-----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, G0LiYVza3EYoj3X5gSV/6mOv0x/f2SYfS1du0HAY+yCtHcxfh0N66SmtvqqvMMI5 y8YP5Ni+JwqLDWG1xowAuQ== 0000950168-97-002629.txt : 19970912 0000950168-97-002629.hdr.sgml : 19970912 ACCESSION NUMBER: 0000950168-97-002629 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970910 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEYSTONE CAPITAL PRESERVATION & INCOME FUND CENTRAL INDEX KEY: 0000872324 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-06278 FILM NUMBER: 97677744 BUSINESS ADDRESS: STREET 1: 200 BERKLEY ST CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 6173383200 MAIL ADDRESS: STREET 1: 200 BERKELEY ST CITY: BOSTON STATE: MA ZIP: 02116 FORMER COMPANY: FORMER CONFORMED NAME: KEYSTONE AMERICA CAPITAL PRESERVATION & INCOME FUND DATE OF NAME CHANGE: 19950130 FORMER COMPANY: FORMER CONFORMED NAME: KEYSTONE AMERICA CAPITAL PRESERVATION & INCOME FUND II DATE OF NAME CHANGE: 19920717 FORMER COMPANY: FORMER CONFORMED NAME: KEYSTONE GOVERNMENT INCOME AND CAPITAL STABILITY FUND DATE OF NAME CHANGE: 19600201 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: SEC FILE NUMBER: 811-04154 FILM NUMBER: 97677745 BUSINESS ADDRESS: STREET 1: 2500 WESTCHESTER AVE CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9146412305 MAIL ADDRESS: STREET 1: 2500 WESTCHESTER AVE CITY: PURCHASE STATE: NY ZIP: 10577 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION FUNDS/ DATE OF NAME CHANGE: 19940628 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION HIGH GRADE TAX FREE PORT DATE OF NAME CHANGE: 19940519 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION FUNDS DATE OF NAME CHANGE: 19921230 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEYSTONE INTERMEDIATE TERM BOND FUND CENTRAL INDEX KEY: 0000808333 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-04952 FILM NUMBER: 97677746 BUSINESS ADDRESS: STREET 1: 200 BERKELEY ST CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 6173383200 FORMER COMPANY: FORMER CONFORMED NAME: KEYSTONE AMERICA KEYSTONE INTERMEDIATE TERM BOND FUND DATE OF NAME CHANGE: 19950808 FORMER COMPANY: FORMER CONFORMED NAME: KEYSTONE AMERICA INTERMEDIATE TERM BOND FUND DATE OF NAME CHANGE: 19930917 FORMER COMPANY: FORMER CONFORMED NAME: KEYSTONE AMERICA INVESTMENT GRADE BOND FUND DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EVERGREEN LEXICON TRUST CENTRAL INDEX KEY: 0000877698 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-06368 FILM NUMBER: 97677747 BUSINESS ADDRESS: STREET 1: C/O EVERGREEN ASSET MANAGEMENT STREET 2: 2500 WESTCHESTER AVE CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9146412234 MAIL ADDRESS: STREET 1: 2500 WESTCHESTER AVE CITY: PURCHASE STATE: NY ZIP: 10577 FORMER COMPANY: FORMER CONFORMED NAME: FFB LEXICON FUNDS DATE OF NAME CHANGE: 19930408 FORMER COMPANY: FORMER CONFORMED NAME: FFB LEXICON FUND DATE OF NAME CHANGE: 19920929 N-30D 1 Evergreen Keystone Short & Intermediate Term Bond Funds (photo of Grand Canyon) 1997 Annual Report Evergreen Keystone (logo) FUNDS (SM) (logo) EVERGREEN KEYSTONE (logo TABLE OF CONTENTS Letter to Shareholders............................... 1 Keystone Capital Preservation and Income Fund Fund at a Glance................................... 2 Management Report.................................. 3
Evergreen Intermediate-Term Bond Fund Fund at a Glance................................... 4 Management Report.................................. 5 Keystone Intermediate Term Bond Fund Fund at a Glance................................... 6 Management Report.................................. 7 Evergreen Intermediate-Term Government Securities Fund Fund at a Glance................................... 8 Management Report.................................. 9 Evergreen Short-Intermediate Bond Fund Fund at a Glance................................... 10 Management Report.................................. 11 Growth of Investments................................ 12 Financial Highlights Keystone Capital Preservation and Income Fund...... 14 Evergreen Intermediate-Term Bond Fund.............. 16 Keystone Intermediate Term Bond Fund............... 18 Evergreen Intermediate-Term Government Securities Fund............................................ 20 Evergreen Short-Intermediate Bond Fund............. 22 Schedule of Investments Keystone Capital Preservation and Income Fund...... 25 Evergreen Intermediate-Term Bond Fund.............. 27 Keystone Intermediate Term Bond Fund............... 29 Evergreen Intermediate-Term Government Securities Fund............................................ 31 Evergreen Short-Intermediate Bond Fund............. 32 Statements of Assets and Liabilities................. 34 Statements of Operations............................. 35 Statements of Changes in Net Assets.................. 37 Combined Notes to Financial Statements............... 40 Independent Auditors' Report-- KPMG Peat Marwick LLP................................................ 49
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 August 1997 (photo of William M. Ennis) WILLIAM M. ENNIS Dear Shareholders: Investors in fixed income funds may sometimes feel as if they are watching all the fun from the sidelines. Certainly, during the past year, investors in many equity-oriented mutual funds enjoyed another year in which many funds returned 20% or more. At times such as this, however, it is important to remind ourselves that seeking equity-like returns is not what some funds are supposed to be doing. The five mutual funds discussed in this annual report all have similar objectives-- to provide regular income and to conserve principal. We believe each of these funds did a very good job of meeting that objective during a year which was challenging for fixed income investors. While interest rates finished the 12-month period at about the same point at which they started, the point-to-point comparison masked a great deal of rate fluctuations during the year, with longer-term rates falling and then rising by almost a full percentage point. In this environment, the short-to-intermediate term strategies employed by each of the funds worked very well, delivering regular income and protecting principal. By the end of the 12-month period, each of the funds provided handsome real returns, especially when measured against the low rate of inflation we have been enjoying. And they provided these returns without taking the significant credit risks of high yield bonds or the market risks of longer-maturity bonds. These conservative investment strategies make sense for investors who are interested in regular income, but who want to limit the risks they take with their investment dollars. However, after the stock market's sharp ascent this spring and summer, these strategies also make sense for growth-oriented investors who want to reduce their overall portfolio risks by putting at least part of their investments in conservative fixed income funds. Diversification always is prudent, but it is especially prudent when one asset class (in this case common stocks) has risen dramatically in relative price after a prolonged period of above-average returns. At Evergreen Keystone, we encourage all shareholders to consult regularly with their financial advisers to help determine whether their mix of investments continues to be appropriate, given current needs, tolerance for risk, and market conditions. I am delighted to inform you that Evergreen Keystone has successfully integrated all service functions of Evergreen and Keystone Funds. 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 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 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 your suggestions. Sincerely, /s/WILLIAM M. ENNIS WILLIAM M. ENNIS MANAGING DIRECTOR 1 KEYSTONE (Logo and picture) CAPITAL PRESERVATION AND INCOME FUND of capital) FUND-AT-A-GLANCE As of June 30, 1997
ONE YEAR PERFORMANCE CLASS A CLASS B CLASS C One year with sales charge 3.26 % 1.04 % 5.05 % One year w/o sales charge 6.73 % 6.04 % 6.05 % One year dividends per share 57.1(cents) 49.4(cents) 49.4 (cents) 30-day SEC Yield (as of 6/30/97) 5.81 % 5.22 % 5.25 % AVERAGE ANNUAL RETURNS** CLASS A CLASS B CLASS C Three years N/A 4.59 % 5.54 % Five years N/A 3.80 % N/A Since Inception* 5.84 % 4.51 % 4.55 % CUMULATIVE RETURNS** CLASS A CLASS B CLASS C Nine months w/o sales charge 5.12 % 4.53 % 4.53 % Three years N/A 14.41 % 17.55 % Five years N/A 20.50 % N/A Since Inception* 15.26 % 30.35 % 21.70 %
* CLASS A BEGAN 12/30/94; CLASS B BEGAN 7/1/91; CLASS C BEGAN 2/1/93. ** ALL RETURNS INCLUDE THE MAXIMUM APPLICABLE SALES CHARGE.
PORTFOLIO CHARACTERISTICS Total Net Assets (all classes) $52.8 million Average Credit Quality AAA Average Maturity 4.92 years Average Duration 0.75 years
PORTFOLIO ALLOCATIONS JUNE 30, 1997 (AS A PERCENTAGE OF NET ASSETS) (A PIE GRAPH APPEARS HERE. SEE TABLE BELOW FOR PLOT POINTS.) U.S. Treasuries 3.7% Fixed rate mortgages 2.2% Repurchase agreements & other net assets 2.8% Adjustable-rate mortgages 91.3% PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE. OBJECTIVE Keystone Capital Preservation and Income Fund seeks high current income consistent with low volatility of principal by investing in adjustable-rate mortgage-backed securities and loan pools. The Fund may be appropriate for investors seeking monthly dividends, an investment in a fund composed 100% of government securities and therefore of the highest credit quality, and the potential for less share price fluctuation than intermediate and longer-term bond funds. STRATEGY The Fund invests primarily in adjustable-rate mortgage securities issued by the U.S. Government, its agencies or instrumentalities. Adjustable-rate mortgage securities (ARMS) are pools of residential mortgage loans on which the interest rate is periodically adjusted to reflect the current interest rate environment. By investing in ARMS, the Fund seeks to minimize fluctuations in its share price relative to other bond funds. However, unlike money market funds, the Fund does not seek to maintain a completely stable share price. PORTFOLIO MANAGER (picture of Gary Pzegeo) Gary Pzegeo, a Vice President and Portfolio Manager in the Fixed Income Group of Keystone Investment Management Company, is Portfolio Manager of Keystone Capital Preservation and Income Fund. An investment professional with seven years' experience, Mr. Pzegeo also is manager of Keystone Institutional Adjustable Rate Fund. Mr. Pzegeo joined Keystone in 1990. He has several years' experience in analysis of mortgage-backed securities. A Chartered Financial Analyst, Mr. Pzegeo is a member of the Boston Securities Analysts Society, the Government Bond Club of New England, and the Association of Investment Management and Research. He holds a B.A. in business administration from the University of Massachusetts. 2 KEYSTONE (logo and picture CAPITAL PRESERVATION AND INCOME FUND of capital) MANAGEMENT REPORT August 1997 Dear Shareholder: We are pleased to report to you on the Keystone Capital Preservation and Income Fund for the fiscal period that ended on June 30, 1997. This report is an annual report, reflecting the new fiscal year ending date of June 30, replacing the former fiscal year ending each September 30. PERFORMANCE Your Fund performed well during the past year, as the relatively high concentration of adjustable-rate mortgage securities helped the Fund be responsive to changes in interest rates. In addition to providing a yield premium over money market funds, the Fund was able to protect principal by maintaining a relatively stable net asset value. The Fund concentrated its investments in relatively low-risk, geographically diverse adjustable-rate securities. As an example of the Fund's price stability during the past year, the net asset value of Class A Shares began the fiscal period at $9.74 per share on September 30, 1996. The net asset value was $9.76 on December 31, 1996 and $9.80 on June 30, 1997. ENVIRONMENT In late 1996 and the first half of 1997, the investment environment was marked by changing attitudes about the pace of economic growth in the United States. In the latter part of 1996 and early this year, the economy appeared to be accelerating, primarily driven by consumer demand. Slowing retail sales and stable housing sales began to be evident late in the first quarter, however, signaling a slowdown in consumer activity. In the bond market, after long-term interest rates hit a low point in November 1996, they started rising because of reports of strong growth late in 1996 and in expectation that the Federal Reserve Board might increase short-term rates. In fact, the Federal Reserve Board did increase short-term rates by one-quarter of one percent in late March. Interest rates appeared to peak in late March before gradually moving back down. For example, the interest rate of a two-year Treasury declined from 6.41% on March 31 to 6.06% on June 30. STRATEGY Starting in the second half of 1996, following reports of strong economic growth and in anticipation of increases in interest rates, your Fund's management team began increasing the emphasis on adjustable-rate mortgages, both as a defensive measure to protect the net asset value and to gain the benefit of additional interest income from higher rates. This increased emphasis continued into 1997. Adjustable-rate mortgages, whose interest payments reset at regular intervals as interest rates rise and fall, increased from about 85% of net assets on September 30, 1996 to 96% by March 31, 1997. By the close of the fiscal year, the percentage was about 91%. Within the fixed-rate portion of the portfolio, maturities were extended somewhat as the threat of higher rates subsided. The overriding strategy of the Fund has been to seek a yield advantage over other short-term investments, while providing capital protection. In pursuing this strategy, the portfolio management team has purchased adjustable-rate mortgages that are mature, with an average age of seven years. Mortgages of this age historically have tended not to be refinanced as frequently as younger mortgages. The geographical sources of these mortgages also has been diversified, to reduce the risk that events in any one section of the country could have a disproportionate impact on the Fund. The reset dates of the adjustable-rate mortgages also are diversified to reduce the risk that market interest rates at any one point could have a disproportionate impact on the Fund. All mortgages are backed by the U.S. government or government agencies. The average credit rating remains AAA. OUTLOOK Going forward, we believe the economy may increase its growth rate in the third quarter of 1997 after the apparent slowdown of the second, with gross domestic product growing at an anticipated 2 1/2-to-3% during the second half of the year. At the same time, we believe inflation can be contained within the present 2 1/2-to-3% range, and that interest rates will remain stable. We expect to continue to manage the Fund conservatively, with a relatively high concentration of adjustable-rate mortgages. Thank you for your support of Keystone Capital Preservation and Income Fund. Sincerely, /s/ ALBERT H. ELFNER, III ALBERT H. ELFNER, III CHAIRMAN Keystone Investment Management Company /s/GARY E. PZEGEO GARY E. PZEGEO VICE PRESIDENT PORTFOLIO MANAGER 3 EVERGREEN (logo and picture INTERMEDIATE-TERM BOND FUND of a star) FUND-AT-A-GLANCE As of June 30, 1997
ONE YEAR PERFORMANCE CLASS A CLASS B CLASS C CLASS Y One year with sales charge 3.41 % 0.91 % 4.91 % 6.97 % One year w/o sales charge 6.88 % 5.91 % 5.91 % 6.97 % One year dividends per share 60.6(cents) 51.3(cents) 51.3(cent) 61.5(cents) 30-day SEC Yield (as of 6/30/97) 5.57 % 4.81 % 4.83 % 5.82 % AVERAGE ANNUAL RETURNS** CLASS A CLASS B CLASS C CLASS Y Three years N/A N/A N/A 7.18 % Five years N/A N/A N/A 6.60 % Since Inception* 5.24 % -1.15 % 5.31 % 7.13 % CUMULATIVE RETURNS** CLASS A CLASS B CLASS C CLASS Y Three years N/A N/A N/A 23.14 % Five years N/A N/A N/A 37.67 % Since Inception* 11.71 % -1.62 % 6.26 % 47.77 %
* CLASS A BEGAN 5/2/95; CLASS B BEGAN 1/30/96; CLASS C BEGAN 4/29/96; CLASS Y BEGAN 11/1/91. ** ALL RETURNS INCLUDE THE MAXIMUM APPLICABLE SALES CHARGE.
PORTFOLIO CHARACTERISTICS Total Net Assets (all classes) $160.4 million Average Credit Quality AAA Average Maturity 8.89 years Duration 4.61 years
CREDIT QUALITY JUNE 30, 1997 (AS A PERCENTAGE OF PORTFOLIO ASSETS) (A pie graph appears here. See table below for plot points.) AA 6% A 21% AAA 73% PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE. OBJECTIVE Evergreen Intermediate-Term Bond Fund seeks to preserve principal while maximizing current yield. STRATEGY The Fund invests primarily in U.S. Government obligations, mortgage-backed securities and corporate bonds and debentures. These securities typically have average maturities of five to 10 years. PORTFOLIO MANAGER (photo of Bruce J. Besecker, C.F.A., a Vice President and Senior Bruce J. Portfolio Manager of First Union Capital Management Group, is Besecker) Portfolio Manager of Evergreen Intermediate-Term Bond Fund. Mr. Besecker, who has more than 16 years' professional investment experience, is manager of the Philadelphia Taxable Fixed Income Unit of First Union Capital Management. Prior to joining First Union, Mr. Besecker was an Assistant Vice President in Institutional Sales at Merrill Lynch in New York, and a Senior Trust Officer and Portfolio Manager at First Fidelity Bank. He also has served as a Research Assistant in the Economics Department at the Federal Reserve Bank in Philadelphia. Mr. Besecker, a Chartered Financial Analyst, is a member of the Philadelphia Financial Analysts Society. He is a graduate of the University of Pennsylvania and holds an M.B.A. from The Wharton School. 4 EVERGREEN (logo and picture INTERMEDIATE-TERM BOND FUND of a star) MANAGEMENT REPORT August 1997 Dear Shareholders: We are pleased to report to you on the Evergreen Intermediate-Term Bond Fund for the 12-month fiscal year that ended on June 30, 1997. PERFORMANCE Your Fund performed very well during the past fiscal year, buoyed by the addition of higher yielding securities that increased yield and total return, and by the decision to maintain a fully invested position. ENVIRONMENT During the 12-month fiscal year, the U.S. economy grew at an exceptional pace. As this growth persisted, often in defiance of predictions of an economic slowdown, bond market participants became increasingly concerned that the strength of the economy could provoke an increase in inflation. In response to these concerns, interest rates rose dramatically during the early months of 1997. Conversely, during the second quarter of 1997, investors' fears receded as economic data indicated slower economic growth and little inflationary pressure. This resulted in a steady decline in interest rates, reversing most of the first quarter's increase. However, the financial markets are keeping a wary eye on each new economic report, searching for any signs of inflationary pressure that could prompt the Federal Reserve Board to raise the Federal Funds rate beyond the 0.25% increase of March 25. STRATEGY The fluctuating interest rate environment and seemingly trendless market over the past 12 months have made portfolio management increasingly challenging. During this period, duration was maintained in a range of 90% to 110% of the Fund's benchmark, the Lehman Brothers Intermediate Government Corporate Bond Index. As of June 30, the duration was at the lower end of this range. We anticipate maintaining our shorter relative duration as we believe rates may modestly rise in the coming months. At the end of the fiscal year, duration was 4.61 years and average maturity was 8.89 years. In addition, your Fund's Treasury position has been reduced and the allocations to both corporate bonds and mortgage-backed securities have been increased both to increase yield and to improve total return opportunities. We also adjusted the maturity structure of the portfolio by underweighting the intermediate position and overweighting both short-term and longer-term securities. This strategy is being pursued to enhance returns as yield spreads narrow between short-term and long-term maturities. MATURITY AS OF JUNE 30, 1997 (AS A PERCENTAGE OF PORTFOLIO ASSETS) (A pie graph appears here. See table below for plot points.) 0-1 Year 21% 1-3 Years 10% 3-5 Years 15% 5-10 Years 8% 10-20 Years 25% 20+ Years 21% PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE. OUTLOOK We enter the second half of 1997 with a degree of caution. The principal concern in the bond market remains the inflation "wildcard," as investors try to determine whether interest rates can continue their bullish run in this economic environment. According to traditional analysis, this cannot continue. Our primary concern is that strong economic growth ultimately brings inflationary pressures, which in turn would push the Federal Reserve Board to raise interest rates. With this uncertainty in the market, we plan to keep portfolio structure and duration relatively neutral. We also will continue to look for opportunities to increase yield through the addition of attractive mortgage-backed securities and other higher yielding instruments. Thank you for your investment in Evergreen Intermediate-Term Bond Fund. Sincerely, /s/RICHARD K. WAGONER RICHARD K. WAGONER EXECUTIVE VICE PRESIDENT CHIEF INVESTMENT OFFICER First Union Capital Management Group /s/BRUCE J. BESECKER BRUCE J. BESECKER VICE PRESIDENT SENIOR PORTFOLIO MANAGER 5 KEYSTONE INTERMEDIATE TERM BOND FUND (logo and picture of stars) FUND-AT-A-GLANCE As of June 30, 1997
ONE YEAR PERFORMANCE CLASS A CLASS B CLASS C One year with sales charge 5.30 % 3.17 % 7.06 % One year w/o sales charge 8.83 % 8.17 % 8.06 % One year dividends per share 52.0 (cents) 46.3(cents) 46.3 (cents) 30-day SEC Yield (as of 6/30/97) 5.82 % 5.25 % 5.26 % AVERAGE ANNUAL RETURNS** CLASS A CLASS B CLASS C Three years 6.34 % 5.82 % 6.67 % Five years 5.89 % N/A N/A Ten years 6.56 % N/A N/A Since Inception* N/A 4.61 % 4.96 % CUMULATIVE RETURNS** CLASS A CLASS B CLASS C Eleven months w/o sales charge 8.40 % 7.81 % 7.70 % Three years 20.24 % 18.51 % 21.38 % Five years 33.11 % N/A N/A Ten years 88.72 % N/A N/A Since Inception* N/A 22.01 % 23.80 %
* CLASSES B AND C BEGAN 2/1/93. ** ALL RETURNS INCLUDE THE MAXIMUM APPLICABLE SALES CHARGE. FOR CLASSES WITH MORE THAN A 10-YEAR HISTORY, THE 10-YEAR HISTORY IS PRESENTED.
PORTFOLIO CHARACTERISTICS Total Net Assets (all classes) $29.0 million Average Credit Quality AA- Average Maturity 6.3 years Duration 4.6 years
PORTFOLIO QUALITY JUNE 30, 1997 (AS A PERCENTAGE OF PORTFOLIO ASSETS) (A pie graph appears here. See table below for plot points.) BBB 18% A 32% AAA 38% AA 12% PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE. OBJECTIVE Keystone Intermediate Term Bond Fund seeks current income and, secondarily, capital preservation from investments in investment grade and high quality bonds. STRATEGY The Fund is designed to balance the benefits of short-and long-term bonds, by providing more income than short-term bonds and greater price stability than long-term bonds. The Fund invests primarily in government and corporate bonds and mortgage-backed securities with maturities of less than 10 years. PORTFOLIO MANAGER (photo of Christopher P. Conkey, Senior Vice President and Chief Christopher Investment Officer, Fixed Income, of Keystone Investment P. Conkey) Management Company, is Portfolio Manager of Keystone Intermediate Term Bond Fund. An investment professional with more than 14 years' experience, Mr. Conkey also is Portfolio Manager of Keystone Diversified Bond Fund (B-2). Mr. Conkey joined Keystone in 1988 from Constitution Capital, where he was a Vice President. A Chartered Financial Analyst, Mr. Conkey is a member of the Government Bond Club of New England and the Bond Analysts Society of Boston. He is a graduate of Clark University and received his M.B.A. from Boston University. 6 KEYSTONE INTERMEDIATE TERM BOND FUND (logo and picture of stars) MANAGEMENT REPORT August 1997 Dear Shareholder: We are pleased to report to you on the Keystone Intermediate Term Bond Fund for the fiscal period that ended on June 30, 1997. This report is an annual report, reflecting the new fiscal year ending date of June 30, replacing the former fiscal year ending each July 31. PERFORMANCE Your Fund performed very well during the past year. In an environment of moderate economic growth, modest inflation, and relatively stable interest rates, your Fund was able to take advantage of opportunities among better quality corporate bonds and mortgage-backed securities to provide generous income consistent with limited price fluctuation. ENVIRONMENT During the past year, the U.S. economy enjoyed healthy economic growth and low inflation. If one were to look at interest rates at the beginning and end of the year, despite some near-term volatility one would see remarkable stability in rates. For example, the yield on a 30-year Treasury bond was 6.78% on June 30, just slightly below the 6.97% of July 31, 1996. This was an environment in which corporate bonds tended to do very well, as credit risk was low because of the overall strength of the economy. STRATEGY In the relatively stable interest rate environment of the past year, your Fund did not try to manage the portfolio maturities significantly in an effort to anticipate the direction of interest rate movements. Rather, the portfolio management team has searched for relative value among the various sectors in which the Fund invests. Your Fund took advantage of the strong economy to increase its emphasis on high grade and investment grade corporate bonds and mortgage-backed securities, while de-emphasizing U.S. Treasuries. Between December 31, 1996 and June 30, 1997, for example, the allocation to U.S. government bonds in the portfolio was reduced from 21% to 9% of net assets, while the allocation to industrial bonds was increased from 13% to 16% and the allocation to collateralized mortgage obligations was increased from 21% to 28%. The Fund also has increased its allocation to foreign securities from 9% on December 31, 1996 to approximately 24% at the end of the fiscal year. The foreign emphasis was increased to take advantage of the yield advantage of foreign bonds and to give the portfolio greater diversification. The Fund, which has hedged all foreign securities back into the U.S. dollar to protect against currency fluctuations, has invested in government bonds issued in Canada, Denmark and Germany. All three countries are enjoying low inflation and benefiting from sound fiscal policies. PORTFOLIO COMPOSITION JUNE 30, 1997 (AS A PERCENTAGE OF NET ASSETS) (A pie graph appears here. See table below for plot points) Repurchase agreements and other net assets 2.2% U.S Government 8.8% Financial Corp. 15.3% Industrial Corp. 15.9% International/U.S.$ 15.4% International/non-U.S.$* 8.8% Mortgage-backed 27.5% Asset-backed 6.1% * NON-U.S.-DOLLAR-DENOMINATED BONDS WERE FULLY HEDGED BACK INTO U.S. CURRENCY. PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE. OUTLOOK We believe the economy may increase its growth rate in the third quarter of 1997 after the apparent slowdown of the second, with gross domestic product growing at an anticipated annualized rate of 2 1/2-to-3% during the second half of the year. At the same time, we believe inflation can be contained within the present 2 1/2-to-3% range, and that interest rates will remain stable. We will continue, however, to monitor wage costs very closely to watch for early signs of inflation. With this favorable outlook, we anticipate a continued emphasis on corporate and mortgage-backed securities for at least the next several months. Thank you for your support of Keystone Intermediate Term Bond Fund. Sincerely, /s/ALBERT H. ELFNER, III ALBERT H. ELFNER, III CHAIRMAN Keystone Investment Management Company /s/CHRISTOPHER P. CONKEY CHRISTOPHER P. CONKEY SENIOR VICE PRESIDENT CHIEF INVESTMENT OFFICER, FIXED INCOME 7 EVERGREEN (logo and photo of George Washington) INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND FUND-AT-A-GLANCE As of June 30, 1997
ONE YEAR PERFORMANCE CLASS A CLASS B CLASS C CLASS Y One year with sales charge 2.55 % 0.03 % 4.03 % 6.08 % One year w/o sales charge 6.00 % 5.03 % 5.03 % 6.08 % One year dividends per share 55.4(cents) 46.3(cents) 46.3(cents) 56.2 (cents) 30-day SEC Yield (as of 6/30/97) 5.25 % 4.44 % 4.17 % 5.49 % AVERAGE ANNUAL RETURNS** CLASS A CLASS B CLASS C CLASS Y Three years N/A N/A N/A 6.19 % Five years N/A N/A N/A 5.38 % Since Inception* 4.38 % -0.66 % 4.85 % 5.82 % CUMULATIVE RETURNS** CLASS A CLASS B CLASS C CLASS Y Three years N/A N/A N/A 19.76 % Five years N/A N/A N/A 29.94 % Since Inception* 9.74 % -0.92 % 5.97 % 37.82 %
* CLASS A BEGAN 5/2/95; CLASS B BEGAN 2/9/96; CLASS C BEGAN 4/10/96; CLASS Y BEGAN 11/1/91 ** ALL RETURNS INCLUDE THE MAXIMUM APPLICABLE SALES CHARGE.
PORTFOLIO CHARACTERISTICS Total Net Assets (all classes) $72.9 million Average Credit Quality AAA Average Maturity 3.88 years Duration 2.93 years
PORTFOLIO COMPOSITION JUNE 30, 1997 (AS A PERCENTAGE OF PORTFOLIO ASSETS) (A pie graph appears here. See tables below for plot points.) U.S. Treasuries 71% Mortgage-backed securities 18% U.S. Govt. Agencies 10% Short-term securities 1% PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE. OBJECTIVE Evergreen Intermediate-Term Government Securities Fund seeks to maximize total return and preserve principal while providing current income. STRATEGY The Fund invests primarily in securities issued by the U.S. Government and its agencies. These securities typically have an average maturity of three to six years, with a maximum maturity of ten years. The Fund seeks its objective over full interest rate cycles, which typically last three to five years. PORTFOLIO MANAGER (photo of L. L. Robert Cheshire, a Vice President and Senior Portfolio Robert Cheshire) Manager of First Union Capital Management Group, is Portfolio Manager of Evergreen Intermediate-Term Government Securities Fund. Mr. Cheshire also is in charge of the Newark Taxable Fixed Income Unit of First Union. Prior to joining First Union, Mr. Cheshire was a Vice President at Shearson Lehman Hutton for 11 years in the Asset Management and Institutional Government Securities Division. He was also a Vice President of Government Securities for Charles E. Quincey and an Assistant Vice President in the Municipal Securities Department with Bankers Trust Co. in New York. Mr. Cheshire is a graduate of Rutgers University and holds an M.B.A. from Fairleigh Dickinson University. 8 EVERGREEN (logo and INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND photo of George Washington) MANAGEMENT REPORT August 1997 Dear Shareholders: We are pleased to report on Evergreen Intermediate-Term Government Securities Fund for the 12-month fiscal year that ended on June 30, 1997. PERFORMANCE During the year, the Fund delivered satisfactory returns, consistent with its objective to seek total return while preserving principal. For the first nine months of the fiscal year, as interest rates rose, the Fund's slightly long duration caused some underperformance against industry benchmarks. However, the Fund outperformed its benchmark during the final three months of the year as interest rates fell. ENVIRONMENT During the 12-month fiscal period, the U.S. economy experienced a pattern best described as a series of "mini-cycles," with bonds trading within a relatively narrow range of interest rates. Economic growth surged during the fourth quarter of 1996 into the first quarter of 1997, subsequently causing concern over inflationary pressure. Against this backdrop, bond market participants reviewed each new economic report for any signs of inflation that could prompt the Federal Reserve Board to increase interest rates. These market concerns resulted in rising interest rates throughout the first quarter of 1997, culminating in the March 25 decision by the Federal Reserve Board to raise the Federal Funds rate by 0.25%. Conversely, investors' fears of inflation receded during the second quarter of 1997 amid reports of slowing economic growth. As a result, interest rates fell. STRATEGY The Fund's duration, or sensitivity to interest rate changes, was consistent with that of the benchmark Lehman Brothers Intermediate Government Index during the fiscal year. In implementing duration strategy, your Fund's investment manager uses a disciplined process focusing on longer-term trends in the economic environment. The Fund's duration was modestly shortened following the Federal Reserve Board's decision to raise the Federal Funds rate in late March. In response to the declining interest rate environment in the second quarter, portfolio duration was brought back to neutral. To capture additional yield, the Fund's emphasis on mortgage-backed securities was also increased, ending the fiscal year at more than 18% of net assets. Consistent with the Fund's concentration on government securities, average credit quality was maintained at AAA. MATURITY AS OF JUNE 30, 1997 (AS A PERCENTAGE OF PORTFOLIO ASSETS) (A pie graph appears here. See table below for plot points.) 0-1 Year 4% 1-5 Years 45% 5-10 Years 51% PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE. OUTLOOK We are continuing to monitor closely new economic reports, vigilant for any indications of a resurgence of inflationary pressure that could cause the Federal Reserve Board to raise the Federal Funds rate during the second half of 1997. The overall bond market continues to be characterized by near-term interest rate fluctuations, without any over-riding trend. This environment dictates a very cautious approach in the coming quarters, with portfolio duration adjusted consistent with a changing market environment. We anticipate that your Fund's relatively neutral duration and conservative style should protect the fund from any significant fluctuations in the market. In addition, we will continue to seek attractive opportunities by increasing the Fund's yield through the addition of mortgage-backed securities and other relatively higher yielding instruments. Thank you for your investment in Evergreen Intermediate-Term Government Securities Fund. Sincerely, /s/RICHARD K. WAGONER RICHARD K. WAGONER EXECUTIVE VICE PRESIDENT CHIEF INVESTMENT OFFICER First Union Capital Management Group /s/ L. ROBERT CHESHIRE L. ROBERT CHESHIRE VICE PRESIDENT SENIOR PORTFOLIO MANAGER 9 EVERGREEN (logo and photo of flag) SHORT-INTERMEDIATE BOND FUND FUND-AT-A-GLANCE As of June 30, 1997
ONE YEAR PERFORMANCE CLASS A CLASS B CLASS C CLASS Y One year with sales charge 3.30 % 0.78 % 4.77 % 6.88 % One year w/o sales charge 6.77 % 5.78 % 5.77 % 6.88 % One year dividends per share 63.5(cents) 54.5(cents) 54.5(cents) 64.6(cents) 30-day SEC Yield (as of 6/30/97) 5.99 % 5.29 % 5.28 % 6.30 % AVERAGE ANNUAL RETURNS** CLASS A CLASS B CLASS C CLASS Y Three years 5.62 % 4.98 % N/A 6.92 % Five years 5.05 % N/A N/A 5.92 % Since Inception* 7.14 % 4.17 % 5.73 % 7.01 % CUMULATIVE RETURNS** CLASS A CLASS B CLASS C CLASS Y Three years 17.84 % 15.68 % N/A 22.23 % Five years 27.92 % N/A N/A 33.29 % Since Inception* 78.78 % 19.87 % 16.99 % 55.28 %
* CLASS A BEGAN 1/3/89; CLASS B BEGAN 1/25/93; CLASS C BEGAN 9/6/94; CLASS Y BEGAN 1/4/91. ** ALL RETURNS INCLUDE THE MAXIMUM APPLICABLE SALES CHARGE.
PORTFOLIO CHARACTERISTICS Total Net Assets (all classes) $398.7 million Average Credit Quality AA+ Average Maturity 4.06 years Duration 2.96 years
CREDIT QUALITY JUNE 30, 1997 (AS A PERCENTAGE OF PORTFOLIO ASSETS) (A pie graph appears here. See table below for plot points.) A 26% AA 3% AAA 67% BBB 4% PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE. OBJECTIVE Evergreen Short-Intermediate Bond Fund seeks to provide a high level of current income with the potential for some capital appreciation. STRATEGY The Fund seeks to attain its objective by investing in a broad range of higher quality and investment-grade debt securities. The Fund normally will invest at least 80% of its assets in debt securities. The Fund also intends to maintain an average maturity of five years or less to control price fluctuations. PORTFOLIO MANAGER (photo of Thomas L. Ellis, a Vice President and Senior Portfolio Manager Thomas L. Ellis) of First Union Capital Management Group, is Portfolio Manager of Evergreen Short-Intermediate Bond Fund. At First Union, Mr. Ellis is responsible for managing more than $1 billion in fixed income portfolios, including the Fixed Income Fund, a common trust fund. Prior to joining First Union, Mr. Ellis served in the Bond Department of First Tennessee Bank. He is a graduate of the University of Baltimore and holds an M.B.A. from Morgan State University. 10 EVERGREEN SHORT-INTERMEDIATE BOND FUND (logo and a photo of flag) MANAGEMENT REPORT August 1997 Dear Shareholders: We are pleased to report to you on the Evergreen Short-Intermediate Bond Fund for the 12-month fiscal year that ended on June 30, 1997. PERFORMANCE During the fiscal year, concentrations in corporate bonds and mortgage-backed securities helped the Fund deliver strong performance, consistent with its objective. At the same time, the Fund's relatively short duration gave the Fund a relative advantage over the first nine months of the year, although it held back performance during the final three months when interest rates declined. ENVIRONMENT Throughout the fiscal year, the U.S. economy experienced strong growth accompanied by relatively low levels of inflation. During this period, the bond market was characterized by near-term interest rate volatility. For example, the yield on the 10-year U.S. Treasury fell from 6.80% to 6.10% during the final six months of 1996, only to rise back to 7.0% by April 1997, then to fall again to 6.5% by June of 1997. We believe this volatility mirrors changes in the underlying economy. While Gross Domestic Product (GDP) grew at a 2.5% rate in 1996, real GDP surged by a 5.9% annualized rate during the first quarter 1997. This led the Federal Reserve Board to increase the Federal Funds rate by 0.25% in March, with many observers anticipating that further rate increases would follow. However, growth slowed during the second quarter to an annualized rate of 2.0%. This, coupled with surprisingly low inflation, led the bond market to rally amid optimistic expectations. STRATEGY As a result of our belief that interest rates may rise during the remainder of 1997, at this writing we are maintaining a portfolio duration of 2.9 years, slightly less than the short-intermediate benchmark. We will continue to slightly overweight the Fund's focus on corporate bonds and mortgage-backed securities. Although the "spread," or yield differential, that corporates and mortgages enjoy over U.S. Treasuries has narrowed, we have a positive fundamental outlook for both these sectors and expect to maintain an emphasis on them to increase the Fund's yield. The Fund's portfolio maintains an average credit quality of AA+. MATURITY JUNE 30, 1997 (AS A PERCENTAGE OF PORTFOLIO ASSETS) (A pie graph appears here. See table below for plot points.) 0-1 Year 22% 1-3 Years 44% 3-5 Years 18% 5-10 Years 16% PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE. OUTLOOK For the final half of 1997, we anticipate that economic growth, spurred by increased consumer spending, may increase to an annualized rate of about 3.0%. We believe that with unemployment rates approaching 25-year lows, tight labor markets could eventually be reflected in upward pressure on prices. This potential for increased inflation, combined with the possibility of a fall-off in optimism in the bond market, could lead to rising interest rates during the second half of 1997. In response to the possibility of increased inflationary pressure, we expect that the Federal Reserve Board may again tighten monetary policy, increasing the Federal Funds rate by 0.25% to 0.50% before the end of the year. Thank you for your investment in Evergreen Short-Intermediate Bond Fund. Sincerely, /s/RICHARD K. WAGONER RICHARD K. WAGONER EXECUTIVE VICE PRESIDENT CHIEF INVESTMENT OFFICER First Union Capital Management Corp. /s/THOMAS L. ELLIS THOMAS L. ELLIS VICE PRESIDENT SENIOR PORTFOLIO MANAGER 11 EVERGREEN KEYSTONE (logo) GROWTH OF INVESTMENTS KEYSTONE CAPITAL PRESERVATION AND INCOME FUND Comparison of a $10,000 investment in Keystone Capital Preservation and Income Fund, Class B sharess, versus a similar investment in a 6-Month Treasury Bill and the Consumer Price Index (CPI). Class B Shares CPI # 6 MO T BILL* 7/1/91 10,000 10,000 10,000 Jun-92 10,644 10,309 10,453 Jun-93 10,961 10,616 10,787 Jun-94 11,101 10,881 11,174 Jun-95 11,642 11,212 11,815 Jun-96 12,292 11,520 12,439 Jun-97 13,035 11,786 13,124 Average Annual Total Returns 1 Year 5 Year Life of Class Class A 3.26% N/A 5.84% Class B 1.04% 3.80% 4.51% Class C 5.05% N/A 4.55% Past performance is no guarantee of future results. The performance of each class may vary based on differences in loads and fees paid by the shareholders investing in different classes. The 6-Month Treasuty Bill is an unmanaged market index. The index does not include transaction costs assciated with buying and selling securities nor any management fees. The Consumer Price Index, a measure of inflation, is through June 30, 1997. EVERGREEN INTERMEDIATE-TERM BOND FUND Comparison of a $10,000 investment in Evergreen Intermediate-Term Bond Fund, Class A shares, versus a similar investment in the Lehman Brothers Intermediate Government/Corporate Bond Index and the Consumer Price Index (CPI). Class A Shares CPI # LBIGCBI* 5/2/95 9,675 10,000 10,000 Jun-95 10,090 10,040 10,371 Dec-95 10,722 10,105 10,912 Jun-96 10,452 10,316 10,889 Dec-96 10,903 10,442 11,501 Jun-97 11,171 10,554 11,817 # Consumer Price Index *Lehman Brothers Intermediate Government/Corporate Bond Index Average Annual Total Returns 1 Year 5 Year Life of Class Class A 3.41% N/A 5.24% Class B 0.91% N/A -1.15% Class C 4.91% N/A 5.31% Class Y 6.97% 6.60% 7.13% Past performance is no guarantee of future results. The performance of each class may vary based on differences in loads and fees paid by the shareholders investing in different classes. The Lehman Brothers Intermediate Government/Corporate Bond Index is an unmanaged market index. The index does not include transaction costs assciated with buying and selling securities nor any management fees. The Consumer Price Index, a measure of inflation, is through June 30, 1997. KEYSTONE INTERMEDIATE TERM BOND FUND Comparison of a $10,000 investment in Keystone Intermediate Term Bond Fund, Class A shares, versus a similar investment in the Lehman Brothers Intermediate Government/Corporate Bond Index and the Consumer Price Index (CPI). Class A Shares CPI # LIBIGCBI* 6/30/87 9,675 10,000 10,000 Jun-88 9,726 10,395 10,766 Jun-89 10,250 10,931 11,868 Jun-90 10,745 11,442 12,797 Jun-91 11,772 11,979 14,144 Jun-92 13,443 12,349 16,006 Jun-93 15,059 12,717 17,686 Jun-94 14,883 13,034 17,640 Jun-95 16,291 13,431 19,469 Jun-96 16,995 13,800 20,441 Jun-97 18,872 14,118 22,184 # Consumer Price Index * Lehman Brothers Intermediate Government/Corporate Bond Index Average Annual Total Returns 1 Year 5 Year 10 Year Life of Class Class A 5.30% 5.89% 6.56% N/A Class B 3.17% N/A N/A 4.61% Class C 7.06% N/A N/A 4.96% Past performance is no guarantee of future results. The performance of each class may vary based on differences in loads and fees paid by the shareholders investing in different classes. The Lehman Brothers Intermediate Government/Corporate Bond Index is an unmanaged market index. The index does not include transaction costs assciated with buying and selling securities nor any management fees. The Consumer Price Index, a measure of inflation, is through June 30, 1997. EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND Comparison of a $10,000 investment in Evergreen Intermediate-Term Government Securities Fund, Class A shares, versus a similar investment in the Lehman Brothers Intermediate Government Bond Index and the Consumer Price Index (CPI). Class A Shares CPI # LBIGBI* 5/2/95 9,675 10,000 10,000 Jun-95 9,959 10,040 10,348 Dec-95 10,421 10,105 10,859 Jun-96 10,353 10,316 10,891 Dec-96 10,735 10,442 11,300 Jun-97 10,974 10,554 11,661 # Consumer Price Index *Lehman Brothers Intermediate Government Bond Index In Thousands Average Annual Total Returns 1 Year 5 Year Life of Class Class A 2.55% N/A 4.38% Class B 0.03% N/A -0.66% Class C 4.03% N/A 4.85% Class Y 6.08% 5.28% 5.82% Past performance is no guarantee of future results. The performance of each class may vary based on differences in loads and fees paid by the shareholders investing in different classes. The Lehman Brothers Intermediate Government Bond Index is an unmanaged market index. The index does not include transaction costs assciated with buying and selling securities nor any management fees. The Consumer Price Index, a measure of inflation, is through June 30, 1997. 12 EVERGREEN KEYSTONE (logo) GROWTH OF INVESTMENTS (CONTINUED) EVERGREEN SHORT-INTERMEDIATE BOND FUND Comparison of a $10,000 investment in Evergreen Short-Intermediate Bond Fund, Class A shares, versus a similar investment in the Lehman Brothers Intermediate Government/Corporate Bond Index and the Consumer Price Index (CPI). Class A Shares CPI # LIBIGCBI * 1/31/89 9,675 10,000 10,000 Jun-89 10,275 10,247 10,666 Jun-90 10,902 10,726 11,501 Jun-91 12,007 11,230 12,712 Jun-92 13,524 11,577 14,385 Jun-93 14,802 11,922 15,895 Jun-94 14,680 12,219 15,854 Jun-95 16,032 12,591 17,497 Jun-96 16,745 12,937 18,371 Jun-97 17,878 13,235 19,937 # Consumer Price Index * Lehman Brothers Intermediate Government/Corporate Bond Index Past performance is no guarantee of future results. The performance of each class may vary based on differences in loads and fees paid by the shareholders investing in different classes. The Lehman Brothers Intermediate Government/Corporate Bond Index is an unmanaged market index. The index does not include transaction costs assciated with buying and selling securities nor any management fees. The Consumer Price Index, a measure of inflation, is through June 30, 1997. 13 (logo and a photo KEYSTONE of capital) CAPITAL PRESERVATION AND INCOME FUND FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
DECEMBER 30, 1994 YEAR ENDED (COMMENCEMENT OF NINE MONTHS ENDED SEPTEMBER 30, CLASS OPERATIONS) TO JUNE 30, 1997 (D) 1996 (C) SEPTEMBER 30, 1995 CLASS A SHARES NET ASSET VALUE BEGINNING OF PERIOD................................. $ 9.74 $ 9.68 $ 9.51 INCOME FROM INVESTMENT OPERATIONS: Net investment income............................................... 0.46 0.61 0.46 Net realized and unrealized gain on investments..................... 0.03 0.01 0.14 Total from investment operations.................................... 0.49 0.62 0.60 LESS DISTRIBUTIONS FROM: Net investment income............................................... (0.42) (0.53) (0.42) In excess of net investment income.................................. (0.01) 0 (0.01) Tax basis return of capital......................................... 0 (0.03) 0 Total distributions................................................. (0.43) (0.56) (0.43) NET ASSET VALUE END OF PERIOD....................................... $ 9.80 $ 9.74 $ 9.68 Total return (b).................................................... 5.12% 6.56% 6.36% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses.................................................... 0.92%(a) 0.91% 0.86%(a) Total expenses excluding indirectly paid expenses................. 0.90%(a) 0.90% 0.82%(a) Total expenses excluding waivers and reimbursements............... 1.47%(a) 1.33% 1.27%(a) Net investment income............................................. 6.24%(a) 6.31% 6.37%(a) Portfolio turnover rate............................................. 52% 74% 67% NET ASSETS END OF PERIOD (THOUSANDS)................................ $15,751 $22,684 $ 19,293
NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, JUNE 30, 1997 (D) 1996 (C) 1995 1994 1993 1992 CLASS B SHARES NET ASSET VALUE BEGINNING OF PERIOD........................ $ 9.75 $ 9.68 $ 9.62 $ 9.91 $ 9.88 $ 10.06 INCOME FROM INVESTMENT OPERATIONS: Net investment income........... 0.39 0.55 0.52 0.47 0.45 0.58 Net realized and unrealized gain (loss) on investments......... 0.04 0.01 0.03 (0.41) (0.05) (0.21) Total from investment operations.................... 0.43 0.56 0.55 0.06 0.40 0.37 LESS DISTRIBUTIONS FROM: Net investment income........... (0.36) (0.46) (0.48) (0.34) (0.37) (0.55) In excess of net investment income........................ (0.01) 0 (0.01) (0.01) 0 0 Tax basis return of capital..... 0 (0.03) 0 0 0 0 Total distributions............. (0.37) (0.49) (0.49) (0.35) (0.37) (0.55) NET ASSET VALUE END OF PERIOD... $ 9.81 $ 9.75 $ 9.68 $ 9.62 $ 9.91 $ 9.88 Total return (b)................ 4.53% 5.90% 5.81% 0.58% 4.16% 3.71% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses................ 1.67%(a) 1.63% 1.53% 1.50% 1.50% 1.36% Total expenses excluding indirectly paid expenses.... 1.65%(a) 1.62% 1.50% -- -- -- Total expenses excluding waivers and reimbursements.............. 2.23%(a) 2.09% 2.09% 1.93% 1.94% 2.03% Net investment income......... 5.52%(a) 5.63% 5.46% 4.05% 4.44% 5.50% Portfolio turnover rate......... 52% 74% 67% 34% 60% 41% NET ASSETS END OF PERIOD (THOUSANDS)................... $32,964 $ 44,096 $62,998 $95,761 $144,725 $186,742 JULY 1, 1991 (COMMENCEMENT OF CLASS OPERATIONS) TO SEPTEMBER 30, 1991 CLASS B SHARES NET ASSET VALUE BEGINNING OF PERIOD........................ $ 10.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income........... 0.18 Net realized and unrealized gain (loss) on investments......... 0.06 Total from investment operations.................... 0.24 LESS DISTRIBUTIONS FROM: Net investment income........... (0.18) In excess of net investment income........................ 0 Tax basis return of capital..... 0 Total distributions............. (0.18) NET ASSET VALUE END OF PERIOD... $ 10.06 Total return (b)................ 2.43% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses................ 1.19%(a) Total expenses excluding indirectly paid expenses.... -- Total expenses excluding waivers and reimbursements.............. 3.19%(a) Net investment income......... 6.42%(a) Portfolio turnover rate......... 2% NET ASSETS END OF PERIOD (THOUSANDS)................... $ 25,769
(a) Annualized. (b) Excluding applicable sales charges. (c) Calculation based on average shares outstanding. (d) The Fund changed its fiscal year end from September 30 to June 30. SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 14 KEYSTONE (logo and photo of CAPITAL PRESERVATION AND INCOME FUND capital) FINANCIAL HIGHLIGHTS (CONTINUED) (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
FEBRUARY 1, 1993 YEAR ENDED (COMMENCEMENT OF NINE MONTHS ENDED SEPTEMBER 30, CLASS OPERATIONS) TO JUNE 30, 1997 (D) 1996 (C) 1995 1994 SEPTEMBER 30, 1993 CLASS C SHARES NET ASSET VALUE BEGINNING OF PERIOD..................... $ 9.74 $ 9.67 $ 9.60 $ 9.90 $ 9.82 INCOME FROM INVESTMENT OPERATIONS: Net investment income................................... 0.40 0.54 0.52 0.40 0.23 Net realized and unrealized gain (loss) on investments........................................... 0.03 0.02 0.04 (0.35) 0.09 Total from investment operations........................ 0.43 0.56 0.56 0.05 0.32 LESS DISTRIBUTIONS FROM: Net investment income................................... (0.36) (0.46) (0.48) (0.34) (0.24) In excess of net investment income...................... (0.01) 0 (0.01) (0.01) 0 Tax basis return of capital............................. 0 (0.03) 0 0 0 Total distributions..................................... (0.37) (0.49) (0.49) (0.35) (0.24) NET ASSET VALUE END OF PERIOD........................... $ 9.80 $ 9.74 $ 9.67 $ 9.60 $ 9.90 Total return (b)........................................ 4.53% 5.91% 5.93% 0.48% 3.28% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses........................................ 1.67%(a) 1.64% 1.53% 1.50% 1.50%(a) Total expenses excluding indirectly paid expenses..... 1.65%(a) 1.62% 1.50% -- -- Total expenses excluding waivers and reimbursements... 2.23%(a) 2.09% 2.08% 1.94% 1.67%(a) Net investment income................................. 5.53%(a) 5.60% 5.51% 4.08% 2.91%(a) Portfolio turnover rate................................. 52% 74% 67% 34% 60% NET ASSETS END OF PERIOD (THOUSANDS).................... $ 4,105 $4,152 $2,755 $2,874 $2,077
(a) Annualized. (b) Excluding applicable sales charges. (c) Calculation based on average shares outstanding. (d) The Fund changed its fiscal year end from September 30 to June 30. SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 15 EVERGREEN INTERMEDIATE-TERM BOND FUND (logo and photo of a star) FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED TEN MONTHS ENDED JUNE 30, 1997 JUNE 30, 1996 (C) CLASS A SHARES NET ASSET VALUE BEGINNING OF PERIOD.................................... $ 10.10 $10.30 INCOME FROM INVESTMENT OPERATIONS: Net investment income.................................................. 0.60 0.48 Net realized and unrealized gain (loss) on investments................. 0.08 (0.20) Total from investment operations....................................... 0.68 0.28 LESS DISTRIBUTIONS FROM: Net investment income.................................................. (0.59) (0.48) Tax basis return of capital............................................ (0.02) 0 Total distributions.................................................... (0.61) (0.48) NET ASSET VALUE END OF PERIOD.......................................... $ 10.17 $10.10 Total return (b)....................................................... 6.88% 2.72% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses....................................................... 0.85% 0.82%(a) Total expenses excluding indirectly paid expenses.................... 0.85% -- Total expenses excluding waivers and reimbursements.................. 1.04% 1.10%(a) Net investment income................................................ 5.92% 6.30%(a) Portfolio turnover rate................................................ 86% 52% NET ASSETS END OF PERIOD (THOUSANDS)................................... $ 3,038 $2,943 MAY 2, 1995 (COMMENCEMENT OF CLASS OPERATIONS) THROUGH AUGUST 31, 1995 CLASS A SHARES NET ASSET VALUE BEGINNING OF PERIOD.................................... $ 9.98 INCOME FROM INVESTMENT OPERATIONS: Net investment income.................................................. 0.18 Net realized and unrealized gain (loss) on investments................. 0.33 Total from investment operations....................................... 0.51 LESS DISTRIBUTIONS FROM: Net investment income.................................................. (0.19) Tax basis return of capital............................................ 0 Total distributions.................................................... (0.19) NET ASSET VALUE END OF PERIOD.......................................... $10.30 Total return (b)....................................................... 5.17% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses....................................................... 0.80%(a) Total expenses excluding indirectly paid expenses.................... -- Total expenses excluding waivers and reimbursements.................. 1.38%(a) Net investment income................................................ 5.53%(a) Portfolio turnover rate................................................ 73% NET ASSETS END OF PERIOD (THOUSANDS)................................... $160
(a) Annualized. (b) Excluding applicable sales charges. (c) The Fund changed its fiscal year end from August 31 to June 30.
JANUARY 30, 1996 (COMMENCEMENT OF CLASS OPERATIONS) YEAR ENDED THROUGH JUNE 30, 1997 JUNE 30, 1996 CLASS B SHARES NET ASSET VALUE BEGINNING OF PERIOD....................................................... $ 10.10 $10.68 INCOME FROM INVESTMENT OPERATIONS: Net investment income..................................................................... 0.50 0.20 Net realized and unrealized gain (loss) on investments.................................... 0.08 (0.58) Total from investment operations.......................................................... 0.58 (0.38) LESS DISTRIBUTIONS FROM: Net investment income..................................................................... (0.49) (0.20) Tax basis return of capital............................................................... (0.02) 0 Total distributions....................................................................... (0.51) (0.20) NET ASSET VALUE END OF PERIOD............................................................. $ 10.17 $10.10 Total return (b).......................................................................... 5.91% (3.52%) RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses.......................................................................... 1.81% 1.80%(a) Total expenses excluding indirectly paid expenses....................................... 1.81% -- Total expenses excluding waivers and reimbursements..................................... 1.81% 1.89%(a) Net investment income................................................................... 5.00% 5.18%(a) Portfolio turnover rate................................................................... 86% 52% NET ASSETS END OF PERIOD (THOUSANDS)...................................................... $ 1,013 $402
(a) Annualized. (b) Excluding applicable sales charges. SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 16 EVERGREEN (logo and photo of a star) INTERMEDIATE-TERM BOND FUND FINANCIAL HIGHLIGHTS (CONTINUED) (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
APRIL 29, 1996 (COMMENCEMENT OF CLASS OPERATIONS) YEAR ENDED THROUGH JUNE 30, 1997 JUNE 30, 1996 CLASS C SHARES NET ASSET VALUE BEGINNING OF PERIOD....................................................... $ 10.10 $10.15 INCOME FROM INVESTMENT OPERATIONS: Net investment income..................................................................... 0.51 0.08 Net realized and unrealized gain (loss) on investments.................................... 0.07 (0.05) Total from investment operations.......................................................... 0.58 0.03 LESS DISTRIBUTIONS FROM: Net investment income..................................................................... (0.49) (0.08) Tax basis return of capital............................................................... (0.02) 0 Total distributions....................................................................... (0.51) (0.08) NET ASSET VALUE END OF PERIOD............................................................. $ 10.17 $10.10 Total return (b).......................................................................... 5.91% 0.33% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses.......................................................................... 1.80% 1.80%(a) Total expenses excluding indirectly paid expenses....................................... 1.80% -- Total expenses excluding waivers and reimbursements..................................... 1.80% 1.88%(a) Net investment income................................................................... 4.97% 5.30%(a) Portfolio turnover rate................................................................... 86% 52% NET ASSETS END OF PERIOD (THOUSANDS)...................................................... $29 $25
(a) Annualized. (b) Excluding applicable sales charges.
TEN MONTHS YEAR ENDED ENDED YEAR ENDED AUGUST 31, JUNE 30, 1997 JUNE 30, 1996 (b) 1995 1994 1993 CLASS Y SHARES NET ASSET VALUE BEGINNING OF PERIOD...... $ 10.10 $ 10.29 $ 9.93 $ 10.99 $ 10.56 INCOME FROM INVESTMENT OPERATIONS: Net investment income.................... 0.61 0.48 0.56 0.55 0.63 Net realized and unrealized gain (loss) on investments......................... 0.08 (0.19) 0.40 (0.86) 0.66 Total from investment operations......... 0.69 0.29 0.96 (0.31) 1.29 LESS DISTRIBUTIONS FROM: Net investment income.................... (0.60) (0.48) (0.56) (0.55) (0.64) Net realized gains on investments........ 0 0 (0.04) (0.20) (0.22) Tax basis return of capital.............. (0.02) 0 0 0 0 Total distributions...................... (0.62) (0.48) (0.60) (0.75) (0.86) NET ASSET VALUE END OF PERIOD............ $ 10.17 $ 10.10 $ 10.29 $ 9.93 $ 10.99 Total return............................. 6.97% 2.82% 10.13% (2.91%) 12.90% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses......................... 0.81% 0.80%(a) 0.69% 0.55% 0.55% Total expenses excluding indirectly paid expenses........................ 0.81% -- -- -- -- Total expenses excluding waivers and reimbursements....................... 0.81% 0.87%(a) 0.83% 0.83% 0.83% Net investment income.................. 5.97% 5.75%(a) 5.63% 5.32% 5.93% Portfolio turnover rate.................. 86% 52% 73% 69% 49% NET ASSETS END OF PERIOD (THOUSANDS)..... $ 156,346 $ 157,814 $95,961 $91,724 $86,892 NOVEMBER 1, 1991 (COMMENCEMENT OF CLASS OPERATIONS) THROUGH AUGUST 31, 1992 CLASS Y SHARES NET ASSET VALUE BEGINNING OF PERIOD...... $ 10.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income.................... 0.55 Net realized and unrealized gain (loss) on investments......................... 0.55 Total from investment operations......... 1.10 LESS DISTRIBUTIONS FROM: Net investment income.................... (0.54) Net realized gains on investments........ 0 Tax basis return of capital.............. 0 Total distributions...................... (0.54) NET ASSET VALUE END OF PERIOD............ $ 10.56 Total return............................. 11.29% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses......................... 0.55%(a) Total expenses excluding indirectly paid expenses........................ -- Total expenses excluding waivers and reimbursements....................... 0.86%(a) Net investment income.................. 6.49%(a) Portfolio turnover rate.................. 65% NET ASSETS END OF PERIOD (THOUSANDS)..... $ 66,695
(a) Annualized. (b) The Fund changed its fiscal year from August 31 to June 30. SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 17 (logo and picture KEYSTONE of stars) INTERMEDIATE TERM BOND FUND FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
ELEVEN MONTHS ENDED YEAR ENDED JULY 31, JUNE 30, 1997 (e) 1996 1995 1994 (c) CLASS A SHARES NET ASSET VALUE BEGINNING OF PERIOD................................. $ 8.73 $ 8.88 $ 8.84 $ 9.46 INCOME FROM INVESTMENT OPERATIONS: Net investment income............................................... 0.54 0.59 0.63 0.57 Net realized and unrealized gain (loss) on investments, closed futures contracts and foreign currency related transactions....... 0.18 (0.16) 0.02 (0.59 ) Total from investment operations.................................... 0.72 0.43 0.65 (0.02 ) LESS DISTRIBUTIONS FROM: Net investment income............................................... (0.52) (0.58) (0.57) (0.57 ) In excess of net investment income.................................. 0 0 (0.04) (0.02 ) Tax basis return of capital......................................... 0 0 0 (0.01 ) Total distributions................................................. (0.52) (0.58) (0.61) (0.60 ) NET ASSET VALUE END OF PERIOD....................................... $ 8.93 $ 8.73 $ 8.88 $ 8.84 Total return (b).................................................... 8.40% 4.95% 7.76% (0.29%) RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses.................................................... 1.12%(a) 1.10% 1.00% 1.00% Total expenses excluding indirectly paid expenses................. 1.10%(a) 1.08% -- -- Total expenses excluding waivers and reimbursements............... 1.58%(a) 1.54% 1.48% 1.80% Net investment income............................................. 6.43%(a) 6.57% 7.13% 6.81% Portfolio turnover rate............................................. 179% 231% 149% 280% NET ASSETS END OF PERIOD (THOUSANDS)................................ $10,341 $12,958 $14,558 $16,036 1993 CLASS A SHARES NET ASSET VALUE BEGINNING OF PERIOD................................. $ 9.23 INCOME FROM INVESTMENT OPERATIONS: Net investment income............................................... 0.70 Net realized and unrealized gain (loss) on investments, closed futures contracts and foreign currency related transactions....... 0.18 Total from investment operations.................................... 0.88 LESS DISTRIBUTIONS FROM: Net investment income............................................... (0.65) In excess of net investment income.................................. 0 Tax basis return of capital......................................... 0 Total distributions................................................. (0.65) NET ASSET VALUE END OF PERIOD....................................... $ 9.46 Total return (b).................................................... 9.88% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses.................................................... 1.52% Total expenses excluding indirectly paid expenses................. -- Total expenses excluding waivers and reimbursements............... 1.99% Net investment income............................................. 7.48% Portfolio turnover rate............................................. 160% NET ASSETS END OF PERIOD (THOUSANDS)................................ $18,032
YEAR ENDED JULY 31, 1992 1991 1990 1989 1988 CLASS A SHARES (CONTINUED) NET ASSET VALUE BEGINNING OF PERIOD....................... $ 8.64 $ 8.60 $ 9.11 $ 9.05 $ 9.61 INCOME FROM INVESTMENT OPERATIONS: Net investment income..................................... 0.71 0.72 0.67 0.69 0.72 Net realized and unrealized gain (loss) on investments, closed futures contracts and foreign currency related transactions............................................ 0.60 0.05 (0.45) 0.10 (0.45) Total from investment operations.......................... 1.31 0.77 0.22 0.79 0.27 LESS DISTRIBUTIONS FROM: Net investment income..................................... (0.71) (0.72) (0.70) (0.73) (0.83) In excess of net investment income........................ (0.01) (0.01) (0.03) 0 0 Total distributions....................................... (0.72) (0.73) (0.73) (0.73) (0.83) NET ASSET VALUE END OF PERIOD............................. $ 9.23 $ 8.64 $ 8.60 $ 9.11 $ 9.05 Total return (b).......................................... 15.65% 9.42% 2.71% 9.13% 2.95% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses.......................................... 1.88% 2.00% 2.00% 1.92% 1.30% Total expenses excluding indirectly paid expenses....... -- -- -- -- -- Total expenses excluding waivers and reimbursements..... 1.88% 2.06% 2.33% 2.19% 2.65% Net investment income................................... 7.85% 8.42% 7.90% 7.88% 7.48% Portfolio turnover rate................................... 90% 76% 107% 148% 208% NET ASSETS END OF PERIOD (THOUSANDS)...................... $19,288 $20,227 $23,694 $30,337 $38,615 FEBRUARY 13, 1987 (COMMENCEMENT OF OPERATIONS) THROUGH JULY 31, 1987 CLASS A SHARES (CONTINUED) NET ASSET VALUE BEGINNING OF PERIOD....................... $ 10.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income..................................... 0.17 Net realized and unrealized gain (loss) on investments, closed futures contracts and foreign currency related transactions............................................ (0.42) Total from investment operations.......................... (0.25) LESS DISTRIBUTIONS FROM: Net investment income..................................... (0.14) In excess of net investment income........................ 0 Total distributions....................................... (0.14) NET ASSET VALUE END OF PERIOD............................. $ 9.61 Total return (b).......................................... (2.50%) RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses.......................................... 1.00%(d) Total expenses excluding indirectly paid expenses....... -- Total expenses excluding waivers and reimbursements..... 12.47%(d) Net investment income................................... 6.86%(d) Portfolio turnover rate................................... 14% NET ASSETS END OF PERIOD (THOUSANDS)...................... $ 1,679
(a) Annualized. (b) Excluding applicable sales charges. (c) Calculation based on average shares outstanding. (d) Annualized for the period April 14, 1987 (Commencement of Investment Operations) to July 31, 1987. (e) The Fund changed its fiscal year end from July 31 to June 30. SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 18 KEYSTONE (logo and picture INTERMEDIATE TERM BOND FUND of stars) FINANCIAL HIGHLIGHTS (CONTINUED) (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
ELEVEN MONTHS ENDED YEAR ENDED JULY 31, JUNE 30, 1997 (d) 1996 1995 1994 (c) CLASS B SHARES NET ASSET VALUE BEGINNING OF PERIOD......................... $ 8.74 $ 8.89 $ 8.85 $ 9.47 INCOME FROM INVESTMENT OPERATIONS: Net investment income....................................... 0.47 0.52 0.56 0.49 Net realized and unrealized gain (loss) on investments, closed futures contracts and foreign currency related transactions.............................................. 0.20 (0.16) 0.02 (0.58) Total from investment operations............................ 0.67 0.36 0.58 (0.09) LESS DISTRIBUTIONS FROM: Net investment income....................................... (0.46) (0.51) (0.51) (0.49) In excess of net investment income.......................... 0 0 (0.03) (0.03) Tax basis return of capital................................. 0 0 0 (0.01) Total distributions......................................... (0.46) (0.51) (0.54) (0.53) NET ASSET VALUE END OF PERIOD............................... $ 8.95 $ 8.74 $ 8.89 $ 8.85 Total return (b)............................................ 7.81% 4.10% 6.87% (1.05%) RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses............................................ 1.87%(a) 1.85% 1.75% 1.75% Total expenses excluding indirectly paid expenses......... 1.85%(a) 1.83% -- -- Total expenses excluding waivers and reimbursements....... 2.35%(a) 2.32% 2.21% 2.36% Net investment income..................................... 5.68%(a) 5.82% 6.38% 5.48% Portfolio turnover rate..................................... 179% 231% 149% 280% NET ASSETS END OF PERIOD (THOUSANDS)........................ $11,368 $16,034 $17,985 $ 17,819 FEBRUARY 1, 1993 (DATE OF INITIAL PUBLIC OFFERING) THROUGH JULY 31, 1993 CLASS B SHARES NET ASSET VALUE BEGINNING OF PERIOD......................... $ 9.35 INCOME FROM INVESTMENT OPERATIONS: Net investment income....................................... 0.29 Net realized and unrealized gain (loss) on investments, closed futures contracts and foreign currency related transactions.............................................. 0.12 Total from investment operations............................ 0.41 LESS DISTRIBUTIONS FROM: Net investment income....................................... (0.29) In excess of net investment income.......................... 0 Tax basis return of capital................................. 0 Total distributions......................................... (0.29) NET ASSET VALUE END OF PERIOD............................... $ 9.47 Total return (b)............................................ 4.42% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses............................................ 1.76%(a) Total expenses excluding indirectly paid expenses......... -- Total expenses excluding waivers and reimbursements....... 2.71%(a) Net investment income..................................... 5.67%(a) Portfolio turnover rate..................................... 160% NET ASSETS END OF PERIOD (THOUSANDS)........................ $8,159
(a) Annualized. (b) Excluding applicable sales charges. (c) Calculation based on average shares outstanding. (d) The Fund changed its fiscal year end from July 31 to June 30.
ELEVEN MONTHS ENDED YEAR ENDED JULY 31, JUNE 30, 1997 (d) 1996 1995 1994 (c) CLASS C SHARES NET ASSET VALUE BEGINNING OF PERIOD.......................... $ 8.74 $ 8.89 $ 8.85 $ 9.46 INCOME FROM INVESTMENT OPERATIONS: Net investment income........................................ 0.46 0.52 0.55 0.49 Net realized and unrealized gain (loss) on investments, closed futures contracts and foreign currency related transactions............................................... 0.20 (0.16) 0.03 (0.57) Total from investment operations............................. 0.66 0.36 0.58 (0.08) LESS DISTRIBUTIONS FROM: Net investment income........................................ (0.46) (0.51) (0.51) (0.49) In excess of net investment income........................... 0 0 (0.03) (0.03) Tax basis return of capital.................................. 0 0 0 (0.01) Total distributions.......................................... (0.46) (0.51) (0.54) (0.53) NET ASSET VALUE END OF PERIOD................................ $ 8.94 $ 8.74 $ 8.89 $ 8.85 Total return (b)............................................. 7.70% 4.10% 6.87% (0.95%) RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses............................................. 1.87%(a) 1.85% 1.75% 1.75% Total expenses excluding indirectly paid expenses.......... 1.85%(a) 1.83% -- -- Total expenses excluding waivers and reimbursements........ 2.35%(a) 2.31% 2.23% 2.37% Net investment income...................................... 5.68%(a) 5.82% 6.37% 5.44% Portfolio turnover rate...................................... 179% 231% 149% 280% NET ASSETS END OF PERIOD (THOUSANDS)......................... $ 7,259 $9,084 $10,185 $ 13,086 FEBRUARY 1, 1993 (DATE OF INITIAL PUBLIC OFFERING) THROUGH JULY 31, 1993 CLASS C SHARES NET ASSET VALUE BEGINNING OF PERIOD.......................... $ 9.35 INCOME FROM INVESTMENT OPERATIONS: Net investment income........................................ 0.29 Net realized and unrealized gain (loss) on investments, closed futures contracts and foreign currency related transactions............................................... 0.11 Total from investment operations............................. 0.40 LESS DISTRIBUTIONS FROM: Net investment income........................................ (0.29) In excess of net investment income........................... 0 Tax basis return of capital.................................. 0 Total distributions.......................................... (0.29) NET ASSET VALUE END OF PERIOD................................ $ 9.46 Total return (b)............................................. 4.31% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses............................................. 1.77%(a) Total expenses excluding indirectly paid expenses.......... -- Total expenses excluding waivers and reimbursements........ 2.61%(a) Net investment income...................................... 5.61%(a) Portfolio turnover rate...................................... 160% NET ASSETS END OF PERIOD (THOUSANDS)......................... $7,522
(a) Annualized. (b) Excluding applicable sales charges. (c) Calculation based on average shares outstanding. (d) The Fund changed its fiscal year end from July 31 to June 30. SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 19 (logo and picture EVERGREEN of president) INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
MAY 2, 1995 (COMMENCEMENT TEN MONTHS OF CLASS OPERATIONS) YEAR ENDED ENDED THROUGH JUNE 30, 1997 JUNE 30, 1996 (c) AUGUST 31, 1995 CLASS A SHARES NET ASSET VALUE BEGINNING OF PERIOD.................................... $ 9.99 $ 10.15 $ 9.95 INCOME FROM INVESTMENT OPERATIONS: Net investment income.................................................. 0.55 0.46 0.19 Net realized and unrealized gain (loss) on investments................. 0.03 (0.16) 0.20 Total from investment operations....................................... 0.58 0.30 0.39 LESS DISTRIBUTIONS FROM: Net investment income.................................................. (0.55) (0.46) (0.19) Total distributions.................................................... (0.55) (0.46) (0.19) NET ASSET VALUE END OF PERIOD.......................................... $ 10.02 $ 9.99 $10.15 Total return (b)....................................................... 6.00% 3.00% 3.90% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses....................................................... 0.86% 0.81%(a) 0.80%(a) Total expenses excluding indirectly paid expenses.................... 0.86% -- -- Total expenses excluding waivers and reimbursements.................. 0.94% 1.06%(a) 1.34%(a) Net investment income................................................ 5.47% 5.49%(a) 5.42%(a) Portfolio turnover rate................................................ 68% 28% 45% NET ASSETS END OF PERIOD (THOUSANDS)................................... $ 571 $ 497 $ 9
(a) Annualized. (b) Excluding applicable sales charges. (c) The Fund changed its fiscal year end from August 31 to June 30.
FEBRUARY 9, 1996 (COMMENCEMENT OF CLASS OPERATIONS) YEAR ENDED THROUGH JUNE 30, 1997 JUNE 30, 1996 CLASS B SHARES NET ASSET VALUE BEGINNING OF PERIOD....................................................... $ 9.99 $10.38 INCOME FROM INVESTMENT OPERATIONS: Net investment income..................................................................... 0.45 0.18 Net realized and unrealized gain (loss) on investments.................................... 0.04 (0.39) Total from investment operations.......................................................... 0.49 (0.21) LESS DISTRIBUTIONS FROM: Net investment income..................................................................... (0.46) (0.18) Total distributions....................................................................... (0.46) (0.18) NET ASSET VALUE END OF PERIOD............................................................. $ 10.02 $ 9.99 Total return (b).......................................................................... 5.03% (1.99)% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses.......................................................................... 1.81% 1.80%(a) Total expenses excluding indirectly paid expenses....................................... 1.81% -- Total expenses excluding waivers and reimbursements..................................... 1.89% 1.91%(a) Net investment income................................................................... 4.53% 4.62%(a) Portfolio turnover rate................................................................... 68% 28% NET ASSETS END OF PERIOD (THOUSANDS)...................................................... $ 742 $ 359
(a) Annualized. (b) Excluding applicable sales charges. SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 20 EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND (logo and picture of FINANCIAL HIGHLIGHTS (CONTINUED) George (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Washington)
APRIL 10, 1996 (COMMENCEMENT OF CLASS OPERATIONS) YEAR ENDED THROUGH JUNE 30, 1997 JUNE 30, 1996 CLASS C SHARES NET ASSET VALUE BEGINNING OF PERIOD....................................................... $ 9.99 $10.01 INCOME FROM INVESTMENT OPERATIONS: Net investment income..................................................................... 0.40 0.11 Net realized and unrealized gain (loss) on investments.................................... 0.09 (0.02) Total from investment operations.......................................................... 0.49 0.09 LESS DISTRIBUTIONS FROM: Net investment income..................................................................... (0.46) (0.11) Total distributions....................................................................... (0.46) (0.11) NET ASSET VALUE END OF PERIOD............................................................. $ 10.02 $ 9.99 Total return (b).......................................................................... 5.03% 0.89% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses.......................................................................... 1.81% 1.80%(a) Total expenses excluding indirectly paid expenses....................................... 1.81% -- Total expenses excluding waivers and reimbursements..................................... 1.90% 1.91%(a) Net investment income................................................................... 4.53% 4.47%(a) Portfolio turnover rate................................................................... 68% 28% NET ASSETS END OF PERIOD (THOUSANDS)...................................................... $ 12 $ 32
(a) Annualized. (b) Excluding applicable sales charges.
TEN MONTHS YEAR ENDED ENDED YEAR ENDED AUGUST 31, JUNE 30, 1997 JUNE 30, 1996 (b) 1995 1994 1993 CLASS Y SHARES NET ASSET VALUE BEGINNING OF PERIOD... $ 9.99 $ 10.15 $ 9.92 $ 10.61 $ 10.41 INCOME FROM INVESTMENT OPERATIONS: Net investment income................. 0.56 0.46 0.55 0.54 0.57 Net realized and unrealized gain (loss) on investments............... 0.03 (0.16) 0.23 (0.64) 0.24 Total from investment operations...... 0.59 0.30 0.78 (0.10) 0.81 LESS DISTRIBUTIONS FROM: Net investment income................. (0.56) (0.46) (0.55) (0.54) (0.58) Net realized gains on investments..... 0 0 0 (0.05) (0.03) Total distributions................... (0.56) (0.46) (0.55) (0.59) (0.61) NET ASSET VALUE END OF PERIOD......... $ 10.02 $ 9.99 $ 10.15 $ 9.92 $ 10.61 Total return.......................... 6.08% 3.00% 8.16% (0.99%) 8.03% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses...................... 0.81% 0.80%(a) 0.70% 0.55% 0.55% Total expenses excluding indirectly paid expenses..................... 0.81% -- -- -- -- Total expenses excluding waivers and reimbursements.................... 0.89% 0.87%(a) 0.84% 0.82% 0.83% Net investment income............... 5.52% 5.47%(a) 5.54% 5.22% 5.48% Portfolio turnover rate............... 68% 28% 45% 45% 31% NET ASSETS END OF PERIOD (THOUSANDS)......................... $71,588 $87,004 $106,066 $106,448 $119,172 NOVEMBER 1, 1991 (COMMENCEMENT OF CLASS OPERATIONS) THROUGH AUGUST 31, 1992 CLASS Y SHARES NET ASSET VALUE BEGINNING OF PERIOD... $ 10.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income................. 0.48 Net realized and unrealized gain (loss) on investments............... 0.40 Total from investment operations...... 0.88 LESS DISTRIBUTIONS FROM: Net investment income................. (0.47) Net realized gains on investments..... 0 Total distributions................... (0.47) NET ASSET VALUE END OF PERIOD......... $ 10.41 Total return.......................... 9.04% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses...................... 0.55%(a) Total expenses excluding indirectly paid expenses..................... -- Total expenses excluding waivers and reimbursements.................... 0.86%(a) Net investment income............... 5.68%(a) Portfolio turnover rate............... 47% NET ASSETS END OF PERIOD (THOUSANDS)......................... $ 87,648
(a) Annualized. (b) The Fund changed its fiscal year end from August 31 to June 30. SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 21 (logo and picture of EVERGREEN flag) SHORT-INTERMEDIATE BOND FUND FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED SIX MONTHS YEAR ENDED JUNE 30, ENDED DECEMBER 31, 1997 1996 JUNE 30, 1995 (c) 1994 1993 CLASS A SHARES NET ASSET VALUE BEGINNING OF PERIOD................................. $ 9.82 $ 10.02 $ 9.52 $ 10.42 $ 10.41 INCOME FROM INVESTMENT OPERATIONS: Net investment income............................................... 0.63 0.63 0.32 0.65 0.65 Net realized and unrealized gain (loss) on investments.............. 0.02 (0.19) 0.50 (0.91) 0.19 Total from investment operations.................................... 0.65 0.44 0.82 (0.26) 0.84 LESS DISTRIBUTIONS FROM: Net investment income............................................... (0.64) (0.64) (0.32) (0.64) (0.65) In excess of net investment income.................................. 0 0 0 0 0 Net realized gains on investments................................... 0 0 0 0 (0.18) Total distributions................................................. (0.64) (0.64) (0.32) (0.64) (0.83) NET ASSET VALUE END OF PERIOD....................................... $ 9.83 $ 9.82 $ 10.02 $ 9.52 $ 10.42 Total return (b).................................................... 6.77% 4.45% 8.77% (2.57%) 8.29% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses.................................................... 0.72% 0.79% 0.77%(a) 0.75% 0.93% Total expenses excluding indirectly paid expenses................. 0.72% -- -- -- -- Total expenses excluding waivers and reimbursements............... -- -- -- -- -- Net investment income............................................. 6.37% 6.35% 6.58%(a) 6.46% 6.15% Portfolio turnover rate............................................. 45% 76% 34% 48% 73% NET ASSETS END OF PERIOD (THOUSANDS)................................ $17,703 $18,630 $18,898 $19,127 $22,865
JANUARY 28, 1989 (COMMENCEMENT OF CLASS YEAR ENDED NINE MONTHS OPERATIONS) DECEMBER 31, ENDED YEAR ENDED THROUGH 1992 1991 DECEMBER 31, 1990 (d) MARCH 31, 1990 MARCH 31, 1989 CLASS A SHARES (CONTINUED) NET ASSET VALUE BEGINNING OF PERIOD.......... $ 10.54 $ 9.99 $ 9.72 $ 9.50 $ 9.70 INCOME FROM INVESTMENT OPERATIONS: Net investment income........................ 0.71 0.73 0.55 0.79 0.10 Net realized and unrealized gain (loss) on investments................................ (0.06) 0.60 0.24 0.20 (0.14) Total from investment operations............. 0.65 1.33 0.79 0.99 (0.04) LESS DISTRIBUTIONS FROM: Net investment income........................ (0.67) (0.70) (0.52) (0.77) (0.16) In excess of net investment income........... 0 (0.01) 0 0 0 Net realized gains on investments............ (0.11) (0.07) 0 0 0 Total distributions.......................... (0.78) (0.78) (0.52) (0.77) (0.16) NET ASSET VALUE END OF PERIOD................ $ 10.41 $ 10.54 $ 9.99 $ 9.72 $ 9.50 Total return (b)............................. 6.39% 13.74% 8.31% 10.51% (0.31%) RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses............................. 0.90% 0.80% 1.01%(a) 1.00% 1.78%(a) Total expenses excluding indirectly paid expenses................................. -- -- -- -- -- Total expenses excluding waivers and reimbursements........................... -- 0.89% 1.82%(a) 1.50% -- Net investment income...................... 6.79% 7.30% 7.53%(a) 7.57% 6.10%(a) Portfolio turnover rate...................... 66% 53% 27% 32% 18% NET ASSETS END OF PERIOD (THOUSANDS)......... $21,488 $17,680 $11,765 $6,496 $ 11,580
(a) Annualized. (b) Excluding applicable sales charges. (c) The Fund changed its fiscal year end from December 31 to June 30. (d) The Fund changed its fiscal year end from March 31 to December 31. SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 22 EVERGREEN SHORT-INTERMEDIATE BOND FUND (logo and picture FINANCIAL HIGHLIGHTS (CONTINUED) of flag) (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED SIX MONTHS YEAR ENDED JUNE 30, ENDED DECEMBER 31, 1997 1996 JUNE 30, 1995 (c) 1994 CLASS B SHARES NET ASSET VALUE BEGINNING OF PERIOD............ $ 9.84 $ 10.04 $ 9.54 $ 10.44 INCOME FROM INVESTMENT OPERATIONS: Net investment income.......................... 0.54 0.55 0.28 0.58 Net realized and unrealized gain (loss) on investments.................................. 0.01 (0.19) 0.50 (0.92) Total from investment operations............... 0.55 0.36 0.78 (0.34) LESS DISTRIBUTIONS FROM: Net investment income.......................... (0.54) (0.56) (0.28) (0.56) Net realized gains on investments.............. 0 0 0 0 Total distributions............................ (0.54) (0.56) (0.28) (0.56) NET ASSET VALUE END OF PERIOD.................. $ 9.85 $ 9.84 $ 10.04 $ 9.54 Total return (b)............................... 5.78% 3.62% 8.31% (3.33%) RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses............................... 1.62% 1.69% 1.67%(a) 1.50% Total expenses excluding indirectly paid expenses................................... 1.62% -- -- -- Net investment income........................ 5.48% 5.45% 5.68%(a) 5.75% Portfolio turnover rate........................ 45% 76% 34% 48% NET ASSETS END OF PERIOD (THOUSANDS)........... $22,237 $21,006 $17,366 $17,625 JANUARY 25, 1993 (COMMENCEMENT OF CLASS OPERATIONS) THROUGH DECEMBER 31, 1993 CLASS B SHARES NET ASSET VALUE BEGINNING OF PERIOD............ $10.57 INCOME FROM INVESTMENT OPERATIONS: Net investment income.......................... 0.58 Net realized and unrealized gain (loss) on investments.................................. 0.05 Total from investment operations............... 0.63 LESS DISTRIBUTIONS FROM: Net investment income.......................... (0.58) Net realized gains on investments.............. (0.18) Total distributions............................ (0.76) NET ASSET VALUE END OF PERIOD.................. $10.44 Total return (b)............................... 6.08% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses............................... 1.57%(a) Total expenses excluding indirectly paid expenses................................... -- Net investment income........................ 5.42%(a) Portfolio turnover rate........................ 73% NET ASSETS END OF PERIOD (THOUSANDS)........... $8,876
(a) Annualized. (b) Excluding applicable sales charges. (c) The Fund changed its fiscal year end from December 31 to June 30.
YEAR ENDED SIX MONTHS JUNE 30, ENDED 1997 1996 JUNE 30, 1995 (c) CLASS C SHARES NET ASSET VALUE BEGINNING OF PERIOD.................................. $ 9.84 $10.05 $ 9.55 INCOME FROM INVESTMENT OPERATIONS: Net investment income................................................ 0.54 0.55 0.26 Net realized and unrealized gain (loss) on investments............... 0.01 (0.20) 0.50 Total from investment operations..................................... 0.55 0.35 0.76 LESS DISTRIBUTIONS FROM: Net investment income................................................ (0.54) (0.56) (0.26) Total distributions.................................................. (0.54) (0.56) (0.26) NET ASSET VALUE END OF PERIOD........................................ $ 9.85 $ 9.84 $ 10.05 Total return (b)..................................................... 5.77% 3.51% 8.23% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses..................................................... 1.62% 1.69% 1.67%(a) Total expenses excluding indirectly paid expenses.................. 1.62% -- -- Net investment income.............................................. 5.47% 5.46% 5.69%(a) Portfolio turnover rate............................................ 45% 76% 34% NET ASSETS END OF PERIOD (THOUSANDS)................................. $1,029 $1,155 $ 527 SEPTEMBER 6, 1994 (COMMENCEMENT OF CLASS OPERATIONS) THROUGH DECEMBER 31, 1994 CLASS C SHARES NET ASSET VALUE BEGINNING OF PERIOD.................................. $ 9.85 INCOME FROM INVESTMENT OPERATIONS: Net investment income................................................ 0.18 Net realized and unrealized gain (loss) on investments............... (0.30) Total from investment operations..................................... (0.12) LESS DISTRIBUTIONS FROM: Net investment income................................................ (0.18) Total distributions.................................................. (0.18) NET ASSET VALUE END OF PERIOD........................................ $ 9.55 Total return (b)..................................................... (1.27%) RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses..................................................... 1.65%(a) Total expenses excluding indirectly paid expenses.................. -- Net investment income.............................................. 5.87%(a) Portfolio turnover rate............................................ 48% NET ASSETS END OF PERIOD (THOUSANDS)................................. $ 512
(a) Annualized. (b) Excluding applicable sales charges. (c) The Fund changed its fiscal year end from December 31 to June 30. SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 23 EVERGREEN (logo and a picture SHORT-INTERMEDIATE BOND FUND of flag) FINANCIAL HIGHLIGHTS (CONTINUED) (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED SIX MONTHS JUNE 30, ENDED YEAR ENDED DECEMBER 31, 1997 1996 JUNE 30, 1995 (b) 1994 1993 1992 CLASS Y SHARES NET ASSET VALUE BEGINNING OF PERIOD... $ 9.82 $ 10.02 $ 9.52 $ 10.43 $ 10.41 $ 10.54 INCOME FROM INVESTMENT OPERATIONS: Net investment income................. 0.64 0.64 0.33 0.65 0.69 0.70 Net realized and unrealized gain (loss) on investments............... 0.02 (0.19) 0.49 (0.91) 0.19 (0.02) Total from investment operations...... 0.66 0.45 0.82 (0.26) 0.88 0.68 LESS DISTRIBUTIONS FROM: Net investment income................. (0.65) (0.65) (0.32) (0.65) (0.68) (0.70) In excess of net investment income.... 0 0 0 0 0 0 Net realized gains on investments..... 0 0 0 0 (0.18) (0.11) Total distributions................... (0.65) (0.65) (0.32) (0.65) (0.86) (0.81) NET ASSET VALUE END OF PERIOD......... $ 9.83 $ 9.82 $ 10.02 $ 9.52 $ 10.43 $ 10.41 Total return.......................... 6.88% 4.63% 8.80% (2.55%) 8.67% 6.64% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses...................... 0.62% 0.69% 0.67%(a) 0.65% 0.66% 0.69% Total expenses excluding indirectly paid expenses..................... 0.62% -- -- -- -- -- Net investment income............... 6.48% 6.45% 6.68%(a) 6.56% 6.41% 6.67% Portfolio turnover rate............... 45% 76% 34% 48% 73% 66% NET ASSETS END OF PERIOD (THOUSANDS)......................... $357,706 $352,095 $ 347,050 $345,025 $376,445 $324,068 JANUARY 4, 1991 (COMMENCEMENT OF CLASS OPERATIONS) THROUGH DECEMBER 31, 1991 CLASS Y SHARES NET ASSET VALUE BEGINNING OF PERIOD... $ 10.06 INCOME FROM INVESTMENT OPERATIONS: Net investment income................. 0.71 Net realized and unrealized gain (loss) on investments............... 0.56 Total from investment operations...... 1.27 LESS DISTRIBUTIONS FROM: Net investment income................. (0.71) In excess of net investment income.... (0.01) Net realized gains on investments..... (0.07) Total distributions................... (0.79) NET ASSET VALUE END OF PERIOD......... $ 10.54 Total return.......................... 13.80% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses...................... 0.69%(a) Total expenses excluding indirectly paid expenses..................... -- Net investment income............... 7.12%(a) Portfolio turnover rate............... 53% NET ASSETS END OF PERIOD (THOUSANDS)......................... $ 256,254
(a) Annualized. (b) The Fund changed its fiscal year end from December 31 to June 30. SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 24 KEYSTONE CAPITAL PRESERVATION AND INCOME FUND (logo and picture of capital) SCHEDULE OF INVESTMENTS June 30, 1997
PRINCIPAL AMOUNT VALUE
ADJUSTABLE-RATE MORTGAGE SECURITIES-- 91.3% FHLMC-- 44.4% $1,291,156 FHLMC Pool #846163, Cap 13.08%, Margin 1.99% + WTAL, Resets Annually 7.66%, 7/1/30...................... $ 1,349,465 1,507,099 FHLMC Pool #605386, Cap 12.89%, Margin 2.12% + CMT, Resets Annually 7.95%, 9/1/17...................... 1,582,212 1,637,125 FHLMC Pool #605343, Cap 13.60%, Margin 2.13% + CMT, Resets Annually 7.83%, 3/1/19...................... 1,692,341 141,104 FHLMC Pool #645062, Cap 14.11%, Margin 2.31% + CMT, Resets Annually 8.10%, 5/1/19...................... 146,461 145,638 FHLMC Pool #785114, Cap 13.23%, Margin 2.13% + CMT, Resets Annually 7.81%, 7/1/19...................... 153,147 587,551 FHLMC Pool #865220, Cap 15.05%, Margin 2.35% + WTAL, Resets Triennially 8.37%, 4/1/20...................... 606,741 69,528 FHLMC Pool #785147, Cap 12.79%, Margin 2.02% + CMT, Resets Annually 7.68%, 5/1/20...................... 72,069 725,921 FHLMC Pool #606541, Cap 13.56%, Margin 2.04% + CMT, Resets Annually 7.71%, 3/1/21...................... 761,084 2,257,810 FHLMC Pool #845039, Cap 12.50%, Margin 2.09% + CMT, Resets Annually 7.82%, 10/1/21..................... 2,338,245 1,369,007 FHLMC Pool #606679, Cap 12.07%, Margin 2.16% + CMT, Resets Annually 7.97%, 10/1/21..................... 1,437,882 1,916,889 FHLMC Pool #845063, Cap 12.05%, Margin 2.18% + CMT, Resets Annually 7.91%, 11/1/21..................... 1,991,168 2,263,629 FHLMC Pool #845070, Cap 11.84%, Margin 2.12% + CMT, Resets Annually 7.80%, 1/1/22...................... 2,359,834 PRINCIPAL AMOUNT VALUE ADJUSTABLE-RATE MORTGAGE SECURITIES-- CONTINUED FHLMC-- CONTINUED $1,088,728 FHLMC Pool #845082, Cap 12.34%, Margin 1.98% + CMT, Resets Annually 7.58%, 3/1/22...................... $ 1,122,071 4,051,462 FHLMC Pool #607352, Cap 13.62%, Margin 2.17% + CMT, Resets Annually 7.84%, 4/1/22...................... 4,267,972 3,452,568 FHLMC Pool #846298, Cap 13.04%, Margin 1.85% + CMT, Resets Annually 7.44%, 8/1/22...................... 3,589,048 TOTAL FHLMC.......................... 23,469,740 FNMA-- 46.9% 1,402,664 FNMA Pool #124497, Cap 12.97%, Margin 2.80% + CMT, Resets Annually 7.78%, 9/1/22...................... 1,477,188 1,040,611 FNMA Pool #094564, Cap 15.86%, Margin 1.98% + CMT, Resets Annually 7.70%, 1/1/16...................... 1,088,094 448,069 FNMA Pool #092086, Cap 15.47%, Margin 2.08% + CMT, Resets Annually 7.85%, 10/1/16..................... 466,691 739,969 FNMA Pool #070033, Cap 14.35%, Margin 1.75% + CMT, Resets Annually 7.50%, 10/1/17..................... 768,872 3,318,250 FNMA Pool #070119, Cap 12.01%, Margin 2.00% + CMT, Resets Annually 7.68%, 11/1/17..................... 3,450,980 302,549 FNMA Pool #062610, Cap 12.75%, Margin 2.13% + CMT, Resets Annually 7.75%, 6/1/18...................... 316,826 2,589,728 FNMA Pool #090678, Cap 13.14%, Margin 2.18% + CMT, Resets Annually 7.91%, 9/1/18...................... 2,732,163 1,059,213 FNMA Pool #124015, Cap 13.24%, Margin 2.57% + CMT, Resets Annually 7.57%, 11/1/18..................... 1,100,925
(CONTINUED) 25 KEYSTONE CAPITAL PRESERVATION AND INCOME FUND (logo and picture of capital) SCHEDULE OF INVESTMENTS (CONTINUED) June 30, 1997
PRINCIPAL AMOUNT VALUE
ADJUSTABLE-RATE MORTGAGE SECURITIES-- CONTINUED FNMA-- CONTINUED $ 311,452 FNMA Pool #114714, Cap 12.62%, Margin 1.75% + CMT, Resets Annually 7.47%, 3/1/19.............$ 323,814 307,339 FNMA Pool #105007, Cap 13.13%, Margin 2.03% + CMT, Resets Annually 7.85%, 7/1/19............. 318,240 1,274,325 FNMA Pool #095405, Cap 13.70%, Margin 2.08% + CMT, Resets Annually 7.83%, 12/1/19............ 1,321,316 162,598 FNMA Pool #391290, Cap 12.68%, Margin 2.72% + CMT, Resets Annually 7.74%, 2/1/17............. 167,096 539,539 FNMA Pool #102905, Cap 13.08%, Margin 2.00% + CMT, Resets Annually 7.74%, 7/1/20............. 567,358 481,731 FNMA Pool #142963, Cap 11.03%, Margin 2.63% + CMT, Resets Annually 7.45%, 1/1/22............. 498,591 6,564,994 FNMA Pool #124289, Cap 13.44%, Margin 2.01% + CMT, Resets Annually 7.70%, 9/1/21............. 6,889,171 990,524 FNMA Pool #124204, Cap 13.60%, Margin 2.01% + CMT, Resets Annually 7.72%, 1/1/22............. 1,038,970 252,868 FNMA Pool #070327, Cap 12.95%, Margin 2.75% + CMT, Resets Annually 7.60%, 6/1/19............. 262,510 PRINCIPAL AMOUNT VALUE ADJUSTABLE-RATE MORTGAGE SECURITIES-- CONTINUED FNMA-- CONTINUED $1,865,470 FNMA Pool #124945, Cap 12.73%, Margin 2.11% + CMT, Resets Annually 7.81%, 1/1/31.............$ 1,966,914 TOTAL FNMA.................. 24,755,719 TOTAL ADJUSTABLE-RATE MORTGAGE SECURITIES (COST-- $47,698,037)...... 48,225,459 FIXED RATE MORTGAGE SECURITIES-- 2.2% FHLMC-- 0.1% 24,914 FHLMC CMO, Series 11 Class 11C, (Est. Mat. 1998) (b) 9.50%, 4/15/19............ 25,771 FNMA-- 2.1% 355,662 FNMA Pool #100051 9.50%, 4/1/05............. 371,778 462,692 FNMA Pool #002497 11.00%, 1/1/16............ 510,798 230,612 FNMA Pool #058442 11.00%, 1/1/18............ 254,462 TOTAL FNMA.................. 1,137,038 TOTAL FIXED RATE MORTGAGE SECURITIES (COST-- $1,158,066)....... 1,162,809 U.S. TREASURY NOTES-- 3.7% (COST-- $1,958,136) 1,950,000 U.S. Treasury Notes 6.63%, 4/30/02............ 1,967,979 REPURCHASE AGREEMENT-- 1.4% (COST-- $742,000) 742,000 Keystone Joint Repurchase Agreement (Investments in repurchase agreements, in a joint trading account, 6.04% dated 6/30/97, due 7/1/97, maturity value $742,125 (a))............. 742,000 TOTAL INVESTMENTS (COST-- $51,556,239)...... 98.6% 52,098,247 OTHER ASSETS AND LIABILITIES-- NET......... 1.4 721,440 NET ASSETS--................ 100.0% $52,819,687
(a) The repurchase agreements are fully collateralized by U.S. government and/or agency obligations based on market prices at June 30, 1997. (b) The estimated maturity of a Collateralized Motgage Obligation (CMO) is based on current and projected prepayment rates. Changes in interest rates can cause the estimated maturity to differ from the listed dates. LEGEND OF PORTFOLIO ABBREVIATIONS CMT-- 1, 3, or 5 year Constant Maturity Treasury Index FHLMC-- Federal Home Loan Mortgage Corporation FNMA-- Federal National Mortgage Association WTAL-- 1 or 3 year Weekly Treasury Average Lookback Index SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 26 EVERGREEN (logo and picture INTERMEDIATE-TERM BOND FUND of star) SCHEDULE OF INVESTMENTS June 30, 1997
PRINCIPAL AMOUNT VALUE
CORPORATE BONDS-- 19.2% BANKS-- 5.0% $ 500,000 Cenfed Financial Corp., Senior Debenture (a), 11.17%, 12/15/01................. $ 533,750 800,000 Harris Bancorp., 9.38%, 6/1/01.................... 868,088 2,000,000 NationsBank Corp., 8.13%, 6/15/02................... 2,108,780 4,000,000 NBD Bank N.A., Subordinated Note, 8.25%, 11/1/24................... 4,461,932 7,972,550 FINANCE & INSURANCE-- 7.8% 6,500,000 Associates Corporation North America, Note, 5.96%, 5/15/37................... 6,514,196 2,500,000 General Electric Capital Corp., 6.29%, 12/15/07.................. 2,473,247 1,000,000 Goldman Sachs Group L.P. (a), 6.38%, 6/15/00................... 990,333 1,500,000 Grand Metropolitan Investment Corp., 6.50%, 9/15/99................... 1,504,614 1,000,000 KFW International Finance, Guaranteed Note, 8.85%, 6/15/99................... 1,046,610 12,529,000 INDUSTRIAL SPECIALTY PRODUCTS & SERVICES-- 3.2% 2,000,000 Baxter International, Inc., 9.25%, 12/15/99.................. 2,125,250 600,000 Deere & Co., 8.95%, 6/15/19................... 673,289 2,000,000 Jet Equipment Trust, (a) 9.41%, 6/15/10................... 2,292,488 5,091,027 UTILITIES-- 3.2% 3,100,000 ALLTEL Corp., 6.50%, 11/1/13................... 2,857,199 2,000,000 Carolina Power & Light Co., 8.63%, 9/15/21................... 2,272,160 5,129,359 TOTAL CORPORATE BONDS (COST $30,200,050)............... 30,721,936 PRINCIPAL AMOUNT VALUE MORTGAGE-BACKED SECURITIES-- 20.7% Federal Home Loan Mortgage Corp., $ 2,521,993 6.55%, 9/1/26...................... $ 2,593,539 2,027,061 7.50%, 5/1/09...................... 2,058,734 1,210,345 8.00%, 10/1/25..................... 1,241,776 1,293,208 Federal National Mortgage Association, 6.69%, 12/1/25................... 1,328,618 Government National Mortgage Association, 1,400,389 6.00%, 6/20/26..................... 1,406,241 8,356,714 6.50%, 10/15/23-- 10/20/26......... 8,362,955 3,922,487 7.00%, 9/20/25-- 3/15/26........... 3,919,730 3,087,455 7.13%, 7/20/25..................... 3,182,360 3,599,131 7.50%, 9/15/23-- 3/15/26........... 3,616,198 3,144,302 8.00%, 10/15/24.................... 3,216,030 1,209,660 9.00%, 4/15/20-- 8/15/21........... 1,278,837 563,266 9.50%, 2/15/21..................... 607,799 414,383 Paine Webber Trust P-3, 9.00%, 10/1/12................... 417,549 TOTAL MORTGAGE-BACKED SECURITIES (COST $33,064,340)............... 33,230,366 U. S. AGENCY OBLIGATIONS-- 3.7% 2,500,000 Farm Credit Systems Financial Assistance Co., 8.80%, 6/10/05................... 2,814,268 3,000,000 Federal Home Loan Bank, Consolidated Bond, 7.70%, 9/20/04................... 3,174,930 TOTAL U. S. AGENCY OBLIGATIONS (COST $5,651,434)................ 5,989,198 U. S. TREASURY OBLIGATIONS-- 28.0% U.S. Treasury Bonds: 11,450,000 6.88%, 8/15/25..................... 11,489,354 4,500,000 7.50%, 11/15/16.................... 4,810,779 1,400,000 8.75%, 5/15/17..................... 1,684,812 3,950,000 8.88%, 8/15/17..................... 4,810,357 U.S. Treasury Notes: 1,400,000 5.13%, 12/31/98.................... 1,383,812 12,900,000 5.63%, 8/31/97..................... 12,904,024 6,100,000 6.38%, 1/15/99..................... 6,138,125 1,600,000 8.25%, 7/15/98..................... 1,639,000 TOTAL U.S. TREASURY OBLIGATIONS (COST $44,311,257)............... 44,860,263
(CONTINUED) 27 EVERGREEN INTERMEDIATE-TERM BOND FUND (logo and picture of star) SCHEDULE OF INVESTMENTS (CONTINUED) June 30, 1997
PRINCIPAL AMOUNT VALUE
YANKEE OBLIGATIONS-- 14.5% Bayerische Landesbank Girozen New York, Tranche Sr 00001, $2,500,000 6.38%, 8/31/00............ $2,492,183 Tranche Trust 00007, 2,000,000 6.20%, 2/9/06............. 1,907,344 3,000,000 Hydro-Quebec, 8.00%, 2/1/13........... 3,160,257 3,500,000 Japan Finance Corp. Municipal Enterprises, Guaranteed Bond, 6.85%, 4/15/06.......... 3,504,071 2,000,000 Manitoba Province (Canada), 8.00%, 4/15/02.......... 2,109,140 800,000 Petro Canada Ltd., 8.60%, 1/15/10.......... 907,463 5,300,000 Philips Electers N V, Debenture, 7.13%, 5/15/25.......... 5,282,685 Svenska Handelsbanken, 2,000,000 8.13%, 8/15/07............ 2,123,682 1,000,000 8.35%, 7/15/04............ 1,075,661 700,000 Westpac Banking, Subordinated Debenture, 9.13%, 8/15/01.......... 758,563 TOTAL YANKEE OBLIGATIONS (COST $22,612,971)...... 23,321,049 PRINCIPAL AMOUNT VALUE REPURCHASE AGREEMENT-- 12.8% $20,495,557 Donaldson, Lufkin & Jenrette Securities Corp, 5.90% dated 6/30/97, due 7/1/97, maturity value $20,498,916 (collateralized by $20,553,000 U.S. Treasury Notes, 5.00%, due 1/31/98; value, including accrued interest $20,905,756) (cost $20,495,557)...... $ 20,495,557 TOTAL INVESTMENTS-- (COST $156,335,609)..... 98.9% 158,618,369 OTHER ASSETS AND LIABILITIES-- NET....... 1.1 1,807,246 NET ASSETS--.............. 100.0% $160,425,615
(a) Securities that may be sold to qualified institutional buyers under Rule 144A or securities offered pursuant to Section 4(2) of the Securities Act of 1933, as amended. These securities have been determined to be liquid under guidelines established by the Board of Trustees. SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 28 KEYSTONE (logo and picture INTERMEDIATE TERM BOND FUND of stars) SCHEDULE OF INVESTMENTS June 30, 1997
PRINCIPAL AMOUNT VALUE
ASSET-BACKED SECURITIES-- 6.1% $1,000,000 Southern Pacific Secured Assets Corporation, Series 1996-3 Class A4, 7.60%, 10/25/27.................... $ 1,001,875 750,000 U.S. Home Equity Loan Asset Backed, Series 1991-2 Class B, 9.13%, 4/15/21..................... 752,812 TOTAL ASSET-BACKED SECURITIES (COST $1,748,125).................. 1,754,687 CORPORATE BONDS-- 31.2% DIVERSIFIED-- 1.7% 500,000 Belo (A. H.) Corporation, Senior Note, 7.13%, 6/1/07...................... 495,723 FINANCE & BANKING-- 15.3% 1,000,000 Amsouth Bancorporation, Sub Debentures Puttable 2005, 6.75%, 11/1/25..................... 977,750 1,250,000 Chase Manhattan Corporation, Subordinated Notes, 9.38%, 7/1/01...................... 1,358,712 1,000,000 CIT Group Holdings Incorporated, Medium Term Note, Tranche Trust 00001, 9.25%, 3/15/01..................... 1,083,480 500,000 General Mtrs Acceptance Corporation, Note, 7.13%, 5/1/01...................... 506,015 500,000 Prudential Insurance, Note (b), 7.13%, 7/1/07...................... 499,000 4,424,957 INDUSTRIALS-- 12.5% 700,000 Ford Motor Co., Debenture, 9.00%, 9/15/01..................... 756,252 800,000 Occidental Petroleum Corporation, Medium Term Note, Tranche Trust 00134, 8.50%, 11/9/01..................... 847,336 1,000,000 Philip Morris Cos Inc., Senior Note, 7.20%, 2/1/07...................... 986,760 1,000,000 Transocean Offshore Inc, Note, 7.45%, 4/15/27..................... 1,028,740 3,619,088 TRANSPORTATION-- 1.7% 500,000 Norfolk Southern Corporation, Note, 7.05%, 5/1/37...................... 507,470 TOTAL CORPORATE BONDS (COST $9,126,551).................. 9,047,238 PRINCIPAL AMOUNT VALUE COLLATERALIZED MORTGAGE OBLIGATIONS-- 27.5% $ 500,000 Chase Commercial Mortgage Security Corporation (a), 7.37%, 6/19/29..................... $ 508,281 478,831 Chase Mortgage Finance Corporation (a)(b), 7.87%, 11/25/25.................... 468,207 443,548 Criimi Mae Financial Corporation (a), 7.00%, 1/1/33...................... 433,984 1,000,000 Federal National Mortgage Association Guaranteed (a)(d), 3.26%, 8/25/23..................... 758,125 653,517 GE Capital Mortgage Services Incorporated (a), 6.50%, 3/25/24..................... 626,355 500,000 Merrill Lynch Trust (a), 8.45%, 11/1/18..................... 525,000 700,000 Morgan Stanley Capital I Incorporated, 1997 C1 Class B (a), 7.69%, 1/15/07..................... 724,719 953,300 Paine Webber Mortgage Acceptance Corporation (a), 7.50%, 5/25/23..................... 951,214 1,250,000 Resolution Trust Corp. (a), 7.50%, 10/25/28.................... 1,256,055 698,466 Ryland Acceptance Corporation Four (a), 7.95%, 1/1/19...................... 709,159 996,752 Independent National Mortgage Corp. (a)(b), 7.84%, 12/26/26...................... 1,000,413 TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (COST $7,870,825).................. 7,961,512 U.S. AGENCY OBLIGATIONS-- 2.6% (COST $749,062) 750,000 Federal Home Loan Mortgage Corp, Global Note, 6.70%, 1/5/07...................... 745,080 U.S. TREASURY OBLIGATIONS-- 6.2% (COST $1,796,303) 1,810,000 U.S. Treasury Notes, 6.50%, 10/15/06.................... 1,802,362 FOREIGN BONDS-- (US DOLLAR DENOMINATED)-- 15.4% 500,000 Export Import Bank Korea, Note, 7.10%, 3/15/07..................... 504,570 1,250,000 Fomento Economico Mexico, Euro-Dollars, 9.50%, 7/22/97..................... 1,250,000 500,000 Korea Electric Power Corp, Debenture, 7.00%, 2/1/27...................... 490,205
(CONTINUED) 29 KEYSTONE INTERMEDIATE TERM BOND FUND (logo and picture of stars) SCHEDULE OF INVESTMENTS (CONTINUED) June 30, 1997
PRINCIPAL AMOUNT VALUE
FOREIGN BONDS-- (US DOLLAR DENOMINATED)-- CONTINUED $1,000,000 Southern Peru Limited, Secured Export Note (b), 7.90%, 5/30/07.............$1,019,400 1,200,000 Telebras, 10.38%, 9/9/97............. 1,210,500 TOTAL FOREIGN BONDS-- (US DOLLAR DENOMINATED) (COST $4,453,359).......... 4,474,675 FOREIGN BONDS-- (NON-US DOLLAR DENOMINATED)-- 8.8% 1,150,000 Canada Government, CAD Canadian Series A79, 8.75%, 12/1/05............. 967,917 3,698,000 Denmark Kingdom, DKK 7.00%, 11/15/07..............585,061 PRINCIPAL AMOUNT VALUE FOREIGN BONDS-- (NON-US DOLLAR DENOMINATED)-- CONTINUED 1,575,000 Germany Federal Republic, DEM 6.88%, 5/12/05............... 986,125 18,000 Nykredit, DKK 6.00%, 10/1/26............... 2,463 TOTAL FOREIGN BONDS-- (NON-US DOLLAR DENOMINATED) (COST $2,689,307).......... 2,541,566 REPURCHASE AGREEMENT-- 0.8% $ 243,000 Keystone Joint Repurchase Agreement, (Investments in repurchase agreements, in a joint trading account, 6.04% dated 6/30/97, due 7/1/97, maturity value $243,043(c)) (cost $243,000)............ 243,000 TOTAL INVESTMENTS-- (COST $28,676,532)......... 98.6% 28,570,120 OTHER ASSETS AND LIABILITIES-- NET.......... 1.4 397,464 NET ASSETS--................. 100.0% $28,967,584
(a) The estimated maturity of a Collateralized Mortgage Obligation ("CMO") is based on current and projected prepayment rates. Changes in interest rates can cause the estimated maturity to differ from the listed date. (b) Securities that may be sold to qualified institutional buyers under Rule 144A or securities offered pursuant to Section 4(2) of the Securities Act of 1933, as amended. These securities have been determined to be liquid under guidelines established by the Board of Trustees. (c) The repurchase agreements are fully collateralized by U.S. government and/or agency obligations based on market prices at June 30, 1997. (d) Inverse floater, resets monthly. LEGEND OF PORTFOLIO ABBREVIATIONS CAD-- Canadian Dollar DKK-- Danish Kroner DEM-- German Deutschemark FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
NET UNREALIZED EXCHANGE U.S. $ VALUE AT IN EXCHANGE APPRECIATION/ DATE JUNE 30, 1997 FOR U.S. $ (DEPRECIATION) Forward Foreign Currency Exchange Contracts to Buy: Contracts to Receive 8/12/97 1,150,000 Deutsche Marks $ 661,452 679,790 $(18,338) Forward Foreign Currency Exchange Contracts to Sell: Contracts to Deliver 8/27/97 1,324,225 Canadian Dollars 962,359 970,947 8,588 8/12/97 2,860,000 Deutsche Marks 1,645,000 1,675,255 30,255 8/20/97 4,041,900 Danish Krone 610,524 627,098 16,574 $ 55,417
SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 30 EVERGREEN (logo and picture INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND of George Washington) SCHEDULE OF INVESTMENTS June 30, 1997
PRINCIPAL AMOUNT VALUE
MORTGAGE-BACKED SECURITIES-- 19.4% $5,000,000 Federal Home Loan Mortgage Corp., 5.60%, 2/15/13..................... $ 4,975,120 4,250,909 Federal Home Loan Mortgage Corp. Gold, 9.00%, 1/1/17...................... 4,552,550 3,688,718 Federal National Mortgage Assn., 7.00%, 3/1/24...................... 3,639,285 1,000,000 U.S. Department of Veteran Affairs, 7.00%, 5/15/12..................... 1,002,350 TOTAL MORTGAGE-BACKED SECURITIES (COST $14,039,691)................. 14,169,305 U.S. AGENCY OBLIGATIONS-- 10.4% 1,300,000 Federal Home Loan Bank, 8.60%, 1/25/00..................... 1,370,776 Federal National Mortgage Assn., 2,000,000 7.50%, 2/11/02....................... 2,077,826 2,000,000 7.875%, 2/24/05...................... 2,137,652 2,000,000 Tennessee Valley Authority, 6.375%, 6/15/05.................... 1,960,340 TOTAL U.S. AGENCY OBLIGATIONS (COST $7,352,820).................. 7,546,594 U.S. TREASURY OBLIGATIONS-- 77.9% U.S. Treasury Notes: 4,500,000 5.50%, 2/28/99....................... 4,463,437 6,800,000 5.88%, 1/31/99....................... 6,787,250 500,000 6.00%, 11/30/97...................... 500,937 3,400,000 6.00%, 9/30/98....................... 3,404,250 3,500,000 6.13%, 12/31/01...................... 3,467,188 4,000,000 6.25%, 7/31/98....................... 4,018,748 4,000,000 6.38%, 7/15/99....................... 4,023,748 PRINCIPAL AMOUNT VALUE U.S. TREASURY OBLIGATIONS-- CONTINUED U.S. Treasury Notes-- continued $3,000,000 6.50%, 4/30/99....................... $ 3,023,436 3,000,000 6.63%, 6/30/01....................... 3,030,936 1,000,000 6.75%, 4/30/00....................... 1,013,437 4,300,000 7.00%, 7/15/06....................... 4,424,967 4,000,000 7.50%, 10/31/99...................... 4,115,000 2,000,000 7.50%, 11/15/01...................... 2,085,000 2,000,000 7.50%, 5/15/02....................... 2,093,124 3,250,000 7.50%, 2/15/05....................... 3,439,920 1,700,000 7.88%, 4/15/98....................... 1,728,155 3,500,000 7.88%, 11/15/04...................... 3,776,717 1,300,000 8.50%, 11/15/00...................... 1,386,531 TOTAL U. S. TREASURY OBLIGATIONS (COST $56,635,374)................. 56,782,781 REPURCHASE AGREEMENT-- 1.4% 1,039,957 Donaldson, Lufkin & Jenrette Securities Corp., 5.90% dated 6/30/97, due 7/1/97, maturity value $1,040,127 (collateralized by $347,000 U.S. Treasury Bonds, 11.25%, due 2/15/15; $540,000 U.S. Treasury Bills, due 7/3/97; value, including accrued interest $1,061,419) (cost $1,039,957).................. 1,039,957
TOTAL INVESTMENTS-- (COST $79,067,842)......... 109.1% 79,538,637 OTHER ASSETS AND LIABILITIES-- NET.......... (9.1) (6,625,429) NET ASSETS--................. 100.0% $72,913,208
SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 31 (logo and picture of EVERGREEN a flag) SHORT-INTERMEDIATE BOND FUND SCHEDULE OF INVESTMENTS June 30, 1997
PRINCIPAL AMOUNT VALUE
ASSET-BACKED SECURITIES-- 12.2% $ 4,334,324 Advanta Home Equity Loan Trust, 7.20%, 11/25/08.................. $ 4,379,662 541,975 Bank of West Trust, 9.50%, 2/15/05................... 547,075 1,750,000 Case Equipment Loan Trust, 6.45%, 9/15/02................... 1,719,865 2,000,000 EQCC Home Equity Loan Trust, 5.82%, 9/15/09................... 1,983,940 3,309,037 FCC Grantor Trust, 9.00%, 7/15/97................... 3,306,489 2,020,649 First Bank Auto Receivable, 8.30%, 1/15/00................... 2,051,646 3,082,064 First Security Auto Grantor Trust, 6.25%, 1/15/01................... 3,099,016 483,220 Fleet Financial Home Equity Trust, 6.70%, 1/16/06-- 10/15/06........ 485,893 6,439,643 Fleetwood Credit Grantor Trust, 4.95%, 8/15/08................... 6,334,483 7,500,000 Household Affinity Credit Card Master Trust, 7.20%, 12/15/99.................. 7,567,650 1,259,186 SCFC Recreational Vehicle Loan Trust, 7.25%, 9/15/06................... 1,267,887 Western Financial Grantor Trust: 4,828,859 5.88%, 3/1/02...................... 4,819,684 2,179,177 6.20%, 2/1/02...................... 2,188,155 9,000,000 Xerox Rental Equipment Trust (a), 6.20%, 12/26/05.................. 8,956,406 TOTAL ASSET-BACKED SECURITIES (COST $48,706,732)............... 48,707,851 CORPORATE BONDS-- 24.8% BANKS-- 7.5% 3,400,000 Abbey National Plc, 6.69%, 10/17/05.................. 3,330,909 3,350,000 Amsouth Bancorporation, 6.75%, 11/1/25................... 3,287,057 3,000,000 Cenfed Financial Corp. (a), 11.17%, 12/15/01................. 3,202,500 2,000,000 Chase Manhattan Corporation, 8.00%, 5/15/04................... 2,046,792 First Chicago Corp.: 4,000,000 9.00%, 6/15/99..................... 4,187,408 2,000,000 9.20%, 12/17/01.................... 2,180,510 5,000,000 First Security Corp., 6.40%, 2/10/03................... 4,854,390 PRINCIPAL AMOUNT VALUE CORPORATE BONDS-- CONTINUED BANKS-- CONTINUED $ 6,000,000 National Bank of Canada, 8.13%, 8/15/04................... $ 6,316,668 500,000 Security Pacific Corp., 10.45%, 5/8/01................... 559,918 29,966,152 ENERGY-- 0.5% 2,000,000 Ras Laffan Liquefied Natural Gas (a), 7.63%, 9/15/06................... 2,033,704 FINANCE & INSURANCE-- 13.4% 2,000,000 American Express Credit Corp., 6.25%, 8/10/05................... 1,981,028 3,000,000 Associated P&C Holdings, Inc. (a), 6.75%, 7/15/03................... 2,893,680 3,000,000 Bear Stearns Co., Inc., 7.63%, 4/15/00................... 3,075,390 1,000,000 Horace Mann Educators Corp., 6.63%, 1/15/06................... 963,587 Lehman Brothers Holdings, Inc.: 5,000,000 6.63%, 11/15/00.................... 4,979,145 2,500,000 6.84%, 10/7/99..................... 2,510,392 5,000,000 8.88%, 3/1/02...................... 5,357,505 Metropolitan Life Insurance Co. (a): 5,000,000 6.30%, 11/1/03..................... 4,800,750 5,000,000 7.00%, 11/1/05..................... 4,934,405 5,000,000 Money Store, Inc., 7.88%, 9/15/00................... 5,090,000 6,000,000 Progressive Corp., Ohio, 6.60%, 1/15/04................... 5,870,634 7,000,000 Salomon Incorporated, 7.20%, 2/1/04.................... 6,978,097 4,000,000 Traveler's Group, Inc., 6.88%, 6/1/25.................... 3,991,232 53,425,845 INDUSTRIAL SPECIALTY PRODUCTS & SERVICES-- 2.7% 5,000,000 Boral Limited Australia Co., 7.90%, 11/19/99.................. 5,151,045 5,000,000 GTE Corp., 10.25%, 11/1/20.................. 5,720,350 10,871,395 TRANSPORTATION-- 0.7% 2,500,000 Continental Airlines, Inc. (a), 7.46%, 4/1/13.................... 2,523,495 TOTAL CORPORATE BONDS (COST $98,853,357)............... 98,820,591
(CONTINUED) 32 EVERGREEN (logo and picture of SHORT-INTERMEDIATE BOND FUND flag) SCHEDULE OF INVESTMENTS (CONTINUED) June 30, 1997
PRINCIPAL AMOUNT VALUE
MORTGAGE-BACKED SECURITIES-- 39.5% AFC Home Equity Loan Trust: $ 275,254 6.60%, 10/26/26.................... $ 274,973 153,907 8.05%, 4/27/26..................... 155,624 3,150,000 Chase Commercial Mortgage Security Corp., 6.90%, 11/19/28.................... 3,075,455 3,139,786 CMC Securities Corp., 10.00%, 7/25/23.................. 3,322,688 2,500,000 DLJ Mortgage Acceptance Corp., 7.95%, 5/25/23................... 2,587,109 Federal Home Loan Mortgage Corp.: 1,126,515 6.75%, 2/15/04..................... 1,129,703 4,000,000 6.80%, 10/15/05.................... 4,023,880 2,000,000 6.97%, 6/16/05..................... 1,995,910 2,945,000 7.30%, 7/30/01..................... 2,946,832 9,833,952 7.40%, 10/15/05.................... 9,938,340 2,200,000 7.99%, 3/23/05..................... 2,217,195 391,210 10.50%, 9/1/15..................... 430,820 Federal Housing Administration- Puttable Project Loans: GMAC 56, 4,017,498 7.43%, 11/1/22..................... 4,057,299 Merrill Lynch 199, 4,672,669 8.43%, 12/31/99.................... 4,859,356 Reilly 18, 2,939,118 6.88%, 4/1/15...................... 2,924,422 Reilly 55, 1,571,878 7.43%, 3/1/24...................... 1,589,591 Reilly 64, 10,310,265 7.43%, 1/1/24...................... 10,421,616 USGI, 5,331,922 7.43%, 7/1/22...................... 5,394,380 Federal National Mortgage Assn.: 1,500,000 5.30%, 8/25/98..................... 1,490,037 500,000 6.00%, 12/15/00.................... 491,826 2,766,670 6.23%, 12/25/25.................... 2,772,987 12,000,000 6.60%, 2/14/02..................... 11,981,244 7,500,000 6.64%, 6/19/00..................... 7,502,768 5,000,000 7.11%, 8/7/01...................... 4,995,665 2,500,000 7.65%, 5/4/05...................... 2,515,170 2,100,000 8.00%, 11/25/06.................... 2,176,257 9,000,000 8.10%, 4/25/25..................... 9,343,260 9,518,330 11.00%, 1/1/99..................... 10,749,764 38,645 14.00%, 6/1/11..................... 44,743 5,000,000 Federal National Mortgage Assn., Medium Term Note, 6.02%, 4/14/00................... 4,997,500 1,521,066 GCC Second Mortgage Trust, 10.00%, 7/15/05.................. 1,551,275
PRINCIPAL AMOUNT VALUE MORTGAGE-BACKED SECURITIES-- CONTINUED $ 5,547,633 Government National Mortgage Assn., 7.50%, 11/20/08..........$5,621,389 4,000,000 Kidder Peabody Acceptance Corp., 6.65%, 2/1/06............ 3,987,612 Potomac Gurnee Finance Corp. (a): 2,483,287 6.89%, 12/21/26.......... 2,455,573 2,500,000 7.00%, 12/21/26.......... 2,474,625 Prudential Home Mortgage Securities: 5,419,711 6.30%, 5/25/99............. 5,417,705 4,788,537 6.50%, 10/25/08............ 4,649,286 4,302,927 Prudential Securities Secured Financing Corp., 8.12%, 2/17/25........... 4,427,548 6,305,826 Saxon Mortgage Securities Corp., 7.38%, 9/25/23........... 6,348,265 TOTAL MORTGAGE-BACKED SECURITIES (COST $156,702,480) 157,339,692 U.S. GOVERNMENT AGENCY OBLIGATIONS-- 3.7% (cost $15,000,000) 15,000,000 Federal Farm Credit Bank Consolidated Disc. Note, 6.82%, 6/15/01........... 14,919,195 U.S. TREASURY NOTES-- 19.3% U.S. Treasury Notes: 35,000,000 5.13%, 2/28/98.............34,868,785 9,980,000 7.00%, 7/15/06.............10,270,039 2,000,000 7.13%, 9/30/99.............2,041,874 11,000,000 7.75%, 11/30/99............11,385,000 17,400,000 8.88%, 2/15/99.............18,161,250 TOTAL U. S. TREASURY NOTES (COST $79,099,261).......76,726,948 REPURCHASE AGREEMENT-- 0.0% 143,985 Donaldson, Lufkin & Jenrette Securities Corp., 5.90% dated 6/30/97, due 7/1/97, maturity value $144,009 (Collateralized by $98,000 U.S. Treasury Bonds, 11.25%, due 02/15/15; value, including accrued interest $147,318) (cost $143,985).......... 143,985 TOTAL INVESTMENTS-- (COST $398,505,815)...... 99.5% 396,658,262 OTHER ASSETS AND LIABILITIES-- NET........ 0.5 2,017,390 NET ASSETS--............... 100.0% $398,675,652
(a) Securities that may be sold to qualified institutional buyers under Rule 144A or securities offered pursuant to Section 4(2) of the Securities Act of 1933, as amended. These securities have been determined to be liquid under guidelines established by the Board of Trustees. SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 33 EVERGREEN KEYSTONE (logo) STATEMENTS OF ASSETS AND LIABILITIES June 30, 1997
(picture of (picture of (picture of (picture of capital) star) stars) George Washington) CAPITAL EVERGREEN KEYSTONE INTERMEDIATE PRESERVATION INTERMEDIATE INTERMEDIATE GOVERNMENT FUND FUND FUND FUND ASSETS Investments at market value (identified cost-- $51,556,239, $156,335,609, $28,676,532, $79,067,842 and $398,505,815, respectively)........ $52,098,247 $158,618,369 $28,570,120 $79,538,637 Cash................................................. 16,515 283 1,758 20 Interest receivable.................................. 476,566 2,037,735 500,852 1,240,062 Receivable for investments sold...................... 135,662 0 1,388,640 0 Principal paydown receivable......................... 134,735 0 0 0 Receivable for Fund shares sold...................... 135,285 11,761 1,596 2,720 Unrealized appreciation on forward foreign currency contracts.......................................... 0 0 55,417 0 Due from investment adviser.......................... 11,877 0 16,749 0 Prepaid expenses and other assets.................... 25,636 14,435 20,302 15,257 Total assets..................................... 53,034,523 160,682,583 30,555,434 80,796,696 LIABILITIES Payable for investments purchased.................... 0 0 1,357,677 0 Payable for Fund shares redeemed..................... 80,751 75,274 99,777 7,807,242 Dividends payable.................................... 96,575 0 69,273 0 Distribution fee payable............................. 6,513 891 7,736 759 Due to related parties............................... 1,060 136,213 762 45,121 Unrealized depreciation on forward foreign currency contracts.......................................... 0 0 18,338 0 Accrued expenses and other liabilities............... 29,937 44,590 34,287 30,366 Total liabilities................................ 214,836 256,968 1,587,850 7,883,488 NET ASSETS............................................. $52,819,687 $160,425,615 $28,967,584 $72,913,208 NET ASSETS REPRESENTED BY Paid-in capital...................................... $59,369,842 $162,631,066 $32,844,616 $74,620,343 Undistributed net investment income (accumulated distributions in excess of net investment income)............................................ (95,813) (5,106) 242,787 (5,097) Accumulated net realized loss on investments and foreign currency related transactions.............. (6,996,350) (4,483,105) (4,050,016) (2,172,833) Net unrealized appreciation (depreciation) on investments and foreign currency related transactions....................................... 542,008 2,282,760 (69,803) 470,795 Total net assets................................. $52,819,687 $160,425,615 $28,967,584 $72,913,208 NET ASSETS CONSIST OF Class A.............................................. $15,751,098 $ 3,037,664 $10,340,563 $ 571,508 Class B.............................................. 32,963,820 1,012,650 11,368,453 741,650 Class C.............................................. 4,104,769 28,812 7,258,568 12,097 Class Y.............................................. -- 156,346,489 -- 71,587,953 $52,819,687 $160,425,615 $28,967,584 $72,913,208 SHARES OUTSTANDING Class A.............................................. 1,607,197 298,775 1,157,517 57,029 Class B.............................................. 3,360,676 99,621 1,270,826 74,011 Class C.............................................. 418,845 2,834 811,659 1,207 Class Y.............................................. -- 15,380,764 -- 7,142,890 NET ASSET VALUE PER SHARE Class A.............................................. $ 9.80 $ 10.17 $ 8.93 $ 10.02 Class A-- Offering price (based on sales charge of 3.25%)............................................. $ 10.13 $ 10.51 $ 9.23 $ 10.36 Class B.............................................. $ 9.81 $ 10.17 $ 8.95 $ 10.02 Class C.............................................. $ 9.80 $ 10.17 $ 8.94 $ 10.02 Class Y.............................................. -- $ 10.17 -- $ 10.02 (picture of flag) SHORT- INTERMEDIATE FUND ASSETS Investments at market value (identified cost-- $51,556,239, $156,335,609, $28,676,532, $79,067,842 and $398,505,815, respectively)........ $396,658,262 Cash................................................. 997 Interest receivable.................................. 5,731,695 Receivable for investments sold...................... 0 Principal paydown receivable......................... 0 Receivable for Fund shares sold...................... 271,580 Unrealized appreciation on forward foreign currency contracts.......................................... 0 Due from investment adviser.......................... 0 Prepaid expenses and other assets.................... 56,168 Total assets..................................... 402,718,702 LIABILITIES Payable for investments purchased.................... 0 Payable for Fund shares redeemed..................... 3,803,972 Dividends payable.................................... 0 Distribution fee payable............................. 16,078 Due to related parties............................... 186,244 Unrealized depreciation on forward foreign currency contracts.......................................... 0 Accrued expenses and other liabilities............... 36,756 Total liabilities................................ 4,043,050 NET ASSETS............................................. $398,675,652 NET ASSETS REPRESENTED BY Paid-in capital...................................... $416,539,149 Undistributed net investment income (accumulated distributions in excess of net investment income)............................................ (16,203) Accumulated net realized loss on investments and foreign currency related transactions.............. (15,999,741) Net unrealized appreciation (depreciation) on investments and foreign currency related transactions....................................... (1,847,553) Total net assets................................. $398,675,652 NET ASSETS CONSIST OF Class A.............................................. $ 17,703,034 Class B.............................................. 22,237,190 Class C.............................................. 1,029,416 Class Y.............................................. 357,706,012 $398,675,652 SHARES OUTSTANDING Class A.............................................. 1,800,182 Class B.............................................. 2,257,458 Class C.............................................. 104,492 Class Y.............................................. 36,392,215 NET ASSET VALUE PER SHARE Class A.............................................. $ 9.83 Class A-- Offering price (based on sales charge of 3.25%)............................................. $ 10.16 Class B.............................................. $ 9.85 Class C.............................................. $ 9.85 Class Y.............................................. $ 9.83
SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 34 EVERGREEN KEYSTONE (logo) STATEMENTS OF OPERATIONS Period Ended June 30, 1997
(picture of (picture of (picture of (picture of capital) star) stars) George Washington) CAPITAL EVERGREEN KEYSTONE INTERMEDIATE PRESERVATION INTERMEDIATE INTERMEDIATE GOVERNMENT FUND* FUND*** FUND** FUND*** INVESTMENT INCOME Interest (net of foreign withholding taxes of $0, $3,364, $0, $0, $0, respectively)................... $3,173,485 $11,145,047 $2,343,240 $5,768,839 EXPENSES Management fee........................................ 284,977 987,044 202,102 546,941 Distribution Plan expenses............................ 346,141 14,407 228,750 8,731 Transfer agent fees................................... 83,571 66,508 83,025 35,360 Custodian fees........................................ 51,296 82,597 39,350 51,941 Administrative services fees.......................... 34,481 69,536 11,267 38,083 Professional fees..................................... 23,622 17,269 26,033 16,910 Registration and filing fees.......................... 42,963 53,298 25,890 90,281 Trustees' fees and expenses........................... 0 4,106 0 4,047 Organization expenses................................. 0 986 0 1,035 Other................................................. 25,905 44,367 32,197 26,280 Fee waivers and/or expense reimbursement by affiliates.......................................... (245,255) (5,480) (145,636) (73,557) Total expenses...................................... 647,701 1,334,638 502,978 746,052 Less: Indirectly paid expenses........................ (11,507) (640) (6,039) (641) Net expenses........................................ 636,194 1,333,998 496,939 745,411 NET INVESTMENT INCOME................................. 2,537,291 9,811,049 1,846,301 5,023,428 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY RELATED TRANSACTIONS Net realized gain (loss) on: Investments......................................... (101,173) (1,614,828) (207,489) (16,049) Foreign currency related transactions............... 0 0 311,507 0 Net realized gain on investments and foreign currency related transactions................................ (101,173) (1,614,828) 104,018 (16,049) Net change in unrealized appreciation on: Investments......................................... 279,120 2,782,704 589,966 219,766 Foreign currency related transactions............... 0 0 79,789 0 Net change in unrealized appreciation on investments and foreign currency related transactions........... 279,120 2,782,704 669,755 219,766 Net realized and unrealized gain on investments and foreign currency related transactions............... 177,947 1,167,876 773,773 203,717 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......................................... $2,715,238 $10,978,925 $2,620,074 $5,227,145 (picture of flag) SHORT- INTERMEDIATE FUND*** INVESTMENT INCOME Interest (net of foreign withholding taxes of $0, $3,364, $0, $0, $0, respectively)................... $28,349,460 EXPENSES Management fee........................................ 1,998,063 Distribution Plan expenses............................ 251,695 Transfer agent fees................................... 96,271 Custodian fees........................................ 78,107 Administrative services fees.......................... 167,636 Professional fees..................................... 19,246 Registration and filing fees.......................... 57,771 Trustees' fees and expenses........................... 9,310 Organization expenses................................. 0 Other................................................. 47,316 Fee waivers and/or expense reimbursement by affiliates.......................................... 0 Total expenses...................................... 2,725,415 Less: Indirectly paid expenses........................ (2,308) Net expenses........................................ 2,723,107 NET INVESTMENT INCOME................................. 25,626,353 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY RELATED TRANSACTIONS Net realized gain (loss) on: Investments......................................... (2,101,788) Foreign currency related transactions............... 0 Net realized gain on investments and foreign currency related transactions................................ (2,101,788) Net change in unrealized appreciation on: Investments......................................... 2,666,233 Foreign currency related transactions............... 0 Net change in unrealized appreciation on investments and foreign currency related transactions........... 2,666,233 Net realized and unrealized gain on investments and foreign currency related transactions............... 564,445 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......................................... $26,190,798
* Nine months ended June 30, 1997. During the period, the Fund changed its fiscal year end from September 30 to June 30. ** Eleven months ended June 30, 1997. During the period, the Fund changed its fiscal year end from July 31 to June 30. *** Year ended June 30, 1997. SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 35 EVERGREEN KEYSTONE (logo) STATEMENTS OF OPERATIONS Prior Periods
(picture of (picture of capital) stars) CAPITAL KEYSTONE PRESERVATION INTERMEDIATE FUND* FUND** INVESTMENT INCOME Interest................................................................................... $5,536,633 $3,205,120 EXPENSES Management fee............................................................................. 493,147 273,644 Distribution Plan expenses................................................................. 610,933 312,408 Transfer agent fees........................................................................ 139,248 106,796 Custodian fees............................................................................. 57,386 46,630 Administrative services fees............................................................... 24,176 23,963 Professional fees.......................................................................... 37,958 29,575 Registration and filing fees............................................................... 45,925 41,731 Organization expenses...................................................................... 3,896 0 Other...................................................................................... 34,903 27,827 Fee waivers and/or expense reimbursement by affiliates..................................... (341,016) (191,096) Total expenses........................................................................... 1,106,556 671,478 Less: Indirectly paid expenses............................................................. (12,182) (6,981) Net expenses............................................................................. 1,094,374 664,497 NET INVESTMENT INCOME...................................................................... 4,442,259 2,540,623 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES CONTRACTS Net realized gain (loss) on: Investments.............................................................................. (549,777) (35,859) Foreign currency related transactions.................................................... 0 62,463 Net realized gain (loss) on investments and foreign currency related transactions.......... (549,777) 26,604 Net change in unrealized appreciation (depreciation) on: Investments.............................................................................. 648,310 (687,165) Foreign currency related transactions.................................................... 0 (43,181) Net change in unrealized appreciation (depreciation) on investments and foreign currency related transactions..................................................................... 648,310 (730,346) Net realized and unrealized gain (loss) on investments and foreign currency related transactions............................................................................. 98,533 (703,742) NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....................................... $4,540,792 $1,836,881
* Year ended September 30, 1996. ** Year ended July 31, 1996. SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 36 EVERGREEN KEYSTONE (logo) STATEMENTS OF CHANGES IN NET ASSETS Period Ended June 30, 1997
(picture of (picture of (picture of (picture of capital) star) stars) George Washington) CAPITAL EVERGREEN KEYSTONE INTERMEDIATE PRESERVATION INTERMEDIATE INTERMEDIATE GOVERNMENT FUND* FUND*** FUND** FUND*** OPERATIONS Net investment income................................ $ 2,537,291 $ 9,811,049 $ 1,846,301 $ 5,023,428 Net realized gain (loss) on investments and foreign currency related transactions...................... (101,173) (1,614,828) 104,018 (16,049) Net change in unrealized appreciation (depreciation) on investments and foreign currency related transactions....................................... 279,120 2,782,704 669,755 219,766 Net increase in net assets resulting from operations....................................... 2,715,238 10,978,925 2,620,074 5,227,145 DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income: Class A............................................ (710,409) (179,161) (666,667) (31,632) Class B............................................ (1,412,040) (36,467) (719,674) (29,748) Class C............................................ (160,768) (1,275) (417,078) (1,189) Class Y............................................ 0 (9,653,448) 0 (4,959,781) In excess of net investment income: Class A............................................ (20,595) 0 0 (97) Class B............................................ (40,936) 0 0 (91) Class C............................................ (4,661) 0 0 (4) Class Y............................................ 0 0 0 (15,207) Tax basis return of capital Class A............................................ 0 (1,220) 0 0 Class B............................................ 0 (248) 0 0 Class C............................................ 0 (9) 0 0 Class Y............................................ 0 (65,758) 0 0 Total distributions to shareholders................ (2,349,409) (9,937,586) (1,803,419) (5,037,749) CAPITAL SHARE TRANSACTIONS Proceeds from shares sold............................ 8,631,265 50,138,853 3,559,906 35,487,793 Proceeds from reinvestment of distributions.......... 1,854,608 6,780,391 1,095,398 3,993,534 Payment for shares redeemed.......................... (28,964,306) (58,718,452) (14,580,292) (54,650,906) Net increase (decrease) in net assets resulting from capital share transactions.................. (18,478,433) (1,799,208) (9,924,988) (15,169,579) Total increase (decrease) in net assets.......... (18,112,604) (757,869) (9,108,333) (14,980,183) NET ASSETS Beginning of period.................................. 70,932,291 161,183,484 38,075,917 87,893,391 END OF PERIOD........................................ $52,819,687 $160,425,615 $28,967,584 $72,913,208 Undistributed net investment income (accumulated distributions in excess of net investment income).... $ (95,813) $ (5,106) $ 242,787 $ (5,097) (picture of flag) SHORT- INTERMEDIATE FUND*** OPERATIONS Net investment income................................ $ 25,626,353 Net realized gain (loss) on investments and foreign currency related transactions...................... (2,101,788) Net change in unrealized appreciation (depreciation) on investments and foreign currency related transactions....................................... 2,666,233 Net increase in net assets resulting from operations....................................... 26,190,798 DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income: Class A............................................ (1,217,283) Class B............................................ (1,225,460) Class C............................................ (58,085) Class Y............................................ (23,369,583) In excess of net investment income: Class A............................................ 0 Class B............................................ 0 Class C............................................ 0 Class Y............................................ 0 Tax basis return of capital Class A............................................ 0 Class B............................................ 0 Class C............................................ 0 Class Y............................................ 0 Total distributions to shareholders................ (25,870,411) CAPITAL SHARE TRANSACTIONS Proceeds from shares sold............................ 122,641,025 Proceeds from reinvestment of distributions.......... 15,137,626 Payment for shares redeemed.......................... (132,309,835) Net increase (decrease) in net assets resulting from capital share transactions.................. 5,468,816 Total increase (decrease) in net assets.......... 5,789,203 NET ASSETS Beginning of period.................................. 392,886,449 END OF PERIOD........................................ $398,675,652 Undistributed net investment income (accumulated distributions in excess of net investment income).... $ (16,203)
* Nine months ended June 30, 1997. During the period, the Fund changed its fiscal year end from September 30 to June 30. ** Eleven months ended June 30, 1997. During the period, the Fund changed its fiscal year end from July 31 to June 30. *** Year ended June 30, 1997. SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 37 EVERGREEN KEYSTONE (logo) STATEMENTS OF CHANGES IN NET ASSETS Fiscal Periods Ended 1996
(picture of (picture of (picture of (picture of capital) star) stars) George Washington) CAPITAL EVERGREEN KEYSTONE INTERMEDIATE PRESERVATION INTERMEDIATE INTERMEDIATE GOVERNMENT FUND* FUND** FUND*** FUND** OPERATIONS Net investment income................................ $ 4,442,259 $ 5,797,073 $ 2,540,623 $ 4,606,598 Net realized gain (loss) on investments and foreign currency related transactions...................... (549,777) 314,598 26,604 11,468 Net change in unrealized appreciation (depreciation) on investments and foreign currency related transactions....................................... 648,310 (3,327,986) (730,346) (1,507,190) Net increase in net assets resulting from operations....................................... 4,540,792 2,783,685 1,836,881 3,110,876 DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income: Class A............................................ (1,089,444) (35,386) (898,299) (23,774) Class B............................................ (2,568,398) (2,841) (1,028,103) (2,363) Class C............................................ (147,748) (169) (576,335) (255) Class Y............................................ 0 (5,670,902) 0 (4,562,840) Tax basis return of capital: Class A............................................ (52,292) 0 0 0 Class B............................................ (123,279) 0 0 0 Class C............................................ (7,092) 0 0 0 Total distributions to shareholders................ (3,988,253) (5,709,298) (2,502,737) (4,589,232) CAPITAL SHARE TRANSACTIONS Proceeds from shares sold............................ 12,691,883 38,531,458 10,120,565 13,828,502 Proceeds from shares issued in the acquisition of Evergreen Managed Bond Fund........................ 0 79,773,557 0 0 Proceeds from reinvestment of distributions.......... 2,823,494 4,544,198 1,417,473 4,095,518 Payment for shares redeemed.......................... (30,181,809) (54,860,961) (15,524,524) (34,626,524) Net increase (decrease) in net assets resulting from capital share transactions.................. (14,666,432) 67,988,252 (3,986,486) (16,702,504) Total increase (decrease) in net assets.......... (14,113,893) 65,062,639 (4,652,342) (18,180,860) NET ASSETS Beginning of period.................................. 85,046,184 96,120,845 42,728,259 106,074,251 END OF PERIOD........................................ $70,932,291 $161,183,484 $38,075,917 $87,893,391 Undistributed net investment income (accumulated distributions in excess of net investment income).... $ (305,808) $ 87,592 $ (21,199) $ 17,332 (picture of flag) SHORT- INTERMEDIATE FUND**** OPERATIONS Net investment income................................ $ 24,943,586 Net realized gain (loss) on investments and foreign currency related transactions...................... (4,715,061) Net change in unrealized appreciation (depreciation) on investments and foreign currency related transactions....................................... (2,841,758) Net increase in net assets resulting from operations....................................... 17,386,767 DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income: Class A............................................ (1,165,625) Class B............................................ (1,059,184) Class C............................................ (49,329) Class Y............................................ (23,005,091) Tax basis return of capital: Class A............................................ 0 Class B............................................ 0 Class C............................................ 0 Total distributions to shareholders................ (25,279,229) CAPITAL SHARE TRANSACTIONS Proceeds from shares sold............................ 170,338,605 Proceeds from shares issued in the acquisition of Evergreen Managed Bond Fund........................ 0 Proceeds from reinvestment of distributions.......... 18,879,027 Payment for shares redeemed.......................... (172,279,164) Net increase (decrease) in net assets resulting from capital share transactions.................. 16,938,468 Total increase (decrease) in net assets.......... 9,046,006 NET ASSETS Beginning of period.................................. 383,840,443 END OF PERIOD........................................ $392,886,449 Undistributed net investment income (accumulated distributions in excess of net investment income).... $ 98,373
* Year ended September 30, 1996. ** Ten months ended June 30, 1996. The Fund changed its fiscal year end from August 31 to June 30. *** Year ended July 31, 1996. **** Year ended June 30, 1996. SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 38 EVERGREEN KEYSTONE (logo) STATEMENTS OF CHANGES IN NET ASSETS Prior Periods
picture of (picture of (picture of (picture of capital) star) stars) George Washington) EVERGREEN KEYSTONE CAPITAL INTERMEDIATE INTERMEDIATE INTERMEDIATE PRESERVATION FUND FUND FUND GOVERNMENT FUND YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, 1995 AUGUST 31, 1995 JULY 31, 1995 AUGUST 31, 1995 OPERATIONS Net investment income................................. $ 5,308,068 $ 5,110,145 $ 2,911,914 $ 5,851,118 Net realized gain (loss) on investments and foreign currency related transactions....................... (1,162,200) (741,577) (583,642) (1,236,390) Net change in unrealized appreciation (depreciation) on investments and futures contracts................ 1,169,382 4,454,061 628,176 3,611,699 Net increase in net assets resulting from operations........................................ 5,315,250 8,822,629 2,956,448 8,226,427 DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income: Class A............................................. (909,585) (2,134) (1,002,996) (10,951) Class B............................................. (3,706,229) 0 (1,010,554) 0 Class C............................................. (143,406) 0 (654,159) 0 Class Y............................................. 0 (5,105,153) 0 (5,850,108) In excess of net investment income: Class A............................................. (26,148) 0 (61,783) 0 Class B............................................. (106,543) 0 (62,249) 0 Class C............................................. (4,122) 0 (40,296) 0 Net realized gain on investments: Class Y............................................. 0 (401,810) 0 0 Total distributions to shareholders................. (4,896,033) (5,509,097) (2,832,037) (5,861,059) CAPITAL SHARE TRANSACTIONS Proceeds from shares sold............................. 28,808,789 16,277,483 8,978,216 19,842,837 Proceeds from shares issued in the acquisition of Keystone America Capital Preservation and Income Fund-- Class A...................................... 23,825,980 0 0 0 Proceeds from reinvestment of distributions........... 3,281,799 4,957,099 1,575,164 5,214,391 Payment for shares redeemed........................... (69,924,430) (20,151,849) (14,890,499) (27,796,468) Net increase (decrease) in net assets resulting from capital share transactions........................ (14,007,862) 1,082,733 (4,337,119) (2,739,240) Total increase (decrease) in net assets........... (13,588,645) 4,396,265 (4,212,708) (373,872) NET ASSETS Beginning of period................................... 98,634,829 91,724,580 46,940,967 106,448,123 END OF PERIOD......................................... $ 85,046,184 $96,120,845 $42,728,259 $ 106,074,251 Accumulated distributions in excess of net investment income................................................ $ (415,117) $ (183) $ (94,328) $ (34)
SEE COMBINED NOTES TO FINANCIAL STATEMENTS. 39 EVERGREEN KEYSTONE (logo) COMBINED NOTES TO FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES The Evergreen Keystone Short and Intermediate Term Bond Funds consist of Keystone Capital Preservation and Income Fund ("Capital Preservation Fund"), Evergreen Intermediate-Term Bond Fund ("Evergreen Intermediate Fund"), Keystone Intermediate Term Bond Fund ("Keystone Intermediate Fund"), Evergreen Intermediate-Term Government Securities Fund ("Intermediate Government Fund") and Evergreen Short-Intermediate Bond Fund ("Short-Intermediate 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. The Evergreen Intermediate Fund and the Intermediate Government Fund are separate series of The Evergreen Lexicon Fund and Short-Intermediate Fund is a separate series of the Evergreen Investment 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 3.25%. 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 U.S. government obligations held by the Funds are valued at the mean between the over-the-counter bid and asked prices. Corporate bonds, other fixed-income securities, and mortgage and other asset-backed securities are valued at prices provided by an independent pricing service. In determining value for normal institutional-size transactions, the pricing service uses methods based on market transactions for comparable securities and analysis of various relationships between similar securities which are generally recognized by institutional traders. Securities for which valuations are not available from an independent pricing service (including restricted securities) are valued at fair value as determined in good faith according to procedures established by the Board of Trustees. Short-term investments with remaining maturities of 60 days or less are carried at amortized cost, which approximates market value. B. REPURCHASE AGREEMENTS Each Fund may invest in repurchase agreements. Securities pledged as collateral for repurchase agreements are held by the custodian on the Fund's behalf. Each Fund monitors the adequacy of the collateral daily and will require the seller to provide additional collateral in the event the market value of the securities pledged falls below the carrying value of the repurchase agreement, including accrued interest. Each Fund will only enter into repurchase agreements with banks and other financial institutions which are deemed by the investment advisor to be creditworthy pursuant to guidelines established by the Board of Trustees. Pursuant to an exemptive order issued by the Securities and Exchange Commission, the Capital Preservation and Keystone Intermediate Funds, along with certain other funds managed by Keystone, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are fully collateralized by U.S. Treasury and/or federal agency obligations. C. REVERSE REPURCHASE AGREEMENTS To obtain short-term financing, Capital Preservation and Keystone Intermediate Fund may enter into reverse repurchase agreements with qualified third-party broker-dealers. Interest on the value of reverse repurchase agreements is based upon competitive market rates at the time of issuance. At the time the Fund enters into a reverse repurchase agreement, it will establish and maintain a segregated account with the custodian containing qualifying assets having a value not less than the repurchase price, including accrued interest. If the counterparty to the transaction is rendered insolvent, the ultimate realization of the securities to be repurchased by the Fund may be delayed or limited. D. FOREIGN CURRENCY The books and records of the Funds are maintained in United States (U.S.) dollars. Foreign currency amounts are translated into U.S. dollars as follows: market value of investments, assets and liabilities at the daily rate of exchange; purchases and sales of investments, income and expenses at the rate of exchange prevailing on the respective dates of such transactions. Net unrealized foreign exchange gain (loss) resulting from changes in foreign currency exchange rates is a component of net unrealized appreciation (depreciation) on investments and foreign currency related transactions. Net realized foreign currency gains and losses resulting from changes in exchange rates include foreign currency gains and losses between trade date and settlement date on investment securities transactions and foreign currency related transactions and is included in realized gain (loss) on foreign currency related transactions. Foreign currency transactions related to the difference between the amounts of interest and dividends recorded on the books of the Fund and the amount actually received is included in gross investment income. The portion of foreign currency gains and losses related to fluctuations in exchange rates between the initial purchase trade date and subsequent sale trade date is included in realized gain (loss) on investments. 40 EVERGREEN KEYSTONE (logo) COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED) E. 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 premium. F. DISTRIBUTIONS Distributions from net investment income for the Capital Preservation and Keystone Intermediate Funds are declared daily and paid monthly. Distributions from net investment income are declared and paid monthly for the Evergreen Intermediate, Intermediate Government and Short-Intermediate Funds. 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 mortgage paydown gains (losses) and foreign securities transactions, if any. G. CLASS ALLOCATIONS Income, expenses (other than class specific expenses) and realized and unrealized gains and losses are prorated among the classes based on the relative net assets of each class. Currently, class specific expenses are limited to expenses incurred under the Distribution Plans for each class. H. ORGANIZATION EXPENSES For the Evergreen Intermediate and Intermediate Government Funds, organization expenses were amortized to operations over a five-year period on a straight-line basis. During the year ended June 30, 1997, organization costs were fully amortized for the Evergreen Intermediate and Intermediate Government Funds. I. 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, net tax-exempt 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. 2. CAPITAL SHARE TRANSACTIONS The Capital Preservation Fund and Keystone Intermediate Fund have unlimited number of shares of beneficial interest with no par value authorized. The Evergreen Intermediate Fund, Intermediate Government Fund and Short-Intermediate Fund each have unlimited number of shares of beneficial interest with a par value of $0.0001 authorized. Shares of beneficial interest of the Funds are currently divided into Class A, Class B, Class C and/or Class Y. Transactions in shares of the Funds were as follows: CAPITAL PRESERVATION FUND
DECEMBER 30, 1994 (COMMENCEMENT OF NINE MONTHS ENDED YEAR ENDED CLASS OPERATIONS) TO JUNE 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CLASS A Shares sold..................................... 534,956 $ 5,229,171 808,295 $ 7,859,112 72,460 $ 699,481 Share issued in acquisition of Keystone America Capital Preservation Income Fund.............. 0 0 0 0 2,506,041 23,825,980 Shares issued in reinvestment of distributions................................. 61,902 604,810 89,475 865,840 71,420 689,075 Shares redeemed................................. (1,318,046) (12,878,080) (563,085) (5,471,951) (656,221) (6,023,682) Net increase (decrease)......................... (721,188) $ (7,044,099) 334,685 $ 3,253,001 1,993,700 $ 19,190,854
41 EVERGREEN KEYSTONE (logo) COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
CAPITAL PRESERVATION FUND-- continued NINE MONTHS ENDED YEAR ENDED YEAR ENDED JUNE 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CLASS B Shares sold..................................... 182,841 $ 1,788,928 282,004 $ 2,742,007 2,758,618 $ 26,668,622 Shares issued in reinvestment of distributions................................. 114,536 1,119,992 187,040 1,829,883 257,649 2,480,740 Shares redeemed................................. (1,459,187) (14,270,487) (2,455,640) (23,865,587) (6,464,191) (62,204,625) Net decrease.................................... (1,161,810) $(11,361,567) (1,986,596) $(19,293,697) (3,447,924) $(33,055,263) CLASS C Shares sold..................................... 164,962 $ 1,613,166 215,390 $ 2,090,764 150,700 $ 1,440,686 Shares issued in reinvestment of distributions................................. 13,283 129,806 12,718 127,771 11,638 111,984 Shares redeemed................................. (185,566) (1,815,739) (86,982) (844,271) (176,498) (1,696,123) Net increase (decrease)......................... (7,321) $ (72,767) 141,126 $ 1,374,264 (14,160) $ (143,453)
EVERGREEN INTERMEDIATE FUND
MAY 2, 1995 (COMMENCEMENT OF YEAR ENDED TEN MONTHS ENDED CLASS OPERATIONS) TO JUNE 30, 1997 JUNE 30, 1996 AUGUST 31, 1995 SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CLASS A Shares sold..................................... 52,051 $ 529,465 292,734 $ 2,962,857 24,799 $ 255,892 Shares issued in reinvestment of distributions................................. 17,590 178,344 3,368 34,080 209 2,134 Shares redeemed................................. (62,211) (632,271) (20,323) (206,789) (9,442) (96,968) Net increase.................................... 7,430 $ 75,538 275,779 $ 2,790,148 15,566 $ 161,058
JANUARY 30, 1996 (COMMENCEMENT OF YEAR ENDED CLASS OPERATIONS) TO JUNE 30, 1997 JUNE 30, 1996 SHARES AMOUNT SHARES AMOUNT CLASS B Shares sold..................................... 62,610 $ 633,834 40,844 $ 415,640 Shares issued in reinvestment of distributions................................. 2,120 21,504 228 2,296 Shares redeemed................................. (4,937) (50,000) (1,244) (12,553) Net increase.................................... 59,793 $ 605,338 39,828 $ 405,383
APRIL 29, 1996 (COMMENCEMENT OF YEAR ENDED CLASS OPERATIONS) TO JUNE 30, 1997 JUNE 30, 1996 SHARES AMOUNT SHARES AMOUNT CLASS C Shares sold..................................... 490 $ 5,000 2,450 $ 24,797 Shares issued in reinvestment of distributions................................. 126 1,282 16 167 Shares redeemed................................. (249) (2,514) 0 0 Net increase.................................... 367 $ 3,768 2,466 $ 24,964
42 EVERGREEN KEYSTONE (logo) COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED) EVERGREEN INTERMEDIATE FUND-- continued
YEAR ENDED TEN MONTHS ENDED YEAR ENDED JUNE 30, 1997 JUNE 30, 1996 AUGUST 31, 1995 SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CLASS Y Shares sold..................................... 4,825,919 $ 48,970,554 3,399,442 $ 35,128,164 1,606,066 $ 16,021,590 Shares issued in acquisition of Evergreen Managed Bond Fund............................. 0 0 7,674,423 79,773,557 0 0 Shares issued in reinvestment of distributions................................. 649,188 6,579,261 438,427 4,507,655 498,736 4,954,965 Shares redeemed................................. (5,719,188) (58,033,667) (5,208,789) (54,641,619) (2,018,177) (20,054,880) Net increase (decrease)......................... (244,081) $ (2,483,852) 6,303,503 $ 64,767,757 86,625 $ 921,675
KEYSTONE INTERMEDIATE FUND
ELEVEN MONTHS ENDED YEAR ENDED YEAR ENDED JUNE 30, 1997 JULY 31, 1996 JULY 31, 1995 SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CLASS A Shares sold........................................ 175,221 $ 1,566,271 258,497 $ 2,283,194 214,382 $ 1,875,188 Shares issued in reinvestment of distributions..... 45,592 404,429 52,934 469,775 61,155 533,202 Shares redeemed.................................... (547,872) (4,863,536) (465,961) (4,141,580) (449,814) (3,937,486) Net decrease....................................... (327,059) $(2,892,836) (154,530) $(1,388,611) (174,277) $(1,529,096) CLASS B Shares sold........................................ 170,620 $ 1,528,256 555,555 $ 4,965,806 566,892 $ 4,978,695 Shares issued in reinvestment of distributions..... 46,270 411,336 63,537 565,232 66,016 576,332 Shares redeemed.................................... (779,593) (6,943,044) (808,199) (7,205,208) (624,636) (5,447,096) Net increase (decrease)............................ (562,703) $(5,003,452) (189,107) $(1,674,170) 8,272 $ 107,931 CLASS C Shares sold........................................ 52,022 $ 465,379 318,799 $ 2,871,565 243,954 $ 2,124,333 Shares issued in reinvestment of distributions..... 31,491 279,633 42,997 382,466 53,388 465,630 Shares redeemed.................................... (311,128) (2,773,712) (468,122) (4,177,736) (630,936) (5,505,917) Net decrease....................................... (227,615) $(2,028,700) (106,326) $ (923,705) (333,594) $(2,915,954)
INTERMEDIATE GOVERNMENT FUND
MAY 2, 1995 TEN MONTHS (COMMENCEMENT OF YEAR ENDED ENDED CLASS OPERATIONS) TO JUNE 30, 1997 JUNE 30, 1996 AUGUST 31, 1995 SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CLASS A Shares sold..................................... 10,763 $ 107,284 64,791 $ 663,129 879 $ 8,925 Shares issued in reinvestment of distributions................................. 2,429 24,330 1,503 15,239 0 0 Shares redeemed................................. (5,953) (59,462) (17,382) (175,816) 0 0 Net increase.................................... 7,239 $ 72,152 48,912 $ 502,552 879 $ 8,925
FEBRUARY 9, 1996 (COMMENCEMENT OF YEAR ENDED CLASS OPERATIONS) TO JUNE 30, 1997 JUNE 30, 1996 SHARES AMOUNT SHARES AMOUNT CLASS B Shares sold..................................... 49,960 $ 500,124 35,925 $ 359,696 Shares issued in reinvestment of distributions................................. 1,735 17,379 67 666 Shares redeemed................................. (13,674) (136,147) (2) (23) Net increase.................................... 38,021 $ 381,356 35,990 $ 360,339
43 EVERGREEN KEYSTONE (logo) COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INTERMEDIATE GOVERNMENT FUND-- continued APRIL 10, 1996 (COMMENCEMENT OF YEAR ENDED CLASS OPERATIONS) TO JUNE 30, 1997 JUNE 30, 1996 SHARES AMOUNT SHARES AMOUNT CLASS C Shares sold..................................... 2,288 $ 22,910 3,551 $ 35,538 Shares issued in reinvestment of distributions................................. 85 967 26 254 Shares redeemed................................. (4,419) (44,414) (324) (3,205) Net increase (decrease)......................... (2,046) $ (20,537) 3,253 $ 32,587
TEN MONTHS YEAR ENDED ENDED YEAR ENDED JUNE 30, 1997 JUNE 30, 1996 AUGUST 31, 1995 SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CLASS Y Shares sold..................................... 3,476,575 $ 34,857,475 1,257,974 $ 12,770,139 1,999,05 $ 19,833,912 Shares issued in reinvestment of distributions................................. 394,427 3,950,858 402,054 4,079,359 526,254 5,214,391 Shares redeemed................................. (5,437,776) (54,410,883) (3,404,763) (34,447,480) (2,799,781) (27,796,468) Net increase (decrease)......................... (1,566,774) $(15,602,550) 1,744,735 $ 17,597,982 (274,476) $ (2,748,165)
SHORT-INTERMEDIATE FUND
YEAR ENDED YEAR ENDED JUNE 30, 1997 JUNE 30, 1996 SHARES AMOUNT SHARES AMOUNT CLASS A Shares sold........................................................... 584,893 $ 5,786,371 417,422 $ 4,161,754 Shares issued in reinvestment of distributions........................ 93,998 924,863 91,045 906,558 Shares redeemed....................................................... (775,720) (7,650,833) (498,266) (4,979,754) Net increase (decrease)............................................... (96,829) $ (939,599) 10,201 $ 88,558 CLASS B Shares sold........................................................... 520,912 $ 5,138,212 844,991 $ 8,456,439 Shares issued in reinvestment of distributions........................ 87,527 862,791 74,101 739,247 Shares redeemed....................................................... (486,579) (4,795,124) (512,788) (5,128,366) Net increase.......................................................... 121,860 $ 1,205,879 406,304 $ 4,067,320 CLASS C Shares sold........................................................... 35,729 $ 354,646 94,089 $ 944,432 Shares issued in reinvestment of distributions........................ 4,508 44,442 3,083 30,731 Shares redeemed....................................................... (53,064) (524,077) (32,296) (321,263) Net increase (decrease)............................................... (12,827) $ (124,989) 64,876 $ 653,900 CLASS Y Shares sold........................................................... 11,302,391 $111,361,796 15,667,603 $156,775,980 Shares issued in reinvestment of distributions........................ 1,353,407 13,305,530 1,726,865 17,202,491 Shares redeemed....................................................... (12,121,462) (119,339,801) (16,165,702) (161,849,781) Net increase.......................................................... 534,336 $ 5,327,525 1,228,766 $ 12,128,690
44 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 year ended June 30, 1997:
COST OF PURCHASES PROCEEDS FROM SALES U.S. GOVERNMENT OTHER U.S. GOVERNMENT OTHER Capital Preservation Fund*............ $ 30,413,800 $ 0 $ 42,505,286 $ 0 Evergreen Intermediate Fund........... 108,340,939 24,077,086 138,666,138 6,840,920 Keystone Intermediate Fund**.......... 28,261,905 30,738,558 31,902,091 36,582,139 Intermediate Government Fund.......... 59,320,521 0 65,407,081 0 Short-Intermediate Fund............... 103,309,243 113,815,506 71,256,326 99,358,914
* For the nine months ended June 30, 1997 ** For the eleven months ended June 30, 1997 The average daily balance of reverse repurchase agreements outstanding for the Capital Preservation Fund and the Keystone Intermediate Fund during the period ended June 30, 1997 was approximately $988,000 and $1,102,000, respectively, at a weighted average interest rate of 5.40% and 5.58%, respectively. The maximum amount outstanding under reverse repurchase agreements during the period ended June 30, 1997 for the Capital Preservation Fund was $4,066,236 (including accrued interest) and $2,017,983 (including accrued interest) for Keystone Intermediate Fund. There were no reverse repurchase agreements outstanding at June 30, 1997 for either Fund. On June 30, 1997, the composition of gross unrealized appreciation and depreciation of investment securities based on the aggregate cost of investments for federal tax purposes was as follows:
GROSS GROSS NET UNREALIZED TAX UNREALIZED UNREALIZED APPRECIATION COST APPRECIATION DEPRECIATION (DEPRECIATION) Capital Preservation Fund.................. $ 51,559,754 $ 541,790 $ (3,297) $ 538,493 Evergreen Intermediate Fund................ 156,347,538 3,200,532 (929,701) 2,270,831 Keystone Intermediate Fund................. 28,676,532 258,959 (365,371) (106,412) Intermediate Government Fund............... 79,147,737 712,159 (321,259) 390,900 Short-Intermediate Fund.................... 398,505,815 3,176,863 (5,024,416) (1,847,553)
As of June 30, 1997, the Funds had capital loss carryovers for federal income tax purposes as follows:
EXPIRATION 1999 2001 2002 2003 2004 2005 Capital Preservation Fund.......... -- $5,900,000 $ 197,000 $642,000 $ 254,000 $ -- Evergreen Intermediate Fund........ -- 1,440,000 -- 907,000 211,000 1,200,000 Keystone Intermediate Fund......... $970,000 -- 2,688,000 94,000 -- 147,000 Intermediate Government Fund....... -- -- -- 642,000 1,140,000 -- Short-Intermediate Fund............ -- -- 6,021,000 -- 4,049,000 4,374,000
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 to the Capital Preservation Fund and the Keystone Intermediate Fund. Prior to December 11, 1996, Evergreen Keystone Investment Services, Inc. ("EKIS"), a wholly-owned subsidiary of Keystone, served as the principal underwriter. EKD also serves as the principal underwriter for the Evergreen Intermediate, Intermediate Government 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 each Fund to reimburse its principal underwriter for costs related to selling shares of the Fund and for various other services. These costs, which consist primarily of commissions and service fees to broker-dealers who sell shares of the Fund, are paid by 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 assets of the class. The service fee for Class A shares of Short-Intermediate is currently limited to 0.10% of average daily net assets. Class B and Class C also presently pay distribution fees equal to 0.75% of the average daily net assets of each respective class. Distribution Plan expenses are calculated daily and paid monthly. With respect to Class B and Class C shares of the Capital Preservation Fund and the Keystone Intermediate Fund, the principal underwriter may incur costs 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%. 45 EVERGREEN KEYSTONE (logo) COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED) During the year ended June 30, 1997, amounts accrued or 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 Capital Preservation Fund*............................................ $28,581 $285,293 $32,267 Evergreen Intermediate Fund........................................... 6,972 7,180 255 Keystone Intermediate Fund**.......................................... 24,268 129,648 74,834 Intermediate Government Fund.......................................... 2,047 6,442 242 Short-Intermediate Fund............................................... 18,961 222,264 10,470
* For the nine months ended June 30, 1997 ** For the eleven months ended June 30, 1997 For the year ended June 30, 1997, EKD voluntarily waived Class A distribution fees for the Evergreen Intermediate and Intermediate Government Funds in the amounts of $5,480 and $1,763, respectively. Each of the Distribution Plans for the Capital Preservation and the Keystone Intermediate Funds may be terminated at any time by vote of the Independent Trustees or by vote of a majority of the outstanding voting shares of the respective class. However, after the termination of any Distribution Plan, and subject to the discretion of the Independent Trustees, payments to EKIS and/or EKD may continue as compensation for services which had been earned while the Distribution Plan was in effect. 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 during the period ended June 30, 1997 as follows: Capital Preservation Fund....................................................... $ 9,851 Evergreen Intermediate Fund..................................................... 504 Keystone Intermediate Fund...................................................... 11,043 Intermediate Government Fund.................................................... 77 Short-Intermediate Fund......................................................... 6,833
Contingent deferred sales charges paid by redeeming shareholders are paid to EKD or its predecessor. 5. INVESTMENT MANAGEMENT AGREEMENT AND OTHER AFFILIATED TRANSACTIONS Keystone Investment Management Company ("Keystone"), a subsidiary of First Union Corporation ("First Union"), is the investment adviser for the Capital Preservation Fund and the Keystone Intermediate Fund. In return for providing investment management and administrative services, each Fund pays Keystone a management fee that is calculated daily and paid monthly. The management fee is computed at an annual rate of 2.00% of the each respective 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. Prior to December 11, 1996, Keystone Management, Inc. ("KMI"), a wholly-owned subsidiary of Keystone, served as investment manager to the Keystone Intermediate Fund and provided investment management and administrative services. Under an investment advisory agreement between KMI and Keystone, Keystone served as the investment adviser and provided investment advisory and management services to the Keystone Intermediate Fund. In return for its services, Keystone received an annual fee equal to 85% of the management fee received by KMI. Effective January 1, 1997, BISYS became the sub-administrator to the Capital Preservation and Keystone Intermediate Funds and is paid by Keystone. First Union serves as the investment adviser to the Evergreen Intermediate Fund, Intermediate Government Fund and Short-Intermediate Fund and is paid a management fee that is computed daily and paid monthly. For the Evergreen Intermediate Fund and the Intermediate Government Fund, First Union is entitled to a fee at an annual rate of 0.60% of each Fund's respective average daily net assets. For the Short-Intermediate Fund, First Union is entitled to a fee at an annual rate of 0.50% of the Fund's average daily net assets. For Evergreen Intermediate Fund, Intermediate Government Fund and Short-Intermediate Fund, Evergreen Keystone Investment Services, Inc. ("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 each Fund is entitled to an annual fee based on the average daily net assets of the funds administered by EKIS for which First Union or its investment advisory subsidiaries are also the investment advisors. 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 46 EVERGREEN KEYSTONE (logo) COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED) Fund. 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 Fund. For the Capital Preservation and Keystone Intermediate Funds, Keystone has voluntarily limited the expenses, excluding indirectly paid expenses, to the following rates based on the average daily net assets of each respective class:
AVERAGE DAILY NET ASSETS CLASS A CLASS B CLASS C Capital Preservation Fund............................................... 0.90% 1.65% 1.65% Keystone Intermediate Fund.............................................. 1.10% 1.85% 1.85%
For the period ended June 30, 1997, the Funds waived management fees as follows: Capital Preservation Fund.................................................................. $245,255 Keystone Intermediate Fund................................................................. 145,636 Intermediate Government Fund............................................................... 71,794
During the period ended June 30, 1997, the Funds paid or accrued to EKIS the following amounts for certain administrative services: Capital Preservation Fund................................................................... $34,481 Evergreen Intermediate Fund................................................................. 57,505 Keystone Intermediate Fund.................................................................. 11,267 Intermediate Government Fund................................................................ 31,665 Short-Intermediate Fund..................................................................... 139,440
Evergreen Keystone Service Company ("EKSC"), a wholly-owned subsidiary of Keystone, serves as the transfer and dividend disbursing agent for the Capital Preservation and Keystone Intermediate Funds. Effective May 5, 1997, EKSC also began providing transfer and dividend disbursing agent services for the Evergreen Intermediate Fund, Intermediate Government Fund and Short-Intermediate Fund that were formerly provided by State Street Bank and Trust Company ("State Street"). For certain accounts, State Street had and subsequent to May 5, 1997, EKSC has sub-contracted First Union to maintain shareholder sub-account records, take fund purchase and redemption orders and answer inquiries. For each account of the Evergreen Intermediate Fund, Intermediate Government Fund and Short-Intermediate Fund, First Union earned a fee which in aggregate totaled $23,547, $24 and $103,428, respectively for the year ended June 30, 1997. Officers of the Funds and affiliated Trustees receive no compensation directly from the Funds. Currently the Independent Trustees of the Capital Preservation and the Keystone Intermediate Funds receive no compensation for their services. As sub-administrator, BISYS provides the officers of the Funds. 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. DEFERRED TRUSTEES' FEES Each Independent Trustee of the Evergreen Intermediate Fund, Intermediate Government Fund and Short-Intermediate Fund may defer any or all compensation related to 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 June 30, 1997, the value of the Trustees' deferral accounts for the Evergreen Intermediate Fund, Intermediate Government Fund and Short-Intermediate Fund were $5,106, $5,097 and $16,203, respectively. 8. 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 June 30, 1997, the Funds had no borrowings under this agreement. 47 EVERGREEN KEYSTONE (logo) COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED) 9. ACQUISITIONS On December 30, 1994, the Capital Preservation Fund acquired the net assets of Keystone America Capital Preservation and Income Fund ("Preservation and Income Fund") in exchange for Class A shares and on February 29, 1996 the Evergreen Intermediate Fund acquired the net assets of Evergreen Managed Bond Fund ("Managed Bond Fund") in exchange for Class Y shares. Both acquisitions were accomplished by a tax-free exhange 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:
UNREALIZED VALUE OF NET NUMBER OF APPRECIATION ACQUIRING FUND ACQUIRED FUND ASSETS ACQUIRED SHARES ISSUED (DEPRECIATION) Capital Preservation Fund Preservation and Income Fund $23,825,980 2,506,041 $ (301,751) Evergreen Intermediate Fund Managed Bond Fund 79,773,557 7,674,423 1,789,417 NET ASSETS AFTER ACQUISITION $115,746,857 158,097,520
48 EVERGREEN KEYSTONE (logo) INDEPENDENT AUDITORS' REPORT The Trustees and Shareholders Keystone Capital Preservation and Income Fund The Evergreen Lexicon Fund Keystone Intermediate Term Bond Fund Evergreen Investment Trust We have audited the accompanying statements of assets and liabilities, including the schedules of investments of the Evergreen Keystone Short and Intermediate Term Bond Funds listed below as of June 30, 1997, and the related statements of operations, statements of changes in net assets, and financial highlights for each of the years or periods listed below: KEYSTONE CAPITAL PRESERVATION AND INCOME FUND-- statements of operations for the nine months ended June 30, 1997 and the year ended September 30, 1996, statements of changes in net assets for the nine months ended June 30, 1997 and each of the years in the two-year period ended September 30, 1996, and financial highlights for the periods presented on pages 14 and 15. EVERGREEN INTERMEDIATE-TERM BOND FUND (ONE OF THE PORTFOLIOS CONSTITUTING THE EVERGREEN LEXICON FUND)-- statement of operations for the year ended June 30, 1997, statements of changes in net assets for the year ended June 30, 1997 and the ten months ended June 30, 1996, and the financial highlights for the periods presented on pages 16 and 17, except for the periods prior to June 30, 1996. The financial highlights for the periods prior to June 30, 1996 and the statements of changes in net assets for the year ended August 31, 1995 were audited by other auditors whose report dated October 6, 1995 expressed an unqualified opinion thereon. KEYSTONE INTERMEDIATE TERM BOND FUND-- statements of operations for the eleven months ended June 30, 1997 and the year ended July 31, 1996, statements of changes in net assets for the eleven months ended June 30, 1997 and each of the years in the two-year period ended July 31, 1996, and the financial highlights for the periods presented on pages 18 and 19. EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND (ONE OF THE PORTFOLIOS CONSTITUTING THE EVERGREEN LEXICON FUND)-- statement of operations for the year ended June 30, 1997, statements of changes in net assets for the year ended June 30, 1997 and the ten months ended June 30, 1996, and the financial highlights for the periods presented on pages 20 and 21, except for the periods ended prior to June 30, 1996. The financial highlights for the periods prior to June 30, 1996 and the statements of changes in net assets for the year ended August 31, 1995 were audited by other auditors whose report dated October 6, 1995 expressed an unqualified opinion thereon. EVERGREEN SHORT-INTERMEDIATE BOND FUND (ONE OF THE PORTFOLIOS CONSTITUTING EVERGREEN INVESTMENT TRUST)-- statement of operations for the year ended June 30, 1997, statements of changes in net assets for each of the years in the two-year period ended June 30, 1997, and the financial highlights for the periods presented on pages 22-24. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. These standards require that we plan and perform our 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 June 30, 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 Capital Preservation and Income Fund, Evergreen Intermediate-Term Bond Fund, Keystone Intermediate Term Bond Fund, Evergreen Intermediate-Term Government Securities Fund and Evergreen Short-Intermediate Bond Fund as of June 30, 1997, the results of their operations for the years or periods then ended, and the changes in their net assets and financial highlights for each of the years or periods specified in the first paragraph above in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Boston, Massachusetts August 8, 1997 49 (This Page Left Blank Intentionally) (This Page Left Blank Intentionally) (This Page Left Blank Intentionally) 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. 60922 Form #541496 8/97 -----END PRIVACY-ENHANCED MESSAGE-----