-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F3VtNGayZlxntckPMFzorqWVIBOAUXiCBbMxuAbGTRq5MSiZaIbsZFe3OqXbRuxa TLseBtyp6jt6rUBxdYtjzQ== 0000950168-98-001068.txt : 19980402 0000950168-98-001068.hdr.sgml : 19980402 ACCESSION NUMBER: 0000950168-98-001068 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980131 FILED AS OF DATE: 19980401 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEYSTONE HIGH INCOME BOND FUND B-4 CENTRAL INDEX KEY: 0000055614 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 042394421 FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-00095 FILM NUMBER: 98585091 BUSINESS ADDRESS: STREET 1: 200 BERKELEY STREET CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 6173383200 MAIL ADDRESS: STREET 1: 200 BERKELEY STREET CITY: BOSTON STATE: MA ZIP: 02116 N-30D 1 EVERGREEN HIGH YIELD FUNDS N-30D Table of Contents Letter to Shareholders ...................... 1 Fund at a Glance ............................ 2 Portfolio Manager Interview ................. 3 Financial Highlights ........................ 5 Schedule of Investments ..................... 8 Statement of Assets and Liabilities ......... 13 Statement of Operations ..................... 14 Statements of Changes in Net Assets ......... 15 Notes to Financial Statements ............... 16 Additional Information ...................... 20
- -------------------------------------------------------------------------------- Evergreen Funds Evergreen Funds is one of the nation's fastest growing investment companies with more than $45 billion in assets under management. With 85 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 semiannual report must be preceded or accompanied by a prospectus of an Evergreen fund contained herein. The prospectus contains more complete information, including fees and expenses, and should be read carefully before investing or sending money. Mutual Funds: ARE NOT FDIC INSURED May lose value o Are not bank guaranteed
Evergreen Funds Distributor, Inc. Letter to Shareholders ---------------------- March 1998 (Photo) Dear Shareholders: High yield bonds continued their trend of generating attractive total returns over the past six months. Favorable economic and interest rate climates - as well as a rising stock market William M. Ennis - set the stage for high yield companies to Managing Director improve their creditworthiness. This atmosphere proved beneficial to high yield bond investors and issuers alike. Your Fund's carefully crafted and implemented strategies thrived in this environment. Over the past six months, your Fund's Class B shares returned 7.80%, unadjusted for any sales charge, comparing favorably with both the Lehman Aggregate Bond Index of 4.90%, and the Chase High Yield Index of 6.70%, during the same period. The Lehman Aggregate Bond Index is an unmanaged, broad index of U.S. corporate, government, and mortgage securities. The Chase High Yield Index is an unmanaged selection of high yield bonds that measures the performance of that sector of the fixed-income market. We were particularly pleased with your Fund's performance versus these indices, since unlike a mutual fund, an index incurs no operating expenses. The high yield bond market has grown vigorously over the past few years, as these securities gained acceptance from non-traditional investors and recognition as an independent asset class. As of the end of 1997, the high yield bond market had grown to $452 billion, 26% of which was represented by mutual funds. A record $21.5 billion of cash poured into high yield bond mutual funds over the past year, easily surpassing the previous high of $15.9 billion set in 19961. Investors sought the higher yields available in this low interest rate environment and undoubtedly felt more comfortable assuming added credit risk, given the healthy economy. This increased demand was met with growing supply. During the last year, 667 issues totaling $126 billion came to market, soaring past the $73.6 billion issued in 1996. Also, with new issues averaging $189 million in size last year, liquidity has improved considerably. We believe high yield bonds will continue to provide opportunity in the coming months. Forging ahead in the eighth year of an expansion, the economy appears to be on track for solid growth, while experiencing few inflationary pressures. We expect this background, along with access to the capital markets and consolidation within selected industries, to benefit high yield bond investors. Combined with the attractive income streams available in this sector, we think high yield bonds should provide solid total returns in the future. Thank you for your investment in Evergreen Funds. If you have any questions regarding your investments, we encourage you to consult your financial advisor or call us at 1-800-343-2898. Sincerely, /s/ William M. Ennis William M. Ennis Managing Director - --------- 1 Source: Chase Securities, Inc. 1 EVERGREEN High Yield Bond Fund Fund at a Glance as of January 31, 1998 We selected the bonds of companies whose industries we believed would benefit from the economy's strength and whose stock would rise in value. Portfolio Management ---------------------------------------- (Photo of Prescott B. Crocker) Prescott B. Crocker, CFA Vice President and Group Leader of High Yield Bond Team Keystone Investment Management Company Tenure: February 1997 - -------------------------------------------------------------------------------- PERFORMANCE AND RETURNS
Class A Class B Class C Inception Date 1/20/98 9/11/35 1/21/98 Average Annual Returns* 6 months with sales charge - 2.80% - 6 months w/o sales charge - 7.80% - One year with sales charge - 10.23% - One year w/o sales charge - 15.23% - 3 years - 11.29% - 5 years - 8.43% - 10 years - 7.70% - Since Inception - 8.53% - Maximum Sales Charge 4.75% 5.00% 1.00% Front End CDSC CDSC 30-day SEC Yield - 6.50% - 6 month dividends per share $ 0.01 $ 0.16 $ 0.01
*Adjusted for maximum applicable sales charge unless otherwise noted. Note: Class A and Class C shares were introduced in January 1998 and do not have historical performance to quote at this time. - -------------------------------------------------------------------------------- LONG TERM GROWTH (Graph appears here. Plot points are listed in the table below.)
1/88 1/90 1/92 1/94 1/96 1/98 Class B Shares 10000 9892 11914 17524 16526 20993 Lehman Brothers 10000 12575 15862 19211 21946 24706 Aggregate Bond Index Consumer Price 10000 11198 12139 12848 13569 14183 Index
Comparison of change in value of a $10,000 investment in Evergreen High Yield Bond Fund Class B, the Lehman Brothers Aggregate Bond Index and the Consumer Price Index. Past performance is no guarantee of future results. The performance of each class may vary based on differences in loads and fees paid by the shareholder investing in the different classes. The 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 market index. This index does not include transaction costs associated with buying and selling securities nor any management fees. The Consumer Price Index, a measure of inflation, is through January 31, 1998. - -------------------------------------------------------------------------------- CURRENT INVESTMENT STYLE (Graphic appears Morningstar's Style Box is based on a portfolio date as here) of 12/31/97. The Fixed-Income Style Box placement is based on a fund's average effective maturity or duration and the average credit rating of the bond portfolio. Source: 1997 Morningstar, Inc. 2 EVERGREEN High Yield Bond Fund Portfolio Manager Interview - -------------------------------------------------------------------------------- How did the Fund perform during the period? For the six-month period ending January 31, 1998, the Fund's Class B shares returned 7.80%, unadjusted for any sales charge. This compares favorably with both the Lehman Aggregate Bond Index of 4.90%, and the Chase High Yield Index of 6.70%, during the same period. We were particularly pleased with your Fund's performance versus these indices, since unlike a mutual fund, an index incurs no operating expenses. Portfolio Characteristics ------------------------- Total Net Assets $531,371,099 Average Credit Quality B Average Maturity 7.5 years Average Duration 4.4 years - -------------------------------------------------------------------------------- What was the environment like for high yield bonds over the past six months? The environment - which has been extremely favorable for high yield bonds for several years - continued to be strong. Economic growth was steady and inflation remained low. This atmosphere, combined with rising equity prices helped strengthen corporate balance sheets. High yield companies also benefited from declining long-term interest rates and access to the capital markets. As a result, companies improved from a credit standpoint, default rates stayed at historically low levels and investors felt more comfortable taking on additional credit risk. Investor demand for high yield bonds was exceptionally strong, creating a positive relationship for supply and demand. As a result, the prices of high yield bonds rose, pushing their yields lower, relative to higher quality bonds through the end of the summer. Investors call this a "narrowing" of yield spreads. Yields in the high yield sector then began to rise - and prices fell - in comparison to higher quality bonds, particularly U.S. Treasuries. Conversely, investors call this a "widening" of yield spreads. This occurred as investors witnessed a "flight to quality" in response to the Asian currency crisis, as well as fluctuations in the stock market. At that time, investors, particularly foreign investors, sought the safety and security of higher quality U.S. bonds. While we always like to see prices rise, we believe these higher yields make high yield bonds more attractive on a relative basis. - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION AS OF 1/31/98 (as a percentage of net assets) (Pie chart appears here. Plot points are listed in the table below.) Common Stock and Warrants 1% Repurchase Agreements and other assets and liabilities (net) 5% Preferred Stock 5% Foreign Corporate Bonds 8% Corporate Bonds 81% - -------------------------------------------------------------------------------- What strategies did you use in managing the Fund? We managed the Fund to increase total return. We selected the bonds of companies whose industries we believed would benefit from the economy's strength and whose stock would rise in value. High yield bond prices are sensitive to credit developments; therefore, there is a strong correlation between the performance of stocks and high yield bonds. We emphasized the telecommunications, cable and gaming industries, all of which are undergoing consolidation. Mergers and other positive events have been an important force behind the strong performance of many high yield bonds. In contrast, we limited the Fund's exposure to industries representing commodities, such as paper, steel and forest products. These industries underperformed when investors assumed a slowdown in worldwide demand because of the Asian situation. 3 EVERGREEN High Yield Bond Fund Portfolio Manager Interview Top 5 Sectors ------------- (as a percentage of net assets) Telecommunication Services and Equipment 12.0% Cable/Other Video Distribution 9.4% Gaming 9.2% Energy 8.1% Publishing, Broadcasting, & Entertainment 7.5% We were cautious regarding the Fund's international positions. We reduced its investment in emerging markets from 15% to 2% and eliminated its 5% holding in Asia prior to the Asian currency crisis. Although high yield bond prices, in general, fell during that time, investments in emerging markets and Asia were particularly sensitive. We temporarily established a 5% position in U.S. government securities with some of the proceeds. U.S. government securities benefited more than any other U.S. fixed-income sector during the Asian currency crisis. We also sought to reduce risk through diversification. The portfolio maintains a minimum of 100 issuers and we are moving toward no single bond comprising over 2% of net assets. More than 80% of the Fund is rated "B" or higher, which gave the portfolio an average credit rating of "B" as of January 31, 1998. The Fund's average maturity stood at 7.5 years, also as of that date. - -------------------------------------------------------------------------------- AVERAGE CREDIT QUALITY (as a percentage of portfolio assets) (Pie chart appears here. Plot points are listed in the table below.) CCC 2% BB 5% NR 13% B 80% - -------------------------------------------------------------------------------- What is your outlook for the high yield bond market? Our outlook remains positive for high yield bonds. We expect many of the same factors that affected the high yield bond market over the past six months to continue to shape it going forward. These include steady economic growth accompanied by low inflation and strong technical supply and demand factors. We believe long-term interest rates could decline further as a result of continued low inflation and uncertainty regarding the outcome of the Asian situation. However, we think yield spreads could "widen" if expectations of disinflation - the reversal of inflationary pressures, or deflation, a decline in general price levels - already anticipated by some investors, gain a wider following. We believe this would result in the yields of higher quality bonds falling faster - and their prices rising faster - than those of high yield bonds. Longer term, we look for economic growth to resume in Asia and commodity prices to begin to rise. We believe these factors would be positive for the high yield bond market and anticipate continued opportunity and attractive total returns. 4 EVERGREEN High Yield Bond Fund Financial Highlights (For a share outstanding throughout the period)
January 20, 1998 (Commencement of Class Operations) to January 31, 1998 (Unaudited) CLASS A SHARES Net asset value beginning of period $ 4.52 ========= Income from investment operations Net investment income 0.01 (b) Net realized and unrealized gain (loss) on investments and foreign currency related transactions 0.02 --------- Total from investment operations 0.03 --------- Less distributions from net investment income (0.01) --------- Net asset value end of period $ 4.54 ========= Total Return (a) 0.76% Ratios/supplemental data Ratios to average net assets Expenses 1.26%(c) Expenses excluding indirectly paid expenses 1.26%(c) Net investment income 8.87%(c) Portfolio turnover rate 96% Net assets end of period (thousands) $ 437,420
(a) Excluding applicable sales charges. (b) Calculation based on average shares outstanding. (c) Annualized. See Notes to Financial Statements. 5 EVERGREEN High Yield Bond Fund Financial Highlights (For a share outstanding throughout each period)
Year Ended July 31, Six Months Ended January 31, 1998 (Unaudited) 1997 1996 1995 1994 CLASS B SHARES Net asset value beginning of period $ 4.37 $ 4.10 $ 4.42 $ 4.68 $ 5.13 ========= ======= ======= ======= ======= Income from investment operations Net investment income 0.17 (b) 0.32 0.32 0.38 0.38 Net realized and unrealized gain (loss) on investments and foreign currency related transactions 0.16 0.28 (0.27) (0.15) (0.38) --------- ------- -------- -------- ------- Total from investment operations 0.33 0.60 0.05 0.23 0 --------- ------- -------- -------- ------- Less distributions from Net investment income (0.16) (0.32) (0.31) (0.37) (0.38) In excess of net investment income 0 (0.01) (0.06) (0.02) (0.07) Tax basis return of capital 0 0 0 (0.10) 0 --------- -------- -------- -------- ------- Total distributions (0.16) (0.33) (0.37) (0.49) (0.45) --------- -------- -------- -------- ------- Net asset value end of period $ 4.54 $ 4.37 $ 4.10 $ 4.42 $ 4.68 ========= ======== ======== ======== ======= Total Return (a) 7.80% 15.32% 1.38% 5.66% (0.41%) Ratios/supplemental data Ratios to average net assets Expenses 1.93%(c) 1.96% 1.94% 2.03% 1.84% Expenses excluding indirectly paid expenses 1.92%(c) 1.95% 1.93% - - Net investment income 7.25%(c) 7.63% 7.92% 8.64% 7.57% Portfolio turnover rate 96% 138% 116% 82% 110% Net assets end of period (thousands) $ 93,857 $547,390 $593,681 $764,965 $766,283
Year Ended July 31, 1993 1992 1991 1990 1989 1988 CLASS B SHARES Net asset value beginning of period $ 4.74 $ 4.19 $ 5.02 $ 6.38 $ 6.91 $ 7.66 ======= ======= ======= ======== ========= ========= Income from investment operations Net investment income 0.45 0.49 0.61 0.68 0.83 0.80 Net realized and unrealized gain (loss) on investments and foreign currency related transactions 0.44 0.58 (0.72) (1.18) (0.51) ( 0.71) ------- ------- -------- -------- ---------- ---------- Total from investment operations 0.89 1.07 (0.11) (0.50) 0.32 0.09 ------- ------- -------- -------- ---------- ---------- Less distributions from Net investment income (0.45) (0.50) (0.72) (0.78) (0.85) ( 0.84) In excess of net investment income (0.05) (0.02) 0 (0.08) 0 0 Tax basis return of capital 0 0 0 0 0 0 -------- -------- -------- -------- ---------- ---------- Total distributions (0.50) (0.52) (0.72) (0.86) (0.85) ( 0.84) -------- -------- -------- -------- ---------- ---------- Net asset value end of period $ 5.13 $ 4.74 $ 4.19 $ 5.02 $ 6.38 $ 6.91 ======== ======== ======== ======== ========== ========== Total Return (a) 20.28% 27.25% 0.03% (7.84%) 4.95% 1.66% Ratios/supplemental data Ratios to average net assets Expenses 2.06% 2.17% 2.34% 2.06% 1.97% 1.82% Expenses excluding indirectly paid expenses - - - - - - Net investment income 9.30% 10.86% 14.64% 12.77% 12.36% 11.29% Portfolio turnover rate 125% 94% 78% 45% 75% 81% Net assets end of period (thousands) $972,164 $841,757 $710,590 $820,940 $1,188,660 $1,274,673
(a) Excluding applicable sales charges. (b) Calculation based on average shares outstanding. (c) Annualized. See Notes to Financial Statements. 6 EVERGREEN Financial Highlights Financial Highlights (For a share outstanding throughout the period)
January 21, 1998 (Commencement of Class Operations) to January 31, 1998 (Unaudited) CLASS C SHARES Net asset value beginning of period $ 4.52 ========== Income from investment operations Net investment income 0.01 (b) Net realized and unrealized gain on investments and foreign currency related transactions 0.02 ---------- Total from investment operations 0.03 ---------- Less distributions from net investment income (0.01) ---------- Net asset value end of period $ 4.54 ========== Total Return (a) 0.72% Ratios/supplemental data Ratios to average net assets Expenses 1.92%(c) Expenses excluding indirectly paid expenses 1.91%(c) Net investment income 8.82%(c) Portfolio turnover rate 96% Net assets end of period (thousands) $ 95
(a) Excluding applicable sales charges. (b) Calculation based on average shares outstanding. (c) Annualized. See Notes to Financial Statements. 7 EVERGREEN High Yield Bond Fund Schedule of Investments January 31, 1998 (Unaudited)
Principal Amount Value CORPORATE BONDS - 81.2% Aerospace & Defense - 0.5% $ 2,725,000 Kitty Hawk, Incorporated, Sr. Secd. Notes (f), 9.95%, 11/15/04 ... $ 2,847,625 ------------ Automotive Equipment & Manufacturing - 2.2% 2,000,000 JPS Automotive Products, Corporation, Sr. Notes, 11.13%, 6/15/01 ... 2,230,000 3,000,000 Motors and Gears, Incorporated, Sr. Notes, Series B, 10.75%, 11/15/06 .. 3,270,000 2,000,000 Oxford Automotive, Incorporated, Sr. Notes (Subord.), 10.13%, 6/15/07 ... 2,130,000 4,000,000 Walbro Corporation, Sr. Notes (f), 10.13%, 12/15/07 .. 4,110,000 ------------ 11,740,000 ------------ Cable / Other Video Distribution - 7.6% Adelphia Communications Corporation, Sr. Notes: 5,710,000 9.88%, 3/1/07 .... 6,252,450 750,000 10.50%, 7/15/04 .. 830,625 3,125,000 Cablevision Systems Corporation, Sr. Deb. (Subord.), 10.50%, 5/15/16 ... 3,718,750 5,000,000 Charter Communications, South Eastern Capital Limited Partnership, Sr. Notes, Series B, 11.25%, 3/15/06 ... 5,575,000 Diamond Cable Communications Company, Sr. Disc. Notes, Step Bond: 3,000,000 (Eff. Yield 10.48%) (c), 0.00%, 2/15/07, ... 2,070,000 6,000,000 (Eff. Yield 11.14%) (c), 0.00%, 9/30/04, ... 5,415,000 2,750,000 Frontiervision, Sr. Notes (Subord.), 11.00%, 10/15/06 .. 3,080,000 4,825,000 Fundy Cable Limited, Sr. Secd. 2nd Priority Notes, 11.00%, 11/15/05 .. 5,355,750 6,000,000 Marcus Cable Operations Limited Partnership, Gtd. Sr. Disc. Notes (Subord.), Step Bond, (Eff. Yield 11.95%) (c), 0.00%, 8/1/04 ..... 5,670,000 1,625,000 TCI Satellite Entertainment, Incorporated, Sr. Disc. Notes (Subord.), Step Bond, (Eff. Yield 11.98%) (c) (f), 0.00%, 2/15/07 .... 1,125,313 2,000,000 Telewest Communications PLC, Sr. Disc. Deb., Step Bond, (Eff. Yield 9.86%) (c), 0.00%, 10/1/07 .... 1,580,000 ------------ 40,672,888 ------------
Principal Amount Value CORPORATE BONDS - continued Chemical & Agricultural Products - 2.1% $ 1,500,000 Lanesborough Corporation, Sr. Secd. Notes (a) (d), 10.00%, 4/15/00 ... $ 1,102,500 4,375,000 PCI Chemical Canada, Incorporated, Sr. Secd. Notes (f), 9.25%, 10/15/07 ... 4,396,875 Texas Petrochemical Corporation Sr. Notes (Subord.): 3,100,000 11.13%, 7/1/06 ... 3,394,500 2,000,000 Series B, 11.13%, 7/1/06 .... 2,220,000 ------------ 11,113,875 ------------ Communication Systems & Services - 0.6% 2,750,000 Concentric Network Corporation, Unit, 12.75%, 12/15/07 ... 2,997,500 ------------ Consumer Products & Services - 5.1% 1,750,000 Consumers International, Incorporated, Sr. Secd. Notes (f), 10.25%, 4/1/05 .... 1,942,500 2,950,000 Dryper's Corporation, Sr. Notes, Series B, 10.25%, 6/15/07 ... 3,060,625 2,000,000 Dyncorp, Incorporated, Sr. Notes (Subord.), 9.50%, 3/1/07 ..... 2,060,000 5,833,000 Exide Corporation, Sr. Notes (Subord.) (f), 2.90%, 12/15/05 ... 3,818,573 McLeod, Incorporated: 6,750,000 Sr. Disc. Notes, Step Bond, (Eff. Yield 9.88%) (c), 0.00%, 3/1/07 ..... 5,130,000 3,000,000 Sr. Notes 9.25%, 7/15/07 .... 3,217,500 10,935,000 Revlon Worldwide Corporation, Sr. Secd. Disc. Notes, Step Bond, Series B, (Eff. Yield 9.82%) (c), 0.00%, 3/15/01 .... 8,037,225 ------------ 27,266,423 ------------ Diversified Companies - 2.0% Affinity Group, Incorporated: 4,000,000 Sr. Notes 11.00%, 4/1/07 .... 4,320,000 1,000,000 Sr. Notes (Subord.) 11.50%, 10/15/03 .. 1,071,250 5,000,000 Cinemark USA, Incorporated, Sr. Notes (Subord.), Series B, 9.63%, 8/1/08 .... 5,275,000 ------------ 10,666,250 ------------ Energy - 8.1% 5,050,000 Anker Coal Group, Incorporated, Sr. Notes (f), 9.75%, 10/1/07 .... 5,201,500 5,000,000 Clark USA, Incorporated, Sr. Notes, Series B, 10.88%, 12/1/05 ... 5,462,500
8 EVERGREEN High Yield Bond Fund Schedule of Investments (continued) January 31, 1998 (Unaudited)
Principal Amount Value CORPORATE BONDS - continued Energy - continued $ 5,000,000 Crown Central Petroleum Corporation, Sr. Notes, 10.88%, 2/1/05 ....... $5,250,000 4,750,000 Energy Corporation of America, Sr. Notes (Subord.), Series A, 9.50%, 5/15/07 ....... 4,797,500 2,700,000 HS Resources, Incorporated, Sr. Notes (Subord.), 9.25%, 11/15/06 ...... 2,727,000 3,500,000 Petsec Energy, Incorporated, Sr. Notes (Subord.), Series B, 9.50%, 6/15/07 ....... 3,552,500 4,940,000 Rutherford Moran Oil Corporation, Sr. Notes (Subord.) (f), 10.75%, 10/1/04 ...... 5,261,100 5,000,000 Transamerican Energy Corporation, Sr. Secd. Notes, Series B, 11.50%, 6/15/02 ...... 5,093,750 5,500,000 Transamerican Refining Corporation, 1st Mtge. Notes, 16.00%, 6/30/03 ...... 5,720,000 ---------- 43,065,850 ---------- 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 ........ 5,118,750 ---------- Finance & Insurance - 1.1% 5,750,000 Pamida, Incorporated, Sr. Notes (Subord.), 11.75%, 3/15/03 ...... 5,865,000 ---------- Food & Beverage Products - 3.1% 5,000,000 Aurora Foods, Incorporated, Sr. Notes (Subord.), Series D, 9.88%, 2/15/07 ....... 5,325,000 2,000,000 Chiquita Brands International, Incorporated, Sr. Notes, 9.63%, 1/15/04 ....... 2,115,000 3,500,000 FRD Acquisition Company, Sr. Notes, Series B, 12.50%, 7/15/04 ...... 3,902,500 4,910,000 Iowa Select Farms, Sr. Notes (Subord.) (f), 10.75%, 12/1/05 ...... 4,934,550 ---------- 16,277,050 ---------- Forest Products - 2.8% 2,000,000 Iron Mountain, Incorporated, Sr. Notes (Subord.), 10.13%, 10/1/06 ...... 2,185,000 3,150,000 Printpack, Incorporated, Sr. Notes (Subord.), Series B, 10.63%, 8/15/06 ...... 3,370,500 5,000,000 Riverwood International Corporation, Sr. Notes, 10.25%, 4/1/06 ....... 5,162,500
Principal Amount Value CORPORATE BONDS - continued Forest Products - continued $ 4,000,000 Stone Container Corporation, Sr. Notes, 9.88%, 2/1/01 ........ $4,080,000 ---------- 14,798,000 ---------- Gaming - 8.6% 2,000,000 Ameristar Casinos, Incorporated, Sr. Notes (Subord.), 10.50%, 8/1/04 ....... 2,100,000 Boyd Gaming Corporation: 1,250,000 Sr. Notes 9.25%, 10/1/03 ....... 1,350,000 6,000,000 Sr. Notes (Subord.) 9.50%, 7/15/07 ....... 6,480,000 5,750,000 Horseshoe Gaming, Sr. Notes, Series B, 9.38%, 6/15/07 ....... 6,195,625 2,000,000 Livingwell, Incorporated, Sr. Deb. (Subord.) (a)(b)(d), 13.13%, 4/15/01 ...... 20 5,500,000 Lodgenet Entertainment Corporation, Sr. Notes, Series D, 10.25%, 12/15/06 ..... 5,644,375 5,000,000 Majestic Star Casino LLC, Sr. Notes, 12.75%, 5/15/03 ...... 5,400,000 Prime Hospitality Corporation: 2,500,000 1st Mtge. Notes 9.25%, 1/15/06 ....... 2,662,500 2,000,000 Sr. Notes (Subord.), Series B 9.75%, 4/1/07 ........ 2,170,000 5,000,000 Showboat, Incorporated, Sr. Notes (Subord.), 13.00%, 8/1/09 ....... 6,087,500 2,150,000 Six Flags Theme Parks, Incorporated, Sr. Notes (Subord.), Step Bond, (Eff. Yield 10.70%) (c), 12.25%, 6/15/05 ...... 2,335,438 5,000,000 Sun World International, Incorporated, 1st Mtge. Notes, Series B, 11.25%, 4/15/04 ...... 5,462,500 ---------- 45,887,958 ---------- Healthcare Products & Services - 1.6% 4,000,000 Genesis Health, Sr. Notes (Subord.), 9.75%, 6/15/05 ....... 4,260,000 Paragon Health Network, Incorporated: 3,000,000 Sr. Disc. Notes (Subord.), Step Bond, (Eff.Yield 9.98%) (c) (f) 0.00%, 11/1/07 ....... 1,995,000 2,175,000 Sr. Notes (Subord.) (f) 9.50%, 11/1/07 ....... 2,272,875 ---------- 8,527,875 ---------- Manufacturing/Distributing - 2.8% 5,460,000 Delta Mills, Incorporated, Sr. Notes (f), 9.63%, 9/1/07 ........ 5,637,450
9 EVERGREEN High Yield Bond Fund Schedule of Investments (continued) January 31, 1998 (Unaudited)
Principal Amount Value CORPORATE BONDS - continued Manufacturing/Distributing - continued $ 3,100,000 Polymer Group, Incorporated, Sr. Notes (Subord.), Series B, 9.00%, 7/1/07 ..................... $3,204,625 5,000,000 Unisys Corporation, Sr. Notes, 11.75%, 10/15/04 .................. 5,806,250 ---------- 14,648,325 ---------- Metal Products & Services - 1.1% 5,000,000 Algoma Steel, Incorporated, 1st Mtge. Notes, 12.38%, 7/15/05 ................... 5,900,000 ---------- Publishing, Broadcasting & Entertainment - 7.0% 5,000,000 American Lawyer Media, Incorporated, Sr. Notes (Subord.) (f), 9.75%, 12/15/07 ................... 5,250,000 4,000,000 Big Flower Press Holdings, Incorporated, Sr. Notes (Subord.), 8.88%, 7/1/07 ..................... 4,170,000 6,925,000 Capstar Broadcasting Partners, Sr. Disc. Notes, Step Bond, (Eff. Yield 8.92%) (c) (f), 0.00%, 2/1/09 ..................... 5,055,250 3,150,000 Echostar DBS Corporation, Sr. Secd. Notes, 12.50%, 7/1/02 .................... 3,504,375 1,750,000 Echostar Satellite Broadcast Corporation, Sr. Secd. Disc. Notes, Step Bond, (Eff. Yield 10.05%) (c), 0.00%, 3/15/04 .................... 1,540,000 4,000,000 Hollywood Park, Incorporated, Sr. Notes (Subord.) (f), 9.50%, 8/1/07 ..................... 4,280,000 Nextel Communications, Incorporated, Sr. Disc. Notes, Step Bond: 5,000,000 (Eff. Yield 10.04%) (c), 0.00%, 9/15/07 .................... 3,343,750 4,700,000 (Eff. Yield 9.25%) (c) 0.00%, 10/31/07 ................... 3,055,000 3,000,000 SFX Broadcasting, Incorporated, Sr. Notes (Subord.), Series B, 10.75%, 5/15/06 ................... 3,345,000 3,500,000 Sinclair Broadcast Group, Incorporated, Sr. Notes (Subord.), 9.00%, 7/15/07 .................... 3,657,500 ---------- 37,200,875 ---------- Retailing & Wholesale - 3.6% 2,000,000 Finlay Enterprises, Sr. Disc. Deb., Step Bond, (Eff. Yield 9.11%) (c), 0.00%, 5/1/05 ..................... 1,970,000 4,500,000 French Fragrances, Incorporated, Sr. Notes, Series B, 10.38%, 5/15/07 ................... 4,747,500
Principal Amount Value CORPORATE BONDS - continued Retailing & Wholesale - continued $ 7,000,000 Jitney Jungle Stores America, Incorporated, Sr. Notes (Subord.), 10.38%, 9/15/07 ................... $7,402,500 5,000,000 Perkins Family Restaurant, Sr. Notes (f), 10.13%, 12/15/07 .................. 5,250,000 ---------- 19,370,000 ---------- Telecommunication Services & Equipment - 12.0% 5,500,000 Acme Television, Sr. Disc. Notes, Step Bond, (Eff. Yield 10.49%) (c) (f), 0.00%, 9/30/04 .................... 4,317,500 4,350,000 AFC Enterprises, Incorporated, Sr. Notes (Subord.), 10.25%, 5/15/07 ................... 4,583,813 7,000,000 Benedek Communications Corporation, Sr. Disc. Notes (Subord.), Step Bond, (Eff. Yield 11.79%) (c), 0.00%, 5/15/06 .................... 5,530,000 7,000,000 Brooks Fiber Properties, Incorporated, Sr. Disc. Notes, Step Bond, (Eff. Yield 11.10%) (c), 0.00%, 11/1/06 .................... 5,705,000 2,250,000 BTI Telecom Corporation, Sr. Notes (f), 10.50%, 9/15/07 ................... 2,390,625 4,000,000 Econophone, Incorporated, Sr. Notes, 13.50%, 7/15/07 ................... 4,420,000 5,250,000 Galaxy Telecom, Sr. Notes (Subord.), 12.38%, 10/1/05 ................... 5,827,500 2,000,000 GST Telecommunications, Incorporated, Sr. Notes (Subord.), 12.75%, 11/15/07 .................. 2,280,000 3,500,000 GST USA, Incorporated, Sr. Disc. Exchg. Notes, Step Bond, (Eff. Yield 10.45%) (c), 0.00%, 12/15/05 ................... 2,905,000 2,000,000 Hyperion Telecommunications, Incorporated, Sr. Secd. Notes, Series B, 12.25%, 9/1/04 .................... 2,290,000 2,500,000 Jordan Telecommunication Products, Sr. Notes, Series B, 9.88%, 8/1/07 ..................... 2,650,000 750,000 Metronet Communications Corporation, Sr. Notes, 12.00%, 8/15/07 ................... 870,000 3,000,000 Nextlink Communications, Incorporated, Sr. Notes, 9.63%, 10/1/07 .................... 3,202,500 2,000,000 Pegasus Communications, Sr. Notes, 9.63%, 10/15/05 .......................................... 2,090,000
10 EVERGREEN High Yield Bond Fund Schedule of Investments (continued) January 31, 1998 (Unaudited)
Principal Amount Value CORPORATE BONDS - continued Telecommunication Services & Equipment - continued $ 5,000,000 RCN Corporation, Sr. Notes (f), 10.00%, 10/15/07 ................... $ 5,337,500 4,000,000 Star Choice Communications, Incorporated, Sr. Secd. Notes, 13.00%, 12/15/05 ................... 4,180,000 4,525,000 Talton Holdings, Incorporated, Sr. Notes (f), 11.00%, 6/30/07 .................... 4,943,562 ----------- 63,523,000 ----------- Transportation - 1.8% 5,000,000 Transport World Airlines, Incorporated, Sr. Secd. Notes (f), 11.50%, 12/15/04 ................... 5,150,000 4,250,000 Pegasus Shipping Hellas Limited, Sr. Notes (f), 11.88%, 11/15/04 ................... 4,207,500 ----------- 9,357,500 ----------- Wireless Communications - 6.5% 5,000,000 Centennial Cellular Corporation, Sr. Notes, 8.88%, 11/1/01 ..................... 5,175,000 2,000,000 Comcast Cellular Holdings, Incorporated, Sr. Notes, Series B, 9.50%, 5/1/07 ...................... 2,107,500 5,000,000 Iridium LLC Capital Corporation, Sr. Notes (f), 11.25%, 7/15/05 .................... 5,112,500 6,980,000 Pagemart Nationwide, Incorporated, Sr. Disc. Notes, Step Bond, (Eff. Yield 10.80%) (c), 0.00%, 2/1/05 ...................... 6,072,600 7,500,000 Price Communications Cellular, Sr. Disc. Notes, Step Bond, (Eff. Yield 12.45%) (c), 0.00%, 8/1/07 ...................... 5,006,250 5,750,000 Pricecellular Wireless Corporation, Sr. Disc. Notes (Subord.), Step Bond, (Eff. Yield 10.64%) (c), 0.00%, 10/1/03 ..................... 5,980,000 5,000,000 Vanguard Celluar Systems, Incorporated, Sr. Deb., 9.38%, 4/15/06 ..................... 5,300,000 ----------- 34,753,850 ----------- Total Corporate Bonds (cost $411,338,330)................. 431,598,594 ----------- FOREIGN BONDS (U.S. DOLLARS) - 6.6% 5,000,000 Applied International Finance Company, 10.25%, 10/1/00 .................... 4,350,000 1,675,000 Azteca Holdings SA DE CV, Sr. Secd. Notes (f), 11.00%, 6/15/02 .................... 1,733,625
Principal Amount Value FOREIGN BONDS (U.S. DOLLARS) - continued $ 2,000,000 Consorcio Ecuatoriano, Notes, Series B, 14.00%, 5/1/02 ..................... $ 2,030,000 3,000,000 Grupo Televisa SA DE CV, Sr. Disc. Notes, Step Bond, (Eff. Yield 10.61%) (c), 0.00%, 5/15/08 ..................... 2,310,000 1,150,000 Indah Kiat International Finance, 11.38%, 6/15/99 .................... 989,000 5,000,000 Intermedia Capital Partners, Sr. Notes, 11.25%, 8/1/06 ..................... 5,625,000 10,150,000 Intermedia Communications, Incorporated, Sr. Disc. Notes, Step Bond, Series B, (Eff. Yield 9.85%) (c), 0.00%, 7/15/07 .................... 7,409,500 2,900,000 Satelites Mexicanos SA DE CV, Sr. Notes (f), 10.13%, 11/1/04 .................... 2,979,750 4,000,000 Stena AB, Sr. Notes, 8.75%, 6/15/07 ..................... 4,100,000 3,500,000 TV Azteca SA DE CV, Sr. Notes, Series B, 10.50%, 2/15/07 .................... 3,657,500 ----------- Total Foreign Bonds (U.S. Dollars) (cost $32,540,586) ................. 35,184,375 ----------- FOREIGN BONDS (NON U.S. DOLLARS) - 1.5% 3,500,000 Colt Telecom Group Place, DEM Sr. Notes, 8. 88%, 11/30/07 ................... 2,034,773 5,500,000 Microcell Telecommunications, CAD Sr. Disc. Notes, Step Bond, (Eff. Yield 10.45%) (c) (f), 0.00%, 10/15/07 .................... 2,304,654 5,000,000 Rogers Communications, CAD Incorporated, Sr. Notes, 8.75%, 7/15/07 ..................... 3,365,962 ----------- Total Foreign Bonds (Non U.S. Dollars) (cost $8,012,709)................... 7,705,389 -----------
Shares COMMON STOCKS AND WARRANTS - 1.2% Aerospace & Defense - 0.1% 76,000 CHC Helicopter Corporation, Warrants (d) ............... 228,000 ----------- Automotive Equipment & Manufacturing - 0.0% 9,500 Chatwins Group, Incorporated, Warrants (d) ............... 9,500 ----------- Building, Construction & Furnishings - 0.1% 45,000 Specialty Equipment Companies, Incorporated, Common Stock (d) ........... 756,562 -----------
11 EVERGREEN High Yield Bond Fund Schedule of Investments (continued) January 31, 1998 (Unaudited)
Shares Value COMMON STOCKS AND WARRANTS - continued Chemical & Agricultural Products - 0.0% 2,056 Lanesborough Corporation, Common Stock (b) (d) ........................ $ 21 ----------- Diversified Companies - 0.3% 2,964 PM Holdings Corporation, Common Stock (d) ............................ 1,645,020 ----------- Food & Beverage Products - 0.0% 131,250 Specialty Foods Acquisition Corporation, Common Stock (d) ............................ 32,813 ----------- Gaming - 0.6% Casino America, Incorporated: 254,790 Common Stock (d) ........................... 692,710 47,778 Warrants (b) (d) ........................... 478 410,062 Colorado Gaming and Entertainment Company, Common Stock (d) (e) ........................ 2,562,887 10,775,000 Gold River Hotel and Casino Corporation (b) (d) ......................... 107,750 Grand Palais Casinos, Incorporated: 931,379 Limited Liability Interest (8/15/94 - $0) (b) (d) ...................... 931 250,735 Series A, Warrants (8/15/94 - $2,507) (b) (d) .................. 251 136,765 Series B, Warrants (8/15/94 - $1,368) (b) (d) .................. 137 1,208,088 Series C, Warrants (8/15/94 - $12,080) (b) (d) ................. 1,208 680,643 Series D, Warrants (8/15/94 - $646) (b) (d) .................... 681 ----------- 3,367,033 ----------- Publishing, Broadcasting & Entertainment - 0.1% Nextel Communications, Incorporated: 10,843 Common Stock (d) ........................... 296,488 9,510 Warrants (d) ............................... 13,219 ----------- 309,707 ----------- Telecommunication Services & Equipment - 0.0% 4,000 Econophone, Incorporated, Warrants (d) (f) ............................ 200,000
Shares Value COMMON STOCKS AND WARRANTS - continued Telecommunication Services & Equipment - continued 750 Metronet Communications Corporation, Warrants (d) (f) ............................ $ 1,875 ----------- 201,875 ----------- Total Common Stocks and Warrants (cost $6,029,714)............................ 6,550,531 ----------- PREFERRED STOCKS - 4.8% Cable / Other Video Distribution - 1.8% 28,500 Adelphia Communications Corporation, Series B, 13.00% ............................ 3,291,750 55,799 Cablevision Systems Corporation, Series M, 11.13% ............................ 6,416,916 ----------- 9,708,666 ----------- Finance & Insurance - 2.6% 24,562 Ampex Corporation (b) (d) ................... 12,452,934 12,800 Sinclair Capital ............................ 1,420,800 ----------- 13,873,734 ----------- Publishing, Broadcasting & Entertainment - 0.4% 20,000 Primedia, Incorporated, Series E (d) (f) ............................ 2,060,000 ----------- Total Preferred Stocks (cost $34,820,332)........................... 25,642,400 -----------
Principal Amount REPURCHASE AGREEMENT - 3.2% (cost $16,873,000) $16,873,000 Keystone Joint Repurchase Agreement (Investments in repurchase agreements, in a joint trading, account, dated 1/30/98, maturity value $16,880,893) (g), 5.61%, 2/2/98 ................... 16,873,000 ---------- Total Investments - (cost $509,614,671)..... 98.5% 523,554,289 Other Assets and Liabilities-Net ........ 1.5 7,816,810 ----- ----------- Net Assets ............. 100.0% $531,371,099 ===== ============
(a) Securities which have defaulted on payment of interest and/or principal. The Fund has stopped accruing income on those so identified. At January 31, 1998, the face value of these securities was $1,102,520 (0.21% of the Fund's net asset value). (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. The date of acquisition and costs are set forth in parentheses after the title of each restricted security. On the date of acquisition there were no market quotations on similar securities and the above securities were valued at acquisition cost. At January 31, 1998, the fair value of restricted securities was $3,208 (0.00% 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) Non-income-producing security. (e) 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 January 31, 1998, the Fund owned $410,062 principal amount of this security at a cost of $1,864,123 with a fair value of $2,562,887 (0.48% of the Fund's net assets). For the six months ended January 31, 1998, the Fund earned no income from this investment. (f) 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. (g) The repurchase agreements are fully collateralized by U.S. government and/or agency obligations based on market prices at January 31,1998. Legend of Portfolio Abbreviations: CAD Canadian Dollar DEM German Deutsche Mark See Notes to Financial Statements. 12 EVERGREEN High Yield Bond Fund Statement of Assets and Liabilities January 31, 1998 (Unaudited) - ------------------------------------------------------------------------------------------ -------------- Assets Investments at market value (identified cost - $509,614,671)............................. $ 523,554,289 Cash .................................................................................... 231 Foreign currency, at value (identified cost $16,209)..................................... 16,170 Interest receivable ..................................................................... 8,801,405 Receivable for investments sold ......................................................... 5,965,059 Receivable for Fund shares sold ......................................................... 240,513 Prepaid expenses and other assets ....................................................... 136,750 - ------------------------------------------------------------------------------------------ -------------- Total assets ........................................................................... 538,714,417 - ------------------------------------------------------------------------------------------ -------------- Liabilities Payable for investments purchased ....................................................... 4,012,597 Distributions to shareholders ........................................................... 1,479,452 Payable for Fund shares redeemed ........................................................ 1,136,738 Distribution fee payable ................................................................ 342,929 Due to related parties .................................................................. 273,129 Accrued expenses and other liabilities .................................................. 98,473 - ------------------------------------------------------------------------------------------ -------------- Total liabilities ...................................................................... 7,343,318 - ------------------------------------------------------------------------------------------ -------------- Net assets ............................................................................... $ 531,371,099 ========================================================================================== ============== Net assets represented by Paid-in capital ......................................................................... $ 976,494,314 Accumulated distributions in excess of net investment income ............................ (1,452,069) Accumulated net realized loss on investments and foreign currency related transactions .. (457,609,986) Net unrealized appreciation on investments and foreign currency related transactions .... 13,938,840 - ------------------------------------------------------------------------------------------ -------------- Total net assets ....................................................................... 531,371,099 ========================================================================================== ============== Net assets consist of Class A ................................................................................. $ 437,419,963 Class B ................................................................................. 93,856,562 Class C ................................................................................. 94,574 - ------------------------------------------------------------------------------------------ -------------- $ 531,371,099 ========================================================================================== ============== Shares outstanding Class A ................................................................................. 96,343,104 Class B ................................................................................. 20,673,012 Class C ................................................................................. 20,836 - ------------------------------------------------------------------------------------------ -------------- Net asset value per share Class A ................................................................................. $ 4.54 ========================================================================================== ============== Class A - Offering price (based on sales charge of 4.75%) ............................... $ 4.77 ========================================================================================== ============== Class B ................................................................................. $ 4.54 ========================================================================================== ============== Class C ................................................................................. $ 4.54 ========================================================================================== ==============
See Notes to Financial Statements. 13 EVERGREEN High Yield Bond Fund Statement of Operations Six Months Ended January 31, 1998 (Unaudited) Investment income Interest income (Net of foreign withholding taxes of $15,678)............................ $24,669,930 Dividend income ......................................................................... 230,683 Other income ............................................................................ 57,236 - ------------------------------------------------------------------------------------------ ------------ Total income ........................................................................... 24,957,849 - ------------------------------------------------------------------------------------------ ------------ Expenses Distribution Plan expenses .............................................................. 2,588,903 Management fee .......................................................................... 1,548,428 Transfer agent fees ..................................................................... 657,702 Administrative services fees ............................................................ 52,473 Trustees' fees and expenses ............................................................. 28,471 Other ................................................................................... 246,782 - ------------------------------------------------------------------------------------------ ------------ Total expenses ......................................................................... 5,122,759 Less: Expenses paid indirectly .......................................................... (24,469) - ------------------------------------------------------------------------------------------ ------------ Net expenses ........................................................................... 5,098,290 - ------------------------------------------------------------------------------------------ ------------ Net investment income ................................................................... 19,859,559 ========================================================================================== ============ Net realized and unrealized gain on investments and foreign currency related transactions Realized gain on: Investments ............................................................................ 5,808,509 Foreign currency related transactions .................................................. 10,085 - ------------------------------------------------------------------------------------------ ------------ Net realized gain on investments and foreign currency related transactions .............. 5,818,594 - ------------------------------------------------------------------------------------------ ------------ Net change in unrealized appreciation (depreciation) on: Investments ............................................................................ 14,994,985 Foreign currency related transactions .................................................. (788) - ------------------------------------------------------------------------------------------ ------------ Net change in unrealized appreciation on investments and foreign currency related 14,994,197 - ------------------------------------------------------------------------------------------ ------------ transactions - ------------------------------------------------------------------------------------------- Net realized and unrealized gain on investments and foreign currency related 20,812,791 - ------------------------------------------------------------------------------------------ ------------ transactions - ------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations .................................... $40,672,350 ========================================================================================== ============
See Notes to Financial Statements. 14 EVERGREEN High Yield Bond Fund Statements of Changes in Net Assets
Six Months Ended January 31, 1998 Year Ended (Unaudited) July 31, 1997 ------------------ ---------------- Operations Net investment income ................................................................ $ 19,859,559 $ 43,434,059 Net realized gain on investments and foreign currency related transactions ........... 5,818,594 3,963,269 Net change in unrealized appreciation (depreciation) on investments and foreign currency related transactions ........................................................ 14,994,197 33,119,281 - --------------------------------------------------------------------------------------- ------------- -------------- Net increase in net assets resulting from operations ................................ 40,672,350 80,516,609 - --------------------------------------------------------------------------------------- ------------- -------------- Distributions to shareholders from Net investment income Class A ............................................................................. (1,280,155) 0 Class B ............................................................................. (18,563,059) (43,434,060) Class C ............................................................................. (195) 0 In excess of net investment income Class A ............................................................................. 0 0 Class B ............................................................................. 0 (1,323,000) Class C ............................................................................. 0 0 - --------------------------------------------------------------------------------------- ------------- -------------- Total distributions to shareholders ............................................... (19,843,409) (44,757,060) - --------------------------------------------------------------------------------------- ------------- -------------- Capital share transactions Proceeds from shares sold ............................................................ 36,943,179 136,045,881 Payments for shares redeemed ......................................................... (85,074,694) (243,407,877) Proceeds from reinvestment of distributions .......................................... 11,283,672 25,311,702 - --------------------------------------------------------------------------------------- ------------- -------------- Net decrease in net assets resulting from capital share transactions ................ (36,847,843) (82,050,294) - --------------------------------------------------------------------------------------- ------------- -------------- Total decrease in net assets ...................................................... (16,018,902) (46,290,745) - --------------------------------------------------------------------------------------- ------------- -------------- Net assets Beginning of period .................................................................. 547,390,001 593,680,746 - --------------------------------------------------------------------------------------- ------------- -------------- End of period [Including accumulated distributions in excess of net investment income as follows: 1998 - ($1,452,069) and 1997-($1,468,219)]............................... $ 531,371,099 $ 547,390,001 ======================================================================================= ============= ==============
See Notes to Financial Statements. 15 Notes to Financial Statements (Unaudited) 1. ORGANIZATION The Evergreen High Yield Bond Fund (the "Fund") (formerly, Keystone High Income Bond Fund (B-4)) 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 investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"). Effective January 9, 1998, the Fund added two classes of shares designated as Class A and Class C and designated its existing class of shares as Class B. 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 higher ongoing distribution fees than Class A. Class B shares are sold subject to a contingent deferred sales charge that is payable upon redemption and decreases depending on how long the shares have been held. Class C shares are sold subject to a contingent deferred sales charge payable on shares redeemed within one year after the month of purchase. Shareholders of the Fund who, on January 16, 1998, held Class B shares acquired 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 Fund in the preparation of its 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 Fund 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. Securities for which 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 established by the Board of Trustees. Short-term investments with remaining maturities of 60 days or less are carried at amortized cost, which approximates market value. B. Repurchase Agreements The Fund may invest in repurchase agreements. Securities pledged as collateral for repurchase agreements are held by the custodian on the Fund's behalf. The Fund monitors the adequacy of the collateral daily and will require the seller to provide additional collateral in the event the market value of the securities pledged falls below the carrying value of the repurchase agreement, including accrued interest. The Fund will only enter into repurchase agreements with banks and other financial institutions which are deemed by the investment advisor to be creditworthy pursuant to guidelines established by the Board of Trustees. Pursuant to an exemptive order issued by the Securities and Exchange Commission, the 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. Foreign Currency The books and records of the Fund 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 is included in realized gain (loss) on foreign currency related transactions. The portion of foreign currency gains and losses related to fluctuations in exchange rates between the initial purchase trade date and subsequent sale trade date is included in realized gain (loss) on foreign currency related transactions. 16 Notes to Financial Statements (Unaudited) (continued) D. 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 thereafter when the Fund is made aware of the dividend. Foreign income may be subject to foreign withholding taxes, which are accrued as applicable. E. Federal Taxes The Fund has qualified and intends to continue to qualify as a regulated investment company under the Internal Revenue Code of 1986, as amended (the "Code"). Thus, the Fund will not incur any federal income tax liability since it is expected to distribute all of its net investment company taxable income and net capital gains, if any, to its shareholders. The Fund also intends 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 the Fund's policy not to distribute such gains. F. Distributions Distributions from net investment income for the Fund are declared daily and paid monthly. Distributions from net realized capital gains, if any, are paid at least annually. Distributions to shareholders are recorded at the close of business on the ex-dividend date. Income and capital gains distributions to shareholders are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. The significant differences between financial statement amounts available for distributions and distributions made in accordance with income tax regulations are primarily due to the expiration of capital loss carryovers. G. Class Allocations Income, expenses (other than class specific expenses) and realized and unrealized gains and losses are prorated among the classes based on the relative net assets of each class. Currently, class specific expenses are limited to expenses incurred under the Distribution Plans for each class. 3. CAPITAL SHARE TRANSACTIONS The Fund has an unlimited number of shares of beneficial interest authorized with a par value of $.001. Shares of beneficial interest of the Fund are currently divided into Class A, Class B and Class C. Transactions in shares of the Fund were as follows: January 20, 1998 (Commencement of Class operations) Through January 31, 1998 ------------------------------- Shares Amount ---------- ------- Class A Shares sold ................................... 182,953 $ 829,981 Automatic conversion of Class B shares ........ 96,655,555 436,706,228 Shares redeemed ............................... (832,241) (3,771,239) Shares issued in reinvestment of distributions 336,837 1,529,239 - ----------------------------------------------- ----------- -------------- Net increase .................................. 96,343,104 $435,294,209 =============================================== =========== ==============
Six Months Ended Year Ended January 31, 1998 July 31, 1997 ---------------------------------- ----------------------------------- Shares Amount Shares Amount ------------ -------- ----------- ------- Class B Shares sold ..................................... 8,144,067 $ 36,019,125 32,280,201 $ 136,045,881 Automatic conversion of shares to Class A shares (96,655,555) (436,706,228) 0 0 Shares redeemed ................................. (18,420,392) (81,303,455) (57,681,924) (243,407,877) Shares issued in reinvestment of distributions .. 2,214,126 9,754,216 5,995,434 25,311,702 - ------------------------------------------------- -------------- --------------- -------------- --------------- Net decrease .................................... (104,717,754) $ (472,236,342) (19,406,289) $ (82,050,294) ================================================= ============== =============== ============== ===============
17 Notes to Financial Statements (Unaudited) (continued) January 21, 1998 (Commencement of Class operations) Through January 31, 1998 -------------------- Shares Amoun t ------ ----- Class C Shares sold ................................... 20,788 $94,073 Shares redeemed ............................... 0 0 Shares issued in reinvestment of distributions 48 217 - ----------------------------------------------- ------- -------- Net increase .................................. 20,836 $94,290 =============================================== ======= ========
4. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of investment securities (excluding short-term securities) were as follows for the six months ended January 31, 1998: Cost of Proceed s Purchase s from Sales - ------------------------------- ------------ --------------- Non-U.S. government ......... $483,187,953 $535,940,284 U.S. government ............. 15,154,688 15,525,000
As of July 31, 1997, the Fund had capital loss carryovers for federal income tax purposes of approximately $457,110,000 which expire as follows: $93,048,000 - - 1998, $91,150,000 - 1999, $122,350,000 - 2000, $44,605,000 - 2002, $105,957,000 - 2003. 5. DISTRIBUTION PLANS Evergreen Distributor, Inc. ("EDI") (formerly, Evergreen Keystone Distributor, Inc.), a wholly-owned subsidiary of The BISYS Group Inc. ("BISYS"), serves as principal underwriter to the Fund. The Fund has adopted Distribution Plans for each class of shares 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 currently pays a service fee equal to 0.25% of the average daily net assets of the class. Class B and Class C also pay distribution fees equal to 0.75% of the average daily net assets of the class. Distribution Plan expenses are calculated daily and paid monthly. During the six months ended January 31, 1998, amounts paid to EDI pursuant to the Fund's Class A, Class B and Class C Distribution Plans were $35,904, $2,552,979 and $20, respectively. With respect to Class B and Class C shares, the principal underwriter may pay distribution fees greater than the allowable annual amounts the Fund is permitted to pay under the Distribution Plans. The Fund may reimburse the principal underwriter for such excess amounts in later years with annual interest at prime plus 1.00%. EDI intends to seek full payment of such distribution costs from the Fund at such time in the future as, and to the extent that, payment thereof by the Class B or Class C shares would be within permitted limits. The Distribution Plans may be terminated at any time by vote of the Independent Trustees or by vote of a majority of the outstanding voting shares of the respective class. However, after the termination of any Distribution Plan, and subject to the discretion of the Independent Trustees, payments to 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 advisor for the Fund. In return for providing investment management and administrative services to the Fund, the Fund pays Keystone a management fee that is calculated daily and paid monthly. The management fee is computed at an annual rate of 2.00% of the Fund's gross investment income plus an amount determined by applying percentage rates, starting at 0.50% and declining to 0.25% per annum as net assets increase, to the average daily net asset value of the Fund. Evergreen Investment Services ("EIS") (formerly, Evergreen Keystone Investment Services, Inc.), a subsidiary of First Union National Bank, serves as the administrator to the Fund. BISYS Fund Services is sub-administrator to the Fund and is paid by Keystone for its services. As sub-administrator to the Fund, BISYS Fund Services provides the officers of the Fund. 18 Notes to Financial Statements (Unaudited) (continued) Evergreen Service Company ("ESC") (formerly, Evergreen Keystone Service Company), a wholly-owned subsidiary of Keystone, serves as the transfer and dividend disbursing agent for the Fund. Officers of the Fund and affiliated Trustees receive no compensation directly from the Fund. 7. EXPENSE OFFSET ARRANGEMENT The Fund has entered into an expense offset arrangement with its custodian. The assets deposited with the custodian under this expense offset arrangement could have been invested in income-producing assets. 8. FINANCING AGREEMENT On December 22, 1997, a financing agreement among all of the Evergreen Funds, State Street Bank & Trust ("State Street") and a group of Banks (collectively, the "Banks") became effective. Under this agreement, the Banks 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 Fund for temporary or emergency purposes only and is subject to the 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 six months ended January 31, 1998, the Fund had no borrowings under this agreement. 19 ADDITIONAL INFORMATION (Unaudited) On December 15, 1997, a special meeting of shareholders for the Fund was held to consider a number of proposals. On October 16, 1997, the record date for the meeting, the Fund had the following shares outstanding and number of shares represented at the meeting:
Record Date Shares Outstanding ............................ 121,742,236 Shares represented at meeting ............................. 74,687,170 Percentage of record date shares represented at meeting ... 61.35%
The votes recorded at the meeting, by proposal, were as follows: Proposal 1 - The proposed reorganization of the Fund as a series of the Evergreen Fixed Income Trust, a Delaware business trust: Shares voted "For" ............ 68,781,387 Shares voted "Against" ........ 1,283,451 Shares voted "Abstain" ........ 4,622,332 Proposal 2 - Reclassification as non-fundamental investment objective of this Fund whose investment objective is currently classified as fundamental: Shares voted "For" ............ 67,540,248 Shares voted "Against" ........ 1,992,391 Shares voted "Abstain" ........ 5,154,531 Proposal 3 - Changes to Fundamental investment restrictions: Proposal 3A - To amend the Fundamental restriction concerning diversification of investments: Shares voted "For" ............ 67,262,913 Shares voted "Against" ........ 1,709,950 Shares voted "Abstain" ........ 5,714,307 Proposal 3B - To amend the Fundamental restriction concerning concentration of a Fund's assets in a particular industry: Shares voted "For" ............ 67,251,038 Shares voted "Against" ........ 1,721,825 Shares voted "Abstain" ........ 5,714,307 Proposal 3C - To amend the Fundamental restriction concerning the issuance of senior securities: Shares voted "For" ............ 67,249,303 Shares voted "Against" ........ 1,723,560 Shares voted "Abstain" ........ 5,714,307 Proposal 3D - To amend the Fundamental restriction concerning borrowing: Shares voted "For" ............ 67,245,705 Shares voted "Against" ........ 1,727,158 Shares voted "Abstain" ........ 5,714,307 Proposal 3E - To amend the Fundamental restriction concerning underwriting: Shares voted "For" ............ 67,257,922 Shares voted "Against" ........ 1,714,941 Shares voted "Abstain" ........ 5,714,307 Proposal 3F - To amend the Fundamental restriction concerning investments in Real Estate: Shares voted "For" ............ 67,256,371 Shares voted "Against" ........ 1,716,492 Shares voted "Abstain" ........ 5,714,307 Proposal 3G - To amend the Fundamental restriction concerning commodities: Shares voted "For" ............ 67,247,728 Shares voted "Against" ........ 1,725,135 Shares voted "Abstain" ........ 5,714,307 Proposal 3H - To amend the Fundamental restriction concerning lending: Shares voted "For" ............ 67,248,731 Shares voted "Against" ........ 1,724,132 Shares voted "Abstain" ........ 5,714,307 Proposal 3J(9) - To amend the Fundamental restriction concerning unseasoned issuers: Shares voted "For" ............ 67,217,376 Shares voted "Against" ........ 1,745,955 Shares voted "Abstain" ........ 5,723,839
20 ADDITIONAL INFORMATION (Unaudited) (continued) Proposal 3J(10) - To amend the Fundamental restriction concerning margin purchases: Shares voted "For" ............. 67,207,387 Shares voted "Against" ......... 1,755,944 Shares voted "Abstain" ......... 5,723,839 Proposal 3J(11) - To amend the Fundamental restriction concerning short sales: Shares voted "For" ............. 67,204,171 Shares voted "Against" ......... 1,747,302 Shares voted "Abstain" ......... 5,735,697 Proposal 3J(12) - To amend the Fundamental restriction concerning margin purchases: Shares voted "For" ............. 67,202,073 Shares voted "Against" ......... 1,747,302 Shares voted "Abstain" ......... 5,737,795 Proposal 3J(13) - To amend the Fundamental restriction concerning other investment companies: Shares voted "For" ............. 67,234,939 Shares voted "Against" ......... 1,746,768 Shares voted "Abstain" ......... 5,705,463
21 66573 541893 RV01 3/98 BULK RATE U.S. POSTAGE PAID CHARLOTTE, NC PERMIT NO. 136 201 S. College St. Charlotte, NC 28288 -----END PRIVACY-ENHANCED MESSAGE-----