-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A2y4aNcfe/8t6918IcI+55bAHourXyw+Ef+aTxNvUcAVaVkyUSG+8ojDSjldm6rm cUSjs9mrQxV47ZubDzQCww== 0000950168-97-002109.txt : 19970807 0000950168-97-002109.hdr.sgml : 19970807 ACCESSION NUMBER: 0000950168-97-002109 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970531 FILED AS OF DATE: 19970806 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EVERGREEN INVESTMENT TRUST CENTRAL INDEX KEY: 0000757440 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 046599663 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04154 FILM NUMBER: 97652382 BUSINESS ADDRESS: STREET 1: 2500 WESTCHESTER AVE CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9146412305 MAIL ADDRESS: STREET 1: 2500 WESTCHESTER AVE CITY: PURCHASE STATE: NY ZIP: 10577 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION FUNDS/ DATE OF NAME CHANGE: 19940628 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION HIGH GRADE TAX FREE PORT DATE OF NAME CHANGE: 19940519 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION FUNDS DATE OF NAME CHANGE: 19921230 N-30D 1 EVERGREEN KEYSTONE HIGH GRADE TAX FREE FUNDS N-30D Evergreen Keystone National Tax Free Funds (Photo of mountain and stream surrounded by trees) 1997 Annual Report Evergreen Keystone (logo) FUNDS (logo) (logo) EVERGREEN KEYSTONE TABLE OF CONTENTS Letter to Shareholders............................... 1 Evergreen High Grade Tax Free Fund Fund at a Glance................................... 2 Management Report.................................. 3 Evergreen Short-Intermediate Municipal Fund Fund at a Glance................................... 4 Management Report.................................. 5 Keystone Tax Free Income Fund Fund at a Glance................................... 6 Management Report.................................. 7 Growth of Investments................................ 8 Financial Highlights Evergreen High Grade Tax Free Fund................. 9 Evergreen Short-Intermediate Municipal Fund........ 11 Keystone Tax Free Income Fund...................... 13 Schedule of Investments Evergreen High Grade Tax Free Fund................. 16 Evergreen Short-Intermediate Municipal Fund........ 20 Keystone Tax Free Income Fund...................... 22 Statements of Assets and Liabilities................. 27 Statements of Operations............................. 28 Statements of Changes in Net Assets.................. 30 Combined Notes to Financial Statements............... 33 Report of Independent Accountants-- Price Waterhouse LLP................................................ 39 Independent Auditors' Report-- KPMG Peat Marwick LLP................................................ 41
ABOUT EVERGREEN KEYSTONE Since 1971, the Evergreen Funds have been providing investors with a proven, value-driven approach to equity investment management. For over 60 years of changing economic conditions, Keystone has taken pride in helping investors meet their financial goals through a broad range of financial products and services. Combined, Evergreen Keystone offers over 70 funds designed to meet a broad range of objectives, including fixed-income, balanced, growth and income, and aggressive growth. Assets under management total more than $30 billion. EVERGREEN KEYSTONE (logo) LETTER TO SHAREHOLDERS July 1997 (Photo of William M. Ennis) WILLIAM M. ENNIS Dear Shareholders: They don't have the glamour or the impressive recent returns of stock funds, but municipal bond funds quietly have been doing their job for the past three years. In fact, the average annual return of the Lehman Brothers Municipal Bond Index for the three years that ended on May 31, 1997 was 7.32%. Considering the tax advantages and relatively low volatility of municipal bonds and the modest inflation we have been enjoying, that is nothing to ignore. In fact, on May 31, the average AAA-rated 30-year municipal bond was yielding 5.50%. For investors in the 31% federal income tax bracket, that's equivalent to a before-federal-taxes yield of 7.97% on a taxable bond at a time when the 30-year Treasury bond was yielding less than 7%. The outlook for municipal bonds is no less encouraging. Thanks to factors that include the careful monetary policy of the Federal Reserve Board and the increasing productivity of American industry, we continue to expect a sustained economic environment of moderate growth, contained inflation, low unemployment, and stable interest rates. That is an ideal climate for bond investing in general, and municipal bond investing in particular, especially considering the rather limited supply of new municipal bonds available in the market. During 1996, new municipal bond issuance totaled $185 billion, compared to the $292 billion peak in 1993. In the face of this limited supply, an increase in demand for municipal bonds could have a favorable impact on performance. It is easy to believe we could see an increase in demand. As stock market prices reach record highs in late spring and early summer, it makes more and more sense for investors to allocate at least a portion of their portfolios into bond funds. That makes sense for both diversification purposes and for risk reduction reasons. For investors in higher income tax brackets, municipal bond funds make even more sense. At Evergreen Keystone, we also believe it is important for investors to remain in close touch with their professional advisers for guidance on changing markets and strategies. I am delighted to inform you that Evergreen Keystone successfully integrated all service functions of the Evergreen and Keystone Funds in early May. This means that you now have full exchange privileges among all Evergreen and Keystone America Funds. In addition, you will be receiving the top-flight shareholder service that earned Evergreen Keystone the 1996 Dalbar Quality Tested Service Seal, the highest award for mutual fund service presented by Dalbar, an independent mutual fund survey and rating firm. In the following pages, Evergreen Keystone investment professionals will give you more detailed information about the investment environment and the strategies employed in managing your funds. You will notice that this annual report is a departure from past reports in format. It represents the effort of Evergreen Keystone Funds to provide honest, thoughtful reports and to present them in a format that is attractive and makes information easily accessible. We are very interested in hearing your thoughts on this new format, and we welcome any suggestions you may have. Sincerely, /s/ William M. Ennis WILLIAM M. ENNIS MANAGING DIRECTOR 1 (logo) EVERGREEN HIGH GRADE TAX FREE FUND FUND-AT-A-GLANCE As of May 31, 1997
ONE YEAR PERFORMANCE CLASS A CLASS B CLASS Y One year with sales charge 1.90% 1.19% 7.25% One year w/o sales charge 6.99% 6.19% 7.25% One year dividends per share 50.2(cents) 42.1(cents) 52.0(cents) 30-day SEC Yield (as of 5/31/97) 4.19% 3.63% 4.66% AVERAGE ANNUAL RETURNS** CLASS A CLASS B CLASS Y Three years 5.11% 5.16% 7.10% Five years 5.75% N/A N/A Since Inception* 6.00% 5.13% 5.11% CUMULATIVE RETURNS** CLASS A CLASS B CLASS Y Nine months w/o sales charge 5.13% 4.55% 5.32% Three years 16.13% 16.30% 22.83% Five years 32.24% N/A N/A Since Inception* 36.01% 24.55% 17.64%
* CLASS A BEGAN 2/21/92; CLASS B BEGAN 1/11/93; CLASS Y BEGAN 2/28/94 ** ALL RETURNS INCLUDE THE MAXIMUM SALES CHARGE, IF APPLICABLE.
PORTFOLIO CHARACTERISTICS MAY 31, 1997 Total Net Assets (all classes) $102.1 million Average Credit Quality AAA Average Maturity 12.3 years Average Duration 8.2 years
PORTFOLIO COMPOSITION MAY 31, 1997 (AS A PERCENTAGE OF PORTFOLIO ASSETS) (Pie chart appears here with the following plot points.) Hospital 14.8% Ports 9.4% Industrial Development (pollution control) 8.5% Electric 8.0% General Obligation (schools) 8.8% Water/Sewer 6.5% Airport 6.2% Industrial Development 5.3% Housing 4.9% Pre-refunded 4.6% General Obligation (municipalities) 3.8% General Obligation 3.8% Toll Roads 3.3% Other 12.1% PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE. OBJECTIVE Evergreen High Grade Tax Free Fund seeks income exempt from federal income taxes while conserving capital. Income may be subject to local taxes and the Federal Alternative Minimum Tax for certain investors. STRATEGY The Fund seeks its objective by investing in insured municipal securities and municipal securities rated high grade by independent bond rating services. The portfolio management team will, in seeking the Fund's objectives, buy and sell securities to effect changes in portfolio maturities and to change allocations among different sectors. Insured bonds are bonds insured as to timely payment of principal and interest. The Fund itself is not insured, nor is the value of its shares guaranteed. Insured bonds must be insured by a municipal bond insurance company which is rated AAA by Standard & Poors Ratings Group (S&P) and/or Aaa by Moody's Investors Service, Inc., (Moody's). Bonds that are considered high grade are rated A or better by S&P or Moody's or, if unrated, are considered of comparable quality as determined by the Fund's investment advisor. PORTFOLIO MANAGEMENT TEAM (Photo of James T. Colby, III, the Senior Portfolio Manager, is a Vice James T. Colby, President and Senior Portfolio Manager of Evergreen Asset III) Management. He also is Senior Portfolio Manager for Evergreen U.S. Government Securities Fund and is co-manager of the Evergreen Tax Strategic Foundation Fund. Prior to joining Evergreen in 1992, Mr. Colby was Vice President and Senior Portfolio Manager for $5 billion in tax-exempt holdings at American Express. Mr. Colby also has served in portfolio management capacities at Marinvest, a subsidiary of Marine Midland Bank. He is a graduate of Brown University, and holds an MBA from Hofstra University. In 1996, Mr. Colby was Chairman of the Municipal Bond Buyers Conference. 2 EVERGREEN HIGH GRADE TAX FREE FUND (logo) MANAGEMENT REPORT July 1997 Dear Fellow Shareholders: We are pleased to report on Evergreen High Grade Tax Free Fund for the fiscal period that ended on May 31, 1997. You may recall that you recently received a semiannual report for the six-month period that ended on February 28, 1997. We have changed your Fund's fiscal year so it now will end each May 31. This is part of an effort by Evergreen Keystone Funds to streamline, and increase the efficiency of, fund administration. Funds with similar investment objectives, in this case national tax free funds, are placed on the same fiscal year cycle. Information about these funds will be presented in common annual and semi-annual reports. The next report you will receive will be a semiannual report for the period ending November 30, 1997. You should expect to receive it in January 1998. PERFORMANCE We believe your Fund performed well as a high quality municipal bond fund during a period marked by short-term interest rate volatility. The charts and tables on page 2 provide a comprehensive view of the performance for the fiscal period, as well as since each class of shares began. STRATEGY Evergreen High Grade Tax Free Fund is managed with a long-term view, with the goal of providing federally tax-free income from insured and high quality municipal bonds while protecting principal. We do not structure the portfolio in anticipation of short-term movements in interest rates, but try to employ strategies that build value over time based on longer-term trends in the municipal bond market. The nine-month period that ended on May 31 was a generally favorable period for municipal bond investing. During this period, we kept the maturities of bonds in the portfolio relatively consistent, with average maturities remaining in the 12-to-16 year range, and average duration in the 7-to-9-year range. This policy proved successful during a time when long-term interest rates, despite some short-term volatility, remained in a consistent trading range of 6 1/2% to 7%. Your Fund is required to invest at least 65% of net assets in high grade municipal bonds. In fact, the Fund held 87% of net assets in insured municipal bonds, with 95% of net assets AAA-rated at the end of the period. The bonds are insured for the timely payment of principal and interest. The value of insured bonds can fluctuate. The Fund itself is not insured. The Fund does not search for opportunities among bonds that are below investment grade. Evergreen High Grade Tax Free Fund invests in different sectors of the market based upon evolving trends. For example, two sectors-- the hospital/health care and the electric utility sectors-- have experienced changes which affected portfolio strategy recently. In the hospital sector, the process of consolidation has left behind the weaker institutions which we have pointedly avoided. We hold only the dominant regional facilities or those aligned with strong national systems, which we believe have the strongest potential to survive the new era of competition. Accordingly, we have increased the Fund's allocation to 14.8% of the net assets. Conversely, the impact of deregulation and competition upon municipal utilities is less clear and we have decreased the Fund's allocation to this sector to 7.9%, though we will closely monitor important legislation pending in states on the east and west coasts which may soon set new strategic parameters for this sector. For comparison, three years ago this Fund's relative weightings of these two sectors would have been reversed. OUTLOOK Looking ahead, we continue to see a favorable investment environment for municipal bonds. We anticipate long-term interest rates, as represented by the benchmark 30-year U.S. Treasury Bond, to trade in the 6-to-7% range, with relatively firm economic growth and stable inflation. Within this environment, we will continue our strategy of seeking to provide as reasonable a yield as is possible, without assuming significant market risks by extending maturities. At the same time, we will continue to monitor changes in the municipal bond industry and put in place further strategies that have the potential to benefit from evolving trends. Thank you for your support of the Evergreen High Grade Tax Free Fund. Sincerely, /s/ James T. Colby, III JAMES T. COLBY, III VICE PRESIDENT SENIOR PORTFOLIO MANAGER Evergreen Asset Management Corp. 3 EVERGREEN (logo) SHORT-INTERMEDIATE MUNICIPAL FUND FUND-AT-A-GLANCE As of May 31, 1997
ONE YEAR PERFORMANCE CLASS A CLASS B CLASS Y One year with sales charge 0.92% 1.51% 4.62% One year w/o sales charge 4.31% 3.49% 4.62% One year dividends per share 39.7(cents) 30.7(cents) 40.7 (cents) 30-day SEC Yield (as of 5/31/97) 3.74% 2.94% 3.93% AVERAGE ANNUAL RETURNS** CLASS A CLASS B CLASS Y Three years N/A N/A 3.95% Five years N/A N/A 4.44% Since Inception* 3.40% 2.76% 4.88% CUMULATIVE RETURNS** CLASS A CLASS B CLASS Y Nine months w/o sales charge 3.08% 2.49% 3.36% Three years N/A N/A 12.33% Five years N/A N/A 24.26% Since Inception* 8.38% 6.76% 30.24%
* CLASSES A AND B BEGAN 1/5/95; CLASS Y BEGAN 7/17/91. SINCE INCEPTION RETURN FOR CLASS Y SHARES REFLECTS TOTAL RETURN FROM 11/18/91 WHEN THE FUND CHANGED TO A FLUCTUATING NET ASSET VALUE FUND. ** ALL RETURNS INCLUDE THE MAXIMUM SALES CHARGE, IF APPLICABLE.
PORTFOLIO CHARACTERISTICS MAY 31, 1997 Total Net Assets (all classes) $45.1 million Average Credit Quality AA Average Maturity 2.7 years Average Duration 2.4 years
PORTFOLIO QUALITY MAY 31, 1997 (AS A PERCENTAGE OF PORTFOLIO ASSETS) (Pie chart appears here with the following plot points.) NR 2.25% AAA 45.52% AA 37.37% A 12.63% BBB 2.23% PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE. OBJECTIVE Evergreen Short-Intermediate Municipal Fund seeks income that is exempt from federal income taxes, while preserving capital. Income may be subject to local taxes and the Federal Alternative Minimum Tax for certain investors. STRATEGY The Fund invests in high-quality and upper medium-quality municipal bonds. The average maturity of bonds in the portfolio is expected to be between two and five years. PORTFOLIO MANAGEMENT TEAM (Photo of Steven Steven C. Shachat, Portfolio Manager of Evergreen C. Shachat) Short-Intermediate Municipal Fund, has been a member of the investment team of Evergreen Asset Management team since 1988, concentrating on short-term tax exempt investments. He also is manager of the Evergreen Tax-Exempt Money Market Fund and the Evergreen Short-Intermediate Municipal Fund-California. Prior to joining Evergreen, Mr. Shachat served at Mitchell Hutchins Asset Management, Inc., a subsidiary of Paine Webber, Inc., as a Portfolio Manager in the tax-exempt area. Earlier, he served at Donald Sheldon & Co., a firm specializing in tax-exempt securities. Mr. Shachat is a graduate of Boston University. 4 EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND (logo) MANAGEMENT REPORT July 1997 Dear Fellow Shareholders: We are pleased to report on Evergreen Short-Intermediate Municipal Fund for the fiscal period that ended on May 31, 1997. You may recall that you recently received a semiannual report for the six-month period that ended on February 28, 1997. We have changed your Fund's fiscal year so that it now will end each May 31. This is part of an effort by Evergreen Keystone Funds to streamline, and increase the efficiency of, fund administration. Funds with similar investment objectives, in this case national tax free funds, are placed on the same fiscal year cycle. Information about these funds will be presented in common annual and semiannual reports. The next report you will receive will be a semiannual report for the period ending November 30, 1997. You should expect to receive it in January 1998. PERFORMANCE We believe the Fund performed satisfactorily, consistent with its objective, which is to seek to provide as high a level of income, exempt from federal income taxes other than the alternative minimum tax, as is consistent with preserving capital and providing liquidity. The tables on page 4 provide a comprehensive view of the performance for the fiscal period, as well as since each class of shares began. STRATEGY Evergreen Short-Intermediate Municipal Fund, in the face of a significant amount of near-term interest rate volatility, maintained a laddered structure of its portfolio securities. This strategy, which seeks to maintain as stable a price as possible, is one in which the maturities of the portfolio are spread throughout the range in which the Fund invests. There is not an over-emphasis on securities that are on either the long end or the short end of the range. The allocation of the maturity dates of the Fund's portfolio securities is illustrated in the pie chart on this page. As interest rates changed during the period, your Fund was able to use the proceeds from the minority of securities which had matured to re-invest at current market rates. An additional factor which contributed to your Fund's dividend income was the employment of a strategy to seek opportunities in sectors that we believed may have been undervalued. One example is the healthcare sector, where a series of consolidations and mergers among hospitals and other health care delivery institutions have PORTFOLIO MATURITIES MAY 31, 1997 (AS A PERCENTAGE OF PORTFOLIO ASSETS) (Pie chart appears here with the following plot points.) 0-1 years 17 % 1-2 years 19.8% 2-3 years 11.8% 3-4 years 21.4% 4-5 years 24.4% 5-7 years 5.6% PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE. helped some previously weaker institutions become stronger. This made bonds issued by these institutions more attractive, given the institutions' new strength. Another area in which we increased the Fund's emphasis was in general obligation bonds, backed by the full taxing ability of municipalities and other public agencies. The Fund continues to maintain an emphasis on quality, with an average credit rating of AA at the end of the period. OUTLOOK We anticipate the demand for municipal bonds in the short-to-intermediate maturity range to continue to be strong. At a time of some uncertainty over the direction of interest rates, at least for the near term, investors appear to want to take a conservative approach and maintain short-to-intermediate term securities in their portfolios. We believe the potential implications are that these securities should continue to exhibit relatively stable prices because of the strong demand, but that yields available may not rise significantly. Thank you for your support of Evergreen Short-Intermediate Municipal Fund. Sincerely, /s/ Steven C. Shachat STEVEN C. SHACHAT PORTFOLIO MANAGER Evergreen Asset Management Corp. 5 KEYSTONE (logo) TAX FREE INCOME FUND FUND-AT-A-GLANCE As of May 31, 1997
ONE YEAR PERFORMANCE CLASS A CLASS B CLASS C One year with sales charge 1.80% 1.03% 5.03% One year w/o sales charge 6.88% 6.03% 6.03% One year dividends per share 50.7(cents) 43.5(cents) 43.5 (cents) 30-day SEC Yield (as of 5/31/97) 4.58% 4.05% 4.05% AVERAGE ANNUAL RETURNS** CLASS A CLASS B CLASS C Three years 4.39% 4.39% 5.26% Five years 4.64% N/A N/A Ten years 6.23% N/A N/A Since Inception* N/A 3.84% 4.22% CUMULATIVE RETURNS** CLASS A CLASS B CLASS C Six months w/o sales charge 1.34% 0.97% 0.97% Three years 13.75% 13.76% 16.63% Five years 25.44% N/A N/A Ten years 83.03% N/A N/A Since Inception* N/A 17.73% 19.61%
* CLASS A BEGAN 2/13/87. CLASS B AND CLASS C BEGAN 2/1/93. ** ALL RETURNS INCLUDE THE MAXIMUM SALES CHARGE, IF APPLICABLE. FOR CLASSES WITH MORE THAN 10-YEAR HISTORY, THE 10-YEAR HISTORY IS PRESENTED.
PORTFOLIO CHARACTERISTICS MAY 31, 1997 Total Net Assets (all classes) $113.3 million Average Credit Quality AA+ Average Maturity 17 years Average Duration 8 years
PORTFOLIO QUALITY MAY 31, 1997 (AS A PERCENTAGE OF PORTFOLIO ASSETS) (Pie chart appears here with the following plot points.) AAA 62.8% NR 5.0% A 9.5% AA 10.5% BBB 12.2% PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE. OBJECTIVE Keystone Tax Free Income Fund seeks the highest possible current income exempt from federal taxes, while preserving capital. Income may be subject to local taxes and the Federal Alternative Minimum Tax for certain investors. STRATEGY The Fund invests in high quality municipal bonds from different regions of the country. In pursuing the Fund's objective, the portfolio management team may make adjustments in the portfolio's maturity, asset allocation among sectors, or credit quality. When targeting investments, the portfolio management team seeks out bonds that meet high standards for safety and creditworthiness. These bonds are principally rated within the four highest grades by established rating agencies. Keystone's fixed income analysts also conduct extensive in-house research and regularly monitor bonds in the portfolio. PORTFOLIO MANAGEMENT (Photo of Betsy Betsy A. Hutchings, a Senior Vice President and Group Leader A. Hutchings) of the Municipal Bond Team of Keystone Investment Management Company, is Portfolio Manager of the Fund. A professional with more than 15 years' experience in investment management, Ms. Hutchings also is Portfolio Manager of Keystone Tax Free Fund. Prior to joining Keystone in 1988, Ms. Hutchings served in portfolio management and research positions at Scudder Stevens & Clark, New York, and John Nuveen & Co., Chicago. Ms. Hutchings is active in the Boston Municipal Analysts Forum and the Municipal Bond Buyers Conference. She is a graduate of Wheaton College. 6 KEYSTONE TAX FREE INCOME FUND (logo) MANAGEMENT REPORT July 1997 Dear Shareholders: We are pleased to report on Keystone Tax Free Income Fund for the fiscal period that ended on May 31, 1997. You may recall that you recently received an annual report for the fiscal period that ended November 30, 1996. We have changed your Fund's fiscal year so that it will now end each May 31. This is part of an effort by Evergreen Keystone Funds to streamline, and increase the efficiency of, fund administration. Funds with similar investment objectives, in this case national tax free funds, are being placed on the same fiscal year cycle, and information about these funds will be presented in common annual and semi-annual reports. The next report you will receive will be a semi-annual report for the period ending November 30, 1997. You should expect to receive it in January 1998. PERFORMANCE We believe your Fund performed satisfactorily in a challenging interest rate environment over the past six months. During this period, rates moved down and then up before ending at approximately the same point as they began. The bond market in general was vigilant about a possible pickup of inflation and the potential of higher interest rates. In fact, after interest rates fell during late 1996 and very early 1997, they started to rise again in February and March, hurting the prices of bonds in general, including municipal bonds. STRATEGY In this changing environment, we managed your Fund conservatively, as we both shortened the overall maturity of portfolio holdings and upgraded the average quality of the bonds. At the same time as we were reducing the interest rate risk by selling longer maturity bonds into the market as rates were falling, we were also reducing credit risk by improving overall quality. This quality upgrade was achieved by paring back BBB-rated and nonrated bonds and using the proceeds to buy higher quality holdings, principally AAA-rated bonds. During the past 12 months, the percentage of AAA-rated holdings in the portfolio went from 40% to 54%. Through the full 12-month period, the average maturity of bond holdings was reduced from 18.5 years to 17 years, while the average credit quality was increased from AA- to AA+. We pursued these tactics with two objectives: (Bullet) To lock-in gains through the sale of bonds that had performed well. (Bullet) To position the Fund more defensively by lowering both interest rate risk and credit risk. OUTLOOK Looking forward, we are positive about the investment environment for municipal bonds. On a technical basis, the demand for bonds is strong, with a relatively limited PORTFOLIO COMPOSITION MAY 31, 1997 (AS A PERCENTAGE OF NET ASSETS) (Pie chart appears with the following plot points) General Obligations 16.6% Hospital 14.0% Water & Sewer 12.9% Electric 8.5% Transportation 8.0% Industrial Development (pollution control) 7.1% Pre-Refunded 6.9% Housing 6.5% Education 6.4% Airports 4.8% Solid Waste 1.3% Other 7.0% supply of available bonds as public agencies in general have been restrained in borrowing. On an after-tax, after-inflation basis, municipal bonds continue to appear to be an attractive value. At the close of the period, for example, an AA-rated 30-year municipal bond was yielding 85% of the yield of a 30-year Treasury bond. On a fundamental economic basis, the overall economy is growing at a moderate basis, with inflation well under control. Shorter-term, fixed income investors can be expected to continue to watch nervously for signs of inflation, and there may be some month-to-month interest rate volatility. Longer term, we see more reason for stability in interest rates, as it appears that the policies of the Federal Reserve Board have been successful in keeping inflation well under control. With this outlook, we continue to emphasize the income from higher quality bonds in the 15-to-20-year maturity range and to be guardedly optimistic. Thank you for your support of Keystone Tax Free Income Fund. Sincerely, /s/ Albert H. Elfner, III ALBERT H. ELFNER, III CHAIRMAN Keystone Investment Management Company /s/ Betsy A. Hutchings BETSY A. HUTCHINGS SENIOR VICE PRESIDENT HEAD, MUNICIPAL BOND GROUP Keystone Investment Management Company 7 EVERGREEN KEYSTONE (logo) GROWTH OF INVESTMENTS EVERGREEN HIGH GRADE TAX FREE FUND Comparisons of a $10,000 investment in Evergreen High Grade Tax Free Fund, Class A shares, versus a similar investment in the Lehman Brothers Insured Bond Index (LBIBI) and the Consumer Price Index (CPI). In Thousands Average Annual Total Returns 1 Year 5 Year Life of Class Class A 1.90% 5.75% 6.00% Class B 1.19% -- 5.13% Class Y 7.25% -- 5.11% (Line graph appears here with the following plot points.) 2/92 5/92 5/93 5/94 5/95 5/96 5/97 Class A Shares (PLEASE FILL IN) $13,601 CPI (PLEASE FILL IN) $11,591 LBIBI (PLEASE FILL IN) $14,607 Past performance is no guarantee of future results. The performance of each class may vary baed on differences in loads and fees paid by the shareholder investing in the different classes. The Lehman Brothers Insured Bond Index is an unmanaged, market index. The index does not include transaction costs associated with buying and selling securities, nor any management fees. The Consumer Price Index, a measure of inflation, is through May 31, 1997. EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND Comparisons of a $10,000 investment in Evergreen Short-Intermediate Municipal Fund, Class A shares, versus a similar investment in the Lehman Brothers 3 Year Municipal Bond Index (LB3YMBI) and the Consumer Price Index (CPI). In Thousands Average Annual Total Returns 1 Year 5 Year Life of Class Class A 0.92% -- 3.40% Class B 1.51% -- 2.76% Class Y 4.62% 4.44% 4.88% (Line graph appears here with the following plot points.) 1/95 5/95 11/95 5/96 11/96 5/97 Class A Shares (PLEASE FILL IN) $10,695 CPI (PLEASE FILL IN) $10,838 LB3YMBI (PLEASE FILL IN) $11,560 Past performance is no guarantee of future results. The performance of each class may vary based on differences in loads and fees paid by the shareholder investing in the different classes. The Lehman Brothers 3 Year Municipal Bond Index is an unmanaged, market index. The index does not include transaction costs associated with buying and selling securities, nor any management fees. The Consumer Price Index, a measure of inflation, is through May 31, 1997. KEYSTONE TAX FREE INCOME FUND Comparisons of a $10,000 investment in Keystone Tax Free Income Fund, Class A shares, versus a similar investment in the Lehman Brothers Municipal Bond Index (LMBI) and the Consumer Price Index (CPI). In Thousands Average Annual Total Returns 1 Year 5 Year 10 Year Life of Class Class A 1.80% 4.64% 6.23% -- Class B 1.03% -- -- 3.84% Class Y 5.03% -- -- 4.22% (Line graph appears here with the following plot points.)
5/97 5/88 5/89 5/90 5/91 5/92 5/93 5/94 5/95 5/96 5/97 Class A Shares (PLEASE FILL IN) $18,303 CPI (PLEASE FILL IN) $14,158 LMBI (PLEASE FILI IN) $22,346
Past performance is no guarantee of future results. The performance of each class may vary based on differences in loads and fees paid by the shareholder investing in the different classes. The Lehman Brothers Municipal Bond Index is an unmanaged, market index. The index does not include transaction costs associated with buying and selling securities, nor any management fees. The Consumer Price Index, a measure of inflation, is through May 31, 1997. 8 EVERGREEN HIGH GRADE TAX FREE FUND (logo) FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
EIGHT MONTHS NINE MONTHS YEAR ENDED ENDED YEAR ENDED ENDED AUGUST 31, AUGUST 31, DECEMBER 31, MAY 31, 1997 (a) 1996 1995 (d) 1994 1993 CLASS A SHARES NET ASSET VALUE BEGINNING OF PERIOD... $ 10.72 $ 10.69 $ 9.79 $ 11.16 $ 10.42 INCOME FROM INVESTMENT OPERATIONS: Net investment income................. 0.37 0.52 0.34 0.52 0.54 Net realized and unrealized gain (loss) on investments............... 0.17 0.03 0.90 (1.37) 0.81 Total from investment operations...... 0.54 0.55 1.24 (0.85) 1.35 LESS DISTRIBUTIONS FROM: Net investment income................. (0.37) (0.52) (0.34) (0.52) (0.54) Net realized gains on investments..... 0 0 0 0 (0.07) Total distributions................... (0.37) (0.52) (0.34) (0.52) (0.61) NET ASSET VALUE END OF PERIOD......... $ 10.89 $ 10.72 $ 10.69 $ 9.79 $ 11.16 Total return (c)...................... 5.13% 5.21% 12.83% (7.71%) 13.25% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses...................... 1.03%(b) 0.89% 1.06%(b) 1.01% 0.85% Total expenses excluding indirectly paid expenses..................... 1.03%(b) -- -- -- -- Total expenses excluding waivers and reimbursements.................... 1.11%(b) 1.09% 1.09%(b) 1.02% 1.07% Net investment income............... 4.60%(b) 4.78% 4.93%(b) 5.04% 4.99% Portfolio turnover rate............... 114% 65% 27% 53% 14% NET ASSETS END OF PERIOD (THOUSANDS)......................... $ 45,814 $ 50,569 $ 58,751 $57,676 $101,352 FEBRUARY 21, 1992 (COMMENCEMENT OF CLASS OPERATIONS) THROUGH DECEMBER 31, 1992 CLASS A SHARES NET ASSET VALUE BEGINNING OF PERIOD... $ 10.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income................. 0.51 Net realized and unrealized gain (loss) on investments............... 0.42 Total from investment operations...... 0.93 LESS DISTRIBUTIONS FROM: Net investment income................. (0.51) Net realized gains on investments..... 0 Total distributions................... (0.51) NET ASSET VALUE END OF PERIOD......... $ 10.42 Total return (c)...................... 9.48% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses...................... 0.49%(b) Total expenses excluding indirectly paid expenses..................... -- Total expenses excluding waivers and reimbursements.................... 1.11%(b) Net investment income............... 5.79%(b) Portfolio turnover rate............... 7% NET ASSETS END OF PERIOD (THOUSANDS)......................... $ 90,738
(a) The Fund changed its fiscal year end from August 31 to May 31 during the current period. (b) Annualized. (c) Excluding applicable sales charges. (d) The Fund changed its fiscal year end from December 31 to August 31. SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 9 EVERGREEN HIGH GRADE TAX FREE FUND (logo) FINANCIAL HIGHLIGHTS (CONTINUED) (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
EIGHT MONTHS NINE MONTHS ENDED YEAR ENDED ENDED YEAR ENDED AUGUST 31, DECEMBER 31, MAY 31, 1997 (a) AUGUST 31, 1996 1995 (d) 1994 CLASS B SHARES NET ASSET VALUE BEGINNING OF PERIOD.... $ 10.72 $ 10.69 $ 9.79 $ 11.16 INCOME FROM INVESTMENT OPERATIONS: Net investment income.................. 0.31 0.44 0.29 0.46 Net realized and unrealized gain (loss) on investments....................... 0.17 0.03 0.90 (1.37) Total from investment operations....... 0.48 0.47 1.19 (0.91) LESS DISTRIBUTIONS FROM Net investment income.................. (0.31) (0.44) (0.29) (0.46) Net realized gain on investments....... 0 0 0 0 Total Distributions.................... (0.31) (0.44) (0.29) (0.46) NET ASSET VALUE END OF PERIOD.......... $ 10.89 $ 10.72 $ 10.69 $ 9.79 Total return (c)....................... 4.55% 4.42% 12.27% (8.24%) RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses....................... 1.78%(b) 1.64% 1.81%(b) 1.58% Total expenses excluding indirectly paid expenses...................... 1.78%(b) -- -- -- Total expenses excluding waivers and reimbursements..................... 1.86%(b) 1.84% 1.84%(b) 1.59% Net investment income................ 3.85%(b) 4.03% 4.18%(b) 4.47% Portfolio turnover rate................ 114% 65% 27% 53% NET ASSETS END OF PERIOD (THOUSANDS).......................... $ 31,874 $32,221 $34,206 $ 32,435 JANUARY 11, 1993 (COMMENCEMENT OF CLASS OPERATIONS) THROUGH DECEMBER 31, 1993 CLASS B SHARES NET ASSET VALUE BEGINNING OF PERIOD.... $ 10.42 INCOME FROM INVESTMENT OPERATIONS: Net investment income.................. 0.47 Net realized and unrealized gain (loss) on investments....................... 0.81 Total from investment operations....... 1.28 LESS DISTRIBUTIONS FROM Net investment income.................. (0.47) Net realized gain on investments....... (0.07) Total Distributions.................... (0.54) NET ASSET VALUE END OF PERIOD.......... $ 11.16 Total return (c)....................... 12.52% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses....................... 1.35%(b) Total expenses excluding indirectly paid expenses...................... -- Total expenses excluding waivers and reimbursements..................... 1.57%(b) Net investment income................ 4.44%(b) Portfolio turnover rate................ 14% NET ASSETS END OF PERIOD (THOUSANDS).......................... $ 41,030
(a) The Fund changed its fiscal year end from August 31 to May 31 during the current period. (b) Annualized. (c) Excluding applicable sales charges. (d) The Fund changed its fiscal year end from December 31 to August 31.
NINE MONTHS YEAR EIGHT MONTHS ENDED ENDED ENDED MAY 31, AUGUST 31, AUGUST 31, 1997 (a) 1996 1995 (c) CLASS Y SHARES NET ASSET VALUE BEGINNING OF PERIOD......................... $ 10.72 $ 10.69 $ 9.79 INCOME FROM INVESTMENT OPERATIONS: Net investment income....................................... 0.39 0.55 0.36 Net realized and unrealized gain (loss) on investments...... 0.17 0.03 0.90 Total from investment operations............................ 0.56 0.58 1.26 LESS DISTRIBUTIONS FROM NET INVESTMENT INCOME............... (0.39) (0.55) (0.36) NET ASSET VALUE END OF PERIOD............................... $ 10.89 $ 10.72 $ 10.69 Total return................................................ 5.32% 5.47% 13.02% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses............................................ 0.78%(b) 0.64% 0.81%(b) Total expenses excluding indirectly paid expenses......... 0.78%(b) -- -- Total expenses excluding waivers and reimbursements....... 0.86%(b) 0.84% 0.84%(b) Net investment income..................................... 4.85%(b) 5.03% 5.18%(b) Portfolio turnover rate..................................... 114% 65% 27% NET ASSETS END OF PERIOD (THOUSANDS)........................ $ 24,441 $ 25,112 $ 25,079 FEBRUARY 28, 1994 (COMMENCEMENT OF CLASS OPERATIONS) THROUGH DECEMBER 31, 1994 CLASS Y SHARES NET ASSET VALUE BEGINNING OF PERIOD......................... $10.93 INCOME FROM INVESTMENT OPERATIONS: Net investment income....................................... 0.46 Net realized and unrealized gain (loss) on investments...... (1.14) Total from investment operations............................ (0.68) LESS DISTRIBUTIONS FROM NET INVESTMENT INCOME............... (0.46) NET ASSET VALUE END OF PERIOD............................... $ 9.79 Total return................................................ (6.29%) RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses............................................ 0.76%(b) Total expenses excluding indirectly paid expenses......... -- Total expenses excluding waivers and reimbursements....... 0.77%(b) Net investment income..................................... 5.46%(b) Portfolio turnover rate..................................... 53% NET ASSETS END OF PERIOD (THOUSANDS)........................ $4,318
(a) The Fund changed its fiscal year end from August 31 to May 31 during the current period. (b) Annualized. (c) The Fund changed its fiscal year end from December 31 to August 31. SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 10 EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND (logo) FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
JANUARY 5, 1995 (COMMENCEMENT NINE MONTHS OF CLASS OPERATIONS) ENDED YEAR ENDED THROUGH MAY 31, 1997 (a) AUGUST 31, 1996 AUGUST 31, 1995 CLASS A SHARES NET ASSET VALUE BEGINNING OF PERIOD................................... $10.08 $ 10.17 $ 9.97 INCOME FROM INVESTMENT OPERATIONS: Net investment income................................................. 0.30 0.43 0.30 Net realized and unrealized gain (loss) on investments................ 0.01 (0.09) 0.20 Total from investment operations...................................... 0.31 0.34 0.50 LESS DISTRIBUTIONS FROM NET INVESTMENT INCOME......................... (0.30) (0.43) (0.30) NET ASSET VALUE END OF PERIOD......................................... $10.09 $ 10.08 $10.17 Total return (c)...................................................... 3.08% 3.37% 5.09% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses...................................................... 0.84%(b) 0.80% 0.70%(b) Total expenses excluding indirectly paid expenses................... 0.83%(b) -- -- Total expenses excluding waivers and reimbursements................. 0.96%(b) 1.11% 1.14%(b) Net investment income............................................... 3.94%(b) 4.05% 4.32%(b) Portfolio turnover rate............................................... 34% 29% 80% NET ASSETS END OF PERIOD (THOUSANDS).................................. $6,072 $27,722 $6,820
(a) The Fund changed its fiscal year end from August 31 to May 31 during the current period. (b) Annualized. (c) Excluding applicable sales charges.
JANUARY 5, 1995 (COMMENCEMENT NINE MONTHS OF CLASS OPERATIONS) ENDED YEAR ENDED THROUGH MAY 31, 1997 (a) AUGUST 31, 1996 AUGUST 31, 1995 CLASS B SHARES NET ASSET VALUE BEGINNING OF PERIOD................................... $10.08 $ 10.17 $ 9.97 INCOME FROM INVESTMENT OPERATIONS: Net investment income................................................. 0.23 0.34 0.24 Net realized and unrealized gain (loss) on investments................ 0.02 (0.09) 0.20 Total from investment operations...................................... 0.25 0.25 0.44 LESS DISTRIBUTIONS FROM NET INVESTMENT INCOME......................... (0.23) (0.34) (0.24) NET ASSET VALUE END OF PERIOD......................................... $10.10 $ 10.08 $10.17 Total return (c)...................................................... 2.49% 2.44% 4.50% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses...................................................... 1.73%(b) 1.67% 1.58%(b) Total expenses excluding indirectly paid expenses................... 1.73%(b) -- -- Total expenses excluding waivers and reimbursements................. 1.86%(b) 2.07% 2.26%(b) Net investment income............................................... 3.04%(b) 3.28% 3.50%(b) Portfolio turnover rate............................................... 34% 29% 80% NET ASSETS END OF PERIOD (THOUSANDS).................................. $6,742 $ 7,413 $6,050
(a) The Fund changed its fiscal year end from August 31 to May 31 during the current period. (b) Annualized. (c) Excluding applicable sales charges. SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 11 EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND (logo) FINANCIAL HIGHLIGHTS (CONTINUED) (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
NINE MONTHS ENDED YEAR ENDED AUGUST 31, MAY 31, 1997 (a) 1996 1995 1994 1993 1992 (c) CLASS Y SHARES NET ASSET VALUE BEGINNING OF PERIOD... $ 10.07 $ 10.17 $ 10.21 $ 10.58 $ 10.33 $ 10.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income................. 0.30 0.43 0.46 0.47 0.49 0.51 Net realized and unrealized gain (loss) on investments............... 0.03 (0.10) (0.04) (0.32) 0.25 0.33 Total from investment operations...... 0.33 0.33 0.42 0.15 0.74 0.84 LESS DISTRIBUTIONS FROM: Net investment income................. (0.30) (0.43) (0.46) (0.47) (0.49) (0.51) In excess of net investment income.... 0 0 0 (0.03) 0 0 Net realized gain on investments...... 0 0 0 (0.02) 0 0 Total distributions................... (0.30) (0.43) (0.46) (0.52) (0.49) (0.51) NET ASSET VALUE END OF PERIOD......... $ 10.10 $ 10.07 $ 10.17 $ 10.21 $ 10.58 $ 10.33 Total return.......................... 3.36% 3.30% 4.20% 1.40% 7.40% 8.56% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses...................... 0.74%(b) 0.70% 0.74% 0.58% 0.40% 0.17% Total expenses excluding indirectly paid expenses..................... 0.73%(b) -- -- -- -- -- Total expenses excluding waivers and reimbursements.................... 0.86%(b) 0.90% 0.86% 0.83% 0.81% 0.86% Net investment income............... 4.04%(b) 4.27% 4.52% 4.54% 4.73% 4.85% Portfolio turnover rate............... 34% 29% 80% 32% 37% 57% NET ASSETS END OF PERIOD (THOUSANDS)......................... $ 32,293 $34,893 $40,581 $53,417 $66,607 $ 54,470 JULY 17, 1991 (COMMENCEMENT OF CLASS OPERATIONS) THROUGH AUGUST 31, 1991 (c) CLASS Y SHARES NET ASSET VALUE BEGINNING OF PERIOD... $10.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income................. 0.06 Net realized and unrealized gain (loss) on investments............... 0 Total from investment operations...... 0.06 LESS DISTRIBUTIONS FROM: Net investment income................. (0.06) In excess of net investment income.... 0 Net realized gain on investments...... 0 Total distributions................... (0.06) NET ASSET VALUE END OF PERIOD......... $10.00 Total return.......................... 0.62% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses...................... 0.00%(b) Total expenses excluding indirectly paid expenses..................... -- Total expenses excluding waivers and reimbursements.................... 1.40%(b) Net investment income............... 4.93%(b) Portfolio turnover rate............... -- NET ASSETS END OF PERIOD (THOUSANDS)......................... $4,025
(a) The Fund changed its fiscal year end from August 31 to May 31 during the current period. (b) Annualized (c) On November 18, 1991, the Fund was changed to a diversified municipal bond fund with a fluctuating net asset value per share from a non-diversified money market fund with a stable net asset value per share. The shares outstanding and the related per share data as of August 31, 1991 are restated to reflect both a 1 for 2 reverse share split on October 30, 1991 and a 1 for 5 reverse share split on August 19, 1992. Total return calculated after November 18, 1991 reflects the fluctuation in net asset value per share. SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 12 KEYSTONE TAX FREE INCOME FUND (logo) FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30, MAY 31, 1997 (a) 1996 (f) 1995 (f) 1994 CLASS A SHARES NET ASSET VALUE BEGINNING OF PERIOD................................. $ 9.90 $ 10.05 $ 8.93 $ 10.25 INCOME FROM INVESTMENT OPERATIONS: Net investment income............................................... 0.24 0.51 0.51 0.51 Net realized and unrealized gain (loss) on investments and futures contracts................................................. (0.11) (0.14) 1.13 (1.28) Total from investment operations.................................... 0.13 0.37 1.64 (0.77) LESS DISTRIBUTIONS FROM: Net investment income............................................... (0.24) (0.52) (0.51) (0.52) In excess of net investment income.................................. (0.01) 0(e) (0.01) 0 Net realized gain on investments.................................... 0 0 0 0 Tax basis return of capital......................................... 0 0 0 (0.03) Total distributions................................................. (0.25) (0.52) (0.52) (0.55) NET ASSET VALUE END OF PERIOD....................................... $ 9.78 $ 9.90 $ 10.05 $ 8.93 Total return (c).................................................... 1.34% 3.83% 18.71% (7.81%) RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses.................................................... 1.19%(b) 1.13% 1.19% 1.13% Total expenses excluding indirectly paid expenses................. 1.18%(b) 1.12% 1.18% -- Net investment income............................................. 4.85%(b) 5.21% 5.35% 5.27% Portfolio turnover rate............................................. 54% 128% 30% 98% NET ASSETS END OF PERIOD (THOUSANDS)................................ $ 72,629 $ 82,425 $ 94,183 $95,691 YEAR ENDED NOVEMBER 30, 1993 CLASS A SHARES NET ASSET VALUE BEGINNING OF PERIOD................................. $ 10.17 INCOME FROM INVESTMENT OPERATIONS: Net investment income............................................... 0.57 Net realized and unrealized gain (loss) on investments and futures contracts................................................. 0.36 Total from investment operations.................................... 0.93 LESS DISTRIBUTIONS FROM: Net investment income............................................... (0.57) In excess of net investment income.................................. (0.04) Net realized gain on investments.................................... (0.24) Tax basis return of capital......................................... 0 Total distributions................................................. (0.85) NET ASSET VALUE END OF PERIOD....................................... $ 10.25 Total return (c).................................................... 9.37% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses.................................................... 1.21% Total expenses excluding indirectly paid expenses................. -- Net investment income............................................. 5.40% Portfolio turnover rate............................................. 47% NET ASSETS END OF PERIOD (THOUSANDS)................................ $124,102
FEBRUARY 13, 1987 (COMMENCEMENT YEAR ENDED NOVEMBER 30, OF OPERATIONS) TO 1992 1991 1990 1989 1988 NOVEMBER 30, 1987 CLASS A SHARES (CONTINUED) NET ASSET VALUE BEGINNING OF PERIOD................. $ 10.13 $ 9.94 $ 10.24 $ 9.96 $ 9.64 $ 10.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income............................... 0.63 0.61 0.59 0.62 0.63 0.33 Net realized and unrealized gain (loss) on investments and futures contracts................. 0.30 0.31 (0.06) 0.34 0.37 (0.32) Total from investment operations.................... 0.93 0.92 0.53 0.96 1.00 0.01 LESS DISTRIBUTIONS FROM: Net investment income............................... (0.62) (0.61) (0.60) (0.63) (0.68) (0.37) In excess of net investment income.................. 0 0 (0.03) 0 0 0 Net realized gain on investments.................... (0.27) (0.12) (0.20) (0.05) 0 0 Tax basis return of capital......................... 0 0 0 0 0 0 Total distributions................................. (0.89) (0.73) (0.83) (0.68) (0.68) (0.37) NET ASSET VALUE END OF PERIOD....................... $ 10.17 $ 10.13 $ 9.94 $ 10.24 $ 9.96 $ 9.64 Total return (c).................................... 9.35% 9.59% 5.55% 9.97% 10.60% 0.17% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses.................................... 1.25% 1.58% 1.66% 1.62% 1.57% 1.00%(d) Total expenses excluding indirectly paid expenses........................................ -- -- -- -- -- -- Net investment income............................. 6.02% 5.95% 6.03% 6.15% 6.13% 6.85%(d) Portfolio turnover rate............................. 32% 37% 42% 49% 109% 67% NET ASSETS END OF PERIOD (THOUSANDS)................ $120,660 $133,524 $146,335 $162,013 $179,191 $16,090
(a) The Fund changed its fiscal year end from November 30 to May 31 during the current period. (b) Annualized. (c) Excluding applicable sales charges. (d) Annualized for the period April 14, 1987 (Commencement of Investment Operations) to November 30, 1987. (e) Reflects distributions in excess of net investment income which were under $0.01 per share. (f) Calculation based on average shares outstanding. SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 13 KEYSTONE TAX FREE INCOME FUND (logo) FINANCIAL HIGHLIGHTS (CONTINUED) (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30, MAY 31, 1997 (a) 1996 (e) 1995 (e) 1994 CLASS B SHARES NET ASSET VALUE BEGINNING OF PERIOD......................... $ 9.81 $ 9.97 $ 8.88 $ 10.25 INCOME FROM INVESTMENT OPERATIONS: Net investment income....................................... 0.19 0.44 0.44 0.45 Net realized and unrealized gain (loss) on investments and futures contracts......................................... (0.10) (0.16) 1.11 (1.29) Total from investment operations............................ 0.09 0.28 1.55 (0.84) LESS DISTRIBUTIONS FROM: Net investment income....................................... (0.20) (0.44) (0.45) (0.50) In excess of net investment income.......................... (0.01) 0(d) (0.01) 0 Net realized gain on investments............................ 0 0 0 0 Tax basis return of capital................................. 0 0 0 (0.03) Total distributions......................................... (0.21) (0.44) (0.46) (0.53) NET ASSET VALUE END OF PERIOD............................... $ 9.69 $ 9.81 $ 9.97 $ 8.88 Total return (c)............................................ 0.97% 2.99% 17.84% (8.43%) RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses............................................ 1.95%(b) 1.90% 1.96% 1.88% Total expenses excluding indirectly paid expenses......... 1.94%(b) 1.89% 1.94% -- Net investment income..................................... 4.09%(b) 4.44% 4.59% 4.60% Portfolio turnover rate..................................... 54% 128% 30% 98% NET ASSETS END OF PERIOD (THOUSANDS)........................ $ 28,822 $ 33,063 $ 33,449 $28,860 FEBRUARY 1, 1993 (DATE OF INITIAL PUBLIC OFFERING) TO NOVEMBER 30, 1993 CLASS B SHARES NET ASSET VALUE BEGINNING OF PERIOD......................... $ 10.27 INCOME FROM INVESTMENT OPERATIONS: Net investment income....................................... 0.37 Net realized and unrealized gain (loss) on investments and futures contracts......................................... 0.30 Total from investment operations............................ 0.67 LESS DISTRIBUTIONS FROM: Net investment income....................................... (0.37) In excess of net investment income.......................... (0.08) Net realized gain on investments............................ (0.24) Tax basis return of capital................................. 0 Total distributions......................................... (0.69) NET ASSET VALUE END OF PERIOD............................... $ 10.25 Total return (c)............................................ 6.59% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses............................................ 1.96%(b) Total expenses excluding indirectly paid expenses......... -- Net investment income..................................... 4.42%(b) Portfolio turnover rate..................................... 47% NET ASSETS END OF PERIOD (THOUSANDS)........................ $ 14,091
(a) The Fund changed its fiscal year end from November 30 to May 31 during the current period. (b) Annualized. (c) Excluding applicable sales charges. (d) Reflects distributions in excess of net investment income which were under $0.01 per share. (e) Calculation based on average shares outstanding. SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 14 KEYSTONE TAX FREE INCOME FUND (logo) FINANCIAL HIGHLIGHTS (CONTINUED) (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30, MAY 31, 1997 (a) 1996 (e) 1995 (e) 1994 CLASS C SHARES NET ASSET VALUE BEGINNING OF PERIOD......................... $ 9.81 $ 9.97 $ 8.88 $ 10.26 INCOME FROM INVESTMENT OPERATIONS: Net investment income....................................... 0.18 0.41 0.44 0.43 Net realized and unrealized gain (loss) on investments and futures contracts......................................... (0.09) (0.13) 1.11 (1.27) Total from investment operations............................ 0.09 0.28 1.55 (0.84) LESS DISTRIBUTIONS FROM: Net investment income....................................... (0.20) (0.44) (0.45) (0.51) In excess of net investment income.......................... (0.01) 0(d) (0.01) 0 Net realized gain on investments............................ 0 0 0 0 Tax basis return of capital................................. 0 0 0 (0.03) Total distributions......................................... (0.21) (0.44) (0.46) (0.54) NET ASSET VALUE END OF PERIOD............................... $ 9.69 $ 9.81 $ 9.97 $ 8.88 Total return (c)............................................ 0.97% 2.99% 17.84% (8.52%) RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses............................................ 1.95%(b) 1.90% 1.96% 1.89% Total expenses excluding indirectly paid expenses......... 1.94%(b) 1.89% 1.94% -- Net investment income..................................... 4.09%(b) 4.44% 4.59% 4.52% Portfolio turnover rate..................................... 54% 128% 30% 98% NET ASSETS END OF PERIOD (THOUSANDS)........................ $ 11,879 $ 13,769 $ 20,386 $23,230 FEBRUARY 1, 1993 (DATE OF INITIAL PUBLIC OFFERING) TO NOVEMBER 30, 1993 CLASS C SHARES NET ASSET VALUE BEGINNING OF PERIOD......................... $ 10.27 INCOME FROM INVESTMENT OPERATIONS: Net investment income....................................... 0.37 Net realized and unrealized gain (loss) on investments and futures contracts......................................... 0.31 Total from investment operations............................ 0.68 LESS DISTRIBUTIONS FROM: Net investment income....................................... (0.37) In excess of net investment income.......................... (0.08) Net realized gain on investments............................ (0.24) Tax basis return of capital................................. 0 Total distributions......................................... (0.69) NET ASSET VALUE END OF PERIOD............................... $ 10.26 Total return (c)............................................ 6.70% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses............................................ 1.94%(b) Total expenses excluding indirectly paid expenses......... -- Net investment income..................................... 4.41%(b) Portfolio turnover rate..................................... 47% NET ASSETS END OF PERIOD (THOUSANDS)........................ $ 27,261
(a) The Fund changed its fiscal year end from November 30 to May 31 during the current period. (b) Annualized. (c) Excluding applicable sales charges. (d) Reflects distributions in excess of net investment income which were under $0.01 per share. (e) Calculation based on average shares oustanding. SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 15 EVERGREEN HIGH GRADE TAX FREE FUND (logo) SCHEDULE OF INVESTMENTS May 31, 1997
PRINCIPAL AMOUNT VALUE LONG-TERM INVESTMENTS-- 97.4% ARIZONA-- 1.1% $1,000,000 Creighton Elem. Sch. Dist. No. 14 of Maricopa Cnty., Sch. Imp. Bonds (Proj. of 1990), (Series C 1991), 6.50%, 7/1/07, (FGIC)............. $ 1,125,240 CALIFORNIA-- 2.6% 2,000,000 Redevelopment Agcy. of the City of San Jose Merged Area Redev. Proj., Tax Allocation Bonds, (Series 1993), 6.00%, 8/1/15, (MBIA)............. 2,144,880 500,000 San Mateo Cnty. Joint Pwrs. Financing Auth. Lease RB (Capital Projs. Prog.), (1993 Refunding Series A), 6.50%, 7/1/16, (MBIA)............. 560,505 2,705,385 COLORADO-- 3.7% Arapahoe Cnty. Pub. Hwy. Auth. Capital Imp. Trust Fund Hwy. RB (E-470 Proj.): 1,000,000 6.15%, 8/31/26, (MBIA).............. 1,053,890 Sr. Current Interest Bonds, 2,000,000 7.00%, 8/31/26...................... 2,144,720 500,000 School Dist. No. 1, City & Cnty. of Denver, GO Refunding Bonds, (Series 1994A), 6.50%, 6/1/10, (MBIA)............. 560,370 3,758,980 FLORIDA-- 1.1% 1,000,000 Orange Cnty. Forida Hlth. Facs. Auth. Hosp. RB (Orlando Regional Healthcare Sys.), (Series 1996C), 6.25%, 10/1/16, (MBIA)............ 1,089,760 GEORGIA-- 5.2% 500,000 City of Atlanta Arpt. Facs. RRB, (Series 1994A), 6.50%, 1/1/10, (AMBAC)............ 557,990 1,000,000 Metropolitan Atlanta Rapid Transit Auth. Georgia Refunding Second Indenture, (Series A), 5.50%, 7/1/17, (MBIA)............. 998,740 PRINCIPAL AMOUNT VALUE LONG-TERM INVESTMENTS-- CONTINUED GEORGIA-- CONTINUED Municipal Elec. Auth. Georgia Spec. Oblig. Fifth Crossover Series Proj. One: $1,000,000 6.40%, 1/1/13, (AMBAC).............. $ 1,102,190 2,400,000 6.50%, 1/1/17, (MBIA)............... 2,694,720 5,353,640 HAWAII-- 3.7% 2,500,000 Hawaii St., GO, (Series. CM), 6.00%, 12/1/10, (FGIC)............ 2,679,750 1,000,000 State of Hawaii Arpt. Sys. RB, (Second Series of 1990), 7.50%, 7/1/20, (FGIC)............. 1,088,990 3,768,740 IDAHO-- 0.9% 845,000 Idaho Hsg. Agcy. Single Family Mtge. Bonds, (1994 Series C-1 Sr. Bonds & Mezzanine Bonds), 6.30%, 7/1/11..................... 869,657 ILLINOIS-- 16.9% 4,725,000 City of Chicago Wtr. RRB, (Series 1993), 6.50%, 11/1/15, (FGIC)............ 5,308,727 2,150,000 City of Chicago GO Current Interest Bonds, (Proj. Series 1995), 6.13%, 1/1/16, (AMBAC)............ 2,229,249 Illinois Dev. Fin. Auth. Poll. Ctrl. RRB (Commonwealth Edison Co. Proj.): (Series 1991), 2,000,000 7.25%, 6/1/11, (MBIA)............... 2,182,060 (Series 1994D), 3,000,000 6.75%, 3/1/15, (AMBAC).............. 3,293,160 1,750,000 Illinois Hlth. Facs. Auth. Hlth. Facs. RRB (SSM Hlth. Care), (Series 1992AA), 6.50%, 6/1/12, (MBIA)............. 1,953,875 5,625,000 Metropolitan Pier & Exposition Authority Illinois Refunding McCormick Place Expn, Project B, (Eff. Yield 5.80%)(a), 0.00%, 6/15/13, (MBIA)............ 2,258,550 17,225,621
(CONTINUED) 16 EVERGREEN HIGH GRADE TAX FREE FUND (logo) SCHEDULE OF INVESTMENTS (CONTINUED) May 31, 1997
PRINCIPAL AMOUNT VALUE LONG-TERM INVESTMENTS-- CONTINUED INDIANA-- 3.5% $ 1,000,000 Indiana Muni. Pwr. Agcy., Pwr. Supply Sys. RRB, (1993 Series B), 6.00%, 1/1/13, (MBIA)............... $ 1,063,720 700,000 Indiana Trans. Fin. Auth. Hwy. RB, (Series 1992A), 6.80%, 12/1/16, (MBIA).............. 808,024 1,500,000 Middle Sch. Bldg. Corp. of Lawrence Township of Marion Cnty., First Mtge. Bonds, 6.88%, 7/5/11, (MBIA)............... 1,729,185 3,600,929 1,000,000 LOUISIANA-- 1.3% Orleans Parish Louisiana, School Board RB 9.05%, 2/1/10, (MBIA)............. 1,339,390 1,000,000 MAINE-- 1.1% Maine Turnpike Auth., Turnpike RB, (Series 1994), 7.13%, 7/1/08, (MBIA)............. 1,171,010 2,500,000 MARYLAND-- 2.4% Maryland St. GO, St. & Local Facilities, (First Series), 5.00%, 3/1/10..................... 2,455,900 MASSACHUSETTS-- 1.6% 500,000 Massachusetts Hsg. Fin. Agcy., Hsg. Proj. RB, (1993 Series A), 6.15%, 10/1/15, (AMBAC)........... 508,015 1,000,000 Massachusetts St., Refunding, (Series A), 6.50%, 11/1/14, (AMBAC)........... 1,119,500 1,627,515 MINNESOTA-- 0.5% 490,000 Minnesota Hsg. Fin. Agcy. Single Family Mtge. Bonds, (1994 Series H), 6.70%, 1/1/18..................... 514,397 PRINCIPAL AMOUNT VALUE LONG-TERM INVESTMENTS-- CONTINUED NEW MEXICO-- 1.0% City of Albuquerque, Arpt. RB: (Series 1995 A), $ 500,000 6.35%, 7/1/07, (AMBAC).............. $ 540,220 $ 500,000 (Series 1995 B), 7.00%, 7/1/16, (AMBAC).............. 501,170 1,041,390 NEW YORK-- 11.2% 1,000,000 Albany Cnty., Arpt. Auth. Arpt. Rev., 5.25%, 12/15/10, (FSA)............ 980,990 1,500,000 New York St. Housing Finance Agency Revenue, (Series 1994 B), 6.35%, 8/15/23, (AMBAC)........... 1,538,700 2,590,000 New York St. Local Government Assistance Corporation RB, (Prerefunded @ $102), (Series B), 7.38%, 4/1/01..................... 2,895,076 5,000,000 Port Auth. New York & New Jersey Special Obligation (for JFK Intl. Arrivals Terminal), 6.25%, 12/1/10, (MBIA)............ 5,453,950 500,000 The Port Auth. of New York & New Jersey Consolidated Bonds Fifth Installment, (Ninety-Seventh Series), 6.50%, 7/15/19, (FGIC)............ 529,900 11,398,616 NORTH DAKOTA-- 3.0% 3,000,000 Mercer Cnty. Poll. Ctrl. RRB (Basin Elec. Pwr. Cooperative-Antelope Valley Unit 1 & Common Facs.), (Second 1995 Series), 6.05%, 1/1/19, (AMBAC)............ 3,107,910 OHIO-- 3.3% 1,000,000 Board of Ed., Kings Local Sch. Dist. (City of Warren) Sch. Imp. Bonds (Unltd. Tax GO), (Series 1995), 7.50%, 12/1/16, (FGIC)............ 1,254,130 1,500,000 City of Toledo, GO (Ltd. Tax) Hsg. Imp. Bonds (Macy's Proj.), (Series 1995A), 6.35%, 12/1/25, (MBIA)............ 1,580,835
(CONTINUED) 17 EVERGREEN HIGH GRADE TAX FREE FUND (logo) SCHEDULE OF INVESTMENTS (CONTINUED) May 31, 1997
PRINCIPAL AMOUNT VALUE LONG-TERM INVESTMENTS-- CONTINUED OHIO-- CONTINUED $ 475,000 Ohio Hsg. Fin. Agcy. Residential Mtge. RB (GNMA Mortgage-Backed Securities Prog.), (1995 Series A-2), 6.63%, 3/1/26..................... $ 490,252 3,325,217 SOUTH CAROLINA-- 3.4% 3,250,000 South Carolina St., Port Auth. RB, (Series 1991), 6.63%, 7/1/11, (AMBAC)............ 3,468,563 SOUTH DAKOTA-- 4.2% 4,000,000 South Dakota Hlth. & Edl. Facs. Auth. RRB (St. Luke's Midland Regional Med. Center Issue), (Series 1991), 6.63%, 7/1/11, (MBIA)............. 4,304,240 TENNESSEE-- 3.1% 1,200,000 The Hlth. & Edl. Facs. Board of the City of Bristol Hosp. RRB (Bristol Mem. Hosp.), (Series 1993), 6.75%, 9/1/07, (FGIC)............. 1,366,740 1,700,000 The Hlth., Edl. & Hsg. Facs. Board of the Cnty. of Knox Hosp. RRB (Fort Sanders Alliance Obligated Group), (Series 1993), 6.25%, 1/1/13, (MBIA)............. 1,843,378 3,210,118 TEXAS-- 4.4% 1,500,000 City of Austin Arpt. Sys. Prior Lien RB, (Series 1995A), 6.13%, 11/15/25, (MBIA)........... 1,533,060 1,000,000 City of Houston Wtr. Conveyance Sys. Contract COP, (Series 1993H), 7.50%, 12/15/14, (AMBAC).......... 1,221,290 6,000,000 Harris County Texas, RB Toll Road, (Prerefunded @ $53.836), (Eff. Yield 5.39%)(a), 0.00%, 8/15/09, (AMBAC)........... 1,699,500 4,453,850 PRINCIPAL AMOUNT VALUE LONG-TERM INVESTMENTS-- CONTINUED UTAH-- 3.6% $2,500,000 Board of Ed. of Iron Cnty. Sch. Dist. GO Sch. Bldg. Bonds, (Series 1994), 6.40%, 1/15/12, (MBIA)............ $2,675,325 1,000,000 Salt Lake City, Salt Lake Cnty. Arpt. RB, (Series 1993A), 6.00%, 12/1/12, (FGIC)............ 1,030,860 3,706,185 VIRGINIA-- 2.1% 2,000,000 Industrial Dev. Auth. of Hanover Hosp. RB (Mem. Regional Med. Center Proj. at Hanover Med. Park), (Series 1995), 6.38%, 8/15/18, (MBIA)............ 2,196,040 WASHINGTON-- 2.6% 2,500,000 City of Tacoma Elec. Sys. RRB, (Series 1994), 6.25%, 1/1/15, (FGIC)............. 2,619,825 WEST VIRGINIA-- 0.5% 500,000 West Virginia St. Hsg. Dev. Fund Hsg. Fin. (Series. A), 6.05%, 5/1/27..................... 501,605 WISCONSIN-- 7.3% 4,500,000 City of Superior Ltd. Oblig. RRB (Midwest Energy Res. Co. Proj.), (Series E-1991), 6.90%, 8/1/21, (FGIC)............. 5,275,890 2,000,000 Wisconsin Hlth. & Edl. Facs. Auth. RB (Wausau Hosps., Inc. Proj.), (Series 1991B), 6.63%, 8/15/11, (AMBAC)........... 2,142,580 7,418,470 PUERTO RICO-- 2.1% 500,000 Commonwealth of Puerto Rico, Elec. Pwr. Auth. RRB, (Series Y), 6.50%, 7/1/06, (MBIA)............. 558,460 500,000 Commonwealth of Puerto Rico, Hsg. Bank & Fin. Agcy. Affordable Hsg. Mtge. Subsidy Prog. Single Family Mtge. RB, Portfolio I, 6.10%, 10/1/15, (Collateralized by GNMA, FNMA & FHLMC Certificates)............. 506,220 (CONTINUED) 18 EVERGREEN HIGH GRADE TAX FREE FUND (logo) SCHEDULE OF INVESTMENTS (CONTINUED) May 31, 1997
LONG-TERM INVESTMENTS-- CONTINUED PUERTO RICO-- CONTINUED $1,000,000 Commonwealth of Puerto Rico, Elec. Pwr. Auth., RB, (Series BB), 6.25%, 7/1/10, (MBIA)............. $ 1,100,720 2,165,400 TOTAL LONG-TERM INVESTMENTS (COST $95,320,879)................ 99,523,593 SHORT-TERM INVESTMENTS-- 0.9% ALABAMA-- 0.1% 100,000 Phenix Cnty. Alabama RB Refunding Mead Coated Board Project B, VRDN 4.15%, 10/1/25.................... 100,000 KANSAS-- 0.8% 800,000 Kansas City Kansas Industrial Revenue PQ Corporation Project, VRDN 4.10%, 8/15/01.................... 800,000 TOTAL SHORT-TERM INVESTMENTS (COST $900,000)................... 900,000
PRINCIPAL AMOUNT VALUE MUTUAL FUND SHARES-- 0.2% 167,000 Federated Tax Free Fund (cost $167,000)................... $ 167,000 TOTAL INVESTMENTS-- (COST $96,387,879)....... 98.5% 100,590,593 OTHER ASSETS AND LIABILITIES-- NET........ 1.5 1,538,629 NET ASSETS--............... 100.0% $102,129,222
(a) Effective yield (calculated at date of purchase) is the annual yield at which the bond accrues until its maturity date. SUMMARY OF ABBREVIATIONS AMBAC-- American Municipal Bond Assurance Corp. COP-- Certificate of Participation FGIC-- Financial Guaranty Insurance Corp. FHLMC-- Federal Home Loan Mortgage Corporation FNMA-- Federal National Mortgage Association FSA-- Financial Security Assurance Corp. GNMA-- Government National Mortgage Association GO-- General Obligation Bonds MBIA-- Municipal Bond Investors Assurance Corp. RB-- Revenue Bonds RRB-- Revenue Refunding Bonds VRDN-- Variable Rate Demand Notes are payable on demand at par on no more than seven calendar days' notice given by the Fund to the issuer or other parties not affiliated with the issuer. Interest rates are determined and reset by the issuer daily or weekly depending upon the terms of the security. The interest rates presented for these securities are those in effect at May 31, 1997. SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 19 EVERGREEN SHORT - INTERMEDIATE MUNICIPAL FUND (logo) SCHEDULE OF INVESTMENTS May 31, 1997
LONG-TERM INVESTMENTS-- 97.0% ARIZONA-- 3.8% $1,600,000 Pima Cnty. GO RFB, (Series 1992), 6.55%, 7/1/01..................... $ 1,718,384 COLORADO-- 1.2% 520,000 Colorado Stud. Oblig. Board Auth., Stud. Loan RB, (Series 1985B), 6.13%, 12/1/98.................... 530,104 DISTRICT OF COLUMBIA-- 3.4% 1,500,000 Dist. of Columbia GO RFB, (Series 1989B), 6.63%, 6/1/98, (MBIA)............. 1,539,375 ILLINOIS-- 2.4% 1,000,000 Central Lake Cnty. Joint Action Wtr. Agcy. RB, (Prerefunded @ $102), (Series 1990A), 7.00%, 5/1/00, (AMBAC)............ 1,086,340 MARYLAND-- 4.0% 635,000 Maryland Energy Financing Administration Solid Waste Disp. RB, (Wheelabrator Wtr. Technologies Baltimore L.L.C. Projs.), (Series 1996), 4.80%, 12/1/98.................... 638,156 1,140,000 Montgomery Cnty. GO Bonds Consolidated Pub. Imp. RB, (Series 1992A), 5.30%, 7/1/01..................... 1,174,075 1,812,231 MASSACHUSETTS-- 12.1% Massachusetts Ind. Fin. Agcy. IDR: 460,000 (Series 1986G), 5.30%, 12/1/06.................... 467,149 565,000 (Series 1986I), 5.30%, 12/1/06.................... 573,780 1,185,000 (Series 1996A), 5.35%, 11/1/07.................... 1,208,368 1,160,000 (Series 1996B), 5.35%, 11/1/07.................... 1,182,875 New England Ed. Loan Marketing Corp. Stud. Loan RB: 1,000,000 (Series 1993B), 5.40%, 6/1/00..................... 1,016,840 1,000,000 (Series 1993C), 4.75%, 7/1/98..................... 1,007,330 5,456,342 PRINCIPAL AMOUNT VALUE LONG-TERM INVESTMENTS-- CONTINUED MINNESOTA-- 2.3% $1,015,000 City of Minneapolis & Hsg. & Redev. Auth. of the City of St. Paul, Single Family Mtge. RRB, (Series 1996A), 5.13%, 6/1/32..................... $ 1,015,974 MISSOURI-- 3.2% North Kansas City Sch. Dist. GO, Direct Deposit Prog., (Series 1996), 710,000 6.70%, 3/1/00....................... 750,179 665,000 7.00%, 3/1/99....................... 695,204 1,445,383 NEW JERSEY-- 4.7% 2,000,000 New Jersey St. GO, (Series 1991), 5.90%, 8/1/02..................... 2,116,380 NEW YORK-- 4.5% 1,000,000 New York, New York, (Series 1997L), 5.25%, 8/1/00..................... 1,009,710 1,000,000 Pwr. Auth. of the St. of New York, General Purpose Bonds, (Series Z), 5.85%, 1/1/00..................... 1,033,310 2,043,020 OHIO-- 2.3% 1,000,000 The Stud. Loan Funding Corp. (Cincinnati) Stud. Loan RB, (Series 1993A), 5.50%, 12/1/01.................... 1,019,940 OREGON-- 2.5% 1,125,000 Josephine Cnty., Sch. Dist. #007 GO, 5.00%, 6/1/99, (FGIC)............. 1,140,818 PENNSYLVANIA-- 7.9% 1,000,000 Lancaster Cnty. Hosp. Auth. Hosp. RB (The Lancaster General Hosp. Proj.), (Series 1992), 5.60%, 7/1/00, (AMBAC)............ 1,031,900 1,950,000 Sayre Hlth. Care Facs. Auth. RB, Guthrie Healthcare Sys., (Series 1991A), 6.40%, 3/1/99, (AMBAC)............ 2,017,489 500,000 St. of Pennsylvania GO, (Series 1971), 6.00%, 12/15/98................... 503,270 3,552,659
(CONTINUED) 20 EVERGREEN SHORT - INTERMEDIATE MUNICIPAL FUND (logo) SCHEDULE OF INVESTMENTS (CONTINUED) May 31, 1997
PRINCIPAL AMOUNT VALUE LONG-TERM INVESTMENTS-- CONTINUED SOUTH CAROLINA-- 1.2% $ 500,000 Charleston Cnty. Arpt. Dist. Arpt. System RRB, (Series 1993), 8.25%, 7/1/00, (MBIA)............. $ 552,420 TEXAS-- 15.0% 1,000,000 Brazos Higher Ed. Auth., Inc., Stud. Loan RRB, (Series 1992A), 5.30%, 12/1/97.................... 1,006,210 500,000 City of Dallas GO, 5.90%, 2/15/01.................... 523,625 1,000,000 City of Houston Pub. Imp. RFB, (Series 1992C), 5.70%, 3/1/01..................... 1,038,490 1,300,000 Dallas Cnty. Imp. (Ltd. Tax) RB, (Series 1992A), 6.00%, 8/15/01.................... 1,373,905 505,000 San Antonio Independent Sch. Dist. Pub. Facs. Corp. RB, (Series 1996), 5.00%, 10/15/00, (AMBAC).......... 510,969 Texas Dept. Hsg. & Cmnty. Affairs Single Family Mtge. RB, (Series 1996E): 1,260,000 4.45%, 3/1/99, (MBIA)............... 1,261,562 1,045,000 4.65%, 3/1/00, (MBIA)............... 1,049,034 6,763,795 UTAH-- 6.4% 2,500,000 Intermountain Pwr. Agcy., Pwr. Supply RFB, (Series C), 6.00%, 7/1/00, (MBIA)............. 2,603,150 290,000 Utah Hsg. Fin. Agcy. Single Family Mtge. RRB, (Series 1993A), 5.20%, 1/1/01..................... 293,996 2,897,146 VIRGINIA-- 3.4% 1,500,000 Virginia Hsg. Dev. Auth. Commonwealth Mtge. Bonds, (Series 1992B, Subseries B-1), 6.00%, 1/1/98..................... 1,513,845 WASHINGTON-- 11.9% 2,950,000 St. of Washington GO RB, Motor Vehicle Fuel Tax, (Series R-92D), 5.60%, 9/1/01..................... 3,064,844 PRINCIPAL AMOUNT VALUE LONG-TERM INVESTMENTS-- CONTINUED WASHINGTON-- CONTINUED $ 550,000 Washington Pub. Pwr. Supply Sys. RRB (Nuclear Proj. #1), (Series 1992A), 5.00%, 7/1/98..................... $ 556,122 Washington Pub. Pwr. Supply Sys. RRB (Nuclear Proj. #2), (Series 1992A): 1,070,000 5.00%, 7/1/98....................... 1,081,909 675,000 5.00%, 7/1/99....................... 681,088 5,383,963 WISCONSIN-- 4.8% 1,000,000 Milwaukee GO, Pub. Imps., (Series BZ), 6.30%, 6/15/01.................... 1,064,300 1,000,000 Milwaukee Metropolitan Sewage Dist. GO, (Series 1989A), 7.00%, 9/1/01..................... 1,092,060 2,156,360 TOTAL LONG-TERM INVESTMENTS (COST $43,306,201)................ 43,744,479 SHORT-TERM INVESTMENTS-- 3.3% COLORADO-- 3.3% 1,500,000 Arapahoe Cnty. MHRB Ref. Stratford Sta., (Series 1994), VRDN, (LOC: Heller Finl., Inc.) 4.45%, 11/1/17 (cost $1,500,000).. 1,500,000 TOTAL INVESTMENTS-- (COST $44,806,201)....... 100.3% 45,244,479 OTHER ASSETS AND LIABILITIES-- NET........ (0.3) (137,878) NET ASSETS--............... 100.0% $ 45,106,601
SUMMARY OF ABBREVIATIONS: AMBAC-- American Municipal Bond Assurance Corp. FGIC-- Financial Guaranty Insurance Corp. GO-- General Obligation Bonds IDR-- Industrial Development Revenue Bonds LOC-- Letter of Credit MBIA-- Municipal Bond Investors Assurance Corp. MHRB-- Municipal Housing Revenue Bonds RB-- Revenue Bonds RFB-- Refunding Bonds RRB-- Refunding Revenue Bonds VRDN-- Variable Rate Demand Notes are payable on demand at par on no more than seven calendar days' notice given by the Fund to the issuer or other parties not affiliated with the issuer. Interest rates are determined and reset by the issuer daily or weekly depending upon the terms of the security. The interest rates presented for these securities are those in effect at May 31, 1997. SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 21 KEYSTONE TAX FREE INCOME FUND (logo) SCHEDULE OF INVESTMENTS May 31, 1997
PRINCIPAL AMOUNT VALUE LONG-TERM INVESTMENTS-- 98.2% ALABAMA-- 0.2% $ 265,000 Alabama Housing Finance Agency, Single Family Mortgage, 10.75%, 6/1/13.................... $ 281,125 ALASKA-- 0.4% 470,000 Alaska Housing Finance Corp., Collateralized Home Mortgage, 8.75%, 12/1/16.................... 483,898 ARIZONA-- 1.6% 1,875,000 Page, Arizona, Municipal Property Corp., Excise Tax Revenue, 5.00%, 7/1/11, (MBIA)............. 1,806,450 CALIFORNIA-- 7.0% 500,000 Anaheim, California, Public Financing Authority, Series C, 6.00%, 9/1/16..................... 529,385 1,400,000 California Health Facilities, Children's Hospital, 5.38%, 7/1/20..................... 1,341,914 2,115,000 Central Coast, California, Water Authority Revenue, State Water Project, Regional Facilities, Series A, 5.00%, 10/1/16, (AMBAC)........... 1,977,737 1,785,000 East Bay, California, Municipal Utility District, Water System Revenue, 5.00%, 6/1/16, (FGIC)............. 1,678,382 San Francisco, California, State Building Authority, Lease Revenue, San Francisco Civic Center Complex-- A: 1,000,000 5.25%, 12/1/16...................... 964,440 500,000 5.25%, 12/1/21...................... 476,840 2,450,000 Victor Valley, California, Joint Union High School District, Capital Appreciation, (effective yield 5.69%) (b), 0.00%, 9/1/13, (MBIA)............. 991,172 7,959,870 PRINCIPAL AMOUNT VALUE LONG-TERM INVESTMENTS-- CONTINUED COLORADO-- 5.5% City and County of Denver, Colorado, Airport System: Series A: $1,250,000 7.00%, 11/15/99..................... $ 1,314,500 720,000 7.25%, 11/15/25..................... 821,102 1,000,000 8.00%, 11/15/25..................... 1,105,710 750,000 8.75%, 11/15/23..................... 876,570 Series B, 750,000 7.25%, 11/15/12..................... 814,590 Series D, 1,100,000 7.75%, 11/15/13..................... 1,339,877 6,272,349 FLORIDA-- 8.6% 750,000 Gainesville, Florida, Utilities System Revenue, Series A, 5.20%, 10/1/22.................... 710,595 1,500,000 Martin County, Florida, Industrial Development Authority, Industrial Development Revenue, Indiantown Cogeneration Project, Series A, 7.88%, 12/15/25................... 1,682,865 2,000,000 Orange County, Florida, Health Facilities Authority, Orlando Hospital Regional Healthcare, Series A, 6.25%, 10/1/18.................... 2,186,940 1,000,000 Sarasota County, Florida, Utility Systems Revenue, 6.50%, 10/1/22, (FGIC)............ 1,122,620 2,640,000 Tallahassee, Florida, Health Facilities, Tallahassee Memorial Regional Medical Project, 6.63%, 12/1/13, (MBIA)............ 2,927,971 1,015,000 Tampa, Florida, Subordinated Guaranteed Entitlement Revenue, Series 1988B, 8.40%, 10/1/08.................... 1,070,226 9,701,217
(CONTINUED) 22 KEYSTONE TAX FREE INCOME FUND (logo) SCHEDULE OF INVESTMENTS (CONTINUED) May 31, 1997
PRINCIPAL AMOUNT VALUE LONG-TERM INVESTMENTS-- CONTINUED ILLINOIS-- 1.9% $910,000 Chicago, Illinois, Gas Supply Revenue (People's Gas, Light and Coke Co.), Series A, 8.10%, 5/1/20..................... $ 998,316 1,000,000 Illinois Health Facilities Authority, United Medical Center, 8.38%, 7/1/12..................... 1,187,550 2,185,866 INDIANA-- 2.8% 1,300,000 Indiana Municipal Power Supply, Systems Revenue, 5.50%, 1/1/16..................... 1,289,340 1,640,000 St. Joseph County, Indiana, Educational Facilities Revenue, University of Notre Dame, 6.50%, 3/1/26..................... 1,835,226 3,124,566 LOUISIANA-- 1.3% 1,415,000 Louisiana Public Facilities Authority, Health and Education, Pre-refunded, 7.90%, 12/1/15.................... 1,505,461 MASSACHUSETTS-- 8.2% Massachusetts Bay Transportation Authority, Series A: 1,875,000 6.25%, 3/1/12....................... 2,050,763 1,000,000 7.00%, 3/1/11....................... 1,167,180 1,950,000 7.00%, 3/1/21....................... 2,315,450 400,000 Massachusetts, General Obligation, (effective yield 7.00%) (b), 0.00%, 6/1/07, (FGIC)............. 241,104 1,490,000 Massachusetts State Housing Finance Agency, Residential Housing, Series A, 8.40%, 8/1/21..................... 1,552,967 500,000 Massachusetts State Industrial Finance Agency, Senior Lien, Massachusetts Recycling Association, 9.00%, 8/1/16 (a)................. 200,000 Massachusetts Water Resources Authority, General Revenue Bonds: 1,000,000 Series A, 6.00%, 8/1/20..................... 1,012,170 1,000,000 1995, Series B, 4.00%, 12/1/18.................... 774,880 9,314,514 PRINCIPAL AMOUNT VALUE LONG-TERM INVESTMENTS-- CONTINUED MICHIGAN-- 0.5% $ 500,000 Monroe County, Michigan, Economic Development Corp., Detroit Edison Co., 6.95%, 9/1/22, (FGIC)............. $ 594,535 MINNESOTA-- 0.5% 595,000 Minnesota Housing Finance Agency, Single Family Mortgage, Series A, 8.20%, 8/1/19..................... 611,785 MISSOURI-- 0.5% 500,000 Sikeston, Missouri, Electric Revenue, 6.00%, 6/1/14, (MBIA)............. 530,165 NEW JERSEY-- 5.0% 1,000,000 New Jersey Economic Development Authority, Water Facilities Revenue, NJ American Water Co., Inc. Project, 6.50%, 4/1/22, (FGIC)............. 1,055,410 4,325,000 Salem County, New Jersey, Pollution Control Financing Authority, Waste Disposal Revenue, 6.50%, 11/15/21................... 4,560,496 5,615,906 NEW MEXICO-- 3.8% 500,000 Albuquerque, New Mexico, Airport Revenue, Series B, 8.75%, 7/1/19..................... 506,720 1,950,000 Albuquerque, New Mexico, Joint Water and Sewer System Revenue, Capital Appreciation, Series A, (effective yield 5.42%) (b), 0.00%, 7/1/08, (FGIC)............. 1,083,030 1,590,000 New Mexico Mortgage Finance Authority, Single Family Mortgage, 8.63%, 7/1/17, (FGIC)............. 1,637,970 1,000,000 University of New Mexico, University Revenue, Series A, 6.00%, 6/1/21..................... 1,045,860 4,273,580 (CONTINUED) 23 KEYSTONE TAX FREE INCOME FUND (logo) SCHEDULE OF INVESTMENTS (CONTINUED) May 31, 1997
PRINCIPAL AMOUNT VALUE LONG-TERM INVESTMENTS-- CONTINUED NEW YORK-- 14.4% New York City, New York, GO: $1,410,000 Fiscal 1992, Pre-refunded, Series A, 7.75%, 8/15/15 (d)................ $ 1,602,056 2,500,000 Series G, 6.75%, 2/1/09..................... 2,733,600 500,000 New York and New Jersey, Port Authority, Special Obligation Revenue, JFK International Airport Terminal-- 6 Project, 5.75%, 12/1/25, (MBIA)............ 498,675 2,000,000 New York State Dormitory Authority, State University Dormitory Facilities, Series A, 6.00%, 7/1/09..................... 2,142,620 New York State Dormitory Authority, State University Educational Facilities Revenue: 800,000 Series A, 5.25%, 5/15/15, (AMBAC)........... 778,120 1,300,000 Series C, 7.38%, 5/15/10.................... 1,515,046 1,600,000 New York State Local Government Assistance Corp., Series A 5.50%, 4/1/17..................... 1,573,072 2,510,000 New York State Tollway Authority, Highway and Bridge Trust Fund, Series A, 5.25%, 4/1/16, (AMBAC)............ 2,422,225 New York State Urban Development Corp.: Correctional Facilities, Series A: 1,000,000 6.50%, 1/1/10....................... 1,084,510 1,000,000 7.50%, 4/1/11....................... 1,121,870 805,000 Higher Education Technology Grants, 6.00%, 4/1/10, (MBIA)............... 847,528 16,319,322 1,000,000 NORTH CAROLINA-- 0.8% North Carolina Medical Care, Duke University Hospital, Series C, 5.25%, 6/1/21..................... 941,530 PRINCIPAL AMOUNT VALUE LONG-TERM INVESTMENTS-- CONTINUED OHIO-- 1.8% $1,000,000 Montgomery County, Ohio, Hospital Revenue, Kettering Medical Center, 6.25%, 4/1/20............. $1,087,260 1,000,000 North Olmsted, Ohio, GO, 5.00%, 12/1/16, (AMBAC)........... 935,880 2,023,140 PENNSYLVANIA-- 8.2% 1,500,000 Pennsylvania Convention Center Authority, Series A, (effective yield 7.00%) (b), 0.00%, 9/1/08, (FGIC)............. 840,405 2,450,000 Pennsylvania Economic Development Financing Authority, Resources Recovery, Northampton Project, 6.50%, 1/1/13 (c)................. 2,420,085 1,000,000 Philadelphia, Pennsylvania, Hospital and Higher Education Facilities, Community College, Series B, 6.50%, 5/1/07, (MBIA)............. 1,104,070 4,000,000 Pittsburgh, Pennsylvania, School District, Capital Appreciation, Series B, (effective yield 5.42%) (b), 0.00%, 8/1/09, (AMBAC)............ 2,135,320 2,200,000 Scranton-Lackawanna, Pennsylvania, Health and Welfare Authority Revenue, Walters Institute Project, 8.13%, 7/15/28.................... 2,307,184 500,000 Southeastern Pennsylvania Transportation Authority, Special Revenue, 5.38%, 3/1/22, (FGIC)............. 481,765 9,288,829 PUERTO RICO-- 3.5% 2,000,000 Commonwealth of Puerto Rico, GO, 7.00%, 7/1/10, (MBIA)............. 2,336,700 1,365,000 Puerto Rico Electric Power Authority, Series S, 7.00%, 7/1/07..................... 1,584,287 3,920,987 (CONTINUED) 24 KEYSTONE TAX FREE INCOME FUND (logo) SCHEDULE OF INVESTMENTS (CONTINUED) May 31, 1997
PRINCIPAL AMOUNT VALUE LONG-TERM INVESTMENTS-- CONTINUED TENNESSEE-- 4.9% $2,000,000 Bristol, Tennessee, Health and Education Authority, Bristol Memorial Hospital, 6.75%, 9/1/10, (FGIC)............. $ 2,303,820 Knox County, Tennessee, Health and Educational Facilities, Fort Sanders Hospital Alliance: 1,000,000 Series B, 7.25%, 1/1/10, (MBIA)............. 1,171,990 1,000,000 Series C, 5.25%, 1/1/15, (MBIA)............. 969,670 1,000,000 Metropolitan Government of Nashville and Davidson County, Tennessee Water and Sewer, step bond, (effective yield 5.20%) (b), 0.00%, 1/1/12, (FGIC)............. 1,100,570 5,546,050 TEXAS-- 10.7% 3,000,000 Brazos River Authority, Texas, Revenue Refunding, Houston Light and Power Project, 8.10%, 5/1/19, (MBIA)............. 3,154,980 1,000,000 Harris County, Texas, Toll Road, Senior Lien, Series A, 7.00%, 8/15/10.................... 1,166,690 3,000,000 Houston, Texas, Water and Sewer System Revenue, Jr. Lien, Series C, (effective yield 6.05%) (b), 0.00%, 12/1/11, (AMBAC)........... 1,349,400 1,500,000 Northwest, Texas, Independent School District, Capital Appreciation, (effective yield 5.50%) (b), 0.00%, 8/15/08, (PSFG)............ 832,260 1,000,000 Nueces River Authority, Texas Water Supply, Facilities Corpus Christie Lake, 5.25%, 7/15/16.................... 960,200 2,125,000 Tarrant County, Texas, Health Facilities Development, Harris Methodist Health Systems, Series A, 5.13%, 9/1/12, (AMBAC)............ 2,036,388 2,125,000 Texas Municipal Power Agency, (effective yield 7.09%) (b), 0.00%, 9/1/08, (AMBAC)............ 1,176,294 1,500,000 United Independent School District, Texas, GO, 5.25%, 8/15/15, (PSFG)............ 1,438,335 12,114,547 PRINCIPAL AMOUNT VALUE LONG-TERM INVESTMENTS-- CONTINUED UTAH-- 0.4% $ 750,000 Intermountain Power Agency, Utah, Power Supply Refunding, Series A, (effective yield 6.95%) (b), 0.00%, 7/1/07..................... $ 445,320 WASHINGTON-- 4.7% 3,000,000 Chelan County, Washington, Public Utilities District, Series A, (effective yield 5.53%) (b), 0.00%, 6/1/09..................... 1,563,210 1,500,000 Tacoma, Washington, Solid Waste Utility Revenue, Series B, 5.50%, 12/1/17, (AMBAC)........... 1,453,305 1,000,000 Washington Public Power Supply System, Nuclear Project #2, Series C, 7.63%, 7/1/10..................... 1,118,080 1,000,000 Washington State GO, Series A, 6.75%, 2/1/15..................... 1,146,110 5,280,705 WYOMING-- 1.0% 1,140,000 Wyoming Community Development Authority, Single Family Mortgage, Series A, 7.88%, 6/1/18..................... 1,180,196 TOTAL LONG-TERM INVESTMENTS (COST-- $107,046,798)............. 111,321,913 SHORT-TERM INVESTMENTS-- 0.5% FLORIDA-- 0.5% 565,000 Dade County, Florida, Water and Sewer Systems Revenue, VRDN, 3.85%, 10/5/22.................... 565,000 WASHINGTON-- 0.0% 5,000 Washington State Health Care Facilities, VRDN, 4.00%, 10/1/05.................... 5,000 TOTAL SHORT-TERM INVESTMENTS (COST-- $570,000)... 570,000 TOTAL INVESTMENTS (COST-- $107,616,798)...... 98.7% 111,891,913 OTHER ASSETS AND LIABILITIES-- NET.......... 1.3% 1,437,886 NET ASSETS................... 100.0% $113,329,799
(CONTINUED) 25 KEYSTONE TAX FREE INCOME FUND (logo) SCHEDULE OF INVESTMENTS (CONTINUED) May 31, 1997 (a) Securities which have defaulted on payment of interest and/or principal. The Fund has stopped accruing income on those so identified. (b) Effective yield (calculated at date of purchase) is the yield at which the bond accretes on an annual basis until maturity date. (c) Securities that may be resold to "qualified instituional buyers" under Rule 144A or securities offered pursuant to Section 4(2) of the Securities Act of 1933, as amended. These securities have been determined to be liquid under guidelines established by the Board of Trustees. (d) At May 31, 1997, $300,000 principal amount of New York City, New York, GO, Fiscal 1992, Pre-refunded, Series A, 7.75%, 8/15/15 was pledged to cover margin requirements for open futures contracts. LEGEND OF PORTFOLIO ABBREVIATIONS: AMBAC-- American Municipal Bond Assurance Corporation FGIC-- Financial Guaranty Insurance Company GO-- General Obligation Bonds MBIA-- Municipal Bond Investors Assurance Corp. PSFG-- Permanent School Fund Guaranteed VRDN-- Variable Rate Demand Notes are payable on demand at par on no more than seven calendar days' notice given by the Fund to the issuer or other parties not affiliated with the issuer. Interest rates are determined and reset by the issuer daily or weekly depending upon the terms of the security. The interest rates presented for these securities are those in effect at May 31, 1997. FUTURES CONTRACTS-- SHORT POSITIONS
NUMBER INITIAL CONTRACT UNREALIZED EXPIRATION OF CONTRACTS AMOUNT DEPRECIATION JUNE 97 17 U.S. TREASURY BOND INDEX $1,833,031 $(37,500)
SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 26 EVERGREEN KEYSTONE (logo) STATEMENTS OF ASSETS AND LIABILITIES May 31, 1997
(logo) (logo) (logo) HIGH GRADE SHORT-INTERMEDIATE TAX FREE FUND FUND INCOME FUND ASSETS Investments at market value (identified cost-- $96,387,879, $44,806,201 and $107,616,798, respectively)....................................... $100,590,593 $ 45,244,479 $111,891,913 Cash.................................................................... 0 66,326 4,334 Receivable for investments sold......................................... 0 0 2,466,140 Interest receivable..................................................... 1,897,863 843,625 1,892,703 Receivable for Fund shares sold......................................... 107,105 35,048 22,000 Prepaid expenses and other assets....................................... 26,968 30,724 58,554 Total assets........................................................ 102,622,529 46,220,202 116,335,644 LIABILITIES Payable for investments purchased....................................... 0 1,008,560 2,341,411 Payable for Fund shares redeemed........................................ 228,082 17,401 290,463 Dividends payable....................................................... 140,678 44,499 244,167 Distribution fee payable................................................ 52,967 10,616 63,516 Due to related parties.................................................. 19,104 4,250 13,902 Due to custodian bank................................................... 18,471 0 0 Payable for daily variation margin on open futures contracts............ 0 0 12,219 Accrued expenses and other liabilities.................................. 34,005 28,275 40,167 Total liabilities................................................... 493,307 1,113,601 3,005,845 NET ASSETS................................................................ $102,129,222 $ 45,106,601 $113,329,799 NET ASSETS REPRESENTED BY Paid-in capital......................................................... $ 99,066,689 $ 45,350,089 $112,869,280 Undistributed net investment income (accumulated distributions in excess of net investment income)............................................. 124,532 0 (244,167 ) Accumulated net realized loss on investments and futures contracts...... (1,264,713) (681,766) (3,532,929 ) Net unrealized appreciation on investments and futures contracts........ 4,202,714 438,278 4,237,615 Total net assets.................................................... $102,129,222 $ 45,106,601 $113,329,799 NET ASSETS CONSIST OF Class A................................................................. $ 45,814,519 $ 6,072,249 $72,629,064 Class B................................................................. 31,874,058 6,741,653 28,821,838 Class C................................................................. -- -- 11,878,897 Class Y................................................................. 24,440,645 32,292,699 -- $102,129,222 $ 45,106,601 $113,329,799 SHARES OUTSTANDING Class A................................................................. 4,207,467 601,763 7,424,946 Class B................................................................. 2,927,195 667,292 2,974,366 Class C................................................................. -- -- 1,225,559 Class Y................................................................. 2,244,589 3,197,322 -- NET ASSET VALUE PER SHARE Class A................................................................. $ 10.89 $ 10.09 $ 9.78 Class A-- Offering price (based on sales charge of 4.75%, 3.25% and 4.75%, respectively).................................................. $ 11.43 $ 10.43 $ 10.27 Class B................................................................. $ 10.89 $ 10.10 $ 9.69 Class C................................................................. -- -- $ 9.69 Class Y................................................................. $ 10.89 $ 10.10 --
SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 27 EVERGREEN KEYSTONE (logo) STATEMENTS OF OPERATIONS Period Ended May 31, 1997
(logo) (logo) (logo) HIGH GRADE SHORT-INTERMEDIATE TAX FREE FUND* FUND* INCOME FUND** INVESTMENT INCOME Interest....................................................... $ 4,496,797 $2,373,153 $ 3,631,204 EXPENSES Management fee................................................. 399,929 248,564 367,154 Distribution Plan expenses..................................... 333,154 71,757 307,124 Transfer agent fees............................................ 65,152 45,027 99,665 Registration and filing fees................................... 52,562 30,280 6,147 Custodian fees................................................. 49,228 48,597 41,888 Administrative services fees................................... 33,901 0 17,396 Professional fees.............................................. 22,955 22,587 25,138 Trustees' fees and expenses.................................... 4,431 7,083 6,480 Other.......................................................... 57,713 23,623 12,229 Fee waivers by investment manager.............................. (64,199) (60,003) 0 Total expenses............................................... 954,826 437,515 883,221 Less: Indirectly paid expenses................................. (197) (639) (7,261) Net expenses................................................. 954,629 436,876 875,960 NET INVESTMENT INCOME.......................................... 3,542,168 1,936,277 2,755,244 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES CONTRACTS Net realized gain on: Investments.................................................. 640,025 18,940 1,212,437 Futures contracts............................................ 0 0 50,174 Net realized gain on investments and futures contracts......... 640,025 18,940 1,262,611 Net change in unrealized appreciation (depreciation) on: Investments.................................................. 982,691 139,624 (2,667,451) Futures contracts............................................ 0 0 (37,500) Net change in unrealized appreciation (depreciation) on investments and futures contracts............................ 982,691 139,624 (2,704,951) Net realized and unrealized gain (loss) on investments and futures contracts............................................ 1,622,716 158,564 (1,442,340) NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........... $ 5,164,884 $2,094,841 $ 1,312,904
* Nine months ended May 31, 1997. During the period, the Fund changed its fiscal year end from August 31 to May 31. ** Six months ended May 31, 1997. During the period, the Fund changed its fiscal year end from November 30 to May 31. SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 28 EVERGREEN KEYSTONE (logo) STATEMENTS OF OPERATIONS Fiscal Year Ended 1996
(logo) (logo) (logo) HIGH GRADE SHORT-INTERMEDIATE TAX FREE FUND FUND INCOME FUND YEAR ENDED YEAR ENDED YEAR ENDED AUGUST 31, 1996 AUGUST 31, 1996 NOVEMBER 30, 1996 INVESTMENT INCOME Interest....................................................... $ 6,526,273 $2,837,285 $ 8,727,446 EXPENSES Management fee................................................. 575,456 287,149 844,486 Distribution plan expenses..................................... 483,026 83,180 709,281 Custodian fees................................................. 100,816 55,841 94,590 Transfer agent fees............................................ 76,905 55,501 186,105 Administrative services fees................................... 59,073 0 21,926 Registration and filing fees................................... 49,627 67,347 36,773 Professional fees.............................................. 25,849 27,986 26,696 Trustees' fees and expenses.................................... 3,640 8,457 6,780 Amortization of organization expenses.......................... 0 8,846 0 Other.......................................................... 76,011 30,530 18,810 Fee waivers and/or expense reimbursement by investment manager...................................................... (228,548) (140,581) 0 Total expenses............................................... 1,221,855 484,256 1,945,447 Less: Expenses paid indirectly................................. 0 0 (12,939) Net expenses................................................. 1,221,855 484,256 1,932,508 NET INVESTMENT INCOME.......................................... 5,304,418 2,353,029 6,794,938 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES CONTRACTS Realized gain (loss) on: Investments.................................................. 1,622,360 161,202 2,300,652 Futures contracts............................................ 0 0 (301,239) Net realized gain on investments and futures contracts......... 1,622,360 161,202 1,999,413 Net change in unrealized appreciation (depreciation) on investments.................................................. (1,135,792) (564,810) (4,259,520) Net realized and unrealized gain (loss) on investments and futures contracts............................................ 486,568 (403,608) (2,260,107) NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........... $ 5,790,986 $1,949,421 $ 4,534,831
SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 29 EVERGREEN KEYSTONE (logo) STATEMENTS OF CHANGES IN NET ASSETS Period Ended May 31, 1997
(logo) (logo) (logo) HIGH GRADE SHORT-INTERMEDIATE TAX FREE FUND* FUND* INCOME FUND** OPERATIONS Net investment income................................................ $ 3,542,168 $ 1,936,277 $ 2,755,244 Net realized gain on investments and futures contracts............... 640,025 18,940 1,262,611 Net change in unrealized appreciation (depreciation) on investments and futures contracts.............................................. 982,691 139,624 (2,704,951) Net increase in net assets resulting from operations............... 5,164,884 2,094,841 1,312,904 DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income: Class A............................................................ (1,696,428) (755,942) (1,868,216) Class B............................................................ (934,247) (159,979) (649,369) Class C............................................................ 0 0 (262,024) Class Y............................................................ (929,415) (1,020,356) 0 In excess of net investment income: Class A............................................................ 0 0 (73,369) Class B............................................................ 0 0 (25,502) Class C............................................................ 0 0 (10,290) Total distributions to shareholders................................ (3,560,090) (1,936,277) (2,888,770) CAPITAL SHARE TRANSACTIONS Proceeds from shares sold............................................ 9,286,983 9,393,392 1,652,335 Proceeds from reinvestment of distributions.......................... 2,003,093 973,716 1,527,184 Payment for shares redeemed.......................................... (18,667,515) (35,446,549) (17,530,768) Net decrease in net assets resulting from capital share transactions..................................................... (7,377,439) (25,079,441) (14,351,249) Total decrease in net assets..................................... (5,772,645) (24,920,877) (15,927,115) NET ASSETS Beginning of period.................................................. 107,901,867 70,027,478 129,256,914 END OF PERIOD........................................................ $102,129,222 $ 45,106,601 $113,329,799 Undistributed net investment income (accumulated distributions in excess of net investment income)..................................... $ 124,532 $ 0 $ (244,167)
* Nine months ended May 31, 1997. During the period, the Fund changed its fiscal year end from August 31 to May 31. ** Six months ended May 31, 1997. During the period, the Fund changed its fiscal year end from November 30 to May 31. SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 30 EVERGREEN KEYSTONE (logo) STATEMENTS OF CHANGES IN NET ASSETS Fiscal Year Ended 1996
(logo) (logo) (logo) HIGH GRADE SHORT-INTERMEDIATE TAX FREE FUND FUND INCOME FUND YEAR ENDED YEAR ENDED YEAR ENDED AUGUST 31, 1996 AUGUST 31, 1996 NOVEMBER 30, 1996 OPERATIONS Net investment income............................................. $ 5,304,418 $ 2,353,029 $ 6,794,938 Net realized gain on investments and futures contracts............ 1,622,360 161,202 1,999,413 Net change in unrealized depreciation on investments.............. (1,135,792) (564,810) (4,259,520) Net increase in net assets resulting from operations............ 5,790,986 1,949,421 4,534,831 DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income: Class A......................................................... (2,655,984) (541,615) (4,538,414) Class B......................................................... (1,385,989) (229,080) (1,498,516) Class C......................................................... 0 0 (758,007) Class Y......................................................... (1,262,445) (1,582,334) 0 In excess of net investment income: Class A......................................................... 0 0 (31,491) Class B......................................................... 0 0 (10,398) Class C......................................................... 0 0 (5,260) Total distributions to shareholders............................. (5,304,418) (2,353,029) (6,842,086) CAPITAL SHARE TRANSACTIONS Proceeds from shares sold......................................... 16,695,647 37,737,994 6,339,187 Proceeds from shares issued in acquisition of Keystone Texas Tax Free Fund....................................................... 0 0 5,119,680 Proceeds from reinvestment of distributions....................... 3,093,850 1,651,747 3,629,202 Payment for shares redeemed....................................... (30,410,409) (22,410,625) (31,540,948) Net increase (decrease) in net assets resulting from capital share transactions............................................ (10,620,912) 16,979,116 (16,452,879) Total increase (decrease) in net assets....................... (10,134,344) 16,575,508 (18,760,134) NET ASSETS Beginning of year................................................. 118,036,211 53,451,970 148,017,048 END OF YEAR....................................................... $ 107,901,867 $ 70,027,478 $ 129,256,914 Undistributed net investment income (accumulated distributions in excess of net investment income).................................. $ 115,656 $ 0 $ (245,552)
SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 31 EVERGREEN KEYSTONE (logo) STATEMENTS OF CHANGES IN NET ASSETS Fiscal Year Ended 1995
(logo) (logo) (logo) HIGH GRADE SHORT-INTERMEDIATE TAX FREE FUND FUND INCOME FUND YEAR ENDED YEAR ENDED YEAR ENDED AUGUST 31, 1995 AUGUST 31, 1995 NOVEMBER 30, 1995 OPERATIONS Net investment income........................................ $ 3,187,579 $ 2,318,884 $ 7,600,756 Net realized gain (loss) on investments and futures contracts.................................................. 437,882 (713,222) (760,743) Net change in unrealized appreciation on investments......... 7,804,353 529,821 18,451,939 Net increase in net assets resulting from operations....... 11,429,814 2,135,483 25,291,952 DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income: Class A.................................................... (1,935,789) (178,721) (5,042,433) Class B.................................................... (936,437) (96,022) (1,531,824) Class C.................................................... 0 0 (1,026,499) Class Y.................................................... (315,353) (2,044,141) 0 In excess of net investment income: Class A.................................................... 0 0 (70,626) Class B.................................................... 0 0 (21,455) Class C.................................................... 0 0 (14,377) Total distributions to shareholders........................ (3,187,579) (2,318,884) (7,707,214) CAPITAL SHARE TRANSACTIONS Proceeds from shares sold.................................... 3,098,389 25,128,726 11,472,775 Proceeds from shares issued in acquisition of Evergreen National Tax-Free Fund.............................................. 28,779,194 0 0 Proceeds from reinvestment of distributions.................. 1,826,205 1,923,116 4,018,869 Payment for shares redeemed.................................. (18,339,492) (26,833,640) (32,840,818) Net increase (decrease) in net assets resulting from capital share transactions............................... 15,364,296 218,202 (17,349,174) Total increase in net assets............................. 23,606,531 34,801 235,564 NET ASSETS Beginning of year............................................ 94,429,680 53,417,169 147,781,484 END OF YEAR.................................................. $ 118,036,211 $ 53,451,970 $ 148,017,048 Undistributed net investment income (accumulated distributions in excess of net investment income).......................... $ 22,568 $ 0 $ (288,160)
SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 32 EVERGREEN KEYSTONE (logo) COMBINED NOTES TO FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES The Evergreen Keystone National Tax Free Funds consist of Evergreen High Grade Tax Free Fund ("High Grade Fund"), Evergreen Short-Intermediate Municipal Fund ("Short-Intermediate Fund") and Keystone Tax Free Income Fund ("Tax Free Income Fund") (collectively, the "Funds"), all of which are registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as diversified, open-end management investment companies. High Grade Fund is a series of Evergreen Investment Trust and Short-Intermediate Fund is a series of Evergreen Municipal Trust. The Funds offer Class A, Class B, Class C and/or Class Y shares. Class A shares are sold with a maximum front-end sales charge of 4.75% for both the High Grade and Tax Free Income Funds and a maximum front-end sales charge of 3.25% for the Short-Intermediate Fund. Class B and Class C shares are sold without a front-end sales charge, but pay a higher ongoing distribution fee than Class A. Class B shares are sold subject to a contingent deferred sales charge that is payable upon redemption and decreases depending on how long the shares have been held. Class C shares are sold subject to a contingent deferred sales charge payable on shares redeemed within one year after the month of purchase. Class B shares purchased after January 1, 1997 will automatically convert to Class A shares after seven years. Class B shares purchased prior to January 1, 1997 retain their existing conversion rights. Class Y shares are sold at net asset value and are not subject to contingent deferred sales charges or distribution fees. Class Y shares are sold only to investment advisory clients of First Union and its affiliates, certain institutional investors or Class Y shareholders of record of certain other funds managed by First Union and its affiliates as of December 30, 1994. The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of their financial statements. The policies are in conformity with generally accepted accounting principles, which require management to make estimates and assumptions that affect amounts reported herein. Actual results could differ from these estimates. A. VALUATION OF SECURITIES An independent pricing service values each Fund's municipal bonds at fair value using a variety of factors which may include yield, liquidity, interest rate risk, credit quality, coupon, maturity and type of issue. Securities for which valuations are not available from an independent pricing service, including restricted securities, are valued at fair value as determined in good faith according to procedures established by the Board of Trustees. Short-term investments with remaining maturities of sixty days or less are carried at amortized cost, which approximates market value. B. FUTURES CONTRACTS In order to gain exposure to or protect against changes in security values, Tax Free Income Fund may buy and sell futures contracts. The initial margin deposited with a broker when entering into a futures transaction is subsequently adjusted by daily payments or receipts as the value of the contract changes. Such changes are recorded as unrealized gains or losses. Realized gains or losses are recognized on closing the contract. Risks of entering into futures contracts include (i) the possibility of an illiquid market for the contract, (ii) the possibility that a change in the value of the contract may not correlate with changes in the value of the underlying instrument or index, and (iii) the credit risk that the other party will not fulfill their obligations under the contract. Futures contracts also involve elements of market risk in excess of the amount reflected in the statement of assets and liabilities. C. SECURITY TRANSACTIONS AND INVESTMENT INCOME Securities transactions are accounted for no later than one business day after the trade date. Realized gains and losses are computed on the identified cost basis. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums. D. FEDERAL INCOME TAXES The Funds have qualified and intend to continue to qualify as regulated investment companies under the Internal Revenue Code of 1986, as amended (the "Code"). Thus, the Funds will not incur any federal income tax liability since they are expected to distribute all of their net investment company taxable income and net capital gains, if any, to their shareholders. The Funds also intend to avoid any excise tax liability by making the required distributions under the Code. Accordingly, no provision for federal income taxes is required. To the extent that realized capital gains can be offset by capital loss carryforwards, it is each Fund's policy not to distribute such gains. E. DISTRIBUTIONS Distributions from net investment income for the Funds are declared daily and paid monthly. Distributions from net realized capital gains, if any, are paid at least annually. Distributions to shareholders are recorded at the close of business on the ex-dividend date. Income and capital gains distributions to shareholders are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. The significant differences between financial statement amounts available for distributions and distributions made in accordance with income tax regulations are primarily due to differing treatment for market discount on securities. F. CLASS ALLOCATIONS Income, expenses (other than class specific expenses) and realized and unrealized gains and losses are prorated among the classes based on the relative net assets of each class. Currently, class specific expenses are limited to expenses incurred under the Distribution Plans for each class. 33 EVERGREEN KEYSTONE (logo) COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED) G. ORGANIZATION EXPENSES Organizational expenses of High Grade Fund were initially borne by a prior administrator. As a result of a change in the administration agreement, First Union purchased the remaining unreimbursed organizational expenses from the prior administrator. The High Grade Fund had agreed to reimburse such expenses during the five year period following its commencement of operations. Pursuant to these arrangements, as of May 31, 1997, the High Grade Fund has fully reimbursed First Union for such expenses. 2. CAPITAL SHARE TRANSACTIONS The High Grade and Short-Intermediate Funds have an unlimited number of shares of beneficial interest with a par value of $0.0001 authorized. The Tax Free Income Fund has an unlimited number of shares of beneficial interest with no par value authorized. Shares of beneficial interest of the Funds are currently divided into Class A, Class B, Class C or Class Y. Transactions in shares of the Funds were as follows: HIGH GRADE FUND
NINE MONTHS ENDED YEAR ENDED YEAR ENDED MAY 31, 1997 AUGUST 31, 1996 AUGUST 31, 1995 SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CLASS A Shares sold..................................... 138,267 $ 1,503,579 728,801 $ 7,875,800 95,059 $ 1,003,763 Shares issued in acquisition of Evergreen National Tax Free Fund........................ 0 0 0 0 369,661 3,970,157 Shares issued in reinvestment of distributions................................. 91,672 998,917 144,023 1,571,241 109,500 1,150,986 Shares redeemed................................. (737,802) (8,010,676) (1,652,697) (17,891,048) (967,409) (10,152,313) Net decrease.................................... (507,863) $ (5,508,180) (779,873) $ (8,444,007) (393,189) $ (4,027,407) CLASS B Shares sold..................................... 418,834 $ 4,553,869 420,508 $ 4,595,803 112,511 $ 1,186,133 Shares issued in acquisition of Evergreen National Tax Free Fund........................ 0 0 0 0 243,174 2,611,688 Shares issued in reinvestment of distributions................................. 50,410 549,306 75,686 825,507 52,945 556,311 Shares redeemed................................. (546,605) (5,937,166) (691,236) (7,495,373) (520,448) (5,459,057) Net decrease.................................... (77,361) $ (833,991) (195,042) $ (2,074,063) (111,818) $ (1,104,925) CLASS Y Shares sold..................................... 296,083 $ 3,229,535 387,417 $ 4,224,044 85,773 $ 908,493 Shares issued in acquisition of Evergreen National Tax Free Fund........................ 0 0 0 0 2,066,792 22,197,349 Shares issued in reinvestment of distributions................................. 41,755 454,870 63,909 697,102 11,174 118,908 Shares redeemed................................. (434,833) (4,719,673) (455,583) (5,023,988) (258,812) (2,728,122) Net increase (decrease)......................... (96,995) $ (1,035,268) (4,257) $ (102,842) 1,904,927 $ 20,496,628
34 EVERGREEN KEYSTONE (logo) COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SHORT-INTERMEDIATE FUND NINE MONTHS ENDED YEAR ENDED YEAR ENDED MAY 31, 1997 AUGUST 31, 1996 AUGUST 31, 1995 SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CLASS A Shares sold..................................... 182,673 $ 1,860,992 2,806,176 $ 28,333,550 1,438,502 $ 14,469,110 Shares issued in reinvestment of distributions................................. 17,182 174,056 24,978 253,579 16,308 164,891 Shares redeemed................................. (2,348,922) (23,711,903) (750,660) (7,689,314) (784,474) (7,943,982) Net increase (decrease)......................... (2,149,067) $(21,676,855) 2,080,494 $ 20,897,815 670,336 $ 6,690,019 CLASS B Shares sold..................................... 144,261 $ 1,461,443 291,382 $ 2,967,713 673,520 $ 6,777,013 Shares issued in reinvestment of distributions................................. 11,819 119,733 16,079 163,265 7,150 72,369 Shares redeemed................................. (224,553) (2,272,638) (166,441) (1,686,967) (85,925) (870,798) Net increase (decrease)......................... (68,473) $ (691,462) 141,020 $ 1,444,011 594,745 $ 5,978,584 CLASS Y Shares sold..................................... 600,756 $ 6,070,957 635,204 $ 6,436,731 385,625 $ 3,882,603 Shares issued in reinvestment of distributions................................. 67,156 679,927 121,645 1,234,903 167,271 1,685,856 Shares redeemed................................. (934,601) (9,462,008) (1,283,965) (13,034,344) (1,791,852) (18,018,860) Net decrease.................................... (266,689) $ (2,711,124) (527,116) $ (5,362,710) (1,238,956) $(12,450,401)
TAX FREE INCOME FUND
SIX MONTHS ENDED YEAR ENDED YEAR ENDED MAY 31, 1997 NOVEMBER 30, 1996 NOVEMBER 30, 1995 SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CLASS A Shares sold..................................... 32,393 $ 317,311 181,417 $ 1,689,450 224,063 $ 2,127,732 Share issued in acquisition of Keystone Texas Tax Free Fund................................. 0 0 131,228 1,269,729 0 0 Shares issued in reinvestment of distributions................................. 105,269 1,024,777 243,221 2,380,811 270,624 2,608,685 Shares redeemed................................. (1,038,464) (10,140,338) (1,600,793) (15,690,464) (1,843,241) (17,659,525) Net decrease.................................... (900,802) $ (8,798,250) (1,044,927) $(10,350,474) (1,348,554) $(12,923,108) CLASS B Shares sold..................................... 136,707 $ 1,324,403 332,958 $ 3,194,770 647,077 $ 6,139,897 Share issued in acquisition of Keystone Texas Tax Free Fund................................. 0 0 374,545 3,592,334 0 0 Shares issued in reinvestment of distributions................................. 35,437 341,830 80,112 776,860 82,512 790,394 Shares redeemed................................. (568,355) (5,489,766) (773,268) (7,498,073) (625,195) (5,968,412) Net increase (decrease)......................... (396,211) $ (3,823,533) 14,347 $ 65,891 104,394 $ 961,879 CLASS C Shares sold..................................... 1,101 $ 10,621 140,724 $ 1,454,967 338,010 $ 3,205,146 Share issued in acquisition of Keystone Texas Tax Free Fund................................. 0 0 26,855 257,617 0 0 Shares issued in reinvestment of distributions................................. 16,648 160,577 48,553 471,531 64,840 619,790 Shares redeemed................................. (195,509) (1,900,664) (857,965) (8,352,411) (974,642) (9,212,881) Net decrease.................................... (177,760) $ (1,729,466) (641,833) $ (6,168,296) (571,792) $ (5,387,945)
35 EVERGREEN KEYSTONE (logo) COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of investment securities (excluding short-term securities) were as follows for the periods ended May 31, 1997:
COST OF PROCEEDS PURCHASES FROM SALES High Grade Fund*........................................................ $116,031,811 $122,344,118 Short-Intermediate Fund*................................................ 21,730,862 46,574,525 Tax Free Income Fund**.................................................. 64,224,477 78,272,042
* For the nine months ended May 31, 1997 ** For the six months ended May 31, 1997 On May 31, 1997, the composition of unrealized appreciation and depreciation of investment securities based on the aggregate cost of investments for federal tax purposes was as follows:
GROSS GROSS NET TAX UNREALIZED UNREALIZED UNREALIZED COST APPRECIATION DEPRECIATION APPRECIATION High Grade Fund.................................................. $ 96,387,879 $4,291,252 $ (88,538) $4,202,714 Short-Intermediate Fund.......................................... 44,806,201 438,278 0 438,278 Tax Free Income Fund............................................. 107,616,798 4,709,914 (434,799) 4,275,115
As of May 31, 1997, the Funds had capital loss carryovers for federal income tax purposes as follows:
EXPIRATION 2002 2003 2004 High Grade Fund............................ $1,265,000 -- -- Short-Intermediate Fund.................... -- $249,000 $433,000 Tax Free Income Fund....................... 2,704,000 867,00 --
4. DISTRIBUTION PLANS Since December 11, 1996, Evergreen Keystone Distributor, Inc. (formerly, Evergreen Funds Distributor, Inc.) ("EKD"), a wholly-owned subsidiary of The BISYS Group Inc. ("BISYS") has served as principal underwriter for the Tax Free Income Fund. Prior to December 11, 1996, Evergreen Keystone Investment Services, Inc. (formerly, Keystone Investment Distributors Company) ("EKIS"), a wholly-owned subsidiary of Keystone, served as the principal underwriter for the Tax Free Income Fund. EKD also serves as the principal underwriter for the High Grade and Short-Intermediate Funds. Each Fund has adopted Distribution Plans for each class of shares as allowed by Rule 12b-1 of the 1940 Act. Distribution plans permit the fund to reimburse its principal underwriter for costs related to selling shares of the fund and for various other services. These costs, which consist primarily of commissions and services fees to broker-dealers who sell shares of the fund, are paid by shareholders through expenses called "Distribution Plan expenses." Each class, except Class Y, currently pays a service fee equal to 0.25% of the average daily net asset of the class. The expenses are currently limited to 0.25% annually of the average daily net assets of the Class A shares of the High Grade and Tax Free Income Funds and limited to 0.10% annually of the average daily net assets of the Class A shares of the Short-Intermediate Fund. Class B and Class C also presently pay distribution fees equal to 0.75% of the average daily net assets of the Class. Distribution Plan expenses are calculated daily and paid monthly. With respect to Class B and Class C shares of the Tax Free Income Fund, the principal underwriter may pay 12b-1 fees greater than the allowable annual amounts the Fund is permitted to pay. The Fund may reimburse the principal underwriter for such excess amounts in later years with annual interest at the prime rate plus 1.00%. During the period ended May 31, 1997, amounts paid to EKD and/or EKIS pursuant to each Fund's Class A, Class B and Class C Distribution Plans were as follows:
CLASS A CLASS B CLASS C High Grade Fund............................... $92,644 $240,510 N/A Short-Intermediate Fund....................... 19,181 52,576 N/A Tax Free Income Fund.......................... 90,496 154,261 $62,367
Each of the Distribution Plans for the Tax Free Income Fund may be terminated at any time by a vote of the Independent Trustees or by a vote of a majority of the outstanding voting shares of the respective class. However, after the termination of any Distribution Plan, and subject to the discretion of the Independent Trustees, payments to EKIS and/or EKD may continue as compensation for services which had been earned while the Distribution Plan was in effect. 36 EVERGREEN KEYSTONE (logo) COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED) EKD intends, but is not obligated, to continue to pay distribution costs that exceed the current annual payments from the Fund. EKD intends to seek full payment of such distribution costs from the Fund at such time in the future as, and to the extent that, payment thereof by the Class B or Class C shares would be within permitted limits. EKD and/or its predecessor has advised the Funds that it has retained front-end sales charges resulting from the sales of Class A shares for the High Grade, Short-Intermediate and Tax Free Income Funds during the period ended May 31, 1997 of $6,389, $3,820 and $9,477, respectively. Contingent deferred sales charges paid by redeeming shareholders are paid to EKD or its predecessor. 5. INVESTMENT MANAGEMENT AGREEMENT AND OTHER AFFILIATED TRANSACTIONS First Union National Bank of North Carolina ("FUNB"), a wholly-owned subsidiary of First Union Corporation ("First Union"), serves as the investment adviser to the High Grade Fund and is paid a fee computed daily and paid monthly at an annual rate of 0.50% of the Fund's average daily net assets. EKIS, a subsidiary of First Union, is the administrator. Prior to March 11, 1997, Evergreen Asset Management Corp. ("Evergreen Asset"), a wholly owned subsidiary of First Union, was the administrator. Furman Selz LLC ("Furman Selz") was the sub-administrator through December 31, 1996. Effective January 1, 1997, BISYS acquired Furman Selz' mutual fund unit and accordingly BISYS became sub-administrator. The administrator and sub-administrator for the Fund are entitled to an annual fee based on the average daily net assets of all funds administered by EKIS for which First Union or its investment advisory subsidiaries is also the investment adviser. The administration fee is calculated by applying percentage rates, which start at 0.05% and decline to 0.01% per annum as net assets increase, to the average daily net asset value of the funds. The sub-administration fee is calculated by applying percentage rates, which start at 0.01% and decline to .004% as net assets increase, to the average daily net asset value of the funds. Evergreen Asset is the investment adviser for the Short-Intermediate Fund and is paid a management fee that is computed daily and paid monthly at an annual rate of 0.50% on the average daily net assets. Out of its fee, Evergreen Asset in turn pays EKIS for its services as administrator, BISYS for its services as sub-administrator and Lieber & Company, an affiliate of First Union, for its services as sub-adviser. Keystone Investment Management Company ("Keystone"), a subsidiary of First Union, is the investment adviser for the Tax Free Income Fund. In return for providing investment management and administrative services to the Tax Free Income Fund, the Fund pays Keystone a management fee that is calculated daily and paid monthly. The management fee is computed at an annual rate of 2.00% of Tax Free Income Fund's gross investment income plus an amount determined by applying percentage rates starting at 0.50% and declining to 0.25% per annum as net assets increase, to the average daily net asset value of the Fund. Effective, January 1, 1997, BISYS became the sub-administrator to the Fund and is paid by Keystone. During the period ended May 31, 1997, the investment adviser for the High Grade and Short-Intermediate Funds waived its management fees in the amounts of $64,199 and $60,003, respectively. During the period ended May 31, 1997, High Grade Fund and Tax Free Income Fund paid or accrued $27,577 and $17,396 to EKIS, respectively, for certain accounting services. Evergreen Keystone Service Company ("EKSC") (formerly, Keystone Investor Resource Center, Inc.), a wholly-owned subsidiary of Keystone, serves as the transfer and dividend disbursing agent for the Funds. Prior to May 5, 1997, State Street Bank and Trust Company ("State Street") served as the transfer and dividend disbursing agent for the High Grade and Short-Intermediate Funds. For certain accounts for the High Grade and Short-Intermediate Funds, First Union had been sub-contracted by State Street to maintain shareholder sub-account records, take fund purchase and redemption orders and answer inquiries. For each account, First Union is entitled a fee which in aggregate totaled $866 and $288 for the High Grade and Short-Intermediate Funds for the period ended May 31, 1997. Officers of the Funds and affiliated Trustees receive no compensation directly from the Funds. As sub-administrator, BISYS compensates the officers of the Funds. At May 31, 1997, FUNB owned, directly or beneficially, 22.0% of the outstanding shares of Short-Intermediate Fund. 37 EVERGREEN KEYSTONE (logo) COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. EXPENSE OFFSET ARRANGEMENT The Funds have entered into an expense offset arrangement with their custodian. The assets deposited with the custodian under this expense offset arrangement could have been invested in income-producing assets. 7. ACQUISITIONS On July 7, 1995 the High Grade Fund acquired the net assets of Evergreen National Tax Free Fund ("National Fund") and on April 30, 1996 the Tax Free Income Fund acquired the net assets of Keystone Texas Tax Free Fund ("Texas Fund") in exchange for Class A, B and C or Y shares. Both acquisitions were accomplished by a tax-free exchange of the respective shares of each respective Fund. The value of assets acquired, number of shares issued, unrealized appreciation acquired and aggregate net assets of each Fund immediately after the acquisition are as follows:
ACQUIRING ACQUIRED VALUE OF NET NUMBER OF UNREALIZED NET ASSETS FUND FUND ASSETS ACQUIRED SHARES ISSUED APPRECIATION AFTER ACQUISITION High Grade Fund National Fund $28,779,195 2,679,627 $528,003 $ 128,792,690 Tax Free Income Fund Texas Fund 5,119,680 532,628 81,550 140,303,798
8. DEFERRED TRUSTEES' FEES Each Independent Trustee of the High Grade and Short-Intermediate Funds may defer any or all compensation related to their performance of duties as a Trustee. Each Trustee's deferred balances are allocated to deferral accounts which are included in the accrued expenses for the Fund. The investment performance of the deferral accounts are based on the investment performance of certain Evergreen Keystone Funds. Any gains earned or losses incurred in the deferral accounts are reported in each Fund's Trustees' fees and expenses. Trustees will be paid either in one lump sum or in quarterly installments for up to ten years at their election, not earlier than either the year in which the Trustee ceases to be a member of the Board of Trustees or January 1, 2000. As of May 31, 1997, the value of the Trustees deferral account was $3,717 for the High Grade Fund and $4,985 for the Short-Intermediate Fund. 9. FINANCING AGREEMENT On October 31, 1996, a financing agreement between all of the Evergreen Funds and State Street, Societe Generale and ABN Amro Bank N.V. (collectively, the "Banks") became effective. Under this agreement, the Banks provide an unsecured credit facility in the aggregate amount of $225 million ($112.5 million committed and $112.5 million uncommitted) allocated evenly between the Banks. Borrowings under this facility bear interest at 0.75% per annum above the Federal Funds rate. A commitment fee of 0.10% per annum will be incurred on the unused portion of the committed facility which will be allocated to all participating funds. State Street acts as agent for the Banks, and as agent is entitled to a fee of $15,000 which is allocated to all of the Evergreen Funds. During the period ended May 31, 1997, the High Grade and Short-Intermediate Funds had no borrowings under this agreement. 38 EVERGREEN KEYSTONE (logo) REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees and Shareholders of Evergreen High Grade Tax Free Fund In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Evergreen High Grade Tax Free Fund (the "Fund"), one of the Evergreen Investment Trust Portfolios, at May 31, 1997, and the results of its operations, the changes in its net assets and the financial highlights for the period September 1, 1996 through May 31, 1997, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at May 31, 1997 by correspondence with the custodian and the application of alternative auditing procedures, provides a reasonable basis for the opinion expressed above. The financial statements of the Fund for the year ended, and indicated periods prior to, August 31, 1996 were audited by other independent accountants whose report dated October 16, 1996 expressed an unqualified opinion. Price Waterhouse LLP 1177 Avenue of the Americas New York, New York July 8, 1997 39 EVERGREEN KEYSTONE (logo) REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees and Shareholders of Evergreen Short-Intermediate Municipal Fund In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Evergreen Short-Intermediate Fund (the "Fund"), one of the Evergreen Municipal Trust Portfolios, at May 31, 1997, and the results of its operations, the changes in its net assets and the financial highlights for each of the periods indicated, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at May 31, 1997 by correspondence with the custodian, provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP 1177 Avenue of the Americas New York, New York July 8, 1997 40 EVERGREEN KEYSTONE (logo) INDEPENDENT AUDITORS' REPORT The Trustees and Shareholders Keystone Tax Free Income Fund We have audited the accompanying statement of assets and liabilities of Keystone Tax Free Income Fund, including the schedule of investments, as of May 31, 1997, and the related statements of operations for the six months ended May 31, 1997 and the year ended November 30, 1996, the statements of changes in net assets for the six months ended May 31, 1997 and for each of the years in the two-year period ended November 30, 1996, and the financial highlights for the six months ended May 31, 1997, each of the years in the nine-year period ended November 30, 1996 and the period from February 13, 1987 (Commencement of Operations) to November 30, 1987 for Class A Shares and for the six months ended May 31, 1997, each of the years in the three-year period ended November 30, 1996 and the period from February 1, 1993 (Date of Initial Public Offering) to November 30, 1993, for Class B and Class C Shares. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of May 31, 1997 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 Keystone Tax Free Income Fund as of May 31, 1997, the results of its operations for the six months ended May 31, 1997 and the year ended November 30, 1996, the changes in its net assets and the financial highlights for each of the years or periods specified in the first paragraph above in conformity with generally accepted accounting principles. Boston, Massachusetts KPMG Peat Marwick LLP June 27, 1997 41 EVERGREEN KEYSTONE (logo) ADDITIONAL INFORMATION (Unaudited) Shareholders of the Keystone Tax Free Income Fund considered and acted upon the proposals listed below at a special meeting of shareholders held Monday, December 9, 1996. In addition, below each proposal are the results of that vote. 1. To elect the following Trustees: AFFIRMATIVE WITHHELD Frederick Amling........................... 9,815,069 199,547 Laurence B. Ashkin......................... 9,812,403 202,213 Charles A. Austin III...................... 9,813,238 207,378 Foster Bam................................. 9,812,719 201,897 George S. Bissell.......................... 9,815,312 199,304 Edwin D. Campbell.......................... 9,812,195 202,421 Charles F. Chapin.......................... 9,814,500 200,116 K. Dun Gifford............................. 9,813,609 201,007 James S. Howell............................ 9,811,512 203,104 Leroy Keith, Jr............................ 9,813,609 201,007 F. Ray Keyser.............................. 9,810,159 204,457 Gerald M. McDonnell........................ 9,811,512 203,104 Thomas L. McVerry.......................... 9,811,512 203,104 William Walt Pettit........................ 9,810,932 203,684 David M. Richardson........................ 9,813,609 201,007 Russell A. Salton, III M.D................. 9,811,487 203,129 Michael S. Scofield........................ 9,813,283 201,333 Richard J. Shima........................... 9,808,652 205,964 Andrew J. Simons........................... 9,813,040 201,576
2. To approve an Investment Advisory and Management Agreement between Keystone Tax Free Income Fund and Keystone Investment Management Company: Affirmative............................. 9,365,556 Against................................. 146,890 Abstain................................. 502,170
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED) Of the dividends distributed by High Grade, Short-Intermediate and Tax Free Income Funds for the period ended May 31, 1997, 99.01%, 99.98% and 99.29%, respectively, is exempt from federal income tax other than alternative minimum tax. 42 This brochure must be preceded or accompanied by a prospectus of an Evergreen fund contained herein. The prospectus contains more complete information, including fees and expenses, and should be read carefully before investing or sending money. NOT May lose value FDIC No bank guarantee INSURED Evergreen Keystone Distributor, Inc. Form #541257 NTF-R 60064 7/97 -----END PRIVACY-ENHANCED MESSAGE-----