-----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, RDoccoY9gVMNlUlpbKvD8bVDlzHFoMHmy59OXN/FtSdj7PDWXH42jYw7JbSSi/ml HoC84hSR8zSR4FjoelHYnQ== 0000826733-97-000017.txt : 19970314 0000826733-97-000017.hdr.sgml : 19970314 ACCESSION NUMBER: 0000826733-97-000017 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970313 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EVERGREEN INVESTMENT TRUST CENTRAL INDEX KEY: 0000757440 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 046599663 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04154 FILM NUMBER: 97556209 BUSINESS ADDRESS: STREET 1: 2500 WESTCHESTER AVE CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9146412305 MAIL ADDRESS: STREET 1: 2500 WESTCHESTER AVE CITY: PURCHASE STATE: NY ZIP: 10577 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION FUNDS/ DATE OF NAME CHANGE: 19940628 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION HIGH GRADE TAX FREE PORT DATE OF NAME CHANGE: 19940519 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION FUNDS DATE OF NAME CHANGE: 19921230 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EVERGREEN LEXICON TRUST CENTRAL INDEX KEY: 0000877698 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-06368 FILM NUMBER: 97556210 BUSINESS ADDRESS: STREET 1: C/O EVERGREEN ASSET MANAGEMENT STREET 2: 2500 WESTCHESTER AVE CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9146412234 MAIL ADDRESS: STREET 1: 2500 WESTCHESTER AVE CITY: PURCHASE STATE: NY ZIP: 10577 FORMER COMPANY: FORMER CONFORMED NAME: FFB LEXICON FUNDS DATE OF NAME CHANGE: 19930408 FORMER COMPANY: FORMER CONFORMED NAME: FFB LEXICON FUND DATE OF NAME CHANGE: 19920929 N-30D 1 ANNUAL REPORT Evergreen Income Funds (four photos of historical significance appear here) Semiannual Report December 31, 1996 Evergreen Keystone (logo) FUNDS (logo) EVERGREEN INCOME FUNDS TABLE OF CONTENTS (photo of certificates appears here) Economic Overview......................................................... 1 INTERMEDIATE-TERM A Report From Your Portfolio Manager...................................... 3 BOND FUND Statement of Investments.................................................. 4 Statement of Assets and Liabilities....................................... 6 Statement of Operations................................................... 7 Statement of Changes in Net Assets........................................ 8 Financial Highlights...................................................... 9 (photo of monument appears here) INTERMEDIATE-TERM A Report From Your Portfolio Manager...................................... 11 GOVERNMENT Statement of Investments.................................................. 12 SECURITIES FUND Statement of Assets and Liabilities....................................... 13 Statement of Operations................................................... 14 Statement of Changes in Net Assets........................................ 15 Financial Highlights...................................................... 16 (photo of Lincoln SHORT-INTERMEDIATE A Report From Your Portfolio Manager....................................... 18 Memorial appears here) BOND FUND Statement of Investments.................................................. 19 Statement of Assets and Liabilities....................................... 22 Statement of Operations................................................... 23 Statement of Changes in Net Assets........................................ 24 Financial Highlights...................................................... 25 (photo of Capitol U.S. GOVERNMENT A Report From Your Portfolio Manager...................................... 28 appears here) FUND Statement of Investments.................................................. 29 Statement of Assets and Liabilities....................................... 30 Statement of Operations................................................... 31 Statement of Changes in Net Assets........................................ 32 Financial Highlights...................................................... 33 Combined Notes to Financial Statements.................................... 35 Trustees and Officers.........................................Inside Back Cover
EVERGREEN INCOME FUNDS ECONOMIC OVERVIEW BY STEPHEN A. LIEBER, CHAIRMAN EVERGREEN ASSET MANAGEMENT CORP. President Clinton's Inaugural Address listed many of (photo of Stephen his hopes for the future of our nation. One of these A. Lieber) hopes, "a nation that balances its budget but never loses the balance of its values" speaks to a central theme of the investment markets as we enter 1997. The hope of investors is for sustained healthy growth, with the long-range promise of building a nation economically strong enough to meet the challenges of supporting an increasingly elderly and retired population. Optimism, reflected in consumer surveys and business surveys, is high at the start of the year, as 1996 proved to provide a stronger and better balanced economy than had been widely anticipated at the beginning of the year. Even in the fourth quarter, expectations of a slowdown were not realized, as growth in that period was apparently at about a 3.5% annual rate, up from the 2.1% Gross Domestic Product gain in the third quarter. Industrial output rose at an estimated 0.8% per month in the fourth quarter, while the core inflation rate of the Producers Price Index, as well as the Consumers Price Index, rose at a rate of only 0.1% per month. Thus, the core inflation rate was contained at just 2.6% in 1996, down from 3.0% in 1995. From the consumers' point of view, apart from a spurt in food and energy prices at year-end, prices of general merchandise were indicated to be somewhat lowered by a combination of widespread discounting and increased imports, made cheaper by the rise of the dollar. A healthy employment situation encouraged the confidence of the American consumer and industry throughout the year. The greatest concern, in contrast to normal uncertainties over employment, was that the slack in the economy was diminishing, so that the cost of labor might be raised and, thus, stimulate inflation. During the summer, the unemployment total was but 5.1% of the work force and, at year-end, had increased very moderately to 5.3%. With manufacturers reluctant to add to staff, hours worked increased by 3.2%. These positive factors did not strain the nation's economic potential because manufacturing capacity was indicated to be increasing month by month, with the year-over-year gain in December, 4.5%. The lack of inflationary pressures was particularly impressive given the extraordinary short-term impacts on purchasing power from the price of oil which rose 40% during the year, and weather-related agricultural developments which increased the price of food. Doubtless adding to demand was the so-called wealth effect, induced by yet another significantly rising stock market, and an ever broader participation by American families in its investments. The wealth effect was manifested in higher year-end demand for luxury goods, whose retailers and vendors often showed outstanding sales results. Looking ahead in 1997, there is a widespread expectation that the economy will reflect the improved consumer and industrial sentiment, but that it will have less external stimulus than it had at the beginning of 1996. In contrast with the monetary stimulus provided by last January's reduction in the Federal funds rate, there is virtually no expectation at this time that the Federal Reserve will soon reduce interest rates, and considerable concern that if the economy sustains its strength, it may well increase rates, thus creating a dragging force on the economy. Improvement in the balance of payments as a stimulus is not expected, as exports are already slowing as a result of the 6% increase of the dollar in 1996, which, in turn, is bringing in more cheaper imports to compete with American manufacturers. Credit ease for the consumer is not expected after several months of larger-than-normal credit card losses reported by the banking and financial industries. In fact, credit in this consumer area is tightening, with an estimated decline of 15% in the number of credit card solicitations by banks in the fourth quarter, and a more than 40% increase in credit card write-offs. Finally, borrowing costs are almost one full percent higher than they were a year ago when the Federal Reserve reduced the federal funds rate. 1 EVERGREEN INCOME FUNDS ECONOMIC OVERVIEW -- (CONTINUED) Investors are challenged by the fact that prices of stocks have increased over the past year as corporate profitability rose, and optimism over future profit rates was well sustained. Today's consensus expectations for corporate profits is for an increase of up to 10% in 1997. If price pressures continue from international competition, if domestic productivity and technology drives prices down in many sectors of growing production, as has been the case, and sales volumes grow at single digits or less, these profits expectations are unlikely to be met. In contrast, those companies which produced the products or services which will be the growth leaders of 1997, have high promise of achieving new levels of profitability and sustaining long-term growth trends. They will be the focus of investment. Companies driving for higher profitability and stronger returns on invested capital through restructuring and reallocation of assets, should become more prominent in the investment spectrum as they enhance their profits outlook through these efficiencies. Another class of promising investments is the specialty business, especially smaller entrepreneurial and innovative ones where growth rates can be enhanced through the synergies of merger and acquisition with larger entities. Given the very strong cash reserves built up through this recent period of high corporate profitability, we anticipate an acceleration of the merger and acquisition drive by large companies looking for broader or new lines of business growth. Many companies which find excess of liquid capital in terms of their near-term business opportunities, may well choose to continue the recent pattern of accelerating corporate stock buy-backs, with the aim of increasing the profits available to continuing shareholders. In summary, there should be powerful forces providing selective opportunities for sustained and important profit gains for many corporations. The savings rate of the American people had generally remained modest, but an increasing portion is moving into the equity markets. With the advantages of tax-deferred programs, ranging from IRAs to 401(k)s, and the shift of retirement plans into equity-related programs, the use of mutual funds has become the predominant mode of investment saving for individuals. In a benign environment, such trends could well be expected to continue. Interruptions are only likely to come through major and, often sudden, market adversities caused by unexpected problems in the short run, and in the longer run, only from the recurrence of inflation and significant rises in the income available from fixed income investment alternatives. The U.S. economic horizon looks clear and healthy at this time. It may well be further encouraged by a decline in interest rates which could occur if growth remains moderate, inflation well-controlled, and investors gain confidence that cooperation between the Administration and the Congress will address their long-term budget fears. Thus, we can conclude as we did a year ago that, "the real return driven demand in a low inflation environment should support new opportunities in both bonds and equities". 2 EVERGREEN INTERMEDIATE-TERM BOND FUND (photo of certificates) A REPORT FROM YOUR PORTFOLIO MANAGER BRUCE BESECKER We are pleased to present the Semiannual Report for Evergreen (photo of Intermediate-Term Bond Fund for the period ended December 31, Bruce Besecker) 1996. The Fund's total return (Class Y, no-load shares) for this six-month period was 4.33%. This return exceeded that for the Lipper Intermediate U.S. Government Funds average of the 129 intermediate U.S. Government funds tracked by Lipper Analytical Services during that time**. The six-month total return at net asset value for the Fund's Class A shares was 4.31%*. The bond market rebounded during the second half of 1996 in time to recover losses from its dismal first-half performance. Bond investors reacted favorably to a couple of themes which permeated the economy as the year progressed. Emerging data throughout the final half of the year painted a picture of an economy growing at a healthy, yet moderating pace. This news was received favorably by investors and, in part, fueled the second-half bond market rally. Although growth of the Gross Domestic Product in the second half of 1996 continued its impressive pace, our estimate for the coming quarters is for growth in a more moderate 1.0% to 2.0% range. Consistent with a fairly stable environment which contains neither rapid inflation nor a slowdown in the economic growth rate, the Federal Reserve remained on the sidelines for the entire period. Indicators suggested that the environment of low inflation and low interest rates, which the markets enjoy currently, should continue for the foreseeable future and could further aid a recovering bond market. The yield for the benchmark thirty-year treasury bond, which mirrored the market's rebound, jumped as high as 7.2% in July before settling back to 6.6% at December 31. The market stumbled slightly in December as rates jumped, but when the smoke cleared, investors were rewarded as the market provided solid returns for the six-month period. Evergreen Intermediate-Term Bond Fund performed nicely with the recovering bond market, with a 4.3% total return for the six months under review. Activity in the Fund was light during the period. Our mortgage and corporate exposure remained essentially unchanged. Most significant portfolio adjustments were made in Treasury securities. Looking forward, we will seek to continue modestly lengthening the duration of the Fund as we are optimistic that the bond market's rally will persist as interest rates continue to decline. In addition, the Fund will seize any opportunities presented to increase the yield; specifically, by adding attractive mortgage holdings. We believe our portfolio structure should reward investors as our Fund is well positioned to thrive in the current economic environment as we enter the second half of the fiscal year. Thank you for your investment in Evergreen Intermediate-Term Bond Fund. FIGURES REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS. * PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. INVESTORS' SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CLASS A SHARES ARE SUBJECT TO A MAXIMUM 3.25% FRONT-END SALES CHARGE WHICH IS NOT REFLECTED IN THE PERFORMANCE FIGURE ABOVE. 0.92% IS THE SIX-MONTH TOTAL RETURN ENDED 12/31/96 FOR THE FUND'S CLASS A SHARES WITH THE MAXIMUM 3.25% FRONT-END SALES CHARGE. THE FUND ALSO OFFERS CLASS B SHARES WHICH ARE SUBJECT TO A MAXIMUM 5% CONTINGENT DEFERRED SALES CHARGE, AND CLASS C SHARES ARE SUBJECT TO A 1% CONTINGENT DEFERRED SALES CHARGE WITHIN THE FIRST YEAR OF PURCHASE. PERFORMANCE FOR THESE CLASSES OF SHARES MAY BE DIFFERENT. ** SOURCE: LANA (LIPPER ANALYTICAL NEW APPLICATIONS) LIPPER ANALYTICAL SERVICES INC., IS AN INDEPENDENT MUTUAL FUNDS PERFORMANCE MONITOR. LIPPER AVERAGE DOES NOT INCLUDE SALES CHARGES, AND IF INCLUDED PERFORMANCE MAY BE LOWER. 3 EVERGREEN INTERMEDIATE-TERM BOND FUND STATEMENT OF INVESTMENTS (photo of certificates) DECEMBER 31, 1996 (UNAUDITED)
PRINCIPAL AMOUNT (000) VALUE CORPORATE BONDS -- 13.5% BANKS -- 3.3% $ 500 Cenfed Financial Corp., 11.17%, 12/15/01, 144A............... $ 550,000 3,000 Comerica, Inc., 7.125%, 12/1/13...................... 2,863,416 2,000 NationsBank Corp., 8.125%, 6/15/02...................... 2,122,938 5,536,354 FINANCE & INSURANCE -- 4.1% 2,500 General Electric Capital Corp., 6.29%, 12/15/07...................... 2,501,547 1,000 Goldman Sachs Group L.P., 6.375%, 6/15/00, 144A................ 994,026 1,500 Grand Metropolitan Investment Corp., 6.50%, 9/15/99....................... 1,508,099 800 Harris Bancorp., 9.375%, 6/1/01....................... 880,256 1,000 KFW International Finance, 8.85%, 6/15/99....................... 1,058,897 6,942,825 INDUSTRIAL SPECIALTY PRODUCTS & SERVICES -- 3.0% 2,000 Baxter International, Inc., 9.25%, 12/15/99...................... 2,149,086 600 Deere & Co., 8.95%, 6/15/19....................... 670,458 2,000 Jet Equipment Trust, 9.41%, 6/15/10, 144A................. 2,218,466 5,038,010 UTILITIES -- ELECTRIC -- 1.4% 2,000 Carolina Power & Light Co., 8.625%, 9/15/21...................... 2,269,404 UTILITIES -- TELEPHONE -- 1.7% 3,100 ALLTEL Corp., 6.50%, 11/1/13....................... 2,848,664 TOTAL CORPORATE BONDS (COST $22,234,530).............. 22,635,257 MORTGAGE BACKED SECURITIES -- 10.9% Federal Home Loan Mortgage Corp., 2,177 7.50%, 5/1/09........................ 2,210,890 1,278 8.00%, 10/1/25....................... 1,305,704 Government National Mortgage Assn., 2,429 6.50%, 10/15/23-3/15/26.............. 2,320,763 2,524 7.00%, 2/15/26-3/15/26............... 2,471,819 PRINCIPAL AMOUNT (000) VALUE MORTGAGE BACKED SECURITIES -- CONTINUED Government National Mortgage Assn., -- continued $ 3,809 7.50%, 9/15/23-3/15/26............... $ 3,816,936 3,320 8.00%, 10/15/24...................... 3,390,121 1,336 9.00%, 4/15/20-8/15/21............... 1,409,922 651 9.50%, 2/15/21....................... 704,507 642 Paine Webber Trust P-3, 9.00%, 10/1/12....................... 649,073 TOTAL MORTGAGE BACKED SECURITIES (COST $18,178,065).............. 18,279,735 U.S. AGENCY OBLIGATIONS -- 3.6% 2,500 Farm Credit Systems Financial Assistance Co., 8.80%, 6/10/05....................... 2,848,068 3,000 Federal Home Loan Bank, 7.70%, 9/20/04....................... 3,199,311 TOTAL U. S. AGENCY OBLIGATIONS (COST $5,651,434)............... 6,047,379 U.S. TREASURY OBLIGATIONS -- 59.9% U.S. Treasury Bonds, 5,000 6.875%, 8/15/25...................... 5,096,875 5,500 7.50%, 11/15/16...................... 5,953,750 1,400 8.75%, 5/15/17....................... 1,707,562 3,950 8.875%, 8/15/17...................... 4,877,014 U.S. Treasury Notes, 1,400 5.125%, 12/31/98..................... 1,377,250 8,000 5.625%, 8/31/97...................... 7,990,000 1,500 5.75%, 8/15/03....................... 1,455,468 15,000 5.875%, 2/15/04...................... 14,610,930 5,000 5.875%, 11/15/05..................... 4,825,000 6,100 6.375%, 1/15/99...................... 6,159,091 9,000 6.375%, 8/15/02...................... 9,061,875 16,575 6.50%, 5/15/05....................... 16,699,312 8,500 6.75%, 4/30/00....................... 8,664,688 10,100 6.875%, 7/31/99...................... 10,308,312 1,600 8.25%, 7/15/98....................... 1,654,499 TOTAL U. S. TREASURY OBLIGATIONS (COST $99,752,488).............. 100,441,626 YANKEE OBLIGATIONS -- 8.2% 3,000 Hydro-Quebec, 8.00%, 2/1/13........................ 3,202,407 3,500 Japan Finance Corp. Municipal Enterprises, 6.85%, 4/15/06....................... 3,525,739
4 EVERGREEN INTERMEDIATE-TERM BOND FUND STATEMENT OF INVESTMENTS -- (CONTINUED) (photo of certificates) DECEMBER 31, 1996 (UNAUDITED) PRINCIPAL AMOUNT (000) VALUE YANKEE OBLIGATIONS -- CONTINUED $ 2,000 Manitoba Province (Canada), 8.00%, 4/15/02....................... $ 2,132,658 800 Petro Canada Ltd., 8.60%, 1/15/10....................... 917,759 Svenska Handelsbanken, 2,000 8.125%, 8/15/07...................... 2,139,970 1,000 8.35%, 7/15/04....................... 1,081,544 700 Westpac Banking, 9.125%, 8/15/01...................... 767,533 TOTAL YANKEE OBLIGATIONS (COST $12,921,110).............. 13,767,610 REPURCHASE AGREEMENT -- 2.4% 4,034 Donaldson, Lufkin & Jenrette Securities Corp., 6.50% dated 12/31/96, due 1/2/97, -- collaterized by $4,055,000 U.S. Treasury Notes, 6.50%, 4/30/97; value, including accrued interest $4,115,026 (COST $4,034,162).................... 4,034,162
TOTAL INVESTMENTS -- (COST $162,771,789)........ 98.5 % 165,205,769 OTHER ASSETS AND LIABILITIES -- NET......... 1.5 2,507,800 NET ASSETS --................ 100.0 % $167,713,569
Rule 144A securities are restricted as to resale to qualified institutional investors. See accompanying notes to financial statements. 5 EVERGREEN INTERMEDIATE-TERM BOND FUND STATEMENT OF ASSETS AND LIABILITIES (photo of certificates) DECEMBER 31, 1996 (UNAUDITED)
ASSETS: Investments at value (identified cost $162,771,789)........................................................... $165,205,769 Interest receivable........................................................................................... 2,598,887 Receivable for Fund shares sold............................................................................... 412,019 Other assets.................................................................................................. 12,246 Total assets............................................................................................... 168,228,921 LIABILITIES: Payable for Fund shares purchased............................................................................. 304,291 Accrued expenses and other liabilities........................................................................ 125,145 Accrued advisory fee.......................................................................................... 77,286 Accrued administration fee.................................................................................... 7,560 Distribution fee payable...................................................................................... 1,070 Total liabilities.......................................................................................... 515,352 NET ASSETS....................................................................................................... $167,713,569 NET ASSETS CONSIST OF: Paid-in capital............................................................................................... $168,846,430 Undistributed net investment income........................................................................... 120,662 Accumulated net realized loss on investment transactions...................................................... (3,687,503) Net unrealized appreciation of investments.................................................................... 2,433,980 Net assets................................................................................................. $167,713,569 CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE: Class A Shares ($3,133,305 divided by 306,302 shares of beneficial interest outstanding)......................... $ 10.23 Sales charge -- 3.25% of offering price.......................................................................... .34 Maximum offering price..................................................................................... $ 10.57 Class B Shares ($786,272 divided by 76,896 shares of beneficial interest outstanding)............................ $ 10.23 Class C Shares ($25,851 divided by 2,527 shares of beneficial interest outstanding).............................. $ 10.23 Class Y Shares ($163,768,141 divided by 16,009,340 shares of beneficial interest outstanding).................... $ 10.23
See accompanying notes to financial statements. 6 EVERGREEN INTERMEDIATE-TERM BOND FUND STATEMENT OF OPERATIONS (photo of certificates) SIX MONTHS ENDED DECEMBER 31, 1996 (UNAUDITED)
INVESTMENT INCOME: Interest (net of foreign withholding taxes of $5,062).............................................. $5,623,609 EXPENSES: Advisory fee....................................................................................... $502,880 Administrative personnel and services fees......................................................... 39,199 Distribution fee -- Class A Shares................................................................. 3,192 Distribution fee -- Class B Shares................................................................. 2,188 Shareholder services fee -- Class B Shares......................................................... 729 Distribution fee -- Class C Shares................................................................. 96 Shareholders services fee -- Class C Shares........................................................ 32 Registration and filing fees....................................................................... 62,795 Custodian fee...................................................................................... 42,451 Transfer agent fee................................................................................. 31,948 Reports and notices to shareholders................................................................ 30,351 Professional fees.................................................................................. 20,726 Amortization of organization expenses.............................................................. 1,497 Insurance.......................................................................................... 1,296 Trustees' fees and expenses........................................................................ 1,296 Miscellaneous...................................................................................... 1,175 741,851 Less: Advisory fee waiver and expense reimbursements............................................... (64,044) Net expenses.................................................................................... 677,807 Net investment income................................................................................. 4,945,802 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss on investment transactions....................................................... (784,764) Net change in unrealized appreciation (depreciation) of investments................................ 2,933,924 Net gain on investments............................................................................... 2,149,160 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................................. $7,094,962
See accompanying notes to financial statements. 7 EVERGREEN INTERMEDIATE-TERM BOND FUND (photo of certificates) STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED TEN MONTHS DECEMBER 31, 1996 ENDED (UNAUDITED) JUNE 30, 1996* INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income................................................................. $ 4,945,802 $ 5,797,073 Net realized gain (loss) on investment transactions................................... (784,764) 314,598 Net change in unrealized appreciation (depreciation) of investments................... 2,933,924 (3,327,986) Net increase in net assets resulting from operations............................... 7,094,962 2,783,685 DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME: Class A Shares........................................................................ (88,650) (35,386) Class B Shares........................................................................ (14,350) (2,841) Class C Shares........................................................................ (624) (169) Class Y Shares........................................................................ (4,809,108) (5,670,902) Total distributions to shareholders................................................ (4,912,732) (5,709,298) FUND SHARE TRANSACTIONS: Proceeds from shares sold............................................................. 23,414,562 38,531,458 Proceeds from shares issued in acquisition of Evergreen Managed Bond Fund............. -- 79,773,557 Proceeds from reinvestment of distributions........................................... 3,538,200 4,544,198 Payment for shares redeemed........................................................... (22,604,907) (54,860,961) Net increase resulting from Fund share transactions................................ 4,347,855 67,988,252 Net increase in net assets...................................................... 6,530,085 65,062,639 NET ASSETS: Beginning of period................................................................... 161,183,484 96,120,845 End of period (including undistributed net investment income of $120,662 and $87,592, respectively)....................................................................... $ 167,713,569 $ 161,183,484
* The Fund changed its fiscal year end from August 31 to June 30, resulting in a ten-month period. See accompanying notes to financial statements. 8 EVERGREEN INTERMEDIATE-TERM BOND FUND CLASS A, B AND C SHARES FINANCIAL HIGHLIGHTS (photo of certificates)
CLASS C CLASS A SHARES CLASS B SHARES SHARES SIX MONTHS TEN MAY 2, SIX MONTHS JANUARY 30, SIX MONTHS ENDED MONTHS 1995* ENDED 1996* ENDED DECEMBER 31, ENDED THROUGH DECEMBER 31, THROUGH DECEMBER 31, 1996 JUNE 30, AUGUST 31, 1996 JUNE 30, 1996 (UNAUDITED) 1996# 1995 (UNAUDITED) 1996# (UNAUDITED) PER SHARE DATA: Net asset value, beginning of period........... $10.10 $10.30 $9.98 $10.10 $10.68 $10.10 Income (loss) from investment operations: Net investment income........................ .30 .48 .18 .25 .20 .25 Net realized and unrealized gain (loss) on investments................................ .13 (.20) .33 .13 (.58) .13 Total from investment operations........... .43 .28 .51 .38 (.38) .38 Less distributions to shareholders from net investment income............................ (.30) (.48) (.19) (.25) (.20) (.25) Net asset value, end of period................. $10.23 $10.10 $10.30 $10.23 $10.10 $10.23 TOTAL RETURN+.................................. 4.3% 2.7% 5.2% 3.8% (3.5%) 3.8% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)...... $3,133 $2,943 $160 $786 $402 $26 Ratios to average net assets: Expenses**................................... .84% .82% .80% 1.81% 1.80% 1.80% Net investment income**...................... 5.87% 6.30% 5.53% 4.93% 5.18% 4.91% Portfolio turnover rate........................ 38% 52% 73% 38% 52% 38% APRIL 29, 1996* THROUGH JUNE 30, 1996# PER SHARE DATA: Net asset value, beginning of period........... $10.15 Income (loss) from investment operations: Net investment income........................ .08 Net realized and unrealized gain (loss) on investments................................ (.05) Total from investment operations........... .03 Less distributions to shareholders from net investment income............................ (.08) Net asset value, end of period................. $10.10 TOTAL RETURN+.................................. .3% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)...... $25 Ratios to average net assets: Expenses**................................... 1.80% Net investment income**...................... 5.30% Portfolio turnover rate........................ 52%
* Commencement of class operations. # The Fund changed its fiscal year end from August 31 to June 30. + Total return is calculated on net asset value per share for the periods indicated and is not annualized. Initial sales charge or contingent deferred sales charges are not reflected. ** Annualized and net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets would have been the following:
CLASS C CLASS A SHARES CLASS B SHARES SHARES SIX MONTHS TEN MAY 2, SIX MONTHS JANUARY 30, SIX MONTHS ENDED MONTHS 1995* ENDED 1996* ENDED DECEMBER 31, ENDED THROUGH DECEMBER 31, THROUGH DECEMBER 31, 1996 JUNE 30, AUGUST 31, 1996 JUNE 30, 1996 (UNAUDITED) 1996# 1995 (UNAUDITED) 1996# (UNAUDITED) Expenses....................................... 1.16% 1.10% 1.38% 1.96% 1.89% 1.95% Net investment income.......................... 5.55% 6.02% 4.95% 4.78% 5.09% 4.76% APRIL 29, 1996* THROUGH JUNE 30, 1996# Expenses....................................... 1.88% Net investment income.......................... 5.22%
See accompanying notes to financial statements. 9 EVERGREEN INTERMEDIATE-TERM BOND FUND CLASS Y SHARES (photo of certificates) FINANCIAL HIGHLIGHTS
SIX MONTHS TEN ENDED MONTHS DECEMBER 31, ENDED 1996 JUNE 30, YEAR ENDED AUGUST 31, (UNAUDITED) 1996# 1995 1994 1993 PER SHARE DATA: Net asset value, beginning of period................................ $10.10 $10.29 $9.93 $10.99 $10.56 Income (loss) from investment operations: Net investment income............................................. .30 .48 .56 .55 .63 Net realized and unrealized gain (loss) on investments............ .13 (.19) .40 (.86) .66 Total from investment operations................................ .43 .29 .96 (.31) 1.29 Less distributions to shareholders from: Net investment income............................................. (.30) (.48) (.56) (.55) (.64) Net realized gains................................................ -- -- (.04) (.20) (.22) Total distributions............................................. (.30) (.48) (.60) (.75) (.86) Net asset value, end of period...................................... $10.23 $10.10 $10.29 $9.93 $10.99 TOTAL RETURN+....................................................... 4.3% 2.8% 10.1% (2.9%) 12.9% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)........................... $163,768 $157,814 $95,961 $91,724 $86,892 Ratios to average net assets: Expenses**........................................................ .80%++ .80%++ .69% .55% .55% Net investment income**........................................... 5.91%++ 5.75%++ 5.63% 5.32% 5.93% Portfolio turnover rate............................................. 38% 52% 73% 69% 49% NOVEMBER 1, 1991* THROUGH AUGUST 31, 1992 PER SHARE DATA: Net asset value, beginning of period................................ $10.00 Income (loss) from investment operations: Net investment income............................................. .55 Net realized and unrealized gain (loss) on investments............ .55 Total from investment operations................................ 1.10 Less distributions to shareholders from: Net investment income............................................. (.54) Net realized gains................................................ -- Total distributions............................................. (.54) Net asset value, end of period...................................... $10.56 TOTAL RETURN+....................................................... 11.3% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)........................... $66,695 Ratios to average net assets: Expenses**........................................................ .55%++ Net investment income**........................................... 6.49%++ Portfolio turnover rate............................................. 65%
* Commencement of class operations. # The Fund changed its fiscal year end from August 31 to June 30. + Total return is calculated on net asset value per share for the periods indicated and is not annualized. ++ Annualized. ** Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets would have been the following:
CLASS Y SHARES SIX MONTHS TEN ENDED MONTHS DECEMBER 31, ENDED 1996 JUNE 30, YEAR ENDED AUGUST 31, (UNAUDITED) 1996# 1995 1994 1993 Expenses............................................................. .95% .87% .83% .83% .83% Net investment income................................................ 5.76% 5.68% 5.49% 5.04% 5.65% NOVEMBER 1, 1991* THROUGH AUGUST 31, 1992 Expenses............................................................. .86% Net investment income................................................ 6.18%
See accompanying notes to financial statements. 10 EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND (photo of monument) A REPORT FROM YOUR PORTFOLIO MANAGER L. ROBERT CHESHIRE We are pleased to present the Semiannual Report for Evergreen (photo of Intermediate-Term Government Securities Fund. The Fund's total (L. Robert return (Class Y, no-load shares) for the six-month period ended Cheshire) December 31, 1996, was 3.71%*. This return exceeded that for the Lipper Short-Intermediate U.S. Government Funds average of the 96 short-intermediate government funds tracked by Lipper Analytical Services during that time**. The six-month total return at net asset value for the Fund's Class A shares was 3.69%*. In our 1996 Annual Report in June, we wrote that "we expect a better environment for the fixed income markets over the next six months". Six months later, we are pleased to report that the market indeed rallied during the latter half of calendar 1996 and provided investors with above-average returns. Several positive economic components contributed to the bond market's recovery. Mini-cycles in our economy have replaced the more extreme fluctuations in the past, and have resulted in more stable inflation and interest rates. Additionally, as the final half of the year wore on, investors' fears of an overly rapid economic expansion were calmed as data surfaced which forecasted a healthy, yet slower growth rate. Although fourth quarter Gross Domestic Product was up 4.7%, projections for the coming quarters are in the more modest 1.0% to 2.0% range. An environment of low inflation and steady growth resulted in an uneventful half for the Federal Reserve as they neither raised nor lowered interest rates. Mirroring the second-half rally, the yield for the benchmark thirty-year U.S. Treasury Bond, jumped as high as 7.2% in July then declined to the 6.3% range before settling back to 6.6% by December 31. We look for the bond market to continue its healthy recovery in 1997. As we anticipate a slower economy to carry through the first half, we believe interest rates should stabilize or decline. Looking ahead, our strategy for the Fund is to moderately shift toward a more neutral stance in relation to its benchmark index. In doing so, we also look to increase the Fund's yield-to-maturity. In order to seek a higher yield, the Fund will strive to increase its mortgage-backed holdings with securities in that sector which also minimize prepayment risk. Due to the market's current uncertainty, we will wait for developments to surface before making any significant changes in the portfolio. For now, a neutral weighting should help protect the Fund's investors from any turbulent fluctuations in the market. Thank you for your investment in Evergreen Intermediate-Term Government Securities Fund. FIGURES REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS. * PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. INVESTORS' SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CLASS A SHARES ARE SUBJECT TO A MAXIMUM 3.25% FRONT-END SALES CHARGE WHICH IS NOT REFLECTED IN THE PERFORMANCE FIGURE ABOVE. 0.32% IS THE SIX-MONTH TOTAL RETURN ENDED 12/31/96 FOR THE FUND'S CLASS A SHARES WITH THE MAXIMUM 3.25% FRONT-END SALES CHARGE. THE FUND ALSO OFFERS CLASS B SHARES WHICH ARE SUBJECT TO A MAXIMUM 5% CONTINGENT DEFERRED SALES CHARGE, AND CLASS C SHARES WHICH ARE SUBJECT TO A 1% CONTINGENT DEFERRED SALES CHARGE WITHIN THE FIRST YEAR OF PURCHASE. PERFORMANCE FOR THESE CLASSES OF SHARES MAY BE DIFFERENT. ** SOURCE: LANA (LIPPER ANALYTICAL NEW APPLICATIONS) LIPPER ANALYTICAL SERVICES INC., IS AN INDEPENDENT MUTUAL FUNDS PERFORMANCE MONITOR. LIPPER AVERAGE DOES NOT INCLUDE SALES CHARGES, AND IF INCLUDED PERFORMANCE MAY BE LOWER. 11 EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND STATEMENT OF INVESTMENTS (photo of monument) DECEMBER 31, 1996 (UNAUDITED)
PRINCIPAL AMOUNT (000) VALUE MORTGAGE BACKED SECURITIES -- 17.0% $ 5,000 Federal Home Loan Mortgage Corp., 5.60%, 2/15/13........................ $ 4,969,095 4,686 Federal Home Loan Mortgage Corp. Gold, 9.00%, 1/1/17......................... 5,013,581 3,843 Federal National Mortgage Assn., 7.00%, 3/1/24......................... 3,778,449 1,000 U.S. Department of Veteran Affairs, 7.00%, 5/15/12........................ 1,000,313 TOTAL MORTGAGE BACKED SECURITIES (COST $14,652,601)............... 14,761,438 U. S. AGENCY OBLIGATIONS -- 8.7% 1,300 Federal Home Loan Bank, 8.60%, 1/25/00........................ 1,387,603 Federal National Mortgage Assn., 2,000 7.50%, 2/11/02........................ 2,094,750 2,000 7.875%, 2/24/05....................... 2,157,046 2,000 Tennessee Valley Authority, 6.375%, 6/15/05....................... 1,966,058 TOTAL U. S. AGENCY OBLIGATIONS (COST $7,360,505)................ 7,605,457 U. S. TREASURY NOTES -- 70.8% 7,000 5.50%, 2/28/99........................ 6,940,934 5,500 6.00%, 8/31/97........................ 5,506,875 3,400 6.00%, 9/30/98........................ 3,405,311 4,000 6.375%, 7/15/99....................... 4,038,748 2,000 6.50%, 5/15/97........................ 2,006,874 3,000 6.50%, 4/30/99........................ 3,035,625 4,500 6.50%, 5/15/05........................ 4,533,750 4,000 6.625%, 6/30/01....................... 4,065,000 PRINCIPAL AMOUNT (000) VALUE U. S. TREASURY NOTES -- CONTINUED $ 3,000 6.75%, 4/30/00........................ $ 3,058,125 3,000 7.25%, 2/15/98........................ 3,041,250 2,000 7.25%, 5/15/04........................ 2,105,624 4,100 7.50%, 10/31/99....................... 4,253,750 2,000 7.50%, 11/15/01....................... 2,106,250 2,000 7.50%, 5/15/02........................ 2,115,624 3,250 7.50%, 2/15/05........................ 3,477,500 1,700 7.875%, 4/15/98....................... 1,740,375 3,500 7.875%, 11/15/04...................... 3,820,467 1,000 8.00%, 1/15/97........................ 1,000,625 1,300 8.50%, 11/15/00....................... 1,404,405 TOTAL U. S. TREASURY NOTES (COST $61,316,890)............... 61,657,112 REPURCHASE AGREEMENT -- 2.2% 1,938 Donaldson, Lufkin & Jenrette Securities Corp., 6.50% dated 12/31/96, due 1/2/97, -- collateralized by $1,141,000 U.S. Treasury Notes, 6.50%, 4/30/97 and $756,000 U.S. Treasury Notes, 8.00%, 5/15/01; value including accrued interest $1,977,768 (COST $1,938,352)................ 1,938,352
TOTAL INVESTMENTS -- (COST $85,268,348)....... 98.7% 85,962,359 OTHER ASSETS AND LIABILITIES -- NET....... 1.3 1,114,340 NET ASSETS --............ 100.0% $87,076,699
See accompanying notes to financial statements. 12 EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND STATEMENT OF ASSETS AND LIABILITIES (photo of monument) DECEMBER 31, 1996 (UNAUDITED)
ASSETS: Investments at value (identified cost $85,268,348)............................................................. $85,962,359 Interest receivable............................................................................................ 1,192,346 Other assets................................................................................................... 39,508 Receivable for Fund shares sold................................................................................ 4,028 Total assets............................................................................................. 87,198,241 LIABILITIES: Due to custodian bank.......................................................................................... 1,083 Accrued expenses and other liabilities......................................................................... 54,526 Accrued advisory fee........................................................................................... 37,021 Payable for Fund shares repurchased............................................................................ 25,381 Accrued administration fee..................................................................................... 2,825 Distribution fee payable....................................................................................... 706 Total liabilities........................................................................................ 121,542 NET ASSETS........................................................................................................ $87,076,699 NET ASSETS CONSIST OF: Paid-in capital................................................................................................ $88,190,497 Undistributed net investment income............................................................................ 60,455 Accumulated net realized loss on investment transactions....................................................... (1,868,264) Net unrealized appreciation of investments..................................................................... 694,011 Net assets............................................................................................... $87,076,699 CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE: Class A Shares ($598,703 divided by 59,370 shares of beneficial interest outstanding).......................... $ 10.08 Sales charge -- 3.25% of offering price........................................................................ .34 Maximum offering price................................................................................... $ 10.42 Class B Shares ($665,421 divided by 66,009 shares of beneficial interest outstanding).......................... $ 10.08 Class C Shares ($31,382 divided by 3,113 shares of beneficial interest outstanding)............................ $ 10.08 Class Y Shares ($85,781,193 divided by 8,506,055 shares of beneficial interest outstanding).................... $ 10.08
See accompanying notes to financial statements. 13 EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND STATEMENT OF OPERATIONS (photo of monument) SIX MONTHS ENDED DECEMBER 31, 1996 (UNAUDITED)
INVESTMENT INCOME: Interest.......................................................................................... $ 2,808,484 EXPENSES: Advisory fee...................................................................................... $265,958 Administrative personnel and services fees........................................................ 20,526 Distribution fee -- Class A Shares................................................................ 1,326 Distribution fee -- Class B Shares................................................................ 1,955 Shareholder services fee -- Class B Shares........................................................ 652 Distribution fee -- Class C Shares................................................................ 122 Shareholder services fee -- Class C Shares........................................................ 41 Registration and filing fees...................................................................... 47,661 Custodian fee..................................................................................... 25,356 Transfer agent fee................................................................................ 17,730 Professional fees................................................................................. 15,252 Reports and notices to shareholders............................................................... 4,766 Amortization of organization expenses............................................................. 1,351 Insurance......................................................................................... 953 Trustees' fees and expenses....................................................................... 953 Miscellaneous..................................................................................... 953 405,555 Less: Advisory fee waiver and expense reimbursements.............................................. (47,031) Net expenses................................................................................... 358,524 Net investment income................................................................................ 2,449,960 NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investment transactions...................................................... 313,097 Net increase in unrealized appreciation of investments............................................ 442,982 Net gain on investments.............................................................................. 756,079 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................. $ 3,206,039
See accompanying notes to financial statements. 14 EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND (photo of monument) STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED DECEMBER 31, TEN MONTHS 1996 ENDED (UNAUDITED) JUNE 30, 1996* INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income.................................................................... $ 2,449,960 $ 4,606,598 Net realized gain on investment transactions............................................. 313,097 11,468 Net change in unrealized appreciation (depreciation) of investments...................... 442,982 (1,507,190) Net increase in net assets resulting from operations.................................. 3,206,039 3,110,876 DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME: Class A Shares........................................................................... (15,514) (23,774) Class B Shares........................................................................... (11,711) (2,363) Class C Shares........................................................................... (756) (255) Class Y Shares........................................................................... (2,378,856) (4,562,840) Total distributions to shareholders................................................... (2,406,837) (4,589,232) FUND SHARE TRANSACTIONS: Proceeds from shares sold................................................................ 5,756,681 13,828,502 Proceeds from reinvestment of distributions.............................................. 2,543,029 4,095,518 Payment for shares redeemed.............................................................. (9,915,604) (34,626,524) Net decrease resulting from Fund share transactions................................... (1,615,894) (16,702,504) Net decrease in net assets......................................................... (816,692) (18,180,860) NET ASSETS: Beginning of period...................................................................... 87,893,391 106,074,251 End of period (including undistributed net investment income of $60,455 and $17,332, respectively).................................................... $ 87,076,699 $ 87,893,391
* The Fund changed its fiscal year end from August 31 to June 30, resulting in a ten-month period. See accompanying notes to financial statements. 15 EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND -- CLASS A, B AND C SHARES (photo of monument) FINANCIAL HIGHLIGHTS
CLASS A SHARES CLASS B SHARES SIX SIX MONTHS TEN MAY 2, MONTHS FEBRUARY 9, ENDED MONTHS 1995* ENDED 1996* DECEMBER 31, ENDED THROUGH DECEMBER 31, THROUGH 1996 JUNE 30, AUGUST 31, 1996 JUNE 30, (UNAUDITED) 1996# 1995 (UNAUDITED) 1996# PER SHARE DATA: Net asset value, beginning of period.................. $9.99 $10.15 $9.95 $9.99 $10.38 Income (loss) from investment operations: Net investment income............................... .28 .46 .19 .23 .18 Net realized and unrealized gain (loss) on investments....................................... .08 (.16) .20 .09 (.39) Total from investment operations.................. .36 .30 .39 .32 (.21) Less distributions to shareholders from net investment income................................... (.27) (.46) (.19) (.23) (.18) Net asset value, end of period........................ $10.08 $9.99 $10.15 $10.08 $9.99 TOTAL RETURN+......................................... 3.7% 3.0% 3.9% 3.2% (2.0%) RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)............. $599 $497 $9 $665 $359 Ratios to average net assets: Expenses**.......................................... .84% .81% .80% 1.81% 1.80% Net investment income**............................. 5.50% 5.49% 5.42% 4.56% 4.62% Portfolio turnover rate............................... 29% 28% 45% 29% 28% CLASS C SHARES SIX MONTHS APRIL 10 ENDED 1996* DECEMBER 31, THROUGH 1996 JUNE 30, (UNAUDITED) 1996# PER SHARE DATA: Net asset value, beginning of period.................. $9.99 $10.01 Income (loss) from investment operations: Net investment income............................... .22 .11 Net realized and unrealized gain (loss) on investments....................................... .10 (.02) Total from investment operations.................. .32 .09 Less distributions to shareholders from net investment income................................... (.23) (.11) Net asset value, end of period........................ $10.08 $9.99 TOTAL RETURN+......................................... 3.2% .9% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)............. $31 $32 Ratios to average net assets: Expenses**.......................................... 1.80% 1.80% Net investment income**............................. 4.53% 4.47% Portfolio turnover rate............................... 29% 28%
* Commencement of class operations. # The Fund changed its fiscal year end from August 31 to June 30. + Total return is calculated on net asset value per share for the periods indicated and is not annualized. Initial sales charge or contingent deferred sales charges are not reflected. ** Annualized and net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets would have been the following:
CLASS A SHARES CLASS B SHARES SIX SIX MONTHS TEN MAY 2, MONTHS FEBRUARY 9, ENDED MONTHS 1995* ENDED 1996* DECEMBER 31, ENDED THROUGH DECEMBER 31, THROUGH 1996 JUNE 30, AUGUST 31, 1996 JUNE 30, (UNAUDITED) 1996# 1995 (UNAUDITED) 1996# Expenses.............................................. 1.47% 1.06% 1.34% 2.01% 1.91% Net investment income................................. 4.87% 5.24% 4.88% 4.36% 4.51% CLASS C SHARES SIX MONTHS APRIL 10 ENDED 1996* DECEMBER 31, THROUGH 1996 JUNE 30, (UNAUDITED) 1996# Expenses.............................................. 2.00% 1.91% Net investment income................................. 4.33% 4.36%
See accompanying notes to financial statements. 16 EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND -- CLASS Y SHARES (photo of monument) FINANCIAL HIGHLIGHTS
SIX MONTHS TEN ENDED MONTHS DECEMBER 31, ENDED 1996 JUNE 30, YEAR ENDED AUGUST 31, (UNAUDITED) 1996# 1995 1994 1993 PER SHARE DATA: Net asset value, beginning of period................................ $9.99 $10.15 $9.92 $10.61 $10.41 Income (loss) from investment operations: Net investment income............................................. .28 .46 .55 .54 .57 Net realized and unrealized gain (loss) on investments............ .09 (.16) .23 (.64) .24 Total from investment operations................................ .37 .30 .78 (.10) .81 Less distributions to shareholders from: Net investment income............................................. (.28) (.46) (.55) (.54) (.58) Net realized gains................................................ -- -- -- (.05) (.03) Total distributions............................................. (.28) (.46) (.55) (.59) (.61) Net asset value, end of period...................................... $10.08 $9.99 $10.15 $9.92 $10.61 TOTAL RETURN+....................................................... 3.7% 3.0% 8.2% (1.0%) 8.0% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)........................... $85,781 $87,004 $106,066 $106,448 $119,172 Ratios to average net assets: Expenses**........................................................ .80%++ .80%++ .70% .55% .55% Net investment income**........................................... 5.53%++ 5.47%++ 5.54% 5.22% 5.48% Portfolio turnover rate............................................. 29% 28% 45% 45% 31% NOVEMBER 1, 1991* THROUGH AUGUST 31, 1992 PER SHARE DATA: Net asset value, beginning of period................................ $10.00 Income (loss) from investment operations: Net investment income............................................. .48 Net realized and unrealized gain (loss) on investments............ .40 Total from investment operations................................ .88 Less distributions to shareholders from: Net investment income............................................. (.47) Net realized gains................................................ -- Total distributions............................................. (.47) Net asset value, end of period...................................... $10.41 TOTAL RETURN+....................................................... 9.1% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)........................... $87,648 Ratios to average net assets: Expenses**........................................................ .55%++ Net investment income**........................................... 5.68%++ Portfolio turnover rate............................................. 47%
* Commencement of class operations. # The Fund changed its fiscal year end from August 31 to June 30. + Total return is calculated on net asset value per share for the periods indicated and is not annualized. ++ Annualized. ** Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets would have been the following:
CLASS Y SHARES SIX MONTHS TEN ENDED MONTHS DECEMBER 31, ENDED 1996 JUNE 30, YEAR ENDED AUGUST 31, (UNAUDITED) 1996# 1995 1994 1993 Expenses.............................................................. 1.01% .87% .84% .82% .83% Net investment income................................................. 5.32% 5.40% 5.40% 4.95% 5.20% NOVEMBER 1, 1991* THROUGH AUGUST 31, 1992 Expenses.............................................................. .86% Net investment income................................................. 5.37%
See accompanying notes to financial statements. 17 EVERGREEN SHORT -- INTERMEDIATE BOND FUND (photo of Lincoln Memorial) A REPORT FROM YOUR PORTFOLIO MANAGER TOM ELLIS We are pleased to present the Semiannual Report for the (photo of Evergreen Short-Intermediate Bond Fund for the six months Tom Ellis) ended December 31, 1996. The Fund's total return (Class Y, no-load shares) for this period was 4.30%*, which exceeded the return for the Lipper Short-Intermediate Investment Grade Funds average of the 78 short-intermediate investment grade funds tracked by Lipper Analytical Services during that time**. The six-month total return at net asset value for the Fund's Class A shares was 4.25%*. In our Annual Report to you six months ago, we stated our belief that "the market is overreacting...(and) we remain positive on the bond market as we look toward the end of calendar year 1996". Six months later, we are pleased to report that the bond market finally settled down during the second half of 1996 and recaptured losses from a difficult first-half. Poor first-half performance was largely driven by concerns over a rapidly expanding economy and the potential of higher interest rates. Indicators which emerged throughout the final six months painted a picture of a healthy, yet moderating economy, and bonds advanced nicely as interest rates continued their steady decline. Full employment with low inflation and steady growth buoyed bond investors and, consistent with this fairly stable environment, the Federal Reserve stayed on the sidelines throughout the entire six-month period. The rally stumbled briefly in December as rates jumped, but when the smoke cleared, bond investors were rewarded with solid returns. During this same period, the yield for the benchmark thirty-year U.S. Treasury bond jumped as high as 7.2% in July before settling back to 6.6% by December 31. Our optimistic outlook and strategic weightings in the Fund paid off as we recovered some earlier losses to post a positive total return in the fiscal first half. Portfolio duration was kept near that of the benchmark index to hedge any turbulent interest rate fluctuations. We decreased exposure to corporate bonds during the fourth quarter as yield spreads have continued to narrow. Conversely, we have increased our exposure to mortgage-backed securities as we feel they currently possess better value. Throughout the six-month period, returns were enhanced by asset-backed securities such as home-equity loans which continued to be excellent performers. Lastly, we continued to increase the callable agencies in the portfolio which have performed well in the current market environment which has been range-bound all year. Thank you for your investment in Evergreen Short-Intermediate Bond Fund. FIGURES REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS. * PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. INVESTORS' SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CLASS A SHARES ARE SUBJECT TO A MAXIMUM 3.25% FRONT-END SALES CHARGE WHICH IS NOT REFLECTED IN THE PERFORMANCE FIGURE ABOVE. 0.91% IS THE SIX-MONTH TOTAL RETURN ENDED 12/31/96 FOR THE FUND'S CLASS A SHARES WITH THE MAXIMUM 3.25% FRONT-END SALES CHARGE. THE FUND ALSO OFFERS CLASS B SHARES WHICH ARE SUBJECT TO A MAXIMUM 5% CONTINGENT DEFERRED SALES CHARGE, AND CLASS C SHARES WHICH ARE SUBJECT TO A 1% CONTINGENT DEFERRED SALES CHARGE WITHIN THE FIRST YEAR OF PURCHASE. PERFORMANCE FOR THESE CLASSES OF SHARES MAY BE DIFFERENT. ** SOURCE: LANA (LIPPER ANALYTICAL NEW APPLICATIONS) LIPPER ANALYTICAL SERVICES INC., IS AN INDEPENDENT MUTUAL FUNDS PERFORMANCE MONITOR. LIPPER AVERAGE DOES NOT INCLUDE SALES CHARGES, AND IF INCLUDED PERFORMANCE MAY BE LOWER. 18 EVERGREEN SHORT -- INTERMEDIATE BOND FUND STATEMENT OF INVESTMENTS (photo of Lincoln Memorial) DECEMBER 31, 1996 (UNAUDITED)
PRINCIPAL AMOUNT (000) VALUE ASSET-BACKED SECURITIES -- 11.8% $ 5,095 Advanta Home Equity Loan Trust, 7.20%, 11/25/08.................. $ 5,164,956 685 Bank of West Trust, 9.50%, 2/15/05................... 693,063 1,750 Case Equipment Loan Trust, 6.45%, 9/15/02................... 1,727,460 117 CIT Group Holdings, Inc., 4.70%, 6/15/18................... 117,165 2,000 EQCC Home Equity Loan Trust, 5.82%, 9/15/09................... 1,974,900 3,926 FCC Grantor Trust, 9.00%, 7/15/97................... 3,953,157 2,927 First Bank Auto Receivable, 8.30%, 1/15/00................... 2,986,613 4,626 First Security Auto Grantor Trust, 6.25%, 1/15/01................... 4,657,480 1,123 Fleet Financial Home Equity Trust, 6.70%, 1/16/06 - 10/16/06........ 1,128,972 7,390 Fleetwood Credit Grantor Trust, 4.95%, 8/15/08................... 7,242,843 7,500 Household Affinity Credit Card Master Trust, 7.20%, 12/15/99.................. 7,606,275 646 Jayhawk Funding Trust I, 5.925%, 9/15/99, 144A............ 646,783 1,483 SCFC Recreational Vehicle Loan Trust, 7.25%, 9/15/06................... 1,492,191 Western Financial Grantor Trust, 6,301 5.875%, 3/1/02................... 6,292,092 2,863 6.20%, 2/1/02.................... 2,872,237 TOTAL ASSET-BACKED SECURITIES (COST $48,483,549).......... 48,556,187 CORPORATE BONDS -- 27.0% BANKS -- 6.9% 3,400 Abbey National Plc, 6.69%, 10/17/05.................. 3,379,304 3,350 Amsouth Bancorporation, 6.75%, 11/1/25................... 3,299,435 3,000 Cenfed Financial Corp., 11.17%, 12/15/01, 144A........... 3,300,000 First Chicago Corp., 4,000 9.00%, 6/15/99................... 4,240,628 2,000 9.20%, 12/17/01.................. 2,212,448 5,000 First Security Corp., 6.40%, 2/10/03................... 4,866,795 6,000 National Bank of Canada, 8.125%, 8/15/04.................. 6,383,310 500 Security Pacific Corp., 10.45%, 5/8/01................... 568,874 28,250,794 PRINCIPAL AMOUNT (000) VALUE CORPORATE BONDS -- CONTINUED ENERGY -- .5% $ 2,000 Ras Laffan Liquefied Natural Gas, 7.628%, 9/15/06, 144A............ $ 2,018,446 FINANCE & INSURANCE -- 18.1% 2,000 American Express Credit Corp., 6.25%, 8/10/05................... 1,986,562 3,000 Associated P&C Holdings, Inc., 6.75%, 7/15/03, 144A............. 2,912,439 3,000 Bear Stearns Co., Inc., 7.625%, 4/15/00.................. 3,097,611 10,000 Chrysler Buildings, 9.125%, 5/1/99................... 10,524,430 1,000 Horace Mann Educators Corp., 6.625%, 1/15/06.................. 964,923 5,250 Household Finance Corp., 6.70%, 6/15/02................... 5,242,199 Lehman Brothers Holdings, Inc., 5,000 6.625%, 11/15/00................. 4,967,490 2,500 6.84%, 10/7/99................... 2,514,340 5,000 8.875%, 3/1/02................... 5,391,920 Metropolitan Life Insurance Co., 5,000 6.30%, 11/1/03, 144A............. 4,840,985 5,000 7.00%, 11/1/05, 144A............. 4,970,155 5,000 Money Store, Inc., 7.88%, 9/15/00................... 5,107,950 1,000 Morgan Stanley Group, Inc., 9.40%, 3/5/98.................... 1,038,210 6,000 Progressive Corp., Ohio, 6.60%, 1/15/04................... 5,863,518 Salomon Brothers, Inc., 1,800 8.57%, 3/10/97................... 1,808,786 9,000 9.01%, 5/1/97.................... 9,091,755 4,000 Traveler's Group, Inc., 6.875%, 6/1/25................... 4,016,068 74,339,341 INDUSTRIAL SPECIALTY PRODUCTS & SERVICES -- 1.3% 5,000 Boral Limited Australia Co., 7.90%, 11/19/99, 144A............ 5,192,225 SOVEREIGN GOVERNMENT -- .2% 900 New Brunswick Province CDA, 7.125%, 10/1/02.................. 923,597 TOTAL CORPORATE BONDS (COST $111,408,473)......... 110,724,403
19 EVERGREEN SHORT -- INTERMEDIATE BOND FUND STATEMENT OF INVESTMENTS -- (CONTINUED) (photo of Lincoln Memorial) DECEMBER 31, 1996 (UNAUDITED)
PRINCIPAL AMOUNT (000) VALUE MORTGAGE BACKED SECURITIES -- 26.8% AFC Home Equity Loan Trust, $ 1,036 6.60%, 10/26/26.................. $ 1,039,515 404 8.05%, 4/27/26................... 409,046 3,150 Chase Commercial Mortgage Security Corp., 6.90%, 12/31/99.................. 3,095,859 3,356 CMC Securities Corp., 10.00%, 7/25/23.................. 3,559,344 Federal Home Loan Mortgage Corp., 1,913 6.75%, 2/15/04................... 1,921,804 4,000 6.80%, 10/15/05.................. 4,033,240 10,000 7.40%, 10/15/05.................. 10,145,560 437 10.50%, 9/1/15................... 482,834 Federal Housing Administration- Puttable Project Loans, 4,044 GMAC 56, 7.43%, 11/1/22................... 4,115,858 6,327 Merrill Lynch 199, 8.43%, 2/1/20.................... 6,644,364 2,980 Reilly 18, 6.875%, 4/1/15................... 2,979,565 1,582 Reilly 55, 7.43%, 3/1/24.................... 1,610,878 10,389 Reilly 64, 7.43%, 1/1/24.................... 10,554,214 5,372 USGI E1, 7.43%, 7/1/22.................... 5,466,196 Federal National Mortgage Assn., 3,726 6.23%, 12/25/25.................. 3,738,720 2,100 8.00%, 11/25/06.................. 2,167,177 9,000 8.10%, 4/25/25................... 9,293,238 39 14.00%, 6/1/11................... 45,499 1,934 GCC Second Mortgage Trust, 10.00%, 7/15/05.................. 2,010,490 5,829 Government National Mortgage Assn., 7.50%, 11/20/08.................. 5,920,739 4,000 Kidder Peabody Acceptance Corp., 1994-C1A 6.65%, 2/1/06.................... 4,013,125 2,500 Potomac Gurnee Finance Corp., 7.003%, 12/21/26................. 2,505,078 PRINCIPAL AMOUNT (000) VALUE Prudential Home Mortgage Securities, $ 7,973 6.30%, 5/25/99................... $ 7,966,083 4,789 6.50%, 10/25/08.................. 4,650,722 4,727 Prudential Securities Secured Financing Corp., 8.12%, 2/17/25................... 4,905,886 62 Resolution Trust Corp., 7.00%, 2/15/04................... 62,324 6,798 Saxon Mortgage Securities Corp., 7.375%, 9/25/23.................. 6,855,113 TOTAL MORTGAGE BACKED SECURITIES (COST $109,082,759)......... 110,192,471 U.S. AGENCY OBLIGATIONS -- 11.6% Federal Home Loan Banks, 9,275 6.075%, 7/2/97................... 9,278,478 3,000 6.80%, 8/2/00.................... 3,003,408 6,000 7.045%, 8/13/01.................. 6,023,004 4,850 7.125%, 7/2/99................... 4,856,771 Federal Home Loan Mortgage Corp., 2,000 6.97%, 6/16/05................... 1,988,226 2,945 7.30%, 7/30/01................... 2,972,753 2,200 7.99%, 3/23/05................... 2,238,016 Federal National Mortgage Assn., 1,500 5.30%, 8/25/98................... 1,486,956 500 6.00%, 12/15/00.................. 493,395 7,500 6.64%, 6/19/00................... 7,559,857 5,000 7.11%, 8/7/01.................... 5,040,455 2,500 7.65%, 5/4/05.................... 2,548,298 TOTAL U.S. AGENCY OBLIGATIONS (COST $47,388,072).......... 47,489,617 U.S. TREASURY OBLIGATIONS -- 19.8% U.S. Treasury Notes, 7,000 5.75%, 8/15/03................... 6,792,184 2,000 6.375%, 9/30/01.................. 2,011,874 20,500 6.50%, 8/15/05................... 20,647,334 2,075 6.50%, 10/15/06.................. 2,087,319 2,000 6.875%, 5/15/06.................. 2,062,500 14,980 7.00%, 7/15/06................... 15,569,837 2,000 7.125%, 9/30/99.................. 2,055,000 11,000 7.75%, 11/30/99.................. 11,491,557 17,400 8.875%, 2/15/99.................. 18,411,375 TOTAL U.S. TREASURY OBLIGATIONS (COST $81,927,487).......... 81,128,980
20 EVERGREEN SHORT -- INTERMEDIATE BOND FUND STATEMENT OF INVESTMENTS -- (CONTINUED) (photo of Lincoln Memorial) DECEMBER 31, 1996 (UNAUDITED)
PRINCIPAL AMOUNT (000) VALUE REPURCHASE AGREEMENT -- .7% $ 3,033 Donaldson, Lufkin & Jenrette Securities Corp., 6.50% dated 12/31/96, due 1/2/97 -- collateralized by $3,049,000 U.S. Treasury Notes, 6.50%, 4/30/97; value, including accrued interest $3,094,134 (COST $3,033,068)................ $ 3,033,068
TOTAL INVESTMENTS -- (COST $401,323,408)..... 97.7 % 401,124,726 OTHER ASSETS AND LIABILITIES -- NET...... 2.3 9,648,042 NET ASSETS --............. 100.0 % $410,772,768
Rule 144A securities are restricted as to resale to qualified institutional investors. See accompanying notes to financial statements. 21 EVERGREEN SHORT -- INTERMEDIATE BOND FUND STATEMENT OF ASSETS AND LIABILITIES (photo of Lincoln Memorial) DECEMBER 31, 1996 (UNAUDITED)
ASSETS: Investments at value (identified cost $401,323,408)........................................................... $401,124,726 Interest receivable........................................................................................... 6,040,920 Receivable for Fund shares sold............................................................................... 5,048,569 Prepaid expenses.............................................................................................. 22,569 Total assets............................................................................................ 412,236,784 LIABILITIES: Payable for Fund shares repurchased........................................................................... 1,126,460 Accrued advisory fee.......................................................................................... 174,542 Accrued expenses.............................................................................................. 126,906 Distribution fee payable...................................................................................... 19,924 Accrued administration fee.................................................................................... 16,184 Total liabilities....................................................................................... 1,464,016 NET ASSETS....................................................................................................... $410,772,768 NET ASSETS CONSIST OF: Paid-in capital............................................................................................... $425,489,970 Undistributed net investment income........................................................................... 36,907 Accumulated net realized loss on investment transactions...................................................... (14,555,427) Net unrealized depreciation of investments.................................................................... (198,682) Net assets................................................................................................. $410,772,768 CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE: Class A Shares ($19,890,850 divided by 2,006,031 shares of beneficial interest outstanding)................... $ 9.92 Sales charge -- 3.25% of offering price....................................................................... .33 Maximum offering price.................................................................................. $ 10.25 Class B Shares ($22,683,150 divided by 2,284,440 shares of beneficial interest outstanding)................... $ 9.93 Class C Shares ($1,116,408 divided by 112,425 shares of beneficial interest outstanding)...................... $ 9.93 Class Y Shares ($367,082,360 divided by 37,034,055 shares of beneficial interest outstanding)................. $ 9.91
See accompanying notes to financial statements. 22 EVERGREEN SHORT -- INTERMEDIATE BOND FUND STATEMENT OF OPERATIONS (photo of Lincoln Memorial) SIX MONTHS ENDED DECEMBER 31, 1996 (UNAUDITED)
INVESTMENT INCOME: Interest....................................................................................... $14,087,204 EXPENSES: Advisory fee................................................................................... $1,001,093 Administrative personnel and services fees..................................................... 92,663 Distribution fee -- Class A Shares............................................................. 9,702 Distribution fee -- Class B Shares............................................................. 82,609 Shareholder services fee -- Class B Shares..................................................... 27,536 Distribution fee -- Class C Shares............................................................. 3,952 Shareholder services fee -- Class C Shares..................................................... 1,317 Custodian fee.................................................................................. 42,046 Transfer agent fee............................................................................. 30,033 Registration and filing fees................................................................... 28,031 Reports and notices to shareholders............................................................ 24,026 Professional fees.............................................................................. 8,009 Insurance...................................................................................... 6,007 Trustees' fees and expenses.................................................................... 2,002 Miscellaneous.................................................................................. 8,009 Total expenses........................................................................... 1,367,035 Net investment income............................................................................. 12,720,169 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss on investment transactions................................................... (565,002) Net change in unrealized depreciation of investments........................................... 4,315,104 Net gain on investments........................................................................... 3,750,102 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............................................. $16,470,271
See accompanying notes to financial statements. 23 EVERGREEN SHORT -- INTERMEDIATE BOND FUND (photo of Lincoln Memorial) STATEMENT OF CHANGES IN NET ASSETS SIX MONTHS ENDED YEAR DECEMBER 31, ENDED 1996 JUNE 30, (UNAUDITED) 1996 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income..................................................................... $ 12,720,169 $ 24,943,586 Net realized loss on investments.......................................................... (565,002) (4,715,061) Net change in unrealized depreciation of investments...................................... 4,315,104 (2,841,758) Net increase in net assets resulting from operations................................... 16,470,271 17,386,767 DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME: Class A Shares............................................................................ (617,959) (1,165,625) Class B Shares............................................................................ (600,378) (1,059,184) Class C Shares............................................................................ (29,112) (49,329) Class Y Shares............................................................................ (11,534,186) (23,005,091) Total distributions to shareholders.................................................... (12,781,635) (25,279,229) FUND SHARE TRANSACTIONS: Proceeds from shares sold................................................................. 60,437,269 170,338,605 Proceeds from reinvestment of distributions............................................... 8,146,682 18,879,027 Payment for shares redeemed............................................................... (54,386,268) (172,279,164) Net increase resulting from Fund share transactions.................................... 14,197,683 16,938,468 Net increase in net assets.......................................................... 17,886,319 9,046,006 NET ASSETS: Beginning of period....................................................................... 392,886,449 383,840,443 End of period (including undistributed net investment income of $36,907 and $98,373, respectively)..................................................... $410,772,768 $392,886,449
See accompanying notes to financial statements. 24 EVERGREEN SHORT -- INTERMEDIATE BOND FUND -- CLASS A SHARES (photo of Lincoln Memorial) FINANCIAL HIGHLIGHTS SIX MONTHS YEAR ENDED YEAR SIX MONTHS ENDED DECEMBER 31, ENDED ENDED DECEMBER 1996 JUNE 30, JUNE 30, 31, (UNAUDITED) 1996 1995# 1994 PER SHARE DATA: Net asset value, beginning of period........................................ $9.82 $10.02 $9.52 $10.42 Income (loss) from investment operations: Net investment income..................................................... .31 .63 .32 .65 Net realized and unrealized gain (loss) on investments.................... .11 (.19 ) .50 (.91) Total from investment operations........................................ .42 .44 .82 (.26) Less distributions to shareholders from: Net investment income..................................................... (.32 ) (.64 ) (.32 ) (.64) Net realized gains........................................................ -- -- -- -- Total distributions..................................................... (.32 ) (.64 ) (.32 ) (.64) Net asset value, end of period.............................................. $9.92 $9.82 $10.02 $9.52 TOTAL RETURN+............................................................... 4.3% 4.5% 8.8% (2.6%) RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)................................... $ 19,891 $18,630 $ 18,898 $19,127 Ratios to average net assets: Expenses.................................................................. .72% ++ .79% .77% ++ .75% Net investment income..................................................... 6.32% ++ 6.35% 6.58% ++ 6.46% Portfolio turnover rate..................................................... 15% 76% 34% 48%
1993 1992 PER SHARE DATA: Net asset value, beginning of period........................................ $10.41 $10.54 Income (loss) from investment operations: Net investment income..................................................... .65 .71 Net realized and unrealized gain (loss) on investments.................... .19 (.06) Total from investment operations........................................ .84 .65 Less distributions to shareholders from: Net investment income..................................................... (.65) (.67) Net realized gains........................................................ (.18) (.11) Total distributions..................................................... (.83) (.78) Net asset value, end of period.............................................. $10.42 $10.41 TOTAL RETURN+............................................................... 8.3% 6.4% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)................................... $22,865 $21,488 Ratios to average net assets: Expenses.................................................................. .93% .90% Net investment income..................................................... 6.15% 6.79% Portfolio turnover rate..................................................... 73% 66%
# The Fund changed its fiscal year end from December 31 to June 30. + Total return is calculated on net asset value per share for the periods indicated and is not annualized. Initial sales charge is not reflected. ++ Annualized. See accompanying notes to financial statements. 25 EVERGREEN SHORT -- INTERMEDIATE BOND FUND -- CLASS B AND CLASS C SHARES (photo of Lincoln Memorial) FINANCIAL HIGHLIGHTS CLASS B SHARES CLASS C SHARES SIX MONTHS JANUARY 25, SIX MONTHS ENDED YEAR SIX MONTHS 1993* ENDED YEAR SIX MONTHS DECEMBER 31, ENDED ENDED YEAR ENDED THROUGH DECEMBER 31, ENDED ENDED 1996 JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, 1996 JUNE 30, JUNE 30, (UNAUDITED) 1996 1995# 1994 1993 (UNAUDITED) 1996 1995# PER SHARE DATA: Net asset value, beginning of period......................... $9.84 $10.04 $9.54 $10.44 $10.57 $9.84 $10.05 $9.55 Income (loss) from investment operations: Net investment income.......... .27 .55 .28 .58 .58 .27 .55 .26 Net realized and unrealized gain (loss) on investments... .09 (.19 ) .50 (.92 ) .05 .09 (.20 ) .50 Total from investment operations................. .36 .36 .78 (.34 ) .63 .36 .35 .76 Less distributions to shareholders from: Net investment income.......... (.27 ) (.56 ) (.28 ) (.56 ) (.58 ) (.27 ) (.56 ) (.26 ) Net realized gains............. -- -- -- -- (.18 ) -- -- -- Total distributions.......... (.27 ) (.56 ) (.28 ) (.56 ) (.76 ) (.27 ) (.56 ) (.26 ) Net asset value, end of period... $9.93 $9.84 $10.04 $9.54 $10.44 $9.93 $9.84 $10.05 TOTAL RETURN+.................... 3.7% 3.6% 8.3% (3.3% ) 6.1% 3.7% 3.5% 8.2% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)....................... $ 22,683 $21,006 $ 17,366 $ 17,625 $ 8,876 $ 1,116 $ 1,155 $527 Ratios to average net assets: Expenses....................... 1.62% ++ 1.69% 1.67% ++ 1.50% 1.57% ++ 1.62% ++ 1.69% 1.67%++ Net investment income.......... 5.42% ++ 5.45% 5.68% ++ 5.75% 5.42% ++ 5.40% ++ 5.46% 5.69%++ Portfolio turnover rate.......... 15% 76% 34% 48% 73% 15% 76% 34%
SEPTEMBER 6, 1994* THROUGH DECEMBER 31, 1994 PER SHARE DATA: Net asset value, beginning of period......................... $9.85 Income (loss) from investment operations: Net investment income.......... .18 Net realized and unrealized gain (loss) on investments... (.30) Total from investment operations................. (.12) Less distributions to shareholders from: Net investment income.......... (.18) Net realized gains............. -- Total distributions.......... (.18) Net asset value, end of period... $9.55 TOTAL RETURN+.................... (1.3%) RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)....................... $512 Ratios to average net assets: Expenses....................... 1.65% ++ Net investment income.......... 5.87% ++ Portfolio turnover rate.......... 48%
# The Fund changed its fiscal year end from December 31 to June 30. * Commencement of class operations. + Total return is calculated on net asset value per share for the periods indicated and is not annualized. Contingent deferred sales charges are not reflected. ++ Annualized. See accompanying notes to financial statements. 26 EVERGREEN SHORT -- INTERMEDIATE BOND FUND -- CLASS Y SHARES (photo of Lincoln Memorial) FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED YEAR SIX MONTHS DECEMBER 31, ENDED ENDED YEAR ENDED 1996 JUNE 30, JUNE 30, DECEMBER 31, (UNAUDITED) 1996 1995# 1994 1993 PER SHARE DATA: Net asset value, beginning of period......................................... $9.82 $10.02 $9.52 $10.43 $10.41 Income (loss) from investment operations: Net investment income...................................................... .32 .64 .33 .65 .69 Net realized and unrealized gain (loss) on investments..................... .09 (.19) .49 (.91) .19 Total from investment operations......................................... .41 .45 .82 (.26) .88 Less distributions to shareholders from: Net investment income...................................................... (.32 ) (.65) (.32 ) (.65) (.68) Net realized gains......................................................... -- -- -- -- (.18) Total distributions...................................................... (.32 ) (.65) (.32 ) (.65) (.86) Net asset value, end of period............................................... $9.91 $9.82 $10.02 $9.52 $10.43 TOTAL RETURN+................................................................ 4.3% 4.6% 8.8% (2.6%) 8.7% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted).................................... $ 367,082 $352,095 $ 347,050 $345,025 $376,445 Ratios to average net assets: Expenses................................................................... .62% ++ .69% .67% ++ .65% .66% Net investment income...................................................... 6.42% ++ 6.45% 6.68% ++ 6.56% 6.41% Portfolio turnover rate...................................................... 15% 76% 34% 48% 73% 1992 PER SHARE DATA: Net asset value, beginning of period......................................... $10.54 Income (loss) from investment operations: Net investment income...................................................... .70 Net realized and unrealized gain (loss) on investments..................... (.02) Total from investment operations......................................... .68 Less distributions to shareholders from: Net investment income...................................................... (.70) Net realized gains......................................................... (.11) Total distributions...................................................... (.81) Net asset value, end of period............................................... $10.41 TOTAL RETURN+................................................................ 6.6% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted).................................... $324,068 Ratios to average net assets: Expenses................................................................... .69% Net investment income...................................................... 6.67% Portfolio turnover rate...................................................... 66%
# The Fund changed its fiscal year end from December 31 to June 30. + Total return is calculated on net asset value per share for the periods indicated and is not annualized. ++ Annualized. See accompanying notes to financial statements. 27 EVERGREEN U.S. GOVERNMENT FUND (photo of Capitol) A REPORT FROM YOUR PORTFOLIO MANAGER ROLLIN WILLIAMS We are pleased to present the Semiannual Report for Evergreen U.S. Government Fund for the six months ended (photo of Rollin December 31, 1996. The Fund's total return (Class Y, no-load Williams) shares) for this period was 4.68%*, which exceeds the return for the Lipper General U.S. Government Funds average of the 174 U.S. Government funds tracked by Lipper Analytical Services during that period**. The six-month total return at net asset value for the Fund's Class A shares was 4.55%*. During the period from June 30, 1996, through December 31, interest rates fluctuated rather dramatically. The yield on the benchmark thirty-year treasury bond jumped as high as 7.2% in July and dipped to the 6.3% range before settling at 6.6% on December 31. The bond market rebounded from a disappointing performance in the first half of the calendar year and recovered nicely throughout the final six months. Even a slight bump in December couldn't ruin its steady advance as investors were rewarded with positive returns for the six-month period. Favorable signals from the economy throughout the fiscal first half confirmed our projection of six months ago that "the economy should slow as the year progresses". Fears that the economy was growing at a dangerous pace early in the year subsided as economic data emerged suggesting that growth was moderating to a modest, yet healthy pace. Coming off a very strong Gross Domestic Product growth rate, projections for the coming quarters are in the more modest 1.0% to 2.0% range. The stable economic environment transformed the Federal Reserve into passive onlookers as they neither raised nor lowered interest rates during the final six months of 1996. The Fund had limited activity during its second fiscal quarter. Purchases included thirty-year, 6.50%, Federated Home Loan Mortgage-Backed Securities. To fund these purchases, a number of short-term treasuries were sold. These moves sought to enhance the Fund in three ways: increase the yield, lengthen the duration, and increase the exposure to mortgage-backed securities. The lower coupon helps to provides protection from prepayment risk. Looking forward, we believe the Fund is positioned well for the coming quarter, and no significant changes are anticipated. The overall strategy of the Fund continues to be to seek to provide investors with a high quality portfolio that has attractive income characteristics without the use of toxic or exotic derivative securities. Thank you for your investment in Evergreen U.S. Government Fund. FIGURES REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS. * PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. INVESTORS' SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CLASS A SHARES ARE SUBJECT TO A MAXIMUM 4.75% FRONT-END SALES CHARGE WHICH IS NOT REFLECTED IN THE PERFORMANCE FIGURE ABOVE. -.42% IS THE SIX-MONTH TOTAL RETURN ENDED 12/31/96 FOR THE FUND'S CLASS A SHARES WITH THE MAXIMUM 4.75% FRONT-END SALES CHARGE. THE FUND ALSO OFFERS CLASS B SHARES WHICH ARE SUBJECT TO A MAXIMUM 5% CONTINGENT DEFERRED SALES CHARGE, AND CLASS C SHARES WHICH ARE SUBJECT TO A 1% CONTINGENT DEFERRED SALES CHARGE WITHIN THE FIRST YEAR OF PURCHASE. PERFORMANCE FOR THESE CLASSES OF SHARES MAY BE DIFFERENT. ** SOURCE: LANA (LIPPER ANALYTICAL NEW APPLICATIONS) LIPPER ANALYTICAL SERVICES INC., IS AN INDEPENDENT MUTUAL FUNDS PERFORMANCE MONITOR. LIPPER AVERAGE DOES NOT INCLUDE SALES CHARGES, AND IF INCLUDED PERFORMANCE MAY BE LOWER. 28 EVERGREEN U.S. GOVERNMENT FUND STATEMENT OF INVESTMENTS (photo of Capitol) DECEMBER 31, 1996 (UNAUDITED)
PRINCIPAL AMOUNT (000) VALUE MORTGAGE BACKED SECURITIES -- 53.2% FEDERAL HOME LOAN MORTGAGE CORP. -- 11.4% $ 15,000 6.50%, 4/1/26........................ $ 14,363,682 5,755 8.00%, 7/1/17 - 4/1/22............... 5,922,744 4,059 8.50%, 2/1/17 - 1/1/17............... 4,236,883 3,801 9.00%, 11/1/19 - 4/1/21.............. 4,064,017 1,463 9.50%, 9/1/20........................ 1,583,182 2,247 10.00%, 12/1/19 - 8/1/21............. 2,464,034 1,883 10.50%, 12/1/19...................... 2,081,124 34,715,666 FEDERAL NATIONAL MORTGAGE ASSN. -- 16.5% 5,115 6.50%, 1/1/24........................ 4,886,866 18,215 7.00%, 8/1/25 - 9/1/25............... 17,844,749 12,568 7.50%, 7/1/23 - 7/1/25............... 12,580,108 12,348 8.00%, 8/1/25........................ 12,597,976 1,903 9.50%, 6/1/22........................ 2,055,373 49,965,072 GOVERNMENT NATIONAL MORTGAGE ASSN. -- 25.3% 15,323 7.00%, 12/15/22 - 11/15/23........... 15,011,886 11,141 7.50%, 2/15/22 - 3/15/23............. 11,162,249 21,725 8.00%, 2/15/23 - 8/15/24............. 22,270,032 12,362 8.50%, 12/15/21 - 7/15/24............ 12,856,954 6,191 9.00%, 1/15/20 - 6/15/21............. 6,531,802 6,709 9.50%, 1/15/19 - 2/15/21............. 7,256,314 1,457 10.00%, 12/15/18..................... 1,599,547 76,688,784 TOTAL MORTGAGE BACKED SECURITIES (COST $162,566,794)............. 161,369,522 PRINCIPAL AMOUNT (000) VALUE U. S. TREASURY OBLIGATIONS -- 45.1% U.S. TREASURY BONDS -- 22.7% $ 17,930 8.125%, 8/15/19...................... $ 20,725,950 8,100 8.50%, 2/15/20....................... 9,722,527 3,650 8.75%, 11/15/08...................... 4,100,545 3,080 8.75%, 8/15/20....................... 3,793,211 14,010 8.875%, 8/15/17...................... 17,297,965 10,300 9.25%, 2/15/16....................... 13,071,339 68,711,537 U.S. TREASURY NOTES -- 22.4% 12,000 7.75%, 11/30/99...................... 12,536,244 9,800 7.75%, 1/31/00....................... 10,259,375 21,500 7.875%, 11/15/99..................... 22,534,687 8,050 8.25%, 7/15/98....................... 8,324,199 13,700 9.25%, 8/15/98....................... 14,393,563 68,048,068 TOTAL U. S. TREASURY OBLIGATIONS (COST $142,348,034)............. 136,759,605 REPURCHASE AGREEMENT -- .6% 1,868 Donaldson, Lufkin & Jenrette Securities Corp., 6.50% dated 12/31/96, due 1/2/97, -- collateralized by $1,759,000 U.S. Treasury Notes, 8.00%, due 5/15/01; value, including accrued interest $1,906,836 (COST $1,868,175)............... 1,868,175
TOTAL INVESTMENTS -- (COST $306,783,003).... 98.9% 299,997,302 OTHER ASSETS AND LIABILITIES -- NET... 1.1 3,367,285 NET ASSETS............. 100.0% $303,364,587
See accompanying notes to financial statements. 29 EVERGREEN U.S. GOVERNMENT FUND STATEMENT OF ASSETS AND LIABILITIES (photo of Capitol) DECEMBER 31, 1996 (UNAUDITED) ASSETS: Investments at value (identified cost $306,783,003)........................................................... $299,997,302 Interest receivable........................................................................................... 4,418,903 Receivable for Fund shares sold............................................................................... 155,949 Prepaid expenses.............................................................................................. 20,910 Total assets............................................................................................ 304,593,064 LIABILITIES: Distributions payable......................................................................................... 488,668 Payable for Fund shares repurchased........................................................................... 335,834 Accrued expenses.............................................................................................. 151,151 Accrued advisory fee.......................................................................................... 127,405 Distribution fee payable...................................................................................... 112,391 Payable for administration fee................................................................................ 13,028 Total liabilities....................................................................................... 1,228,477 NET ASSETS....................................................................................................... $303,364,587 NET ASSETS CONSIST OF: Paid-in capital............................................................................................... $326,001,924 Accumulated net realized loss on investment transactions...................................................... (15,851,636) Net unrealized depreciation of investments.................................................................... (6,785,701) Net assets.............................................................................................. $303,364,587 CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE: Class A Shares ($18,986,757 divided by 1,993,236 shares of beneficial interest outstanding)................... $ 9.53 Sales charge -- 4.75% of offering price....................................................................... .48 Maximum offering price..................................................................................... $ 10.01 Class B Shares ($155,899,972 divided by 16,366,013 shares of beneficial interest outstanding)................. $ 9.53 Class C Shares ($712,588 divided by 74,810 shares of beneficial interest outstanding)......................... $ 9.53 Class Y Shares ($127,765,270 divided by 13,412,292 shares of beneficial interest outstanding)................. $ 9.53
See accompanying notes to financial statements. 30 EVERGREEN U.S. GOVERNMENT FUND STATEMENT OF OPERATIONS (photo of Capitol) SIX MONTHS ENDED DECEMBER 31, 1996 (UNAUDITED) INVESTMENT INCOME: Interest......................................................................................... $11,634,902 EXPENSES: Advisory fee..................................................................................... $772,308 Administrative personnel and services fees....................................................... 71,525 Distribution fee -- Class A Shares............................................................... 24,744 Distribution fee -- Class B Shares............................................................... 607,145 Shareholder services fee -- Class B Shares....................................................... 202,382 Distribution fee -- Class C Shares............................................................... 2,842 Shareholder services fee -- Class C Shares....................................................... 947 Transfer agent fee............................................................................... 108,190 Custodian fee.................................................................................... 69,961 Registration and filing fees..................................................................... 33,359 Reports and notices to shareholders.............................................................. 28,307 Professional fees................................................................................ 22,729 Trustees' fees and expenses...................................................................... 3,787 Miscellaneous.................................................................................... 16,142 Total expenses............................................................................. 1,964,368 Net investment income............................................................................... 9,670,534 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss on investment transactions..................................................... (1,535,542) Net decrease in unrealized depreciation of investments........................................... 4,912,115 Net gain on investments............................................................................. 3,376,573 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................ $13,047,107
See accompanying notes to financial statements. 31 EVERGREEN U.S. GOVERNMENT FUND (photo of Capitol) STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR DECEMBER 31, ENDED 1996 JUNE 30, (UNAUDITED) 1996 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income..................................................................... $ 9,670,534 $ 18,766,488 Net realized loss on investments.......................................................... (1,535,542) (3,731,984) Net change in unrealized depreciation of investments...................................... 4,912,115 (3,860,415) Net increase in net assets resulting from operations................................... 13,047,107 11,174,089 DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME: Class A Shares............................................................................ (648,707) (1,406,673) Class B Shares............................................................................ (4,698,473) (10,727,964) Class C Shares............................................................................ (22,000) (28,511) Class Y Shares............................................................................ (4,301,354) (6,603,340) Total distributions to shareholders.................................................... (9,670,534) (18,766,488) FUND SHARE TRANSACTIONS: Proceeds from shares sold................................................................. 14,615,215 138,179,343 Proceeds from shares issued in acquisition of Evergreen U.S. Government Securities Fund... -- 5,739,713 Proceeds from reinvestment of distributions............................................... 6,496,044 11,871,813 Payment for shares redeemed............................................................... (29,673,989) (71,866,685) Net increase (decrease) resulting from Fund share transactions......................... (8,562,730) 83,924,184 Net increase (decrease) in net assets............................................... (5,186,157) 76,331,785 NET ASSETS: Beginning of period....................................................................... 308,550,744 232,218,959 End of period............................................................................. $303,364,587 $308,550,744
See accompanying notes to financial statements. 32 EVERGREEN U.S. GOVERNMENT FUND -- CLASS A AND CLASS B SHARES (photo of Capitol) FINANCIAL HIGHLIGHTS
CLASS A SHARES CLASS B SHARES SIX MONTHS JANUARY 11, SIX MONTHS ENDED YEAR SIX MONTHS 1993* ENDED YEAR SIX MONTHS DECEMBER 31, ENDED ENDED YEAR ENDED THROUGH DECEMBER 31, ENDED ENDED 1996 JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, 1996 JUNE 30, JUNE 30, (UNAUDITED) 1996 1995# 1994 1993 (UNAUDITED) 1996 1995# PER SHARE DATA: Net asset value, beginning of period......................... $9.42 $9.65 $9.07 $10.05 $10.00 $9.42 $9.65 $9.07 Income (loss) from investment operations: Net investment income.......... .31 .63 .33 .66 .68 .28 .56 .29 Net realized and unrealized gain (loss) on investments... .11 (.23) .58 (.98) .05 .11 (.23) .58 Total from investment operations................. .42 .40 .91 (.32) .73 .39 .33 .87 Less distributions to shareholders from net investment income.............. (.31) (.63) (.33) (.66) (.68) (.28) (.56) (.29) Net asset value, end of period... $9.53 $9.42 $9.65 $9.07 $10.05 $9.53 $9.42 $9.65 TOTAL RETURN+.................... 4.6% 4.3% 10.2% (3.2%) 7.4% 4.2% 3.5% 9.8% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)....................... $18,987 $20,345 $22,445 $23,706 $38,851 $155,900 $165,988 $192,490 Ratios to average net assets: Expenses....................... .98%++ .99% 1.04%++** .96%** .68%++** 1.73%++ 1.74% 1.79%++** Net investment income.......... 6.55%++ 6.61% 7.07%++** 6.97%** 6.93%++** 5.80%++ 5.85% 6.32%++** Portfolio turnover rate.......... 5% 23% 0% 19% 39% 5% 23% 0% JANUARY 11, 1993* YEAR ENDED THROUGH DECEMBER 31, DECEMBER 31, 1994 1993 PER SHARE DATA: Net asset value, beginning of period......................... $10.05 $10.00 Income (loss) from investment operations: Net investment income.......... .61 .63 Net realized and unrealized gain (loss) on investments... (.98) .05 Total from investment operations................. (.37) .68 Less distributions to shareholders from net investment income.............. (.61) (.63) Net asset value, end of period... $9.07 $10.05 TOTAL RETURN+.................... (3.8%) 6.9% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)....................... $195,571 $236,696 Ratios to average net assets: Expenses....................... 1.54%** 1.19%++** Net investment income.......... 6.42%** 6.44%++** Portfolio turnover rate.......... 19% 39%
# The Fund changed its fiscal year end from December 31 to June 30. * Commencement of class operations. + Total return is calculated on net asset value per share for the periods indicated and is not annualized. Initial sales charge is not reflected. ++ Annualized. ** Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets would have been the following:
CLASS A SHARES CLASS B SHARES JANUARY 11, SIX MONTHS 1993* SIX MONTHS ENDED YEAR ENDED THROUGH ENDED YEAR ENDED JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30, DECEMBER 31, 1995# 1994 1993 1995# 1994 Expenses............................................. 1.05% 1.00% .99% 1.80% 1.58% Net investment income................................ 7.06% 6.93% 6.62% 6.31% 6.38% JANUARY 11, 1993* THROUGH DECEMBER 31, 1993 Expenses............................................. 1.50% Net investment income................................ 6.13%
See accompanying notes to financial statements. 33 EVERGREEN U.S. GOVERNMENT FUND -- CLASS C AND CLASS Y SHARES (photo of Capitol) FINANCIAL HIGHLIGHTS
CLASS C SHARES CLASS Y SHARES SIX MONTHS SEPTEMBER 2, SIX MONTHS ENDED YEAR SIX MONTHS 1994* ENDED YEAR SIX MONTHS DECEMBER 31, ENDED ENDED THROUGH DECEMBER 31, ENDED ENDED 1996 JUNE 30, JUNE 30, DECEMBER 31, 1996 JUNE 30, JUNE 30, (UNAUDITED) 1996 1995# 1994 (UNAUDITED) 1996 1995# PER SHARE DATA: Net asset value, beginning of period........................ $9.42 $9.65 $9.07 $9.39 $9.42 $9.65 $9.07 Income (loss) from investment operations: Net investment income......... .28 .56 .29 .20 .32 .66 .34 Net realized and unrealized gain (loss) on investments................. .11 (.23) .58 (.32) .11 (.23) .58 Total from investment operations................ .39 .33 .87 (.12) .43 .43 .92 Less distributions to shareholders from net investment income............. (.28) (.56) (.29) (.20) (.32) (.66) (.34) Net asset value, end of period........................ $9.53 $9.42 $9.65 $9.07 $9.53 $9.42 $9.65 TOTAL RETURN+................... 4.2% 3.5% 9.8% (1.3%) 4.7% 4.5% 10.3% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)...................... $713 $649 $350 $266 $127,765 $121,569 $16,934 Ratios to average net assets: Expenses...................... 1.73%++ 1.74% 1.79%++** 1.71%++** .73%++ .74% .79%++** Net investment income......... 5.81%++ 5.87% 6.36%++** 6.70%++** 6.80%++ 6.86% 7.31%++** Portoflio turnover rate......... 5% 23% 0% 19% 5% 23% 0% SEPTEMBER 2, 1993* YEAR ENDED THROUGH DECEMBER 31, DECEMBER 31, 1994 1993 PER SHARE DATA: Net asset value, beginning of period........................ $10.05 $10.25 Income (loss) from investment operations: Net investment income......... .69 .25 Net realized and unrealized gain (loss) on investments................. (.98) (.20) Total from investment operations................ (.29) .05 Less distributions to shareholders from net investment income............. (.69) (.25) Net asset value, end of period........................ $9.07 $10.05 TOTAL RETURN+................... (2.9%) .5% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)...................... $15,595 $14,486 Ratios to average net assets: Expenses...................... .71%** .48%++** Net investment income......... 7.27%** 7.20%++** Portoflio turnover rate......... 19% 39%
# The Fund changed its fiscal year end from December 31 to June 30. * Commencement of class operations. + Total return is calculated on net asset value per share for the periods indicated and is not annualized. Contingent deferred sales charges are not reflected. ++ Annualized. ** Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income to average net assets would have been the following:
CLASS C SHARES CLASS Y SHARES SEPTEMBER 2, SIX MONTHS 1994* SIX MONTHS ENDED THROUGH ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1995# 1994 1995# 1994 Expenses....................................................... 1.80% 1.75% .80% .75% Net investment income.......................................... 6.34% 6.66% 7.30% 7.23% SEPTEMBER 2, 1993* THROUGH DECEMBER 31, 1993 Expenses....................................................... .79% Net investment income.......................................... 6.89%
See accompanying notes to financial statements. 34 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS The Evergreen Income Funds (the "Funds") are each a separate series of open-end management companies registered under the Investment Company Act of 1940, as amended (the "Act"). The Evergreen Income Funds consist of Evergreen Intermediate-Term Bond Fund ("Intermediate-Term Bond"), Evergreen Intermediate-Term Government Securities Fund ("Intermediate-Term Government"), Evergreen Short-Intermediate Bond Fund ("Short-Intermediate") and Evergreen U.S. Government Fund ("U.S. Government"), collectively referred to as the Funds. The investment objective of Intermediate-Term Bond is to maximize current yield consistent with the preservation of capital. The investment objective of Intermediate-Term Government is to preserve principal value and maintain a high degree of liquidity while providing current income. Short-Intermediate's investment objective is to attain a high level of current income, with capital growth as a secondary objective, through investment in a broad range of investment grade debt securities. U.S. Government's investment objective is to achieve a high level of current income consistent with stability of principal. Effective at the close of business on July 7, 1995, U.S. Government acquired substantially all of the net assets of Evergreen U.S. Government Securities Fund through the issuance of 590,505 of its Class Y shares in exchange for Evergreen U.S. Government Securities Fund's net assets valued at $5,739,713. The aggregate net assets immediately after the acquisition was $233,475,732. The acquired net assets, in this non-taxable transaction, consisted primarily of portfolio securities with unrealized appreciation of $24,133. Effective January 1, 1996, First Union Corporation, the corporate parent of First Union National Bank of North Carolina ("First Union"), each Fund's current investment adviser, consummated a merger (the "Bank Merger") with First Fidelity Bancorporation, the corporate parent of First Fidelity Bank, N.A. ("FFB"), Intermediate-Term Bond and Intermediate-Term Government's prior investment adviser. Effective January 19, 1996, each of the FFB Lexicon Funds, open-end management investment companies registered under the Act, including FFB Lexicon Fixed Income Fund and FFB Lexicon Intermediate-Term Government Securities Fund (the "Lexicon Funds"), joined the Evergreen Funds (the "Fund Combinations").FFB Lexicon Fixed Income Fund was renamed Evergreen Intermediate-Term Bond Fund. FFB Lexicon Intermediate-Term Government Securities Fund was renamed Evergreen Intermediate-Term Government Securities Fund. Shares of each of the Lexicon Fund's class previously known as the Institutional Class were redesignated as each respective Fund's Class Y Shares. Shares of each of the Lexicon Fund's class previously known as the Investor Class were redesignated as each respective Fund's Class A Shares. See Note 5 for a description of each of the classes. Effective at the close of business on February 29, 1996, Intermediate-Term Bond acquired substantially all of the net assets of Evergreen Managed Bond Fund through the issuance of 7,674,423 of its Class Y shares in exchange for Managed Bond's net assets valued at $79,773,557. The aggregate net assets immediately after the acquisition was $158,097,520. The acquired net assets, in this non-taxable transaction, consisted primarily of portfolio securities with unrealized appreciation of $1,789,417. NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements. These policies are in conformity with generally accepted accounting principles. SECURITY VALUATIONS -- U.S. government obligations are valued at the mean between the over-the-counter bid and ask price as furnished by an independent pricing service. Corporate bonds (and other fixed income and asset-backed securities) are valued at the last sale price reported on national securities exchanges on that day, if available. Otherwise, corporate bonds 35 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- continued and asset-backed securities are valued at the mean between the over-the-counter bid and ask price provided by an independent pricing service. Short-term securities when purchased with remaining maturities of sixty days or less are stated at amortized cost which approximates market value. SECURITY TRANSACTIONS -- Security transactions are accounted for on the date purchased or sold. Net realized gains or losses are determined on the identified cost basis. INVESTMENT INCOME AND EXPENSES -- Interest income and expenses are accrued daily. Premiums and discounts paid on securities are amortized or accreted into interest income as required by the Internal Revenue Code, as amended, (the "Code"). REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase agreements are held by the Federal Reserve Bank and are designated as being held on each Fund's behalf by its custodian under a book-entry system. Each Fund monitors the adequacy of the collateral on a daily basis and can require the seller to provide additional collateral in the event the market value of the securities pledged falls below the carrying value of the repurchase agreement, including accrued interest. Each Fund will only enter into repurchase agreements with banks and other financial institutions which are deemed by the investment adviser to be creditworthy pursuant to guidelines established by the Trustees. DIVIDENDS TO SHAREHOLDERS -- Dividends from net investment income for U.S. Government are declared daily and paid monthly. Dividends from net investment income are declared and paid monthly for Intermediate-Term Bond, Intermediate- Term Government and Short-Intermediate. Dividends from net realized capital gains on investments, if any, will be distributed at least annually. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from the amounts available under generally accepted accounting principles. To the extent these differences are permanent in nature, such amounts are reclassified within the components of net assets. ALLOCATION OF EXPENSES -- Expenses specifically indentifiable to a class of shares are charged to that class. Expenses common to a Trust as a whole are allocated to the funds in that Trust. Investment income, net of expenses (other than class specific expenses) and realized and unrealized gains and losses are allocated daily to each class of shares based upon the relative proportion of net assets of each class. INCOME TAXES -- It is each Fund's policy to meet the requirements of the Code applicable to regulated investment companies and to distribute substantially all of its taxable net income to its shareholders. Accordingly, no provisions for Federal income or excise taxes are necessary. To the extent that realized capital gains can be offset by capital loss carryforwards, it is each Fund's policy not to distribute such gains. Capital losses incurred after October 31 within each Funds fiscal year are deemed to arise on the first business day of the following fiscal year for tax purposes. At June 30, 1996, each Fund's most recent fiscal year end, the Funds had capital loss carryforwards as follows:
EXPIRATION 2001 2002 2003 2004 Intermediate-Term Bond $1,440,454 $ 788,954 $117,850 $ 211,288 Intermediate-Term Government -- -- 955,860 1,140,365 Short Intermediate -- 6,020,616 -- 3,372,152 U.S. Government 1,978,402 6,521,597 -- 2,973,341
At June 30, 1996, Short Intermediate and U.S. Government had post October loss deferrals of $3,921,854 and $2,842,754, respectively. WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Funds record when-issued or delayed delivery transactions on the trade date and maintain security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. 36 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- continued DEFERRED ORGANIZATIONAL EXPENSES -- The costs incurred with respect to Intermediate-Term Bond's and Intermediate-Term Government's organization have been deferred and are being amortized using the straight-line method not to exceed a period of 60 months from each Fund's commencement of operations. USE OF ESTIMATES -- The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY AGREEMENT -- First Union is each Fund's investment adviser and is entitled to receive an annual fee based on each Fund's average daily net assets as follows: Intermediate-Term Bond.................. .60% Intermediate-Term Government............ .60% Short Intermediate...................... .50% U.S. Government......................... .50%
For Intermediate-Term Bond and Intermediate-Term Government, First Union voluntarily waived $61,436 and $45,816, respectively, of its advisory fee for the six-month period ended December 31, 1996. First Union may modify or terminate these voluntary waivers at any time. ADMINISTRATIVE AGREEMENT -- Evergreen Asset Management Corp. ("Evergreen Asset"), a wholly owned subsidiary of First Union, is each Fund's administrator and Furman Selz LLC ("Furman Selz") was sub-administrator through December 31, 1996. As sub-administrator, Furman Selz provided the officers for the Funds. Evergreen Asset's and Furman Selz' fees were based on the average daily net assets of all of the funds administered by Evergreen Asset for which either First Union or Evergreen Asset was also the investment adviser. This fee was calculated at the following annual rates:
ADMINISTRATION FEE AVERAGE DAILY NET ASSETS 0.050% on the first $7 billion 0.035% on the next $3 billion 0.030% on the next $5 billion 0.020% on the next $10 billion 0.015% on the next $5 billion 0.010% in excess of $30 billion SUB-ADMINISTRATION FEE AVERAGE DAILY NET ASSETS 0.0100% on the first $7 billion 0.0075% on the next $3 billion 0.0050% on the next $15 billion 0.0040% in excess of $25 billion
At December 31, 1996, net assets for which Evergreen Asset was the administrator for which either Evergreen Asset or First Union was the investment adviser totalled approximately $17.0 billion. Effective January 1, 1997, Bisys Group, Inc. ("Bisys") acquired Furman Selz' mutual fund unit and accordingly, Bisys Fund Services became sub-administrator. The administration fee structure has remained unchanged. PLANS OF DISTRIBUTION AND SHAREHOLDER SERVICING -- The Funds have adopted distribution plans ("Plans") pursuant to Rule 12b-1 under the Act for their Class A, Class B and Class C shares. Under the terms of the Plans, each Fund may incur distribution-related expenses which may not exceed an annual rate of .75 of 1% of the average daily net assets attributable to 37 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES -- continued the Class A, Class B, and Class C shares of Short Intermediate and U.S. Government, .50 of 1% of the average daily net assets of the Class A shares of Intermediate-Term Bond and Intermediate-Term Government and 1% of the average daily net assets of Class B and C shares of Intermediate-Term Bond and Intermediate-Term Government. Payments under the Plans adopted with respect to Class A shares are currently voluntarily limited to, (as a percentage of average daily net assets attributable to Class A shares), .10 of 1% for Short-Intermediate and .25 of 1% for Intermediate-Term Bond, Intermediate-Term Government and U.S. Government. The Plans provide that a portion of the fee payable for Class B and Class C shares may constitute a shareholder servicing fee to be used for providing ongoing personal services and/or the maintenance of shareholder accounts. Short-Intermediate and U.S. Government have also adopted a shareholder service plan with respect to their Class B and Class C shares which permits each of these Funds to incur a fee of up to .25 of 1% of the average daily net assets attributable to the Class B and Class C shares for ongoing personal services and/or the maintenance of shareholder accounts. Each Fund has entered into a distribution agreement with Evergreen Keystone Distributor, Inc. ("EKD") (formerly Evergreen Funds Distributor, Inc.), a subsidiary of Furman Selz. Under their agreements, each Fund will compensate EKD for its services at a rate which may not exceed an annual rate of .25 of 1% of its average daily net assets attributable to Class A shares, Short-Intermediate and U.S. Government will compensate EKD at an annual rate of .75 of 1% of its average daily net assets attributable to their Class B and Class C shares and Intermediate-Term Bond and Intermediate-Term Government will compensate EKD at an annual rate of 1% of its average daily net assets. The distribution agreements provide that EKD will use the distribution fees to promote sale of shares of the Funds. A portion of Intermediate-Term Bond's and Intermediate-Term Government's fees up to .25 of 1% of average daily net assets constitutes a shareholder services fee. For the six-month period ended December 31, 1996, EKD voluntarily limited its Class A distribution fees for Intermediate-Term Bond, Intermediate-Term Government and Short-Intermediate to .04 of 1%, .04 of 1% and .10 of 1% of average daily net assets, respectively. Short Intermediate and U.S. Government have entered into a Shareholder Services agreement with First Union Brokerage Services ("FUBS"), an affiliate of First Union, whereby they will compensate FUBS up to an annual rate of .25 of 1% of its Class B and Class C shares average daily net assets for certain services provided to shareholders and/or maintenance of shareholder accounts. With the acquisition of Furman Selz' mutual fund unit by Bisys effective January 1, 1997, EKD became a subsidiary of Bisys. EKD has advised the Funds that it has retained the following amounts from front-end sales charges resulting from sales of Class A shares during the six-month period ended December 31, 1996:
FRONT-END SALES CHARGES Intermediate-Term Bond.................... $ 209 Intermediate-Term Government.............. 281 Short-Intermediate........................ 4,968 U.S. Government........................... 2,292
ORGANIZATIONAL EXPENSES -- U.S. Government's organizational expenses were borne initially by a prior administrator. As a result of the change in the administration agreement, First Union purchased the remaining unreimbursed initial organizational expenses from the prior administrator. U.S. Government will reimburse First Union during the five-year period following its commencement of operations. Pursuant to these arrangements, as of and for the six-month period ended December 31, 1996, U.S. Government has paid and has a remaining liability of $11,688 and $16,697, respectively. 38 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES -- continued OTHER SERVICES WITH AFFILIATES -- State Street Bank & Trust Company ("State Street") is the transfer agent, dividend disbursing agent and shareholder servicing agent for the Funds. For certain accounts in Intermediate-Term Bond, Short Intermediate and U.S. Government, First Union has been sub-contracted by State Street to maintain shareholder sub-account records, take fund purchase and redemption orders and answer inquiries. For each account, First Union is entitled to a monthly fee which totaled $14,245, $80,228, and $53,131 for Intermediate-Term Bond, Short Intermediate and U.S. Government, respectively, for the six months ended December 31, 1996. NOTE 4 -- INVESTMENT TRANSACTIONS The cost of purchases and proceeds from sales of investments, excluding short-term securities, for the six-month period ended December 31, 1996 were as follows:
PURCHASES SALES U.S. GOVERNMENT OTHER U.S. GOVERNMENT OTHER Intermediate-Term Bond.................................... $63,011,061 $ 3,410,225 $55,942,786 $ 3,740,869 Intermediate-Term Government.............................. 24,874,628 -- 25,734,891 957,762 Short-Intermediate........................................ 59,121,027 32,634,255 23,815,449 33,263,282 U.S. Government........................................... 14,549,997 -- 23,454,555 --
On December 31, 1996, the composition of unrealized appreciation and depreciation of investment securities based on the aggregate cost of investments for federal tax purposes was as follows:
APPRECIATION DEPRECIATION NET TAX COST Intermediate-Term Bond.............................................. $3,847,829 $1,579,551 $2,268,278 $162,937,491 Intermediate-Term Government........................................ 984,901 375,447 609,454 85,352,905 Short-Intermediate.................................................. 5,142,341 5,358,601 (216,260) 401,340,986 U.S. Government..................................................... 1,047,337 7,833,038 (6,785,701) 306,783,003
NOTE 5 -- SHARES OF BENEFICIAL INTEREST The Funds have an unlimited number of $0.0001 par shares authorized. Each of the funds are divided into four classes which are designated Class A, Class B, Class C and Class Y shares. Class A shares are offered with a front-end sales charge of up to 3.25% for Intermediate-Term Bond, Intermediate-Term Government and Short-Intermediate and up to 4.75% for U.S. Government. Class B shares are offered with a contingent deferred sales charge payable when shares are redeemed which would decline from 5% to zero depending on the period of time the shares are held. Class B shares will automatically convert to Class A shares seven years after the date of purchase. Class C shares are sold with a contingent deferred sales charge of 1% for shares redeemed during the first year after purchase. Class Y shares are sold without a sales charge and are available only to investment advisory clients of First Union and its affiliates, certain institutional investors and Class Y shareholders of record of other funds managed by First Union and its affiliates as of December 30, 1994. All classes have identical voting, dividend, liquidation and other rights, except that certain classes bear different distribution expenses (see Note 3) and have exclusive voting rights with respect to their distribution plan. 39 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued Transactions in shares of beneficial interest were as follows:
SIX MONTHS ENDED DECEMBER 31, 1996 TEN MONTHS ENDED (UNAUDITED) JUNE 30, 1996* INTERMEDIATE-TERM BOND SHARES AMOUNT SHARES AMOUNT CLASS A Shares sold......................................................... 44,808 $ 456,239 292,734 $ 2,962,857 Shares issued on reinvestment of distributions...................... 8,696 88,265 3,368 34,080 Shares redeemed..................................................... (38,547) (392,639) (20,323) (206,789) Net increase........................................................ 14,957 151,865 275,779 2,790,148 CLASS B Shares sold......................................................... 37,854 385,431 40,844 415,640 Shares issued on reinvestment of distributions...................... 876 8,904 228 2,296 Shares redeemed..................................................... (1,662) (16,881) (1,244) (12,553) Net increase........................................................ 37,068 377,454 39,828 405,383 CLASS C Shares sold......................................................... -- -- 2,450 24,797 Shares issued on reinvestment of distributions...................... 60 623 16 167 Net increase........................................................ 60 623 2,466 24,964 CLASS Y Shares sold......................................................... 2,222,641 22,572,892 3,399,442 35,128,164 Shares issued in acquisition of Evergreen Managed Bond Fund......... -- -- 7,674,423 79,773,557 Shares issued on reinvestment of distributions...................... 339,194 3,440,408 438,427 4,507,655 Shares redeemed..................................................... (2,177,340) (22,195,387) (5,208,789) (54,641,619) Net increase........................................................ 384,495 3,817,913 6,303,503 64,767,757 Total net increase resulting from Fund share transactions................................................ 436,580 $ 4,347,855 6,621,576 $ 67,988,252
* For Class B Shares, the Fund share transaction activity reflects the period January 30, 1996 (commencement of class operations) to June 30, 1996. For Class C Shares, the Fund share transaction activity reflects the period April 29, 1996 (commencement of class operations) to June 30, 1996. 40 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
SIX MONTHS ENDED DECEMBER 31, 1996 TEN MONTHS ENDED (UNAUDITED) JUNE 30, 1996* INTERMEDIATE-TERM GOVERNMENT SHARES AMOUNT SHARES AMOUNT CLASS A Shares sold............................................................ 10,568 $ 105,314 64,791 $ 663,129 Shares issued on reinvestment of distributions......................... 1,169 12,052 1,503 15,239 Shares redeemed........................................................ (2,157) (21,801) (17,382) (175,816) Net increase........................................................... 9,580 95,565 48,912 502,552 CLASS B Shares sold............................................................ 29,530 295,565 35,925 359,696 Shares issued on reinvestment of distributions......................... 593 6,116 67 666 Shares redeemed........................................................ (104) (1,053) (2) (23) Net increase........................................................... 30,019 300,628 35,990 360,339 CLASS C Shares sold............................................................ 1,718 17,173 3,551 35,538 Shares issued on reinvestment of distributions......................... 55 696 26 254 Shares redeemed........................................................ (1,913) (19,197) (324) (3,205) Net increase (decrease)................................................ (140) (1,328) 3,253 32,587 CLASS Y Shares sold............................................................ 569,305 5,338,629 1,257,974 12,770,139 Shares issued on reinvestment of distributions......................... 207,196 2,524,165 402,054 4,079,359 Shares redeemed........................................................ (980,110) (9,873,553) (3,404,763) (34,447,480) Net decrease........................................................... (203,609) (2,010,759) (1,744,735) (17,597,982) Total net decrease resulting from Fund share transactions................................................... (164,150) ($1,615,894) (1,656,580) ($16,702,504)
* For Class B Shares, the Fund share transaction activity reflects the period February 9, 1996 (commencement of class operations) to June 30, 1996. For Class C Shares, the Fund share transaction activity reflects the period April 10, 1996 (commencement of class operations) to June 30, 1996. 41 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
SIX MONTHS ENDED DECEMBER 31, 1996 YEAR ENDED (UNAUDITED) JUNE 30, 1996 SHORT-INTERMEDIATE SHARES AMOUNT SHARES AMOUNT CLASS A Shares sold..................................................... 331,347 $ 3,286,067 417,422 $ 4,161,754 Shares issued on reinvestment of distributions.................. 47,574 468,795 91,045 906,558 Shares redeemed................................................. (269,901) (2,673,493) (498,266) (4,979,754) Net increase.................................................. 109,020 1,081,369 10,201 88,558 CLASS B Shares sold..................................................... 299,763 2,960,585 844,991 8,456,439 Shares issued on reinvestment of distributions.................. 42,954 423,948 74,101 739,247 Shares redeemed................................................. (193,875) (1,915,176) (512,788) (5,128,366) Net increase.................................................. 148,842 1,469,357 406,304 4,067,320 CLASS C Shares sold..................................................... 23,280 232,354 94,089 944,432 Shares issued on reinvestment of distributions.................. 2,199 21,713 3,083 30,731 Shares redeemed................................................. (30,373) (300,440) (32,296) (321,263) Net increase (decrease)....................................... (4,894) (46,373) 64,876 653,900 CLASS Y Shares sold..................................................... 5,459,795 53,958,263 15,667,603 156,775,980 Shares issued on reinvestment of distributions.................. 734,989 7,232,226 1,726,865 17,202,491 Shares redeemed................................................. (5,018,608) (49,497,159) (16,165,702) (161,849,781) Net increase.................................................. 1,176,176 11,693,330 1,228,766 12,128,690 Total net increase resulting from Fund share transactions............................................ 1,429,144 $ 14,197,683 1,710,147 $ 16,938,468
42 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
SIX MONTHS ENDED DECEMBER 31, 1996 YEAR ENDED (UNAUDITED) JUNE 30, 1996 U.S. GOVERNMENT SHARES AMOUNT SHARES AMOUNT CLASS A Shares sold........................................................ 74,664 $ 707,976 786,564 $ 7,560,325 Shares issued on reinvestment of distributions..................... 36,835 349,011 78,565 755,991 Shares redeemed.................................................... (277,315) (2,626,266) (1,032,918) (9,892,163) Net decrease..................................................... (165,816) (1,569,279) (167,789) (1,575,847) CLASS B Shares sold........................................................ 505,154 4,785,735 1,702,353 16,401,640 Shares issued on reinvestment of distributions..................... 242,605 2,298,899 533,686 5,138,748 Shares redeemed.................................................... (1,996,853) (18,926,307) (4,576,583) (43,960,576) Net decrease..................................................... (1,249,094) (11,841,673) (2,340,544) (22,420,188) CLASS C Shares sold........................................................ 25,861 242,940 43,395 420,990 Shares issued on reinvestment of distributions..................... 905 8,567 1,437 13,783 Shares redeemed.................................................... (20,874) (196,610) (12,168) (117,297) Net increase..................................................... 5,892 54,897 32,664 317,476 CLASS Y Shares sold........................................................ 940,916 8,878,564 11,801,163 113,796,388 Shares issued in acquisition of Evergreen U.S. Government Securities Fund.................................................. 590,505 5,739,713 Shares issued on reinvestment of distributions..................... 405,107 3,839,567 620,463 5,963,291 Shares redeemed.................................................... (834,936) (7,924,806) (1,866,525) (17,896,649) Net increase..................................................... 511,087 4,793,325 11,145,606 107,602,743 Total net increase (decrease) resulting from Fund share transactions............................................... (897,931) ($ 8,562,730) 8,669,937 $ 83,924,184
43 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 6 -- FINANCING AGREEMENT Effective July 3, 1996, a financing agreement was put in place with all of the Evergreen Funds and State Street. Under this agreement, State Street provided an unsecured line of credit facility, in the aggregate amount of $100 million ($50 million committed and $50 million uncommitted), to be accessed by the Funds for temporary or emergency purposes only and is subject to each participating Fund's borrowing restrictions. Effective October 31, 1996, a new financing agreement was put in place with all of the Evergreen Funds and State Street, Societe Generale and ABN AMRO Bank N.V. (collectively, the "Banks"). Under this agreement, the Banks provide an unsecured credit facility in the aggregate amount of $225 million ($112.5 million committed and $112.5 million uncommitted) allocated evenly between the Banks. Borrowings under these facilities bear interest at .75% per annum above the Federal Funds rate. A commitment fee of .10% per annum will be incurred on the unused portion of the committed facility which would be allocated to all participating funds. The Funds has no borrowings under the financing agreements during the six-month period ended December 31, 1996. NOTE 7 -- DEFERRED TRUSTEE'S FEES Each Trustee may defer any or all compensation related to performance of duties as a Trustee of the Funds. Each Trustee's deferred balances are allocated to deferral accounts which are included in the accrued expenses for each Fund. The investment performance of the deferral accounts are based on the investment performance of certain Evergreen Funds. Any gains earned or losses incurred in the deferral accounts are reported in each Fund's Trustee's fees and expenses. Trustees will be paid either in one lump sum or in quarterly installments for up to ten years at their election, not earlier than either the year in which the Trustee ceases to be a member of the Trustees or January 1, 2000. As of December 31, 1996, the value of the Trustees' deferral accounts was $2,908, $2,900, $10,079 and $7,463 for Intermediate-Term Bond, Intermediate-Term Government, Short Intermediate and U.S. Government, respectively. 44 TRUSTEES AND OFFICERS TRUSTEES: Laurence B. Ashkin* Foster Bam* James S. Howell, Chairman Robert J. Jefferies*+ Gerald M. McDonnell Thomas L. McVerry William W. Pettit Russell A. Salton, III M.D. Michael S. Scofield OFFICERS: John J. Pileggi President and Treasurer George O. Martinez Secretary Sheryl Hirschfeld Assistant Secretary Stephen W. St. Clair Assistant Treasurer *Trustees for Intermediate-Term Bond and Intermediate-Term Government only. +Trustee Emeritus. This brochure must be preceeded 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. NOT May lose value FDIC No bank guarantee INSURED Evergreen Keystone Distributor, Inc. 540391 46811 2/97 -----END PRIVACY-ENHANCED MESSAGE-----