,845,554) (19,524,124)
- ------------------------------------------------------------------ -------------- ------------- --------------
Net decrease ....................................... (1,128,341) ($ 7,864,020) (2,002,169) ($ 13,739,788)
- ------------------------------------------------------------------ -------------- ------------- --------------
</TABLE>
<TABLE>
<CAPTION>
January 13, 1997
(Commencement
of Class
Operations)
Year Ended through April 30,
April 30, 1998 1997
---------------------------- ----------------
Shares Amount Shares Amount
------------- -------------- -------- -------
<S> <C> <C> <C> <C>
Class Y
Shares sold ................................... 761,672 $ 5,350,440 1 $ 7
Shares issued in reinvestment of distributions 5,675 39,619 0 0
Shares redeemed ............................... (562,382) (3,957,832) 0 0
- ----------------------------------------------- ----------- ------------- ------ -----
Net increase .................................. 204,965 $ 1,432,227 1 $ 7
- ----------------------------------------------- ----------- ------------- ------ -----
</TABLE>
55
<PAGE>
Combined Notes to Financial Statements (continued)
U.S. GOVERNMENT FUND
<TABLE>
<CAPTION>
Year Ended Ten Months Ended
April 30, 1998 April 30, 1997
-------------------------------- ---------------------------------
Shares Amount Shares Amount
--------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
Class A
Shares sold ........................................... 1,510,987 $ 14,617,089 294,513 $ 2,785,151
Shares issued in connection with the acquisition of
Keystone Government Securities Fund .................. 2,239,125 21,547,304 0 0
Shares issued in reinvestment of distributions ........ 133,072 1,282,497 60,924 575,792
Shares redeemed ....................................... (1,642,684) (15,825,689) (606,651) (5,738,805)
- ------------------------------------------------------- ------------- -------------- ------------- ---------------
Net increase (decrease) ............................... 2,240,500 $ 21,621,201 (251,214) ($ 2,377,862)
- ------------------------------------------------------- ------------- -------------- ------------- ---------------
Class B
Shares sold ........................................... 716,498 $ 6,914,840 776,060 $ 7,347,686
Shares issued in connection with the acquisition of
Keystone Government Securities Fund .................. 1,507,183 14,503,355 0 0
Shares issued in reinvestment of distributions ........ 414,856 3,988,496 394,931 3,733,484
Shares redeemed ....................................... (4,306,873) (41,415,996) (3,621,913) (34,238,311)
- ------------------------------------------------------- ------------- -------------- ------------- ---------------
Net decrease .......................................... (1,668,336) ($ 16,009,305) (2,450,922) ($ 23,157,141)
- ------------------------------------------------------- ------------- -------------- ------------- ---------------
Class C
Shares sold ........................................... 94,591 $ 908,119 28,184 $ 265,064
Shares issued in connection with the acquisition of
Keystone Government Securities Fund .................. 602,218 5,794,710 0 0
Shares issued in reinvestment of distributions ........ 16,871 162,793 1,432 13,539
Shares redeemed ....................................... (173,356) (1,672,822) (50,056) (470,176)
- ------------------------------------------------------- ------------- -------------- ------------- ---------------
Net increase (decrease) ............................... 540,324 $ 5,192,800 (20,440) ($ 191,573)
- ------------------------------------------------------- ------------- -------------- ------------- ---------------
Class Y
Shares sold ........................................... 4,285,039 $ 41,270,553 1,675,475 $ 15,813,269
Shares issued in connection with the acquisition of
Evergreen U.S. Government Securities Fund ............ 0 0 0 0
Shares issued in reinvestment of distributions ........ 825,744 7,943,911 676,410 6,394,401
Shares redeemed ....................................... (2,541,523) (24,402,737) (1,715,716) (16,223,419)
- ------------------------------------------------------- ------------- -------------- ------------- ---------------
Net increase .......................................... 2,569,260 $ 24,811,727 636,169 $ 5,984,251
- ------------------------------------------------------- ------------- -------------- ------------- ---------------
<CAPTION>
Year Ended
June 30, 1996
---------------------------------
Shares Amount
--------------- -----------------
<S> <C> <C>
Class A
Shares sold ........................................... 786,564 $ 7,560,325
Shares issued in connection with the acquisition of
Keystone Government Securities Fund .................. 0 0
Shares issued in reinvestment of distributions ........ 78,565 755,991
Shares redeemed ....................................... (1,032,918) (9,892,163)
- --------------------------------------------------------------------- ---------------
Net increase (decrease) ............................... (167,789) ($ 1,575,847)
- --------------------------------------------------------------------- ---------------
Class B
Shares sold ........................................... 1,702,353 $ 16,401,640
Shares issued in connection with the acquisition of
Keystone Government Securities Fund .................. 0 0
Shares issued in reinvestment of distributions ........ 533,686 5,138,748
Shares redeemed ....................................... (4,576,583) (43,960,576)
- --------------------------------------------------------------------- ---------------
Net decrease .......................................... (2,340,544) ($ 22,420,188)
- --------------------------------------------------------------------- ---------------
Class C
Shares sold ........................................... 43,395 $ 420,990
Shares issued in connection with the acquisition of
Keystone Government Securities Fund .................. 0 0
Shares issued in reinvestment of distributions ........ 1,437 13,783
Shares redeemed ....................................... (12,168) (117,297)
- --------------------------------------------------------------------- ---------------
Net increase (decrease) ............................... 32,664 $ 317,476
- --------------------------------------------------------------------- ---------------
Class Y
Shares sold ........................................... 11,801,163 $113,796,388
Shares issued in connection with the acquisition of
Evergreen U.S. Government Securities Fund ............ 590,505 5,739,713
Shares issued in reinvestment of distributions ........ 620,463 5,963,291
Shares redeemed ....................................... (1,866,525) (17,896,649)
- --------------------------------------------------------------------- ---------------
Net increase .......................................... 11,145,606 $107,602,743
- --------------------------------------------------------------------- ---------------
</TABLE>
4. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) were as follows for the year ended April 30, 1998:
<TABLE>
<CAPTION>
Cost of Purchases Proceeds from Sales
------------------------------- -------------------------------
U.S. Non-U.S. U.S. Non-U.S.
Government Government Government Government
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Diversified Bond Fund* ..... $150,876,308 $408,419,367 $183,614,225 $427,890,292
High Yield Fund** .......... 0 791,893,722 0 886,432,803
Strategic Income Fund ...... 192,769,818 314,062,207 225,504,555 299,064,769
U.S. Government Fund ....... 124,854,772 0 65,408,264 0
</TABLE>
* For the eight months ended April 30, 1998.
** For the nine months ended April 30, 1998.
During the year ended April 30, 1998, the Funds entered into reverse repurchase
agreements as follows:
<TABLE>
<CAPTION>
Average Daily
Balance Weighted Average Maximum Amount
Outstanding Interest Rate Outstanding*
-------------- ------------------ ---------------
<S> <C> <C> <C>
Diversified Bond Fund ....... $5,260,739 5.05% $15,813,518
Strategic Income Fund ....... 2,499,410 5.07 10,864,705
</TABLE>
* This represents the maximum daily amount of borrowing outstanding
during the period ended April 30, 1998 (including accrued interest).
On April 30, 1998, the Diversified Bond Fund had reverse repurchase agreements
outstanding in the amount of $22,388,446 (including accrued interest) with
interest rates varying from 3.83% to 7.05%. On April 30, 1998, the Strategic
Income Fund had reverse repurchase agreements outstanding in the amount of
$1,350,806 (including accrued interest) with interest rates varying from 5.27%
to 5.42%.
56
<PAGE>
Combined Notes to Financial Statements (continued)
Diversified Bond Fund loaned securities during the period ended April 30, 1998
to certain brokers who paid the Fund a negotiated lenders' fee. These fees are
included in interest income. At April 30, 1998, the value of securities on loan
and the value of collateral amounted to $8,557,296 and $8,642,617, respectively.
During the period ended April 30, 1998, the Fund earned $43,101 in income from
securities lending.
On April 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>
Diversified Bond Fund ..... $576,899,625 $16,434,370 $ (1,878,550) $ 14,555,820
High Yield Fund ........... 490,697,394 18,252,959 (24,723,239) (6,470,280)
Strategic Income Fund ..... 319,055,653 8,897,719 (6,421,100) 2,476,619
U.S. Government Fund ...... 324,579,032 6,337,651 (5,332,435) 1,005,216
</TABLE>
A of April 30, 1998, the Funds had capital loss carryovers for federal income
tax purposes as follows:
<TABLE>
<CAPTION>
Capital
Loss Expires Expires Expires
Carryover 1999 2000 2001
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Diversified Bond
Fund ............... $159,339,000 $85,002,000 -- $19,436,000
High Yield Fund ..... 364,062,000 91,150,000 $122,350,000 --
Strategic Income
Fund ............... 71,926,000 -- 14,074,000 15,390,000
U.S. Government
Fund ............... 22,367,000 -- -- 1,978,000
<CAPTION>
Expires Expires Expires Expires Expires
2002 2003 2004 2005 2006
------------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Diversified Bond
Fund ............... $ 6,153,000 $ 28,736,000 $20,012,000 -- --
High Yield Fund ..... 44,605,000 105,957,000 -- -- --
Strategic Income
Fund ............... -- 7,390,000 35,072,000 -- --
U.S. Government
Fund ............... 6,522,000 3,703,000 2,973,000 $3,820,000 $3,371,000
</TABLE>
In addition to capital loss carryovers, capital losses incurred after October
31 within a Fund's fiscal year are deemed to arise on the first business day of
the Fund's following fiscal year. For the fiscal year ended April 30, 1998,
U.S. Government Fund incurred and has elected to defer $444,321 of such capital
losses.
5. DISTRIBUTION PLANS
Evergreen Distributor, Inc. ("EDI"), a wholly-owned subsidiary of The BISYS
Group Inc. ("BISYS"), serves as principal underwriter to each of the Funds.
The 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 a fund
to reimburse its principal underwriter for costs related to selling shares of
the fund and for various other services. These costs, which consist primarily
of commissions and service fees to broker-dealers who sell shares of the fund,
are paid by the fund through expenses called "Distribution Plan expenses". Each
class, except Class Y, currently pays a service fee equal to 0.25% of the
average daily net asset of the class. Class B and Class C also pay distribution
fees equal to 0.75% of its average daily net assets of the class. Distribution
Plan expenses are calculated daily and paid monthly.
During the year ended April 30, 1998, amounts 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>
Diversified Bond Fund ..... $355,868 $1,934,807 $ 4
High Yield Fund ........... 297,165 2,788,933 1,649
Strategic Income Fund ..... 204,306 1,158,148 224,953
U.S. Government Fund ...... 81,637 1,416,250 47,584
</TABLE>
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 prime plus 1.00%. With respect to Class B and
Class C shares of Diversified Bond Fund, High Yield Fund and Strategic Income
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 each Fund at such time in the
future as, and to the extent that, payment thereof by the Class B and Class C
shares would be within permitted limits.
57
<PAGE>
Combined Notes to Financial Statements (continued)
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting shares
of the respective class. However, for each Fund, except U.S. Government 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.
6. INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT AND OTHER AFFILIATED
TRANSACTIONS
Keystone, a subsidiary of First Union, is the investment adviser for Diversified
Bond Fund, High Yield Fund and Strategic Income Fund. In return for providing
investment management and administrative services to the Funds, the Funds pay
Keystone a management fee that is calculated daily and paid monthly. The
management fee is computed at an annual rate of 2.00% of the Fund's gross
investment income plus an amount determined by applying percentage rates
starting at 0.50% and declining to 0.25% per annum as net assets increase, to
the average daily net asset value of the Funds. The Capital Management Group
("CMG") of First Union National Bank of North Carolina, a subsidiary of First
Union, serves as the investment adviser to the U.S. Government Fund and is paid
a management fee that is computed and paid monthly at an annual rate of 0.50% of
the Fund's average daily net assets.
Evergreen Investment Services ("EIS"), a subsidiary of First Union National
Bank, is the administrator and BISYS Fund Services is sub-administrator for
each Fund.
As administrator for the U.S. Government Fund, EIS is entitled to an annual fee
based on the average daily net assets of the funds administered by EIS for
which First Union or its advisory subsidiaries are also the investment
advisers. The administration fee for the U.S. Government Fund is calculated by
applying percentage rates, which start at 0.05% and decline to 0.01% per annum
as net assets increase, to the average daily net asset value of the Fund. As
administrator for the Diversified Bond Fund, High Yield Fund and Strategic
Income 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.
The sub-administration fee for each Fund is calculated by applying percentage
rates, which start at 0.01% and decline to 0.004% as net assets increase, to
the average daily net asset value of the Fund. For each Fund, except for U.S.
Government Fund, the sub-administration fee is paid by Keystone and is not a
fund expense.
For the year ended April 30, 1998, the Funds paid or accrued to EIS the
following amounts for certain administrative services:
<TABLE>
<S> <C>
Diversified Bond Fund ......... $57,048
High Yield Fund ............... 76,786
Strategic Fund ................ 36,278
U.S. Government Fund .......... 87,053
</TABLE>
Evergreen Service Company ("ESC"), a wholly-owned subsidiary of Keystone, serves
as the transfer and dividend disbursing agent for the Funds. Prior to May 5,
1997, State Street Bank and Trust Company ("State Street") served as the
transfer and dividend disbursing agent for the U.S. Government Fund. For certain
accounts, First Union had been sub-contracted by State Street to maintain
shareholder sub-account records, take fund purchase and redemption orders and
answer inquiries. For each account of U.S. Government Fund, First Union earned a
fee which in aggregate totaled $46,846 for the year ended April 30, 1998.
Officers of the Fund and affiliated Trustees receive no compensation directly
from the Fund. As sub-administrator, BISYS provides the officers of the Funds.
7. 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.
8. ACQUISITIONS
Effective on the close of business on July 7, 1995, U.S. Government Fund
acquired substantially all the assets and assumed certain liabilities of
Evergreen U.S. Government Securities Fund in exchange for Class Y shares of
U.S. Government Fund.
Effective August 1, 1997 Strategic Income Fund acquired substantially all the
assets and assumed certain liabilities of Keystone World Bond Fund in exchange
for Class A, Class B and Class C shares of Strategic Income Fund. Also, the
U.S. Government Fund acquired
58
<PAGE>
Combined Notes to Financial Statements (continued)
substantially all the assets and assumed certain liabilities of Keystone
Government Securities Fund in exchange for Class A, Class B and Class C shares
of the U.S. Government Fund.
Effective on the close of business on January 23, 1998, Diversified Bond Fund
acquired substantially all the assets and assumed certain liabilities of
Evergreen Quality Bond Fund, in an exchange for Class A and Class B shares of
Diversified Bond Fund.
Also, effective on the close of business on February 28, 1998, Strategic Income
Fund acquired all of the assets and assumed certain liabilities of Blanchard
Flexible Income Fund, in an exchange for Class A shares of Strategic Income
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>
<S> <C> <C> <C> <C> <C>
Value of Net Number of Unrealized Net Assets
Acquiring Fund Acquired Fund Assets Acquired Shares Issued Appreciation After Acquisition
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified Bond Fund Evergreen Quality Bond Fund $172,832,659 10,842,627 $ 3,406,186 $610,931,062
Strategic Income Fund Blanchard Flexible Income Fund 139,705,470 19,367,062 4,998,009 339,328,623
Strategic Income Fund Keystone World Bond Fund 13,364,630 1,876,466 646,958 209,347,784
U.S. Government Fund Keystone Government Securities Fund 41,845,369 4,348,526 776,840 330,218,346
U.S. Government Fund Evergreen U.S. Government Securities Fund 5,739,713 590,505 24,133 233,475,732
</TABLE>
9. FINANCING AGREEMENTS
On October 31, 1996, a financing agreement among certain of the Evergreen Funds,
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 million committed and $112.5 million
uncommitted) allocated evenly among 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 participating funds. State Street served as agent for
the Banks, and as agent was entitled to a fee of $15,000 which was allocated to
all of the participating Funds. This agreement was terminated on October 31,
1997.
On October 31, 1997, a temporary financing agreement between the participating
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. This agreement
was terminated on December 22, 1997.
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
million ($275 million committed and $125 million uncommitted). The credit
facility is allocated, under the terms of the financing agreement, among the
Banks. 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
Federal 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 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 administrative agent
is entitled to a fee of $20,000 per annum which is allocated to all of the
Funds.
During the year ended April 30, 1998, Diversified Fund, Strategic Income Fund
and U.S. Government Fund had no borrowings under this agreement. High Yield Fund
had borrowings outstanding for 3 days under its line of credit and incurred
$3,085 in interest charges related to these borrowings. High Yield Fund's
average amount of debt outstanding during the period was $67,407 at a weighted
average interest rate of 6.12%.
59
<PAGE>
Independent Auditors' Report
The Trustees and Shareholders
Evergreen Fixed Income Trust
We have audited the accompanying statements of assets and liabilities, including
schedules of investments, of the Evergreen Diversified Bond Fund, Evergreen High
Yield Bond Fund, Evergreen Strategic Income Fund and Evergreen U.S. Government
Fund of the Evergreen Fixed Income Trust (the "Trust") listed below as of April
30, 1998, and the related statements of operations, statements of changes in net
assets, and financial highlights for each of the years or periods presented
below:
Evergreen Diversified Bond Fund -- statements of operations for the eight
months ended April 30, 1998 and the year ended August 31, 1997, statements
of changes in net assets for the eight months ended April 30, 1998 and for
each of the years in the two-year period ended August 31, 1997 and
financial highlights for the eight months ended April 30, 1998 and each of
the years in the ten-year period ended August 31, 1997.
Evergreen High Yield Bond Fund -- statements of operations for the nine
months ended April 30, 1998 and the year ended July 31, 1997, statements of
changes in net assets for the nine months ended April 30, 1998, and for
each of the years in the two-year period ended July 31, 1997 and financial
highlights for the nine months ended April 30, 1998 and each of the years
in the ten-year period ended July 31, 1997.
Evergreen Strategic Income Fund -- statement of operations for the year
ended April 30, 1998, statements of changes in net assets for the year
ended April 30, 1998, the nine months ended April 30, 1997 and the year
ended July 31, 1996, and financial highlights for the year ended April 30,
1998, the nine months ended April 30, 1997 and each of the years in the
nine-year period ended July 31, 1996.
Evergreen U.S. Government Fund -- statement of operations for the year
ended April 30, 1998, statements of changes in net assets for the year
ended April 30, 1998, the ten months ended April 30, 1997 and the year
ended June 30, 1996, and financial highlights for the year ended April 30,
1998, the ten months ended April 30, 1997, the year ended June 30, 1996,
the six months ended June 30, 1995, the year ended December 31, 1994 and
the period from January 11, 1993 (commencement of operations) to December
31, 1993.
These financial statements and financial highlights are the responsibility of
the 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
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of April 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
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Evergreen Diversified Bond Fund, Evergreen High Yield Bond Fund, Evergreen
Strategic Income Fund and Evergreen U.S. Government Fund as of April 30, 1998,
the results of their operations, changes in their net assets, and financial
highlights for each of the years or periods specified in the first paragraph
above in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
May 29, 1997
60
<PAGE>
ADDITIONAL INFORMATION (Unaudited)
On December 15, 1997, a special meeting of shareholders for the Strategic
Income Fund and U.S. Government Fund was held to consider a number of proposals
with the following number of shares represented at the meeting. On October 16,
1997, the record date for the meeting, the Funds had the following shares
outstanding:
<TABLE>
<CAPTION>
Strategic Income U.S. Government
Fund Fund
------------------ ----------------
<S> <C> <C>
Record Date Shares Outstanding ........................................................... 29,371,964 33,822,261
Shares represented at meeting ............................................................ 17,199,967 18,680,644
Percentage of record date shares represented at meeting .................................. 58.56% 55.23%
Proposal 1 -- The proposed reorganization of the Fund as a series of the Evergreen
Fixed Income Trust, a Delaware business trust:
Shares voted "For" ................................................................. 15,675,686 17,854,153
Shares voted "Against" ............................................................. 264,065 102,787
Shares voted "Abstain" ............................................................. 1,260,216 723,704
Proposal 2 -- Reclassification as non-fundamental investment objective of this Fund
whose investment objective is currently classified as fundamental:
Shares voted "For" ................................................................. 15,513,304 17,767,235
Shares voted "Against" ............................................................. 371,711 145,294
Shares voted "Abstain" ............................................................. 1,314,952 768,115
Proposal 3 -- Changes to Fundamental investment restrictions:
To amend the Fundamental restriction concerning diversification of investments:
Shares voted "For" ................................................................. 15,449,689 17,770,044
Shares voted "Against" ............................................................. 334,145 157,135
Shares voted "Abstain" ............................................................. 1,416,133 753,465
To amend the Fundamental restriction concerning concentration of a Fund's assets in
a particular industry:
Shares voted "For" ................................................................. 15,455,555 17,771,923
Shares voted "Against" ............................................................. 328,279 155,256
Shares voted "Abstain" ............................................................. 1,416,133 753,465
To amend the Fundamental restriction concerning the issuance of senior securities:
Shares voted "For" ................................................................. 15,449,689 17,771,923
Shares voted "Against" ............................................................. 334,145 155,256
Shares voted "Abstain" ............................................................. 1,416,133 753,465
To amend the Fundamental restriction concerning borrowing:
Shares voted "For" ................................................................. 15,450,014 17,768,365
Shares voted "Against" ............................................................. 333,820 158,814
Shares voted "Abstain" ............................................................. 1,416,133 753,465
To amend the Fundamental restriction concerning underwriting:
Shares voted "For" ................................................................. 15,455,555 17,768,182
Shares voted "Against" ............................................................. 328,279 158,997
Shares voted "Abstain" ............................................................. 1,416,133 753,465
To amend the Fundamental restriction concerning investments in real estate:
Shares voted "For" ................................................................. 15,455,555 17,768,365
Shares voted "Against" ............................................................. 328,279 158,814
Shares voted "Abstain" ............................................................. 1,416,133 753,465
To amend the Fundamental restriction concerning commodities:
Shares voted "For" ................................................................. 15,445,967 17,766,131
Shares voted "Against" ............................................................. 337,867 161,048
Shares voted "Abstain" ............................................................. 1,416,133 753,465
To amend the Fundamental restriction concerning lending:
Shares voted "For" ................................................................. 15,451,833 17,766,131
Shares voted "Against" ............................................................. 332,001 161,048
Shares voted "Abstain" ............................................................. 1,416,133 753,465
To amend the Fundamental restriction concerning unseasoned issuers:
Shares voted "For" ................................................................. 15,455,555 N/A
Shares voted "Against" ............................................................. 328,279 N/A
Shares voted "Abstain" ............................................................. 1,416,133 N/A
</TABLE>
61
<PAGE>
ADDITIONAL INFORMATION (Unaudited) (continued)
<TABLE>
<CAPTION>
Strategic Income U.S. Government
Fund Fund
------------------ ----------------
<S> <C> <C>
To amend the Fundamental restriction concerning control or management:
Shares voted "For" ........................................................ N/A 17,761,753
Shares voted "Against" .................................................... N/A 158,831
Shares voted "Abstain" .................................................... N/A 760,060
To amend the Fundamental restriction concerning short sales:
Shares voted "For" ........................................................ 15,455,555 17,767,379
Shares voted "Against" .................................................... 328,279 156,724
Shares voted "Abstain" .................................................... 1,416,133 756,541
To amend the Fundamental restriction concerning other investment companies:
Shares voted "For" ........................................................ 15,455,555 N/A
Shares voted "Against" .................................................... 328,279 N/A
Shares voted "Abstain" .................................................... 1,416,133 N/A
To amend the Fundamental restriction concerning pledging:
Shares voted "For" ........................................................ 15,458,672 17,766,727
Shares voted "Against" .................................................... 328,279 157,376
Shares voted "Abstain" .................................................... 1,413,016 756,541
</TABLE>
62
<PAGE>
(This page was intentionally left blank)
<PAGE>
(This page was intentionally left blank)
<PAGE>
Evergreen Funds
Money Market
Treasury Money Market Fund
Money Market Fund
Municipal Money Market Fund
Pennsylvania Municipal Money Market Fund
Tax Exempt
Short Intermediate Municipal Fund
High Grade Tax Free Fund
Tax Free Fund
California Tax Free Fund
Connecticut Municipal Bond Fund
Florida Municipal Bond Fund
Florida High Income Municipal Bond Fund
Georgia Municipal Bond Fund
Maryland Municipal Bond Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New Jersey Tax Free Income Fund
New York Tax Free Fund
North Carolina Municipal Bond Fund
Pennsylvania Tax Free Fund
South Carolina Municipal Bond Fund
Virginia Municipal Bond Fund
Income
Capital Preservation and Income Fund
Short Intermediate Bond Fund
Intermediate Term Government Securities Fund
Intermediate Term Bond Fund
U.S. Government Fund
Diversified Bond Fund
Strategic Income Fund
High Yield Bond Fund
Balanced
American Retirement Fund
Balanced Fund
Tax Strategic Foundation Fund
Foundation Fund
Growth & Income
Utility Fund
Income and Growth Fund
Fund for Total Return
Value Fund
Blue Chip Fund
Growth and Income Fund
Small Cap Equity Income Fund
Domestic Growth
Evergreen Fund
Omega Fund
Small Company Growth Fund
Strategic Growth Fund
Aggressive Growth Fund
Micro Cap Fund
Global International
Global Leaders Fund
International Growth Fund
International Equity Fund
Global Opportunities Fund
Natural Resources Fund
Precious Metals Fund
Emerging Markets Growth Fund
Latin America Fund
Express Line
800-346-3858
Investor Services
800-343-2898
Retirement Plan Services
800-247-4075
www.evergreenfunds.com
69356 543692 RV00 6/98
BULK RATE
U.S. POSTAGE
PAID
CHARLOTTE, NC
PERMIT NO. 136
[Evergreen Funds LOGO]
201 South College St.
Charlotte, NC 28288
