-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ULE8JSEDQ7T0Vj5KXSYTRwOryOcbiX+R2vMwcWYub2tb1cchKZC4y88TXqIrj3tZ V2ctD7Ewx/PEDfYSy94mfg== 0000950168-95-000752.txt : 19950830 0000950168-95-000752.hdr.sgml : 19950830 ACCESSION NUMBER: 0000950168-95-000752 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950829 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST UNION FUNDS/ 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: 95568632 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 HIGH GRADE TAX FREE PORT DATE OF NAME CHANGE: 19940519 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION FUNDS DATE OF NAME CHANGE: 19921230 FORMER COMPANY: FORMER CONFORMED NAME: SALEM FUNDS DATE OF NAME CHANGE: 19920703 N-30D 1 FUNB/EVERGREEN #82214 N30D EVERGREEN INCOME FUNDS (FORMERLY FIRST UNION INCOME FUNDS) TABLE OF CONTENTS President's Message....................................................... 1 A Review of 1st Half and Prospects for Remainder of 1995....................................... 2 (Picture of a Building) FIXED INCOME A Report From Your Portfolio Manager...................................... 4 FUND Results to Date........................................................... 5 Statement of Investments.................................................. 6 Statement of Assets and Liabilities....................................... 8 Statement of Operations................................................... 9 Statement of Changes in Net Assets........................................ 10 Financial Highlights...................................................... 11 (Picture of a Coin) MANAGED BOND A Report From Your Portfolio Manager...................................... 14 FUND Results to Date........................................................... 15 Statement of Investments.................................................. 16 Statement of Assets and Liabilities....................................... 18 Statement of Operations................................................... 19 Statement of Changes in Net Assets........................................ 20 Financial Highlights...................................................... 21 (Picture of a Capitol Building) U.S. GOVERNMENT A Report From Your Portfolio Manager...................................... 22 FUND Results to Date........................................................... 23 Statement of Investments.................................................. 24 Statement of Assets and Liabilities....................................... 25 Statement of Operations................................................... 26 Statement of Changes in Net Assets........................................ 27 Financial Highlights...................................................... 28 Combined Notes to Financial Statements.................................... 29 Independent Auditors' Report.............................................. 35 Trustees and Officers..................................................... IBC
EVERGREEN INCOME FUNDS (FORMERLY FIRST UNION INCOME FUNDS) PRESIDENT'S MESSAGE BY JOHN J. PILEGGI Dear Valued Shareholder: I am pleased to present you with the Annual Report (Photo of John J. for the Evergreen Income Funds (formerly the First Union Pileggi appears Income Funds) for the six-month period ended June 30, here) 1995. This Report contains complete financial information -- including the Investment Reviews and Statements of Investments for the Evergreen Fixed Income Fund, Evergreen Managed Bond Fund, and Evergreen U.S. Government Fund. As you can see, this Report features our new family of the Evergreen Funds. This is the result of the First Union Funds combining with and taking the name of the Evergreen Funds effective July 7, 1995. In addition, we have completed the acquisition of the ABT Funds, which added two new funds to our expanding fund family, Florida High Income Municipal Bond and Aggressive Growth funds. The Evergreen Family of Funds now consists of more than 30 funds, each carefully designed to help meet specific objectives. We are excited about the creation of one COMBINED fund family, since it offers our shareholders a wider range of mutual fund options to help achieve a broad spectrum of investment needs. The combination of funds and the acquisition of two new funds provides you with the following benefits: (Bullet) a wider array of fund options, many with outstanding track records (Bullet) free exchanges among all funds* (Bullet) the investment expertise of two experienced investment advisors -- Evergreen Asset Management Corp. and First Union National Bank of North Carolina's Capital Management Group If you wish to receive more complete information about any of the Evergreen Funds, please call 1-800-807-2940 to speak with a First Union Brokerage Services' registered representative. We'll be glad to send you a prospectus describing the fund choices and their objectives, fees and expenses. Please read the prospectus carefully before you invest or send money. I hope you're pleased with the recent growth we have experienced, and the opportunities this growth affords you. As always, we welcome any questions, comments, and suggestions you may have. We look forward to serving your investment needs in the months and years to come. Sincerely, (Signature of John J. Pileggi) August 15, 1995 * EXCHANGES MUST BE WITHIN THE SAME CLASS OF SHARES. SHARE EXCHANGES ARE SUBJECT TO CERTAIN LIMITATIONS DESCRIBED IN THE PROSPECTUS. 1 EVERGREEN INCOME FUNDS (FORMERLY FIRST UNION INCOME FUNDS) SOFT LANDING OR PERFECT LANDING? REVIEW OF 1ST HALF AND PROSPECTS FOR REMAINDER OF 1995 BY DICK WAGONER, CHIEF INVESTMENT OFFICER In our last report we stated, "In our view, the (Picture of Dick investment climate for 1995 is improving," and we Wagoner appears looked for much improved investment returns. here) The basis for our optimism was our belief that the Federal Reserve's interest rate increases, designed to slow the economy and pre- empt inflation, were, in fact, going to be effective and would permit the economy to come in for a "soft landing" after a period of rapid growth in 1994. In addition to the Fed's actions, we believed then as we believe now that several powerful secular forces -- including global competition, demographics and significant productivity gains -- are working to keep inflation in check longer-term. Current evidence confirms our view of moderating economic growth in 1995. Leading economic indicators have fallen 4 out of 5 consecutive months and are likely to fall again. Industrial production and capacity utilization have also begun to moderate. Further confirming a slowdown were the back-to-back rises in unemployment claims in April and May, the first such occurrence in over three years. These increases, along with rising inventories and sluggish retail sales assure that slower economic growth is at hand for the remainder of the year. WHILE WE CONTINUE TO BE OPTIMISTIC ABOUT THE INVESTMENT OUTLOOK FOR 1995, WE BELIEVE THE MARKETS MAY BE GETTING AHEAD OF THEMSELVES IN ANTICIPATION OF A "PERFECT LANDING." STANDING OVATION FROM WALL STREET As the economy began to slow, interest rates fell and the markets responded with a standing ovation to the prospects of a "soft landing" -- perhaps even anticipating a "perfect landing" in the economy. For the six months ended June 30, 1995, the S&P 500 Reinvested Index* was up over 20%, and the Lehman Brothers' Intermediate Bond Index** was up over 9%. An increasing number of investors believe the transition to a slow growth, low inflation economy will be smooth -- providing a highly favorable investment climate. While we continue to be optimistic about the investment outlook for 1995, we believe the markets may be getting ahead of themselves in anticipation of a "perfect landing" rather than a slowdown which is likely to be characterized by modestly higher inflation, a choppy and subdued pattern of economic growth, and less favorable corporate earnings comparisons. BOND MARKETS POST NEAR-RECORD RETURNS Once it became clear that inflation would be constrained by slower growth, bond markets reacted forcefully. Yields on 10-year Treasury notes plummeted 1.5% during the half which provided total returns in excess of 15%. This yield decline provided bonds with their fourth strongest half-year returns on record. Strong performances from the Treasury and Corporate bond sectors led the taxable market's charge toward lower yields. Buoyed by strong corporate earnings and improved credit quality, corporate bonds outpaced all taxable bond sectors for the half. By June, however, increased concern about slowing economic growth gave pause to their outperformance. Mortgage backed securities began to underperform as the rally ensued. Since homeowners tend to refinance mortgages as interest rates decline, mortgage securities tend to shorten their maturities during lower interest rate environments, reducing gains versus securities with set maturity dates. Currently, mortgage bonds have weakened to levels not seen since the 1993 bond rally, and provide better value. * THE S&P 500 IS A REINVESTED UNMANAGED COMPOSITE INDEX OF 425 INDUSTRIAL, 20 TRANSPORTATION, AND 55 PUBLIC UTILITY COMMON STOCKS. ** UNMANAGED INDICIES OF SELECTED SECURITIES. 2 EVERGREEN INCOME FUNDS (FORMERLY FIRST UNION INCOME FUNDS) REVIEW OF 1ST HALF AND PROSPECTS FOR REMAINDER OF 1995 -- (CONTINUED) At mid-year, with 30-year Treasuries yielding approximately 6.5%, and with the prospect of 3%-3.5% inflation, bonds provide a 3% return over and above inflation. This is in line with historic averages and represents fair value for the investor. SECOND HALF OUTLOOK The investment climate for the balance of 1995 is likely to require a more cautious stance on the part of investors. The first half of the year witnessed a rapid run-up in equity prices, powered by declining interest rates and improved corporate profit performance. Interest rate declines reflected the moderation in economic growth brought on by the Federal Reserve's actions in 1994 to slow the increasing momentum of the economy and relieve potential inflationary pressures. By mid-year 1995, tangible evidence was available to indicate that those policies had been successful, and the Fed signaled a moderation of its stance. This indicates that further substantial interest rate declines from current levels are less likely, removing one of the driving forces behind higher stock prices. Unexpectedly, strong earnings were an additional factor in lifting stock prices. For the balance of 1995 and into 1996, we believe profit comparisons will be less robust related to the moderation in the economy and more difficult year-over-year comparisons. In the absence of a further slowdown in the economy, profits should continue to grow, but at a more measured pace. Valuations on stocks are high reflecting the aforementioned variables. While this in and of itself is not a reason for stocks to fall, it indicates that a reasonable degree of caution is appropriate. At this point, it appears that the economic recovery is intact and that inflation is under control. U.S. manufacturing competitiveness is high related to corporate restructuring and the level of the dollar in world markets. Productivity gains have had a powerful impact on our ability to keep inflation under control. Business capital spending remains high, which bodes well for a continuation of these trends. Nonetheless, we are approaching the sixth year of the economic recovery and one must be more cognizant of risks to the outlook given that we are in the mature phase. The fixed income markets have also reached levels where further reductions will be more moderate and will require further evidence that the economy is not going to repeat its strong second half performance of 1994. We believe that interest rates may move upward moderately (7% bond yield) as economic data reflects more growth after three months of very weak growth. However, we do not expect a recurrence of 4% plus growth, and we believe interest rates will decline. Actions on the political front may be the wildcard looking forward. Over the next 18 months, the issues of tax reform, deficit reduction and Presidential election politics will all be on the front pages. Positive action on the deficit could have very positive implications for the financial markets. 3 EVERGREEN FIXED INCOME FUND (Picture of a Building) (FORMERLY FIRST UNION FIXED INCOME PORTFOLIO) A REPORT FROM YOUR PORTFOLIO MANAGER BY THOMAS ELLIS Evergreen Fixed Income Fund has benefited nicely from the (Picture of much improved climate in the first half of 1995, after having Thomas Ellis weathered a very difficult fixed income market last year. appears here) With interest rates down at all maturities during the first half, the Fund's holdings appreciated and generated an attractive level of income. During the first half, we made several adjustments within the portfolio in an attempt to enhance its return and position it for the future. First, we extended maturities modestly to take advantage of declining interest rates. In addition, we adjusted the Fund's mix of securities. Corporate bonds, which have performed very well over the last several months and now offer a narrow premium versus Treasury securities, were reduced to 25% of the Fund's net assets. We have replaced a 5% position of short-term corporate bonds with callable federal agency bonds, which are of higher quality and have more favorable return projections. We have also increased our mortgage holdings to 38%, as mortgages have become more attractive with the rapid decline in rates. Overall, we have increased the already high credit quality of the portfolios with 70% Government and AAA, 4% AA and 26% A. Average credit quality for the portfolio is AA. In the months ahead, we will view any corrections in bond prices as opportunities to extend our maturities modestly as we view bonds as good values given current rates and our inflation outlook. 4 EVERGREEN FIXED INCOME FUND (Picture of a Building) (FORMERLY FIRST UNION FIXED INCOME PORTFOLIO) RESULTS TO DATE PERFORMANCE OF $10,000 INVESTED IN THE EVERGREEN FIXED INCOME FUND The graphs below compare a $10,000 investment in the Evergreen Fixed Income Fund (Class A, Class B, Class C and Class Y Shares) with a similar investment in the Lehman Brothers Intermediate Government/Corporate Bond Index ("LBIG/CBI Index"). (4 graphs appear here with the plot points listed below) Class A Plot Points are as follows: Class B Plot Points are as follows: Class A Fund Index Class B Fund Index 01/31/89 9,525 10,000 01/25/93 10,000 10,000 12/31/89 10,526 11,159 06/30/93 10,411 10,418 12/31/90 11,320 12,181 12/31/93 10,608 10,671 12/31/91 12,928 13,962 06/30/94 10,254 10,392 12/31/92 13,753 14,964 12/31/94 10,254 10,465 12/31/93 14,893 16,279 06/30/95 10,775 11,470 12/31/94 14,510 15,965 06/30/95 15,788 17,498 Class C Plot Points are as follows: Class Y Plot Points are as follows: Class C Fund Index Class Y Fund Index 09/02/94 10,000 10,000 12/31/90 10,000 10,000 12/31/94 9,873 9,897 12/31/91 11,380 11,462 03/31/95 10,235 10,331 12/31/92 12,381 12,284 06/30/95 10,579 10,847 12/31/93 13,189 13,364 12/31/94 12,853 13,106 06/30/95 13,983 14,364 * Commencement of class operations. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS ARE NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED. For the purposes of the graphs and the accompanying tables, it has been assumed that (a) the maximum sales charge of 4.75% was deducted from the initial $10,000 investment Class A Shares; (b) the maximum applicable contingent deferred sales charge was deducted from the value of the investment in Class B and Class C Shares, assuming full redemption on June 30, 1995; (c) all recurring fees (including investment advisory fees) were deducted; and (d) all dividends and distributions were reinvested. The LBIG/CBI Index is an unmanaged index and includes the reinvestment of income, but does not reflect the payment of transaction costs and advisory fees associated with an investment in the Fund. 5 EVERGREEN FIXED INCOME FUND (FORMERLY FIRST UNION FIXED INCOME PORTFOLIO) (Picture of a Building) STATEMENT OF INVESTMENTS JUNE 30, 1995
PRINCIPAL AMOUNT VALUE ASSET-BACKED SECURITIES -- 11.8% $ 1,091,522 BW TR, 9.50%, 2/15/05......... $ 1,111,430 1,335,454 Chemical Grantor Trust, 8.90%, 12/15/96...................... 1,347,271 1,835,689 CIT Group Holdings, 4.70%, 6/15/18................ 1,805,178 6,278,213 FCC Grantor Trust, 9.00%, 7/15/97................ 6,377,214 6,538,712 First Bank Auto Receivable, 8.30%, 1/15/00................ 6,689,880 Fleet Financial Home Equity Trust, 1,224,635 6.70%, 10/16/06............... 1,231,210 2,278,851 6.70%, 1/15/06................ 2,289,120 10,676,287 Fleetwood Credit Grantor Trust, 4.95%, 8/15/08................ 10,385,561 251,513 General Motors Acceptance Corp. Grantor Trust, 5.05%, 1/15/97................ 251,307 7,500,000 Household Affinity Credit Card Master Trust, 7.20%, 12/15/99............... 7,659,818 6,000,000 Household Credit Card Trust, 6.70%, 7/15/97................ 6,015,414 TOTAL ASSET-BACKED SECURITIES (COST $45,161,500)............ 45,163,403 CORPORATE BONDS -- 24.9% BANKING -- 3.8% First Chicago Corp., 4,000,000 9.00%, 6/15/99................ 4,328,672 2,000,000 9.20%, 12/17/01............... 2,238,722 5,000,000 First Security Corp., 6.40%, 2/10/03................ 4,842,105 1,500,000 J.P. Morgan & Co., Inc., 9.625%, 12/15/98.............. 1,524,823 1,000,000 National Bank of Canada, 8.125%, 8/15/04............... 1,065,780 500,000 Security Pacific Corp., 10.45%, 5/8/01................ 587,454 14,587,556 BASIC INDUSTRY -- 2.4% 5,000,000 Hanson, PLC, 7.375%, 1/15/03............... 5,172,960 4,000,000 WMX Technologies Inc., 7.00%, 5/15/05....................... 4,046,440 9,219,400 PRINCIPAL AMOUNT VALUE CORPORATE BONDS -- CONTINUED FINANCE -- 11.0% $ 3,000,000 Bear Stearns Company, Inc., 7.625%, 4/15/00............... $ 3,114,351 3,000,000** Cenfed Financial Corp., 11.17%, 12/15/01.............. 3,290,997 10,000,000 Chrysler Buildings, 9.125%, 5/1/99................ 10,800,200 5,000,000 Lehman Brothers Holdings Inc., 8.875%, 3/1/02................ 5,387,865 7,500,000 Lehman Brothers Holdings -- WI, 7.00%, 5/15/97....................... 7,542,953 1,000,000 Morgan Stanley Group, Inc., 9.40%, 3/5/98................. 1,067,862 Salomon Brothers, Inc., 1,800,000 8.57%, 3/10/97................ 1,845,277 9,000,000 9.01%, 5/1/97................. 9,307,665 42,357,170 INSURANCE -- 6.0% 2,000,000** Associated P&C Holdings, Inc., 6.75%, 7/15/03................ 1,955,000 6,000,000 First Colony Corp., 6.625%, 8/1/03................ 5,856,012 10,000,000** Metropolitan Life Insurance Co., 6.30%, 11/1/03........... 9,514,370 6,000,000 Progressive Corp., Ohio, 6.60%, 1/15/04................ 5,841,528 23,166,910 INTERNATIONAL INDUSTRIAL BUILDING PRODUCTS -- 1.4% 5,000,000 Boral Limited Australia Co., 7.90%, 11/19/99............... 5,236,415 SOVEREIGN GOVERNMENT -- .3% 900,000 New Brunswick Province CDA, 7.125%, 10/1/02............... 923,579 TOTAL CORPORATE BONDS (COST $95,541,638)..... 95,491,030 CERTIFICATE OF DEPOSIT -- .5% 2,000,000 Bayerische Landesbank CD, 6.375%, 6/1/96 (cost $2,000,000)................... 2,000,000 MORTGAGE-BACKED SECURITIES -- 38.1% 3,773,211 CMC Securities Corp., 10.00%, 7/25/23....................... 4,084,162 9,500,000 CWMBS, Inc., 7.00%, 10/25/23............... 9,441,470
6 EVERGREEN FIXED INCOME FUND (FORMERLY FIRST UNION FIXED INCOME PORTFOLIO) (Picture of a Building) STATEMENT OF INVESTMENTS -- (CONTINUED) JUNE 30, 1995
PRINCIPAL AMOUNT VALUE MORTGAGE-BACKED SECURITIES -- CONTINUED Federal Home Loan Mortgage Corporation, $ 4,000,000 6.75%, 2/15/04................ $ 4,020,876 10,000,000 7.40%, 10/15/05............... 10,229,490 775,246 10.50%, 9/1/15................ 843,080 Federal Housing Administration-Puttable Project Loans, 5,477,067 7.43%, 7/1/22................. 5,798,954 4,184,182 7.43%, 11/1/22................ 4,438,605 10,576,515 7.43%, 1/1/24................. 11,000,527 1,609,127 7.43%, 3/1/24................. 1,705,714 6,444,335 8.43%, 2/1/20................. 6,850,496 Federal National Mortgage Association, 5,000,000 7.00%, 7/25/20................ 4,991,945 57,775 14.00%, 6/1/11................ 66,107 3,515,956 GCC Second Mortgage Trust, 10.00%, 7/15/05............... 3,688,304 Green Tree Financial Corp., 2,015,461 4.60%, 10/15/18............... 2,000,243 1,664,128 4.90%, 4/15/18................ 1,630,069 5,250,000 Household Finance Corp., 6.70%, 6/15/02................ 5,222,805 2,209,312 Merrill Lynch Mortgage Investments, 6.85%, 4/15/12................ 2,212,867 9,000,000 Prudential Home Mortgage Securities Co., 6.30%, 5/25/99................ 8,901,837 6,605,435 Prudential Securities Inc., 8.12%, 2/17/25................ 6,871,409 Resolution Trust Corp., 805,291 5.90%, 7/25/23................ 806,700 618,423 7.00%, 2/15/04................ 621,672 7,306,525 8.35%, 6/25/29................ 7,324,551 8,263,123 Saxon Mortgage Securities Corp., 7.375%, 9/25/23........ 8,318,891 442,220 Shawmut National Trust, 9.15%, 8/15/05....................... 445,475 U.S. Department of Veteran Affairs, 9,000,000 6.50%, 5/15/13................ 8,824,410 15,000,000 6.50%, 1/15/17................ 14,461,155 11,280,000 6.75%, 11/15/09............... 11,309,633 PRINCIPAL AMOUNT VALUE TOTAL MORTGAGE BACKED SECURITIES (COST $145,179,482).......... $146,111,447 U.S. AGENCY OBLIGATIONS -- 5.5% $ 13,665,000 Federal Home Loan Bank, 7.00%, 7/5/00................. 13,676,205 2,000,000 Federal Home Loan Mortgage Corporation, 6.97%, 6/16/05................ 2,010,832 2,500,000 Federal National Mortgage Association, 7.65%, 5/4/05................. 2,574,405 3,000,000 Student Loan Marketing Association, 8.80%, 11/15/04............... 3,038,073 TOTAL U.S. AGENCY OBLIGATIONS (COST $21,265,625)........... 21,299,515 U.S. TREASURY NOTES -- 19.8% U.S. Treasury Notes 9,000,000 3.875%, 8/31/95............... 8,974,674 10,000,000 8.250%, 7/15/98............... 10,640,610 7,000,000 8.625%, 10/15/95.............. 7,059,052 22,000,000 8.875%, 2/15/99............... 24,117,500 25,000,000 9.50%, 11/15/95............... 25,351,525 TOTAL U.S. TREASURY NOTES (COST $78,732,539)......... 76,143,361 *REPURCHASE AGREEMENT -- 1.7% 6,634,000 Donaldson, Lufkin & Jenrette Securities Corp., 6.00%, dated 6/30/95, due 7/3/95........... 6,634,000 TOTAL INVESTMENTS -- 102.3% (COST $394,514,784)......... 392,842,756 OTHER ASSETS AND LIABILITIES -- NET (2.3%)... (9,002,313) TOTAL NET ASSETS -- 100%...... $383,840,443
* Fully collateralized by U.S. Government and/or agency obligations based on market price at June 30, 1995. ** Restricted security is not registered under the Securities Act of 1993. WI-When issued. See accompanying notes to financial statements. 7 EVERGREEN FIXED INCOME FUND (FORMERLY FIRST UNION FIXED INCOME PORTFOLIO) (Picture of a Building) STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1995 ASSETS: Investments at value (identified cost $394,514,784)........................................................... $392,842,756 Cash.......................................................................................................... 280 Interest receivable........................................................................................... 4,761,663 Receivable for Fund shares sold............................................................................... 527,455 Receivable for investment securities sold..................................................................... 12,311 Total assets............................................................................................... 398,144,465 LIABILITIES: Payable for investment securities purchased................................................................... 13,665,000 Payable for Fund shares repurchased........................................................................... 596,753 Accrued expenses.............................................................................................. 42,269 Total liabilities.......................................................................................... 14,304,022 NET ASSETS....................................................................................................... $383,840,443 NET ASSETS CONSIST OF: Paid-in capital............................................................................................... $394,353,819 Accumulated net realized loss................................................................................. (9,275,364) Undistributed net investment income........................................................................... 434,016 Net unrealized depreciation of investments.................................................................... (1,672,028) Net assets................................................................................................. $383,840,443 CALCULATION OF NET ASSET VALUE PER SHARE: Class A Shares ($18,897,922 (divided sign) 1,886,810 shares of beneficial interest outstanding)............... $ 10.02 Sales charge -- 4.75% of offering price....................................................................... 0.50 Maximum offering price..................................................................................... $ 10.52 Class B Shares ($17,365,613 (divided sign) 1,729,294 shares of beneficial interest outstanding)............... $ 10.04 Class C Shares ($527,144 (divided sign) 52,443 shares of beneficial interest outstanding)..................... $ 10.05 Class Y Shares ($347,049,764 (divided sign) 34,629,113 shares of beneficial interest outstanding)............. $ 10.02
See accompanying notes to financial statements. 8 EVERGREEN FIXED INCOME FUND (FORMERLY FIRST UNION FIXED INCOME PORTFOLIO) STATEMENT OF OPERATIONS (Picture of a Building) SIX MONTHS ENDED JUNE 30, 1995 INVESTMENT INCOME: Interest....................................................................................... $14,129,331 EXPENSES: Advisory fee................................................................................... $ 961,697 Administrative personnel and services fees..................................................... 159,002 Distribution fee -- Class A Shares............................................................. 9,479 Distribution and shareholder services fees -- Class B Shares................................... 85,200 Distribution and shareholder services fees -- Class C Shares................................... 2,570 Custodian fee.................................................................................. 73,899 Transfer agent fee............................................................................. 34,071 Registration and filing fees................................................................... 18,550 Professional fees.............................................................................. 15,109 Reports and notices to shareholders............................................................ 13,090 Trustees' fees and expenses.................................................................... 2,909 Insurance...................................................................................... 1,309 Other.......................................................................................... 938 Total expenses.............................................................................. 1,377,823 Net investment income............................................................................. 12,751,508 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss on investments............................................................... (3,254,748) Net change in unrealized depreciation of investments........................................... 23,129,255 Net gain on investments........................................................................... 19,874,507 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............................................. $32,626,015
See accompanying notes to financial statements. 9 EVERGREEN FIXED INCOME FUND (FORMERLY FIRST UNION FIXED INCOME PORTFOLIO) (Picture of a Building) STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS YEAR ENDED ENDED JUNE 30, DECEMBER 31, 1995 1994 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income..................................................................... $ 12,751,508 $ 26,413,957 Net realized loss on investments.......................................................... (3,254,748) (6,020,616) Net change in unrealized appreciation (depreciation) of investments....................... 23,129,255 (31,162,934) Net increase (decrease) in net assets resulting from operation......................... 32,626,015 (10,769,593) DISTRIBUTIONS TO SHAREHOLDERS FROM: NET INVESTMENT INCOME: Class A Shares............................................................................ (633,992) (1,390,210) Class B Shares............................................................................ (489,731) (813,680) Class C Shares............................................................................ (14,464) (6,924) Class Y Shares............................................................................ (11,563,141) (24,026,300) Total distributions to shareholders from net investment income............................................................. (12,701,328) (26,237,114) NET REALIZED GAINS: Class A Shares............................................................................ -- (1,063) Class B Shares............................................................................ -- (679) Class C Shares............................................................................ -- -- Class Y Shares............................................................................ -- (17,637) Total distributions to shareholders from net realized gains................................................................ -- (19,379) Total distributions to shareholders.................................................... (12,701,328) (26,256,493) FUND SHARE TRANSACTIONS: Proceeds from shares sold................................................................. 68,077,630 122,135,053 Proceeds from reinvestment of dividends................................................... 11,423,985 24,252,420 Payments for shares redeemed.............................................................. (97,874,977) (135,258,457) Net increase (decrease) from Fund share transactions................................... (18,373,362) 11,129,016 Net increase (decrease) in net assets.................................................. 1,551,325 (25,897,070) NET ASSETS: Beginning of period....................................................................... 382,289,118 408,186,188 End of period (including undistributed net investment income of $434,016 and $219,997, respectively)................................................... $383,840,443 $ 382,289,118
See accompanying notes to financial statements. 10 EVERGREEN FIXED INCOME FUND -- CLASS A SHARES (FORMERLY FIRST UNION FIXED INCOME PORTFOLIO) (Picture of a Building) FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1995# 1994 1993 1992 1991 PER SHARE DATA Net asset value, beginning of period........................... $9.52 $10.42 $10.41 $10.54 $9.99 Income (loss) from investment operations: Net investment income.......................................... .32 .65 .65 .71 .73 Net realized and unrealized gain (loss) on investments......... .50 (.91) .19 (.06) .60 Total from investment operations............................ .82 (.26) .84 .65 1.33 Less distributions to shareholders from: Net investment income.......................................... (.32) (.64) (.65) (.67) (.70) Net realized gains............................................. -- -- (.18) (.11) (.07) In excess of net investment income............................. -- -- -- -- (.01) Total distributions......................................... (.32) (.64) (.83) (.78) (.78) Net asset value, end of period................................. $10.02 $9.52 $10.42 $10.41 $10.54 TOTAL RETURN(|)................................................ 8.8% (2.6%) 8.3% 6.4% 13.7% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)...................... $18,898 $19,127 $22,865 $21,488 $17,680 Ratios to average net assets: Expenses.................................................... .77%(|)(|) .75% .93% .90% .80%(a) Net investment income....................................... 6.58%(|)(|) 6.46% 6.15% 6.79% 7.30%(a) Portfolio turnover rate........................................ 34% 48% 73% 66% 53%
# 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. (a) 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:
YEAR ENDED DECEMBER 31, 1991 Expenses............................................................... .89% Net investment income.................................................. 7.21%
11 EVERGREEN FIXED INCOME FUND -- CLASS B AND CLASS C SHARES (FORMERLY FIRST UNION FIXED INCOME PORTFOLIO) (Picture of a Building) FINANCIAL HIGHLIGHTS
CLASS B SHARES CLASS C SHARES JANUARY 25, SEPTEMBER 6, SIX MONTHS 1993* SIX MONTHS 1994* ENDED YEAR ENDED THROUGH ENDED THROUGH JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30, DECEMBER 31, 1995# 1994 1993 1995# 1994 PER SHARE DATA Net asset value, beginning of period............ $9.54 $10.44 $10.57 $9.55 $9.85 Income (loss) from investment operations: Net investment income........................... .28 .58 .58 .26 .18 Net realized and unrealized gain (loss) on investments.................................. .50 (.92) .05 .50 (.30) Total from investment operations............. .78 (.34) .63 .76 (.12) Less distributions to shareholders from: Net investment income........................... (.28) (.56) (.58) (.26) (.18) Net realized gains.............................. -- -- (.18) -- -- Total distributions.......................... (.28) (.56) (.76) (.26) (.18) Net asset value, end of period.................. $10.04 $9.54 $10.44 $10.05 $9.55 TOTAL RETURN(|)................................. 8.3% (3.3%) 6.1% 8.2% (1.3%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted).............................. $17,366 $17,625 $8,876 $527 $512 Ratios to average net assets: Expenses..................................... 1.67%(|)(|) 1.50% 1.57%(|)(|) 1.67%(|)(|) 1.65%(|)(|) Net investment income........................ 5.68%(|)(|) 5.75% 5.42%(|)(|) 5.69%(|)(|) 5.87%(|)(|) Portfolio turnover rate......................... 34% 48% 73% 34% 48%
* Commencement of class operations. # 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. Contingent deferred sales charges are not reflected. (|)(|) Annualized. 12 EVERGREEN FIXED INCOME FUND -- CLASS Y SHARES (FORMERLY FIRST UNION FIXED INCOME PORTFOLIO) (Picture of a Building) FINANCIAL HIGHLIGHTS
SIX MONTHS JANUARY 4, 1991* ENDED JUNE YEAR ENDED DECEMBER 31, THROUGH 30, 1995# 1994 1993 1992 DECEMBER 31, 1991 PER SHARE DATA Net asset value, beginning of period............... $9.52 $10.43 $10.41 $10.54 $10.06 Income (loss) from investment operations: Net investment income.............................. .33 .65 .69 .70 .71 Net realized and unrealized gain (loss) on investments..................................... .49 (.91) .19 (.02) .56 Total from investment operations................ .82 (.26) .88 .68 1.27 Less distributions to shareholders from: Net investment income.............................. (.32) (.65) (.68) (.70) (.71) Net realized gains................................. -- -- (.18) (.11) (.07) In excess of net investment income................. -- -- -- -- (.01) Total distributions............................. (.32) (.65) (.86) (.81) (.79) Net asset value, end of period..................... $10.02 $9.52 $10.43 $10.41 $10.54 TOTAL RETURN(|).................................... 8.8% (2.6%) 8.7% 6.6% 13.8% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)................................. $347,050 $345,025 $376,445 $324,068 $256,254 Ratios to average net assets: Expenses........................................ .67%(|)(|) .65% .66% .69% .69%(|)(|)(a) Net investment income........................... 6.68%(|)(|) 6.56% 6.41% 6.67% 7.12%(|)(|)(a) Portfolio turnover rate............................ 34% 48% 73% 66% 53%
# 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. (|)(|) Annualized. (a) 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:
JANUARY 4, 1991 THROUGH DECEMBER 31, 1991 Expenses................................................................. .76% Net investment income.................................................... 7.05%
13 EVERGREEN MANAGED BOND FUND (Picture of a Coin) (FORMERLY FIRST UNION MANAGED BOND PORTFOLIO) A REPORT FROM YOUR PORTFOLIO MANAGER BY GLEN INSLEY Evergreen Managed Bond Fund experienced a very strong (Photo of Glen performance in the first half of 1995 as a result of sharp Insley appears declines in intermediate and long-term interest rates here) coupled with changes within the Fund. We anticipated slower economic growth and an improved investment climate during the first half, thus, we maintained the maturity structure within the portfolio to take advantage of declining interest rates. In addition, we increased the Fund's holdings in mortgages and U.S. government securities while we reduced our position in corporate bonds. Mortgages have become increasingly attractive in the past few months. Corporate bonds, on the other hand, have become less attractive as the normal yield advantage they offer has narrowed substantially. On June 30, the Fund's net assets were invested 40% in U.S. governments, 15% in mortgage-backed securities and 42% in corporate bonds. Credit quality increased during the quarter with 58% AAA and Government, 2% AA and 39% A and 1% BAA. The average maturity of the Fund was 5.03 years. 14 EVERGREEN MANAGED BOND FUND (Picture of a Coin) (FORMERLY FIRST UNION MANAGED BOND PORTFOLIO) PERFORMANCE OF $10,000 INVESTED IN THE EVERGREEN MANAGED BOND FUND The graph below compares a $10,000 investment in the Evergreen Managed Bond Fund (Class Y Shares) with a similar investment in the Lehman Brothers Intermediate Government/Corporate Bond Index ("LBIG/CBI Index"). (Graph appears here plot points listed below it) Class Y Plot Points are as follows: Class Y Fund Index 04/01/91 10,000 10,000 12/31/91 11,163 11,181 12/31/92 11,781 11,983 12/31/93 13,041 13,036 12/31/94 12,467 12,784 06/30/95 13,866 14,012 *Commencement of operations. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. MUTUAL FUNDS ARE NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED. For the purposes of the graph and the accompanying table, it has been assumed that (a) all recurring fees (including investment advisory fees) were deducted; and (b) all dividends and distributions were reinvested. The Adviser is currently waiving a portion of the Fund's expenses. Had expenses not been waived, returns would have been lower. The LBIG/CBI Index is an unmanaged index and includes the reinvestment of income, but does not reflect the payment of transaction costs and advisory fees associated with an investment in the Fund. 15 EVERGREEN MANAGED BOND FUND (FORMERLY FIRST UNION MANAGED BOND PORTFOLIO) STATEMENT OF INVESTMENTS (Picture of a Coin) JUNE 30, 1995
PRINCIPAL AMOUNT VALUE CORPORATE BONDS -- 41.2% BANKING -- 6.6% $ 3,000,000 Comerica, Inc., 7.125%, 12/1/13................ $ 2,840,679 2,000,000 NationsBank Corp., 8.125%, 6/15/02................ 2,134,616 4,975,295 CHEMICALS -- 4.1% 3,000,000 ICI Wilmington, Inc., 7.625%, 3/15/97........................ 3,072,615 DRUG -- 3.0% 2,000,000 Baxter International, Inc., 9.25%, 12/15/99................ 2,214,546 FINANCE AND INSURANCE -- 10.2% 500,000* Cenfed Financial Corp., 11.17%, 12/15/01....................... 548,500 1,500,000 First Colony Corp., 6.625%, 8/1/03................. 1,464,003 1,000,000* Goldman Sachs Group, 6.375%, 6/15/00........................ 973,803 1,500,000 Household Finance Corp., 9.625%, 3/11/96................ 1,536,210 3,000,000 Lehman Brothers, Inc., 8.375%, 4/1/97......................... 3,079,068 7,601,584 FOOD AND BEVERAGE -- 2.0% 1,500,000 Grand Metro Investment Corp., 6.50%, 9/15/99................. 1,503,699 FOREIGN -- 2.9% 2,000,000 Manitoba Province, 8.00%, 4/15/02................. 2,152,938 INDUSTRIAL -- 3.0% 2,000,000** Jet Equipment Trust, 9.41%, 6/15/10................. 2,268,880 TELE-COMMUNICATIONS -- 3.7% 3,100,000 ALLTEL Corp., 6.50%, 11/1/13................. 2,807,946 PRINCIPAL AMOUNT VALUE CORPORATE BONDS -- CONTINUED UTILITIES -- 5.7% $ 2,000,000 Carolina Power & Light Co., 8.625%, 9/15/21................ $ 2,233,298 2,000,000 Progress Capital Holdings, 8.17%, 9/13/96................. 2,032,450 4,265,748 TOTAL CORPORATE BONDS (COST $30,387,035)...... 30,863,251 U.S. GOVERNMENT OBLIGATIONS -- 54.2% U.S. TREASURY BONDS -- 10.9% 1,000,000 8.75%, 5/15/17................. 1,233,750 3,550,000 8.875%, 8/15/17................ 4,435,281 2,000,000 8.875%, 2/15/19................ 2,506,872 8,175,903 U.S. TREASURY NOTES -- 23.7% 2,100,000 5.125%, 12/31/98............... 2,047,500 10,000,000 6.875%, 7/31/99................ 10,321,860 2,000,000 8.25%, 7/15/98................. 2,128,122 3,000,000 8.875%, 2/15/99................ 3,288,750 17,786,232 GOVERNMENT AGENCY -- 19.6% 3,000,000 Federal Home Loan Banks, 7.70%, 9/20/04........................ 3,262,788 Federal Home Loan Mortgage Corp. 1,320,827 7.50%, 5/1/09.................. 1,342,283 1,419,071 7.50%, 5/1/09.................. 1,442,123 Government National Mortgage Association 1,479,845 7.50%, 9/15/23................. 1,488,631 4,008,080 8.00%, 10/15/24................ 4,104,503 1,158,456 9.00%, 4/15/20................. 1,217,851 792,227 9.00%, 8/15/21................. 832,824 974,866 9.50%, 2/15/21................. 1,033,662 14,724,665 TOTAL U.S. GOVERNMENT OBLIGATIONS (COST $39,854,425)...... $40,686,800
16 EVERGREEN MANAGED BOND FUND (FORMERLY FIRST UNION MANAGED BOND PORTFOLIO) STATEMENT OF INVESTMENTS -- (CONTINUED) (Picture of a Coin) JUNE 30, 1995
PRINCIPAL AMOUNT VALUE ** REPURCHASE AGREEMENT -- 2.2% $ 1,639,000 Donaldson, Lufkin & Jenrette Securities Corp., 6.00%, dated 6/30/95, due 7/3/95 (cost $1,639,000).............. $ 1,639,000 TOTAL INVESTMENTS -- 97.6% (cost $71,880,460)............. 73,189,051 OTHER ASSETS AND LIABILITIES -- NET 2.4%........ 1,770,756 TOTAL NET ASSETS -- 100%....... $74,959,807
* Restricted security which is not registered under the Securities Act of 1933. ** Fully collateralized by U.S. government and/or agency obligations based on market on June 30, 1995. See accompanying notes to financial statements. 17 EVERGREEN MANAGED BOND FUND (FORMERLY FIRST UNION MANAGED BOND PORTFOLIO) STATEMENT OF ASSETS AND LIABILITIES (Picture of a Coin) JUNE 30, 1995
ASSETS: Investments at value (identified cost $71,880,460)............................................................. $73,189,051 Cash........................................................................................................... 891 Interest receivable............................................................................................ 1,251,866 Receivable for Fund shares sold................................................................................ 513,116 Prepaid expenses............................................................................................... 8,800 Total assets............................................................................................. 74,963,724 LIABILITIES: Payable for Fund shares repurchased............................................................................ 3,849 Accrued expenses............................................................................................... 68 Total liabilities........................................................................................ 3,917 NET ASSETS........................................................................................................ $74,959,807 NET ASSETS CONSIST OF: Paid-in capital................................................................................................ $75,783,543 Accumulated net realized loss.................................................................................. (2,271,038) Undistributed net investment income............................................................................ 138,711 Net unrealized appreciation of investments..................................................................... 1,308,591 Net assets............................................................................................... $74,959,807 Class Y Shares ($74,959,807 (divided sign) 7,457,502 shares of beneficial interest outstanding)................... $ 10.05
See accompanying notes to financial statements. 18 EVERGREEN MANAGED BOND FUND (FORMERLY FIRST UNION MANAGED BOND PORTFOLIO) STATEMENT OF OPERATIONS (Picture of a Coin) SIX MONTHS ENDED JUNE 30, 1995
INVESTMENT INCOME: Interest........................................................................................... $3,075,084 EXPENSES: Advisory fee....................................................................................... $203,264 Administrative personnel and services fees......................................................... 33,626 Custodian fee...................................................................................... 26,423 Registration and filing fees....................................................................... 14,170 Professional fees.................................................................................. 12,944 Reports and notices to shareholders................................................................ 12,403 Transfer agent fee................................................................................. 7,535 Insurance expense.................................................................................. 1,153 Trustees' fees and expenses........................................................................ 1,109 Other.............................................................................................. 3,236 315,863 Less: Fee waivers and expense reimbursements....................................................... (78,763) Total expenses............................................................................... 237,100 Net investment income................................................................................. 2,837,984 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss on investments................................................................... (830,584) Net change in unrealized appreciation of investments............................................... 6,712,729 Net gain on investments............................................................................... 5,882,145 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................................. $8,720,129
See accompanying notes to financial statements. 19 EVERGREEN MANAGED BOND FUND (FORMERLY FIRST UNION MANAGED BOND PORTFOLIO) (Picture of a Coin) STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1995 1994 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income....................................................................... $ 2,837,984 $ 6,992,027 Net realized loss on investments............................................................ (830,584) (1,440,454) Net change in unrealized appreciation (depreciation) of investments......................... 6,712,729 (10,390,618) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.......................... 8,720,129 (4,839,045) DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income....................................................................... (2,778,674) (6,989,831) FUND SHARE TRANSACTIONS: Proceeds from shares sold................................................................... 16,463,692 22,423,717 Proceeds from reinvestment of dividends..................................................... 2,459,099 6,700,837 Payments for shares redeemed................................................................ (40,222,694) (36,044,493) Net decrease from Fund share transactions................................................ (21,299,903) (6,919,939) Net decrease in net assets............................................................... (15,358,448) (18,748,815) NET ASSETS: Beginning of period......................................................................... 90,318,255 109,067,070 End of period (including undistributed net investment income of $138,711 and $86,211, respectively)............................................................................. $74,959,807 $ 90,318,255
See accompanying notes to financial statements. 20 EVERGREEN MANAGED BOND FUND -- CLASS Y SHARES (FORMERLY FIRST UNION MANAGED BOND PORTFOLIO) (Picture of a Coin) FINANCIAL HIGHLIGHTS
SIX MONTHS APRIL 1, 1991* ENDED YEAR ENDED DECEMBER 31, THROUGH JUNE 30, 1995# 1994 1993 1992 DECEMBER 31, 1991 PER SHARE DATA Net asset value, beginning of period.......... $9.35 $10.46 $10.34 $10.60 $10.00 Income (loss) from investment operations: Net investment income......................... .34 .66 .65 .66 .49 Net realized and unrealized gain (loss) on investments................................ .69 (1.11) .43 (.08) .63 Total from investment operations........... 1.03 (.45) 1.08 .58 1.12 Less distributions to shareholders from: Net investment income......................... (.33) (.66) (.65) (.66) (.49) Net realized gains............................ -- -- (.31) (.18) (.03) Total distributions........................ (.33) (.66) (.96) (.84) (.52) Net asset value, end of period................ $10.05 $9.35 $10.46 $10.34 $10.60 TOTAL RETURN(|)............................... 11.2% (4.4%) 10.6% 5.7% 11.6% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted)............................ $ 74,960 $90,318 $109,067 $121,655 $ 112,984 Ratios to average net assets: Expenses................................... .58%(|)(|)(a) .70%(a) .70%(a) .70%(a) .70%(|)(|) Net investment income...................... 6.98%(|)(|)(a) 6.68%(a) 6.02%(a) 6.30%(a) 6.57%(|)(|) Portfolio turnover rate....................... 36% 32% 53% 56% 17%
# The Fund changed its fiscal year end from December 31 to June 30. * Commencement of operations. (|) Total return is calculated on net asset value per share for the period indicated and is not annualized. (|)(|) Annualized. (a) 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:
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1995 1994 1993 1992 Expenses...................................................... .78% .71% .73% .75% Net investment income......................................... 6.78% 6.67% 5.99% 6.25%
21 EVERGREEN U.S. GOVERNMENT FUND (Picture of a Capitol Building) (FORMERLY FIRST UNION U.S. GOVERNMENT PORTFOLIO) A REPORT FROM YOUR PORTFOLIO MANAGER BY ROLLIN WILLIAMS Evergreen U.S. Government Fund turned in a strong (Photo of Rollin performance during the first half of 1995, as interest rates Williams appears dropped sharply at intermediate and long maturities. here) We anticipated slower economic growth and an improved investment climate during the first half, thus, we maintained the maturity structure within the portfolio to take advantage of declining interest rates. In addition, we increased modestly our position of the Fund's mortgage holdings, as mortgages have become particularly good values as a result of the rapid interest rate decline. The Fund continues to focus on attempting to generate a high level of current income with an investment emphasis on obligations of the U.S. Government, its agencies and instrumentalities. The Fund uses none of the exotic or toxic derivatives which have raised issues in other funds. On June 30, the Fund's net assets were 45% invested in U.S. Treasury Securities and 54% invested in government-backed mortgage securities. The duration of the Fund was 4.41 years. 22 EVERGREEN U.S. GOVERNMENT FUND (Picture of a Capitol Building) (FORMERLY FIRST UNION U.S. GOVERNMENT PORTFOLIO) PERFORMANCE OF $10,000 INVESTED IN THE EVERGREEN U.S. GOVERNMENT FUND The graphs below compare a $10,000 investment in the Evergreen U.S. Government Fund (Class A, Class B, Class C and Class Y Shares) with a similar investment in the Lehman Brothers Intermediate Government Bond Index ("LBIGBI Index"). (4 graphs appear here with the plot points listed below) Class A Plot Points are as follows: Class B Plot Points are as follows: Class A Fund Index Class B Fund Index 01/12/93 9,525 10,000 01/12/93 10,000 10,000 06/30/93 10,046 10,578 06/30/93 10,522 10,578 12/31/93 10,233 10,817 12/31/93 10,691 10,817 06/30/94 9,830 10,558 06/30/94 10,245 10,558 12/31/94 9,907 10,628 12/31/94 10,291 10,628 06/30/95 10,913 11,587 06/30/95 10,957 11,587 Class C Plot Points are as follows: Class Y Plot Points are as follows: Class C Fund Index Class Y Fund Index 09/02/94 10,000 10,000 08/25/93 10,000 10,000 12/31/94 9,870 9,907 12/31/93 10,049 10,056 03/31/95 10,302 10,319 06/30/94 9,666 9,815 06/30/95 10,732 10,802 12/31/94 9,754 9,881 06/30/95 10,758 10,772 * Commencement of class operations. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. MUTUAL FUNDS ARE NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED. For the purposes of the graphs and the accompanying tables, it has been assumed that (a) the maximum sales charge of 4.75% was deducted from the initial $10,000 investment Class A Shares; (b) the maximum applicable contingent deferred sales charge was deducted from the value of the investment in Class B and Class C Shares, assuming full redemption on June 30, 1995; (c) all recurring fees (including investment advisory fees) were deducted; and (d) all dividends and distributions were reinvested. The Adviser is currently waiving a portion of the Fund's expenses. Had expenses not been waived, returns would have been lower. The LBIGBI Index is an unmanaged index and includes the reinvestment of income, but does not reflect the payment of transaction costs and advisory fees associated with an investment in the Fund. 23 EVERGREEN U.S. GOVERNMENT FUND (FORMERLY FIRST UNION U.S. GOVERNMENT PORTFOLIO) STATEMENT OF INVESTMENTS (Picture of a Capitol Building) JUNE 30, 1995
PRINCIPAL AMOUNT VALUE U.S. GOVERNMENT AGENCY OBLIGATIONS -- 53.6% FEDERAL HOME LOAN MORTGAGE CORPORATION -- 13.3% $3,160,875 8.0%, 7/1/17................. $ 3,250,372 4,094,853 8.0%, 4/1/22................. 4,186,963 2,750,591 8.5%, 2/1/17................. 2,864,256 2,451,009 8.5%, 10/1/17................ 2,530,652 3,206,241 9.0%, 11/1/96................ 3,319,306 2,175,079 9.0%, 11/1/19................ 2,287,257 1,443,497 9.0%, 12/1/19................ 1,517,987 1,837,109 9.0%, 4/1/21................. 1,931,857 2,098,436 9.5%, 9/1/20................. 2,223,196 1,895,096 10.0%, 12/1/19............... 2,063,293 332,111 10.0%, 6/1/21................ 361,647 826,746 10.0%, 8/1/21................ 900,082 3,105,897 10.5%, 12/1/19............... 3,377,663 30,814,531 FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 6.9% 5,788,323 6.5%, 1/1/24................. 5,571,261 7,561,145 7.5%, 7/1/23................. 7,591,859 2,746,054 9.5%, 6/1/22................. 2,885,930 16,049,050 GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 33.4% 7,537,133 7.0%, 11/15/23............... 7,421,717 7,098,932 7.0%, 11/15/23............... 6,990,226 3,314,818 7.0%, 12/15/22............... 3,264,058 4,690,826 7.5%, 11/15/22............... 4,718,675 3,815,424 7.5%, 2/15/22................ 3,838,076 4,245,909 7.5%, 3/15/23................ 4,271,117 3,900,027 8.0%, 2/15/23................ 3,993,850 5,315,245 8.0%, 8/15/24................ 5,443,114 4,253,572 8.5%, 12/15/21............... 4,419,704 1,334,083 8.5%, 2/15/23................ 1,386,188 2,797,838 8.5%, 5/15/23................ 2,907,113 7,772,844 8.5%, 7/15/24................ 8,076,428 3,817,996 9.0%, 1/15/20................ 4,013,645 4,627,897 9.0%, 6/15/21................ 4,865,049 850,478 9.5%, 1/15/19................ 901,772 5,847,700 9.5%, 2/15/21................ 6,200,386 PRINCIPAL AMOUNT VALUE $ 2,795,383 9.5%, 8/15/20................ $ 2,963,978 1,766,343 10.0%, 12/15/18.............. 1,924,210 77,599,306 TOTAL U.S. GOVERNMENTAGENCY OBLIGATIONS (COST $126,519,061)................ 124,462,887 U.S. TREASURY OBLIGATIONS -- 44.6% U.S. TREASURY BONDS -- 17.7% 4,670,000 8.125%, 8/15/19.............. 5,449,306 1,750,000 8.375%, 8/15/08.............. 1,972,576 13,950,000 8.75%, 11/15/08.............. 16,068,656 14,010,000 8.875%, 8/15/17.............. 17,503,744 40,994,282 U.S. TREASURY NOTES -- 26.9% 9,870,000 7.875%, 4/15/98.............. 10,369,669 14,500,000 8.25%, 7/15/98............... 15,428,885 12,000,000 8.75%, 10/15/97.............. 12,735,000 13,700,000 9.25%, 8/15/98............... 14,975,813 8,770,000 9.375%, 4/15/96.............. 9,011,174 62,520,541 TOTAL U.S. TREASURY OBLIGATIONS (COST $109,320,183)................ 103,514,823 *REPURCHASE AGREEMENT -- .8% 1,885,000 Donaldson, Lufkin & Jenrette Securities Corp., 6.00%, dated 6/30/95, due 7/3/95 (cost $1,885,000)............ 1,885,000 TOTAL INVESTMENTS -- 99.0% (COST $237,724,244)................ 229,862,710 OTHER ASSETS AND LIABILITIES -- NET 1.0%..................... 2,356,249 TOTAL NET ASSETS -- 100%............... $232,218,959
* Fully collateralized by U.S. government and/or agency obligations based on marketprices at June 30, 1995. See accompanying notes to financial statements. 24 EVERGREEN U.S. GOVERNMENT FUND (FORMERLY FIRST UNION U.S. GOVERNMENT PORTFOLIO) STATEMENT OF ASSETS AND LIABILITIES (Picture of a Capitol Building) JUNE 30, 1995
ASSETS: Investments at value (identified cost $237,724,244)........................................................... $229,862,710 Cash.......................................................................................................... 7,255 Interest receivable........................................................................................... 3,325,212 Receivable for Fund shares sold............................................................................... 100,374 Deferred expenses............................................................................................. 75,948 Total assets............................................................................................ 233,371,499 LIABILITIES: Dividends payable............................................................................................. 594,850 Payable for Fund shares redeemed.............................................................................. 383,787 Accrued expenses.............................................................................................. 173,903 Total liabilities....................................................................................... 1,152,540 NET ASSETS....................................................................................................... $232,218,959 NET ASSETS CONSIST OF: Paid-in capital............................................................................................... $249,611,386 Accumulated net realized loss................................................................................. (9,530,893) Net unrealized depreciation on investments.................................................................... (7,861,534) Net assets.............................................................................................. $232,218,959 CALCULATION OF NET ASSET VALUE PER SHARE: Class A shares ($22,444,805 (divided sign) 2,326,841 shares of beneficial interest outstanding)............... $ 9.65 Sales charge -- 4.75% of offering price....................................................................... 0.48 Maximum offering price........................................................................................ $10.13 Class B shares ($192,490,106 (divided sign) 19,955,651 shares of beneficial interest outstanding)............. $ 9.65 Class C shares ($349,707 (divided sign) 36,254 shares of beneficial interest outstanding)..................... $ 9.65 Class Y shares ($16,934,341 (divided sign) 1,755,599 shares of beneficial interest outstanding)............... $ 9.65
See accompanying notes to financial statements. 25 EVERGREEN U.S. GOVERNMENT FUND (FORMERLY FIRST UNION U.S. GOVERNMENT PORTFOLIO) STATEMENT OF OPERATIONS (Picture of a Capitol Building) SIX MONTHS ENDED JUNE 30, 1995
INVESTMENT INCOME: Interest....................................................................................... $ 9,332,732 EXPENSES: Advisory fee................................................................................... $ 575,771 Administrative personnel and services fees..................................................... 95,122 Distribution fee -- Class A shares............................................................. 28,081 Distribution and shareholder services fees -- Class B Shares................................... 958,282 Distribution and shareholder services fees -- Class C Shares................................... 1,592 Transfer agent fee............................................................................. 106,337 Custodian fee.................................................................................. 57,539 Registration and filing fees................................................................... 31,831 Reports and notices to shareholders............................................................ 17,367 Professional fees.............................................................................. 14,324 Trustees' fees and expenses.................................................................... 2,461 Insurance expense.............................................................................. 1,567 Miscellaneous.................................................................................. 10,877 1,901,151 Less: Advisory fee waiver...................................................................... (7,399) Total expenses........................................................................... 1,893,752 Net investment income............................................................................. 7,438,980 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss on investments............................................................... (2,084,111) Net change in unrealized depreciation of investments........................................... 16,345,873 Net gain on investments........................................................................... 14,261,762 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............................................. $21,700,742
See accompanying notes to financial statements. 26 EVERGREEN U.S. GOVERNMENT FUND (FORMERLY FIRST UNION U.S. GOVERNMENT PORTFOLIO) (Picture of a Capitol Building) STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1995 1994 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income..................................................................... $ 7,438,980 $ 17,693,192 Net realized (loss) on investments........................................................ (2,084,111) (5,468,380) Net change in unrealized depreciation of investments...................................... 16,345,873 (23,253,985) Net increase (decrease) in net assets resulting from operations........................ 21,700,742 (11,029,173) DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME: Class A Shares............................................................................ (794,337) (2,207,479) Class B Shares............................................................................ (6,054,489) (14,400,952) Class C Shares............................................................................ (10,127) (2,793) Class Y Shares............................................................................ (580,027) (1,081,968) Total distributions to shareholders................................................. (7,438,980) (17,693,192) FUND SHARE TRANSACTIONS: Proceeds from shares sold................................................................. 8,321,751 56,989,583 Proceeds from reinvestment of dividends................................................... 3,745,065 9,194,886 Payment of shares redeemed................................................................ (29,247,163) (92,357,668) Net decrease from Fund share transactions.............................................. (17,180,347) (26,173,199) Net decrease in net assets............................................................. (2,918,585) (54,895,564) NET ASSETS: Beginning of period....................................................................... 235,137,544 290,033,108 End of period............................................................................. $232,218,959 $235,137,544
See accompanying notes to financial statements. 27 EVERGREEN U.S. GOVERNMENT FUND (FORMERLY FIRST UNION U.S. GOVERNMENT PORTFOLIO) (Picture of a Capitol Building) FINANCIAL HIGHLIGHTS
CLASS A CLASS B CLASS C SHARES SHARES SHARES SIX JANUARY 11, SIX JANUARY 11, SIX SEPTEMBER 2, MONTHS 1993* MONTHS 1993* MONTHS 1994* ENDED YEAR ENDED THROUGH ENDED YEAR ENDED THROUGH ENDED THROUGH JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30, DECEMBER 31, 1995 1994 1993 1995 1994 1993 1995 1994 PER SHARE DATA Net asset value, beginning of period... $9.07 $10.05 $10.00 $9.07 $10.05 $10.00 $9.07 $9.39 Income from investment operations: Net investment income... .33 .66 .68 .29 .61 .63 .29 .20 Net realized and unrealized gain (loss) on investments........... .58 (.98) .05 .58 (.98) .05 .58 (.32) Total from investment operations.......... .91 (.32) .73 .87 (.37) .68 .87 (.12) Less distributions to shareholders from net investment income..... (.33) (.66) (.68) (.29) (.61) (.63) (.29) (.20) Net asset value, end of period................ $9.65 $9.07 $10.05 $9.65 $9.07 $10.05 $9.65 $9.07 TOTAL RETURN(|)........... 10.2% (3.2%) 7.4% 9.8% (3.8%) 6.9% 9.8% (1.3%) RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted).............. $ 22,445 $ 23,706 $ 38,851 $192,490 $195,571 $236,696 $350 $266 Ratios to average net assets: Expenses (a).......... 1.04%(|)(|) .96% .68%(|)(|) 1.79%(|)(|) 1.54% 1.19%(|)(|) 1.79%(|)(|) 1.71%(|)(|) Net investment income (a).......... 7.07%(|)(|) 6.97% 6.93%(|)(|) 6.32%(|)(|) 6.42% 6.44%(|)(|) 6.36%(|)(|) 6.70%(|)(|) Portfolio turnover rate.................. 0% 19% 39% 0% 19% 39% 0% 19% CLASS Y SHARES SIX SEPTEMBER 2, MONTHS 1993* ENDED YEAR ENDED THROUGH JUNE 30, DECEMBER 31, DECEMBER 31, 1995 1994 1993 PER SHARE DATA Net asset value, beginning of period... $9.07 $10.05 $10.25 Income from investment operations: Net investment income... .34 .69 .25 Net realized and unrealized gain (loss) on investments........... .58 (.98) (.20) Total from investment operations.......... .92 (.29) .05 Less distributions to shareholders from net investment income..... (.34) (.69) (.25) Net asset value, end of period................ $9.65 $9.07 $10.05 TOTAL RETURN(|)........... 10.3% (2.9%) .5% RATIOS & SUPPLEMENTAL DATA Net assets, end of period (000's omitted).............. $16,934 $ 15,595 $ 14,486 Ratios to average net assets: Expenses (a).......... .79%(|)(|) .71% .48%(|)(|) Net investment income (a).......... 7.31% 7.27% 7.20%(|)(|) Portfolio turnover rate.................. 0% 19% 39%
* Commencement of operations. (|) Total return is calculated on net asset value per share for the periods indicated and is not annualized. Initial sales charges or contingent deferred charges are not reflected. (|)(|) Annualized. (a) 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 SIX SIX MONTHS JANUARY 11, MONTHS JANUARY 11, MONTHS ENDED YEAR ENDED 1993 THROUGH ENDED YEAR ENDED 1993 THROUGH ENDED JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30, 1995 1994 1993 1995 1994 1993 1995 Expenses.............. 1.05% 1.00% .99% 1.80% 1.58% 1.50% 1.80% Net investment income.............. 7.06% 6.93% 6.62% 6.31% 6.38% 6.13% 6.34% CLASS C CLASS Y SHARES SHARES SIX SEPTEMBER 2, MONTHS SEPTEMBER 2, 1994 THROUGH ENDED YEAR ENDED 1993 THROUGH DECEMBER 31, JUNE 30, DECEMBER 31, DECEMBER 31, 1994 1995 1994 1993 Expenses.............. 1.75% .80% .75% .79% Net investment income.............. 6.66% 7.30% 7.23% 6.89%
28 COMBINED NOTES TO FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 1995 NOTE 1 -- ORGANIZATIONS Evergreen Investment Trust (formerly First Union Funds) (the "Trust") is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management company. The Trust consisted of seventeen funds at June 30, 1995. The financial statements included herein are only those of the Evergreen Income Funds -- Evergreen Fixed Income Fund ("Fixed Income"), Evergreen U.S. Government Fund ("U.S. Government") and Evergreen Managed Bond Fund ("Managed Bond") collectively referred to as the "Funds" (see Note 8). NOTE 2 -- CHANGE IN FISCAL YEAR On March 15, 1995, the Trustees approved a change in the Funds' fiscal year from December 31 to June 30. These financial statements are as of and for the six months ended June 30, 1995. NOTE 3 -- 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 generally valued at the mean between the over-the-counter bid and asked prices 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 (and asset backed securities) are valued at the mean between the over-the-counter bid and asked prices provided by an independent pricing service. Short term securities 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 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 the Funds' behalf by its custodian under a book-entry system. The Funds monitor 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. The Funds will only enter into repurchase agreements with banks and other financial institutions which are deemed by the Funds' 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 for Fixed Income and Managed Bond are declared and paid monthly. 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 generally accepted accounting principles. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts. As of June 30, 1995, a reclassification has been made for Fixed Income and Managed Bond to increase (decrease) undistributed net investment income by $163,839 and ($6,810) respectively, and to increase (decrease) accumulated losses on investments by $46,246 and ($6,809) respectively, with offsetting adjustments made to paid in capital. 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 and net capital gains to its shareholders. Accordingly, no provisions for federal income or excise taxes are necessary. 29 COMBINED NOTES TO FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 1995 -- CONTINUED NOTE 3 -- SIGNIFICANT ACCOUNTING POLICIES -- continued To the extent that realized capital gains can be offset by capital loss carryforwards, it is the Funds' policy not to distribute such gains. At June 30, 1995, Fixed Income, U.S. Government and Managed Bond had capital loss carryforwards of $6,020,616, $7,446,782 and $1,440,454, respectively. Pursuant to the Code, such capital loss carryforwards will expire in the year 2002 for Fixed Income and Managed Bond and 2001 ($1,978,402) and 2002 ($5,468,380) for U.S. Government. Capital losses incurred after October 31 within the Funds' fiscal year are deemed to arise on the first business day of the following fiscal year for tax purposes. U.S. Government and Managed Bond have incurred and will elect to defer such capital losses of $2,084,111, and $830,584 respectively. Pending approval of a change in Fixed Income's tax year end, the Fund will elect to defer such a capital loss of $3,254,748. 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. DEFERRED EXPENSES -- The costs incurred by each Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering the shares, have been deferred and are being amortized using the straight-line method not to exceed a period of five years from the Fund's commencement. NOTE 4 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY AGREEMENT -- First Union National Bank of North Carolina (the "Adviser"), each Fund's investment adviser, is entitled to a fee of .50 of 1% of the average daily net assets of each Fund pursuant to an investment advisory agreement. For Managed Bond, the Adviser voluntarily waived $64,154 of its advisory fees for the six months ended June 30, 1995. The Adviser can modify or terminate this voluntary waiver at any time. ADMINISTRATIVE AGREEMENT -- Federated Investor Services ("FAS") provided each Fund with certain administrative personnel and services including certain clerical and recordkeeping services for the six-month period ended June 30, 1995 (see Note 8). In addition, certain of the Trust's officers and Trustees were officers or directors of FAS. FAS' fee was based on the level of average net assets of the Trust for the period, subject to a minimum fee for each Fund. FAS voluntarily waived $14,609 of its administration fee for the six months ended June 30, 1995. PLAN OF DISTRIBUTION AND SHAREHOLDER SERVICING -- The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Trust compensated Federated Securities Corp. ("FSC"), the principal distributor, from the net assets of all of the funds in the Trust to finance activities intended to result in the sale of Class A, Class B and Class C shares (see Note 8). The Plan provides that the Funds may incur distribution expenses up to .75 of 1% of the average daily net assets of the Class A, Class B and Class C shares, annually, to finance such activities. For the six-month period ended June 30, 1995, FSC limited its fees on Class A shares to .25 of 1% of Class A shares average daily net assets for U.S. Government and to .10 of 1% of Class A shares average daily net assets for Fixed Income. Managed Bond does not offer shares to which the Plan relates and therefore, no Rule 12b-1 payments were made by Managed Bond. Under the terms of a Shareholder Services Agreement with First Union Brokerage Services ("FUBS"), the Fixed Income and U.S. Government will pay FUBS up to .25 of 1% of average daily net assets of the Funds' Class B and Class C shares for the period. This fee is designed to obtain certain services for shareholders and to maintain the shareholder accounts. TRANSFER AND DIVIDEND DISBURSEMENT AGENT -- Federated Services Company ("FServ") served as Transfer and Dividend Disbursing agent for the Trust for the six-month period ended June 30, 1995 (see Note 8). FServ's fee was based on the size, type and number of accounts and transactions made by shareholders. 30 COMBINED NOTES TO FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 1995 -- CONTINUED NOTE 4 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES -- continued ORGANIZATIONAL EXPENSES -- Organizational expenses were borne initially by FAS. U.S. Government had agreed to reimburse FAS for the organizational expenses during the five-year period following December 28, 1992, the date the Fund first became effective. Managed Bond had agreed to reimburse FAS at an annual rate of .005 of 1% of average daily net assets, until expenses initially borne by FAS were fully reimbursed, or the expiration of five years after January 2, 1991, the date the Fund first became effective. Pursuant to these arrangements, for the six months ended June 30, 1995, the Funds have paid and have a remaining liability as follows:
ORGANIZATIONAL ORGANIZATIONAL EXPENSES EXPENSES PAID REMAINING U.S. Government............................................. $6,256 $ 46,752 Managed Bond................................................ 2,000 9,847
As a result of the change in the administration agreement (see Note 8), the Adviser purchased the remaining unreimbursed initial organizational expenses from FAS. No change will be made to the payment schedule as a result of this transaction. NOTE 5 -- INVESTMENT TRANSACTIONS The cost of purchases and proceeds from sales of investments, excluding short-term securities, for the six months ended June 30, 1995 were as follows:
PURCHASES SALES U.S. GOVERNMENT OTHER U.S. GOVERNMENT OTHER Fixed Income............................................ $95,695,078 $61,620,890 $69,194,507 $53,663,544 U.S. Government......................................... -- -- 18,502,372 -- Managed Bond............................................ 26,815,223 -- 10,052,031 32,709,566
On June 30, 1995, 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 Fixed Income....................................................................... $5,341,287 ($7,013,315 ) ($1,672,028) U.S. Government.................................................................... 567,214 (8,428,748 ) (7,861,534) Managed Bond....................................................................... 2,445,916 (1,137,325 ) 1,308,591
NOTE 6 -- SHARES OF BENEFICIAL INTEREST There is an unlimited number of $.0001 par value shares of beneficial interest authorized for Managed Bond, designated Class Y shares. For Fixed Income and U.S. Government, shares 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 4.75%. Class B shares are offered with a contingent deferred sales charge payable when shares are redeemed which would decline from 5% to zero over a seven-year period (after which it is expected that they will convert to Class A shares). Class C shares are offered with a 1% contingent deferred sales charge on shares redeemed within the first year of purchase. Class Y shares are sold without a sales charge and are available only to investment advisory clients of the Adviser and its affiliates, certain institutional investors and Class Y shareholders of record of certain other funds managed by the Adviser and its affiliates as of December 30, 1994. All classes have identical voting, dividend, liquidation and other rights, except that certain classes bear different distribution expenses (see Note 4) and have exclusive voting rights with respect to their distribution plan. 31 COMBINED NOTES TO FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 1995 -- CONTINUED NOTE 6 -- SHARES OF BENEFICIAL INTEREST -- continued Transactions in shares of beneficial interest were as follows:
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1995 DECEMBER 31, 1994* FIXED INCOME SHARES DOLLARS SHARES DOLLARS CLASS A Shares sold...................................................... 229,181 $ 2,246,501 496,948 $ 4,961,246 Shares issued on reinvestment of dividends....................... 51,319 500,703 116,076 1,147,740 Shares redeemed.................................................. (403,087) (3,946,036) (797,380) (7,868,277) Net decrease..................................................... (122,587) (1,198,832) (184,356) (1,759,291) CLASS B Shares sold...................................................... 101,244 987,765 1,377,400 13,751,501 Shares issued on reinvestment of dividends....................... 34,321 335,572 58,604 577,589 Shares redeemed.................................................. (252,818) (2,457,608) (439,397) (4,302,673) Net increase (decrease).......................................... (117,253) (1,134,271) 996,607 10,026,417 CLASS C Shares sold...................................................... 2,424 23,946 54,641 531,864 Shares issued on reinvestment of dividends....................... 594 5,816 287 2,756 Shares redeemed.................................................. (4,260) (41,852) (1,243) (11,934) Net increase (decrease).......................................... (1,242) (12,090) 53,685 522,686 CLASS Y Shares sold...................................................... 6,633,965 64,819,418 10,329,803 102,890,442 Shares issued on reinvestment of dividends....................... 1,084,829 10,581,894 2,279,195 22,524,335 Shares redeemed.................................................. (9,328,176) (91,429,481) (12,477,326) (123,075,573) Net increase (decrease).......................................... (1,609,382) (16,028,169) 131,672 2,339,204 Total net increase (decrease) resulting from Fund share transactions................................................... (1,850,464) ($18,373,362) 997,608 $ 11,129,016
* For Class C Shares, the Fund share transaction activity is for the period September 6, 1994 (commencement of class operations) through December 31, 1994.
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1995 DECEMBER 31, 1994 MANAGED BOND DOLLARS SHARES DOLLARS SHARES CLASS Y Shares sold......................................................... 1,687,452 $ 16,463,692 2,292,625 $ 22,423,717 Shares issued on reinvestment of dividends.......................... 254,758 2,459,099 687,702 6,700,837 Shares redeemed..................................................... (4,141,273) (40,222,694) (3,747,274) (36,044,493) Net decrease resulting from Fund share transactions................. (2,199,063) ($21,299,903) (766,947) ($ 6,919,939)
32 COMBINED NOTES TO FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 1995 -- CONTINUED NOTE 6 -- SHARES OF BENEFICIAL INTEREST -- continued
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1995 DECEMBER 31, 1994* U.S. GOVERNMENT DOLLARS SHARES DOLLARS SHARES CLASS A Shares sold......................................................... 129,542 $ 1,230,340 593,469 $ 5,756,511 Shares issued on reinvestment of dividends.......................... 38,627 363,779 113,604 1,074,852 Shares redeemed..................................................... (455,148) (4,253,390) (1,959,939) (18,532,284) Net decrease........................................................ (286,979) (2,659,271) (1,252,866) (11,700,921) CLASS B Shares sold......................................................... 361,937 3,402,126 4,261,379 41,201,748 Shares issued on reinvestment of dividends.......................... 310,078 2,918,499 765,338 7,211,358 Shares redeemed..................................................... (2,281,908) (21,266,740) (7,017,488) (65,776,073) Net decrease........................................................ (1,609,893) (14,946,115) (1,990,771) (17,362,967) CLASS C Shares sold......................................................... 21,067 197,099 29,225 267,749 Shares issued on reinvestment of dividends.......................... 377 3,563 99 895 Shares redeemed..................................................... (14,514) (136,177) -- -- Net increase........................................................ 6,930 64,485 29,324 268,644 CLASS Y Shares sold......................................................... 370,297 3,492,186 1,020,057 9,763,575 Shares issued on reinvestment of dividends.......................... 48,784 459,225 96,545 907,781 Shares redeemed..................................................... (383,032) (3,590,857) (838,664) (8,049,311) Net increase........................................................ 36,049 360,554 277,938 2,622,045 Total net decrease resulting from Fund share transactions........... (1,853,893) ($17,180,347) (2,936,375) ($26,173,199)
* For Class C Shares, the Fund share transaction activity is for the period September 2, 1994 (commencement of class operations) through December 31, 1994. NOTE 7 -- RESTRICTED SECURITIES Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. The Funds' restricted securities are valued at the price provided by dealers in the secondary market or, if no market prices are available, at the fair value as determined by the Funds' pricing committee. Additional information on each restricted security held at June 30, 1995 is as follows:
FUND SECURITY ACQUISITION DATE ACQUISITION COST Managed Bond CenFed Financial Corp. 12/15/94 $ 500,000 Managed Bond Goldman Sachs Group 7/8/94 922,280 Managed Bond Jet Equipment Trust 12/9/94 2,000,000 Fixed Income Associated P&C Holdings, Inc. 7/15/93 1,989,220 Fixed Income Metropolitan Life Insurance Co. 10/28/93 9,973,000 Fixed Income CenFed Financial Corp. 12/15/94 3,000,000
33 COMBINED NOTES TO FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 1995 -- CONTINUED NOTE 8 -- SUBSEQUENT EVENTS Pursuant to a contract approved by the Trustees on April 20, 1995, effective July 7, 1995, Evergreen Asset Management Corp. (an affiliate of the Adviser) and Boston Financial Data Services became the Administrator and transfer agent respectively. Evergreen Funds Distributor, Inc., a wholly owned subsidiary of Furman Selz, Inc., became the Funds' distributor. Officers of Furman Selz, Inc. became the Trust's officers. Effective July 7, 1995, the First Union U.S. Government Portfolio acquired substantially all of the net assets by a non-taxable exchange of 613,602 shares of Evergreen U.S. Government Securities Fund for 590,505 shares of the First Union U.S. Government Portfolio. The net assets of Evergreen U.S. Government Securities Fund acquired included unrealized appreciation of $24,133. The aggregate net assets of First Union U.S. Government Portfolio immediately after the combination were $233,475,732. In addition, effective July 7, 1995, each of the Funds changed their names as follows:
FORMER NAME NEW NAME First Union Fixed Income Portfolio Evergreen Fixed Income Fund First Union U.S. Government Portfolio Evergreen U.S. Government Fund First Union Managed Bond Portfolio Evergreen Managed Bond Fund
34 INDEPENDENT AUDITORS' REPORT The Trustees and Shareholders of Evergreen Fixed Income Fund Evergreen Managed Bond Fund Evergreen U.S. Government Fund: We have audited the statement of assets and liabilities including the statements of investments for the Evergreen Income Funds, listed below, as of June 30, 1995, and the related statements of operations, changes in net assets, and the financial highlights for each of the periods listed below: Evergreen Fixed Income Fund (formerly First Union Fixed Income Portfolio) -- statement of operations for the six-month period ended June 30, 1995, statements of changes in net assets for the six-month period ended June 30, 1995 and the year ended December 31, 1994 and the financial highlights for each of the years or periods from January 1, 1991 through June 30, 1995. Evergreen Managed Bond Fund (formerly First Union Managed Bond Portfolio) -- statement of operations for the six-month period ended June 30, 1995, statements of changes in net assets for the six-month period ended June 30, 1995 and the year ended December 31, 1994, and the financial highlights for each of the years or periods from April 1, 1991, (commencement of operations) through June 30, 1995. Evergreen U.S. Government Fund (formerly First Union U.S. Government Portfolio) -- statement of operations for the six-month period ended June 30, 1995, statements of changes in net assets for the six-month period ended June 30, 1995 and the year ended December 31, 1994, and the financial highlights for each of the years or periods from January 1, 1993 (commencement of operations) through June 30, 1995. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to gain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 1995, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Evergreen Fixed Income Fund, Evergreen Managed Bond Fund and Evergreen U.S. Government Fund as of June 30, 1995, and the results of their operations, changes in their net assets, and the financial highlights for each of the periods listed above, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Pittsburgh, Pennsylvania August 16, 1995 35 TRUSTEES AND OFFICERS TRUSTEES: Mr. James S. Howell, Chairman Mr. Gerald M. McDonnell Mr. Thomas L. McVerry Mr. William W. Pettit Mr. Russell A. Salton, III M.D. Mr. Michael S. Scofield OFFICERS (EFFECTIVE JULY 7, 1995): John J. Pileggi President and Treasurer Joan V. Fiore Secretary Sheryl Hirschfeld Assistant Secretary Donald E. Brostrom Assistant Treasurer Stephen W. St. Clair Assistant Treasurer -----END PRIVACY-ENHANCED MESSAGE-----