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[photo of mountain valley]
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EVERGREEN
TOTAL RETURN FUND
ANNUAL REPORT 1995
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Dear Fellow Shareholder:
Evergreen Total Return Fund ended its seventeenth fiscal year on January
31, 1995. The Fund's fiscal year-end was changed from March 31, to January 31,
in order to coordinate accounting periods with other Evergreen funds with
similar objectives. The total return for the Fund (Class Y, no-load shares)
since our last Annual Report on March 31, 1994, through January 31, 1995, was
+1.86%*. The Fund's average annual compounded rate of return (Class Y, no-load
shares) since inception on September 7, 1978, through January 31, 1995, was
+13.76% which means that a $10,000 investment in the Fund would have grown to
$82,867 during that time. The Fund's average annual compounded rates of return
for the one, five, and ten-year periods ended January 31, 1995, were -5.29%,
+7.37%, and +9.59%, respectively.
The volatility level of the Fund was substantially lower than that of
the general market, as measured by the Fund's five-year beta of .72, as of
February 28, 1995, as reported by Morningstar Inc., an independent mutual fund
rating agency.
INVESTMENT STRATEGY
Steady income flow has been an important goal since the inception of the
Fund. The Fund continued its $1.08 per share income dividend ($.27 per quarter).
This dividend was maintained for the seventh successive year.
The portfolio of Evergreen Total Return Fund, although primarily equities
and convertibles, has a high level of interest sensitivity to the bond market.
Since the Fund seeks to pay a high dividend, we looked toward the utility
sector, financial issues, real estate investment trusts, convertible preferreds,
and convertible debentures to provide high yields.
In February, 1994, the Federal Reserve began a program to tighten
short-term interest rates in order to head off inflation. This set off a ripple
effect which caused declines in the long-term bond market. Due to the amount of
high leverage used by many bond investors and the interlocking nature of
worldwide bond markets, a very chaotic bond market developed in 1994, leading to
record declines. Pressure stayed on the bond market throughout the rest of 1994
as the Federal Reserve tightened short-term interest rates six times. The
Federal Reserve's latest move on January 31, brings this total to seven.
The sharp downward swing in the 1994 bond market had a very deleterious
effect on interest sensitive sectors of the equity and convertible markets. For
the period from January 31, 1994, through January 31, 1995, the Dow Jones
Utility Average** was down 15.98%, the NYSE Financial Index** was down 8.75%,
the Merrill Lynch Convertible Index** was down 9.02%, and the Wilshire Real
Estate Securities Index** was down 4.50%. For the period covered by this report,
March 31, 1994, through January 31, 1995, the Dow Jones Utility Average was down
6.23%, the NYSE Financial Index was down 3.00%, the Merrill Lynch Convertible
Index was down 4.85%, and the Wilshire Real Estate Securities Index was down
3.80%.
- --------------------------------------------------------------------------------
FIGURES REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS.
* Performance assumes the reinvestment of all income dividend and capital gain
distributions. The investment return and principal value of an investment will
fluctuate. Investors' shares, when redeemed, may be worth more or less than
their original cost.
On 1/3/95, the Fund introduced a multi-class distribution arrangement. The
Fund's total return for the period 1/3/95 to 1/31/95 for the A, B, C and Y
Classes of shares was -3.35% (reflects maximum front end sales charge of 4.75%),
- -3.53% (reflects maximum contingent deferred sales charge of 5%), +0.41%
(reflects 1% contingent deferred sales charge within first year of purchase),
and +1.47% (no-load), respectively.
The Fund may incur 12b-1 expenses up to an annual maximum of .75 of 1% of its
average daily net assets of its Class A shares, 1.00% of its average daily net
assets of its Class B shares, and 1.00% of its average daily net assets of its
Class C shares. For the foreseeable future, however, management intends to limit
such payments on the Class A shares to .25 of 1% of the Fund's average daily net
assets.
** Unmanaged indices.
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Led by improved long-term bond prices, the Fund's net asset value has
risen 5.3% year-to-date. We believe we are probably close to the end of the
Federal Reserve tightening process. The yield curve has flattened, and we expect
it will invert so that the rate of Federal Funds is higher than long-term bonds.
In our opinion, this usually is a precursor to a sustained bond market rally. It
follows that interest sensitive issues should further improve if this chain of
events occurs.
The basic investment thesis of the Fund and the heart of its strategy
has been that high yielding stocks with capital appreciation potential offer
downside protection. However, we occasionally have seen a temporary divergence
from the expected trend. This divergence has come when the structure of
investment yields moves up quickly and sharply, leading to investor avoidance
and even selling of higher yield stocks or convertible securities. Investment
management of a portfolio of higher yielding stocks has two options in such a
period. It can maintain its position in the holdings with the richest yields and
simply wait, or, reposition the portfolio into issues which appear to be more
undervalued than the current holdings, using such measurements as price/earnings
ratio, growth potential or valuation of assets. During 1994 your Fund's
portfolio management took the second course of action.
MERGERS AND ACQUISITIONS
In the last year, the Fund saw mergers and acquisitions completed for
five of its bank and thrift holdings. Peoples Bancorp. of Worcester was acquired
by Shawmut National for a gain of 77% (held less than two years); Valley
Bancorporation by Marshall & Illsley for a gain of 71% (held two years);
AmeriFed Financial by NBD Bancorp. for a gain of 52% (held one year, ten
months); Independence Bancorp. by CoreStates Financial for a gain of 31% (held
less than two years); and First Colonial Bankshares by Firstar for a gain of 18%
(held two years, nine months). We believe the consolidation trend in the banking
and thrift sectors will continue. We held 35 bank and thrift issues (including
convertibles) as of January 31, 1995, representing approximately 13% of the
portfolio.
The Fund also had gains from the acquisition of American Cyanamid by
American Home Products for a gain of 111% (held for seven months) and the
acquisition of Purolator Products by Mark IV for a gain of 39% (held for 1 and
1/2 years). Since inception, the Fund has had a total of 95 completed
acquisitions of its holdings, with an average gain of 53% as of January 31,
1995.
We envision more mergers and acquisitions during 1995 than last year.
Companies generally improved their cash holdings and balance sheets in the
strong economic environment of 1994. In 1995, we are expecting a slowing
economic growth trend and believe that cash rich companies will acquire growing
small-to-medium companies in order to improve their return on equity.
PORTFOLIO COMMENTS
RESTRUCTURING
The restructuring process among American businesses, to become more
competitive globally, provided a number of investment opportunities for the
Fund. Through our extensive investment analysis effort, we often are aware of
such opportunities but try to time our purchases close to the point when the
rewards from restructuring will be finally recognized in earnings. The rewards
of patient holdings are often sizable. For example, this year we took gains of
80% in Harris Computer (held three years), 77% in Dana Corp. (held a little over
two years), 54% from a partial sale of Lindberg Corp. (held a little over 2 and
1/2 years) and 28% from a partial sale of Shared Medical Systems (held one
year). These are only a few of the restructured company issues held in the
portfolio.
BANKS AND THRIFTS
We continue to maintain significant holdings in this sector which continues
to experience consolidation. Our focus has been on issues that are not only
attractive regional acquisition candidates but also have growth potential. We
have already mentioned the recent six mergers or acquisitions in the Fund. Since
inception of the Fund, we have had 26 bank and thrift mergers or takeovers
completed for an average gain of 59%.
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Some of our bank and thrift holdings appreciated to valuation levels
that prompted us to take profits and redirect the monies into other issues.
Gains realized on sales included Fort Wayne National Corp. (+105%) and Jefferson
Bankshares, (+49%) from a partial sale. We have added such issues as
BancorpSouth, of Tupelo, Mississippi; Barnett Banks, of Jacksonville, Florida;
Deposit Guaranty Corp. of Jackson, Mississippi; Fed One Bank FSB of Wheeling,
West Virginia; and Meridian Bancorp, of Reading, Pennsylvania. This
diversification across the U.S. seeks to provide a defensive protection against
economic slowdown in any one area. In addition, these regional issues offer the
possibilities of gains from takeovers by larger banks.
UTILITIES
The largest change in the portfolio resulted from our reduction of the
utility sector, especially electric. We decided to reduce our dependence on this
industry as it faces deregulation changes and resulting competitive pressures.
Eventually, the industry will produce a number of winners, but it appears too
early to determine these. Currently, our focus in the industry is primarily on
special situations that result from such events as rate relief or corporate
changes. An example is Houston Industries, which recently agreed to profitably
sell its Roger Communications Corp. This event will improve the outlook for
earnings and dividends as Houston will have lower interest costs. Another
example is TNP Enterprises which is selling under book value and may prove to be
an attractive acquisition candidate.
During the fiscal period, the Fund sold several different utility
issues, including electric, gas, water, and telephone company shares. Of these,
the majority were sold with losses. The largest percentage loss was in the
shares of Washington Energy (35.6%) which had a regulatory problem. The largest
single block sold was the 1,409,100 shares of Bell Atlantic Corporation, which
involved a 3.5% loss. Overall, we chose to "bite the bullet" and take these
losses, with the conviction that we had to lessen the interest-rate sensitivity
of the portfolio. Our goal was to place
these funds in more advantageous positions for a combination of capital
appreciation and growth potential.
INTERNATIONAL
In order to diversify risk across country lines, we have invested in a
number of international and ADR issues+, such as Zeneca Group P.L.C., (a
world-wide pharmaceutical manufacturer); London Insurance Group; and Philippine
Long Distance Telephone Co. 7% Convertible Preferred. The Fund's focus still
remains on quality yield stocks and sufficient trading liquidity.
RETAIL RECOVERY
We have increased our holdings in the retail sector as it provided many
temporarily depressed opportunities with yield. A weaker retail environment
resulted as consumers were buying homes and new cars, and shifted their emphasis
from clothes and consumer non-durables. We bought shares of Brown Group,
Woolworth Corp., J.C. Penney, Mercantile Stores, Sears, Roebuck $3.75 Depositary
Shares and Strawbridge & Clothier Cl. A. Not only were these issues, we believe,
at attractive valuation levels, but many of these companies have been in the
process of restructuring, thereby bringing the possibility of improved margins
in the near future.
ENERGY
The energy industry has been plagued by low oil and gas prices, the latter
due to the warm winter and lower usage. The stocks have weakened to a point we
believe represents good value. We have added Amoco, Equitable Resources,
Occidental Petroleum, Texaco and Williams Companies.
PORTFOLIO SECTOR PERFORMANCE SUMMARY
As a summary for the period March 31, 1994, through January 31, 1995,
the most important points are those previously discussed concerning the reasons
for the weakness in utility stocks, convertible issues, thrifts, and real
estate. These groups generally declined as interest rates rose during the year.
The convertible issues, which averaged 26.8% of the portfolio, were particularly
- ------------------------------------------
+ International investing may involve certain additional risks such as currency
fluctuations and political instability.
<PAGE>
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hard hit in this environment. Even though we had good performance from many of
our bank takeover issues, there was sufficient weakness in other banking issues
to offset these gains.
The health sector was one of the best performing groups, rebounding
strongly as the Clinton Health Care Plan ran into trouble. Investors realized
that even with a modified health plan proposal, the negative effect on the
health care industries would be much less than previously proposed. Restructured
companies, as well as cyclicals, such as the chemical and energy issues which
produce chemicals, also helped the portfolio.
As we go forward, we believe we have rebalanced the portfolio to not
only sustain sizable income but, more importantly, to provide a more diversified
approach to capital appreciation, with less interest sensitivity in the
portfolio.
OUTLOOK
We believe that the Federal Reserve will gingerly, if at all, continue
to increase short-term rates, which could result in a flattened or inverted
yield curve. Such a pattern of high yields beginning in the very near-term
should result in more pressure on investors to establish long-term bond
positions in the anticipation that an inversion of rates will push the economy
toward a serious slowdown and eventual recession. Thus, we do not expect a
repetition of the 1994 fall-off in the prices of long-term bonds. On the
contrary, we believe that if the short-term rates squeeze develops further, we
can anticipate at least a further moderate recovery in the long-term sector of
the bond market.
Our outlook is for a slowing economy, and we believe that a "soft
landing" rather than a recession is a possible result from the tightening we
have been experiencing. At the present time, inflationary pressures do not seem
to be great. We have seen raw material price increases, but competitive
pressures plus productivity improvement have served to keep these from being
passed along in final product prices. The globalization of businesses and
improved worldwide trade have been strong competitive forces in introducing
dynamics not seen before in the U.S. economy, making for broader, more
competitive pricing.
Our goal is to select investments in strong dynamic businesses. We believe
this will enhance Evergreen Total Return Fund's performance and sustain our
long-term performance record. While still committed to maintaining your income
flow, we believe that we have improved the portfolio and have established a
stronger basis for capital appreciation.
Very truly yours,
/s/Stephen A. Lieber /s/Nola Maddox Falcone
Stephen A. Lieber Nola Maddox Falcone
Chairman President
Evergreen Asset Evergreen Asset
Management Corp. Management Corp.
March 27, 1995
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STATEMENT OF INVESTMENTS
January 31, 1995
COMMON STOCKS--70.2% SHARES VALUE
AUTOMOTIVE EQUIPMENT
& MANUFACTURING--1.1%
Ford Motor Co. 410,000 $10,352,500
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BANKS--7.8%
Amsouth Bancorporation 306,300 8,346,675
BancorpSouth, Inc. 71,000 2,440,625
Barnett Banks, Inc. 21,900 936,225
Boatmen's Bancshares, Inc. 326,000 9,943,000
CB Bancshares, Inc. 110,000 3,382,500
CCB Financial Corp. 74,850 2,741,381
Deposit Guaranty Corp. 171,000 5,450,625
F & M National Corp. 109,510 1,724,783
First of America Bank Corp. 4,900 148,838
First Bancorporation of Ohio, Inc. 5,600 126,000
First Tennessee National Corp. 10,000 393,750
Firstbank of Illinois Co. 5,000 196,250
Interchange Financial
Services Corp.* 135,200 2,044,900
Jefferson Bankshares, Inc. 274,784 5,358,288
Magna Group, Inc. 160,000 2,960,000
Meridian Bancorp, Inc. 411,000 11,662,125
Morgan (J.P.) & Co., Inc. 181,100 11,409,300
One Valley Bancorp of
West Virginia, Inc. 10,000 282,500
Susquehanna Bancshares, Inc. 49,500 1,101,375
United Bankshares, Inc. 13,500 327,375
University Bank & Trust Co. 1,400 58,100
USBanCorp, Inc. 107,320 2,280,550
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73,315,165
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CHEMICALS--2.7%
Goodrich (B.F.) Co. 75,600 3,279,150
Guardsman Products, Inc. 14,200 142,000
Imperial Chemical
Industries PLC-ADR 473,900 22,095,588
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25,516,738
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CONSUMER PRODUCTS
& SERVICES--5.0%
ADT, Inc.+ 652,772 6,527,720
Cadbury Schweppes PLC-ADR 963,800 24,938,325
Flexsteel Industries, Inc. 229,804 2,527,844
General Mills, Inc. 92,400 5,243,700
Handleman Co. 114,400 1,244,100
Knape & Vogt Manufacturing Co. 250,640 4,010,240
Russ Berrie & Co., Inc. 35,700 481,950
Springs Industries, Inc. 77,970 2,836,158
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47,810,037
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ENERGY--5.8%
Amoco Corp. 100,000 5,800,000
Equitable Resources, Inc. 296,000 8,473,000
Occidental Petroleum Corp. 267,800 5,021,250
Texaco, Inc. 279,900 17,248,838
Ultramar Corp. 497,800 12,071,650
<PAGE>
SHARES VALUE
ENERGY--(CONTINUED)
Williams Companies, Inc. 34,000 $ 918,000
YPF Sociedad Anonima-ADR 250,000 5,156,250
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54,688,988
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FINANCE & INSURANCE--4.4%
Hartford Steam Boiler Inspection
& Insurance Co. 515,200 21,638,400
London Insurance Group 100,000 1,632,016
Provident Life & Accident
Insurance Co. of America
Cl. B 141,600 3,256,800
Transamerica Corp. 285,900 14,616,638
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41,143,854
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HEALTH CARE PRODUCTS
& SERVICES--5.9%
ADAC Laboratories 728,000 5,278,000
Bristol-Myers Squibb Co. 409,900 25,208,850
Schering-Plough Corp. 108,900 8,548,650
Shared Medical Systems Corp. 452,500 14,989,063
Zeneca Group PLC-ADR 30,000 1,256,250
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55,280,813
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INDUSTRIAL, COMMERCIAL GOODS
& SERVICES--2.0%
Automated Security Holdings
PLC-ADR+ 1,176,274 2,646,617
Carpenter Technology Corp. 47,000 2,590,875
Dun & Bradstreet Corp. 201,300 10,065,000
Hubbell, Inc. Cl. B 70,560 3,563,280
Lindberg Corp. 47,800 334,600
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19,200,372
-----------
PUBLISHING, BROADCASTING
& ENTERTAINMENT--0.5%
McGraw-Hill, Inc. 71,700 4,660,500
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REAL ESTATE--7.0%
Berkshire Realty Co., Inc. 19,500 182,813
Burnham Pacific Properties Inc. 155,000 1,995,625
Capstead Mortgage Corp. 6,900 122,475
DeBartolo Realty Corp. 430,000 6,020,000
Equity Residential Properties
Trust 100,200 2,667,825
Factory Stores of America, Inc. 170,400 3,578,400
Gables Residential Trust 278,200 5,772,650
Glimcher Realty Trust 126,100 2,537,763
Horizon Outlet Centers, Inc. 376,400 8,845,400
Kranzco Realty Trust* 611,700 10,781,213
McArthur/Glen Realty Corp. 214,300 3,294,863
Property Trust of America 39,591 673,047
Simon Property Group, Inc. 606,700 14,181,613
South West Property Trust Inc. 336,000 4,158,000
Tucker Properties Corp. 105,000 1,194,375
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66,006,062
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STATEMENT OF INVESTMENTS
January 31, 1995
COMMON STOCKS--(continued) SHARES VALUE
RETAILING--4.7%
Brown Group Inc. 108,600 $ 3,461,625
Jacobson Stores Inc. 55,500 582,750
K Mart Corp. 1,067,600 14,546,050
Mercantile Stores Co., Inc. 216,200 9,512,800
Penney (J.C.) Co., Inc. 200,500 8,320,750
Strawbridge & Clothier Cl. A 75,075 1,576,575
Woolworth Corp. 390,000 6,142,500
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44,143,050
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THRIFT INSTITUTIONS--0.5%
CFX Corp. 57,225 994,284
Eagle Financial Corp. 28,000 560,000
People's Savings Financial Corp.* 149,000 2,644,750
Washington Federal Savings
& Loan Association of Seattle 17,050 313,293
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4,512,327
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UTILITIES-ELECTRIC--12.7%
Atlantic Energy, Inc. 455,400 8,595,675
Baltimore Gas & Electric Co. 19,200 465,600
Commonwealth Energy System 86,800 3,472,000
FPL Group, Inc. 402,500 14,741,562
Houston Industries, Inc. 557,800 22,242,275
LG & E Energy Corp. 154,200 6,052,350
Pennsylvania Power & Light Co. 231,100 4,737,550
Public Service Enterprise
Group, Inc. 335,000 9,673,125
TNP Enterprises, Inc. 515,000 7,982,500
Texas Utilities Co. 391,300 13,597,675
Unicom Corp. 675,900 17,573,400
Union Electric Co. 146,300 5,431,387
Washington Water Power Co. 364,800 5,563,200
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120,128,299
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UTILITIES-GAS--0.1%
UGI Corp. 16,289 342,069
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UTILITIES-TELEPHONE--5.5%
BCE, Inc. 900,000 27,000,000
Bell Atlantic Corp. 112,200 6,086,850
Southern New England
Telecommunications, Corp. 568,700 18,909,275
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51,996,125
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OTHER SECURITIES--4.5% 42,353,900
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TOTAL COMMON STOCKS
(COST $743,380,538) 661,450,799
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<PAGE>
CONVERTIBLE
PREFERRED STOCKS--21.0% SHARES VALUE
BANKS--3.3%
Barnett Banks, Inc.
$4.00 Cumulative Cv Pfd
Series C 193,500 $11,126,250
First Colonial Bankshares Corp.
Cv Pfd Depositary Shares
Series C 112,500 3,417,187
First Fidelity Bancorporation
$2.15 Cv Pfd Series B 100,000 3,750,000
Hudson Chartered Bancorp, Inc.
7.25% Cv Pfd Series B 39,500 498,687
ONBANCorp, Inc.
6.75% Cv Pfd Series B 351,971 7,391,391
Second Bancorp Inc.
$1.50 Cumulative Cv Pfd
Series A-1 75,000 1,762,500
Union Planters Corp.
8.00% Cumulative Cv Pfd
Series E 96,200 2,886,000
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30,832,015
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BUILDING & CONSTRUCTION--0.2%
Southdown, Inc.
$2.875 Cumulative Cv Pfd
Series D 56,500 1,829,187
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BUSINESS EQUIPMENT
& SERVICES--2.1%
Ceridian Corp.
5.50% Cumulative Cv
Exchangeable Pfd
Depositary Shares 30,000 2,066,250
General Motors Corp. Cl. E
$3.25 Cv Pfd Depositary Shares
Series C 247,100 14,177,362
National Semiconductor Corp.
$3.25 Cv Pfd 54,000 3,699,000
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19,942,612
-----------
CHEMICALS--0.5%
Goodrich (B.F.) Co.
$3.50 Cv Pfd Series D 100,000 4,825,000
-----------
ENERGY--1.7%
Kenetech Corp.
8.25% Cv Pfd Depositary Shares 469,000 8,617,875
Occidental Petroleum Corp.
$3.875 Cumulative Cv Pfd** 150,000 7,237,500
-----------
15,855,375
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CONVERTIBLE
PREFERRED STOCKS--(continued) SHARES VALUE
FOREST PRODUCTS & PAPER--1.9%
James River Corp. of Virginia
$3.50 Cv Exchangeable Pfd
Series L 444,200 $ 17,601,425
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INDUSTRIAL, COMMERCIAL GOODS
& SERVICES--1.1%
Sonoco Products Co.
$2.25 Cumulative Cv Pfd
Series A 219,000 10,799,438
-----------
METAL PRODUCTS & SERVICES--5.2%
Freeport-McMoRan
Copper & Gold, Inc.
5.00% Cv Pfd
Depositary Shares Series A 506,900 10,391,450
7.00% Cv Exchangeable Pfd
Depositary Shares 565,400 13,074,875
Magma Copper Co.
5.625% Cumulative Cv Pfd
Series D 6,000 348,000
6.00% Cumulative Cv Pfd
Series E 287,400 18,285,825
Quanex Corp.
6.88% Cv Exchangeable Pfd
Depositary Shares 332,200 7,225,350
-----------
49,325,500
-----------
PUBLISHING, BROADCASTING
& ENTERTAINMENT--0.2%
AMC Entertainment, Inc.
$1.75 Cumulative Cv Pfd 88,000 2,079,000
-----------
RETAILING--1.8%
Sears, Roebuck & Co.
$3.75 Depositary Shares 166,300 9,312,800
TJX Companies, Inc.
$3.125 Cv Pfd Series C 214,000 8,051,750
-----------
17,364,550
-----------
THRIFT INSTITUTIONS--0.9%
Washington Mutual Savings Bank
$6.00 Noncumulative Cv
Perpetual Pfd Series D 97,400 8,035,500
-----------
TRANSPORTATION--1.3%
Burlington Northern, Inc.
6.25% Cumulative Cv Pfd
Series A 231,000 12,560,625
-----------
UTILITIES-TELEPHONE--0.8%
Philippine Long Distance
Telephone Co.
7.00% Series III Cumulative Cv
Pfd Global Depositary Shares 142,500 7,125,000
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $223,729,313) 198,175,227
-----------
<PAGE>
CONVERTIBLE PRINCIPAL
DEBENTURES--3.5% AMOUNT VALUE
ADVERTISING & RELATED
SERVICES--0.1%
Interpublic Group of
Companies, Inc.
3.75% Due 04/01/02 $ 50,000 $ 42,065
-----------
BANKS--0.2%
Magna Group, Inc.
8.75% Due 11/01/98 1,500,000 1,455,000
-----------
BUILDING & CONSTRUCTION--0.9%
Cemex, S.A. de C.V.
4.25% Due 11/01/97** 3,100,000 2,216,500
Continental Homes
Holding Corp.
6.875% Due 03/15/02 4,000,000 3,145,000
Medusa Corp.
6.00% Due 11/05/03 3,270,000 3,155,550
-----------
8,517,050
-----------
CONSUMER PRODUCTS
& SERVICES--0.5%
Fieldcrest Cannon, Inc.
6.00% Due 03/15/12 7,427,000 5,570,250
-----------
FINANCE & INSURANCE--0.2%
Horace Mann Educators Corp.
6.50% Due 12/01/99 2,000,000 1,865,000
-----------
HEALTH CARE PRODUCTS
& SERVICES--0.1%
Maxxim Medical, Inc.
6.75% Due 03/01/03 900,000 855,000
-----------
INDUSTRIAL, COMMERCIAL GOODS
& SERVICES--1.2%
Avnet, Inc.
6.00% Due 04/15/12 560,000 568,400
Dixie Yarns, Inc.
7.00% Due 05/15/12 900,000 621,000
EMC Corp.
4.25% Due 01/01/01 750,000 817,500
General Signal Corp.
5.75% Due 06/01/02 3,250,000 3,347,500
Interface, Inc.
8.00% Due 09/15/13 7,180,000 6,785,100
-----------
12,139,500
-----------
PUBLISHING, BROADCASTING
& ENTERTAINMENT--0.2%
Time Warner, Inc.
8.75% Due 01/10/15 2,000,000 1,930,000
-----------
TELECOMMUNICATION SERVICES
& EQUIPMENT--0.1%
Jones Intercable, Inc.
7.50% Due 06/01/07 600,000 612,000
-----------
TOTAL CONVERTIBLE DEBENTURES
(COST $36,205,330) 32,985,865
-----------
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STATEMENT OF INVESTMENTS
January 31, 1995
SHORT-TERM U.S. GOVERNMENT PRINCIPAL
AGENCY OBLIGATIONS--7.2% AMOUNT VALUE
Federal Home Loan
Mortgage Association
5.26% to 5.85%
Due 02/01/95 to 02/13/95 $52,600,000 $ 52,544,218
Federal National
Mortgage Association
5.63% Due 02/10/95
to 02/17/95 15,200,000 15,165,469
------------
TOTAL SHORT-TERM U.S.
GOVERNMENT AGENCY
OBLIGATIONS (COST $67,709,687) 67,709,687
------------
TOTAL INVESTMENTS
(COST $1,071,024,868) 101.9% 960,321,578
OTHER ASSETS AND LIABILITIES-NET (1.9) (17,932,806)
----- ------------
TOTAL NET ASSETS 100.0% $942,388,772
===== ============
ADR-American Depositary Receipts.
+ Non-income producing.
* Investment in non-controlled affiliates-holdings over 5% of outstanding
voting securities. During the ten months ended January 31, 1995, the Fund
recognized $1,131,048 in dividend income and realized net capital gains of
$212,673 from these investments.
** Exempt from registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration, normally
to qualified institutional buyers. At January 31, 1995, these securities
amounted to $9,454,000 or 1.0% of total net assets.
See accompanying notes to financial statements.
<PAGE>
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
ASSETS:
<S> <C>
Investments at market value
(identified cost $1,071,024,868) $ 960,321,578
Cash 155,102
Receivable for investment securities sold 21,157,495
Dividends receivable 4,599,726
Receivable for Fund shares sold 377,252
Interest receivable 731,900
Prepaid expenses 86,114
- ----------------------------------------------------------------------------------------------------------------------
Total assets 987,429,167
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investment securities purchased 43,213,671
Payable for Fund shares repurchased 644,875
Accrued advisory fee 804,887
Accrued expenses 327,407
Payable to Adviser 49,555
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 45,040,395
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital 1,099,451,863
Accumulated net realized loss on investment transactions (48,838,097)
Undistributed net investment income 2,478,296
Net unrealized depreciation of investments (110,703,290)
- ----------------------------------------------------------------------------------------------------------------------
Net assets $ 942,388,772
======================================================================================================================
NET ASSET VALUE PER SHARE:
Class A Shares ($119,385/6,908 shares of beneficial interest outstanding) $17.28
Class B Shares ($599,185/34,681 shares of beneficial interest outstanding) $17.28
Class C Shares ($24,017/1,391 shares of beneficial interest outstanding) $17.27
Class Y Shares ($941,646,185/54,500,211 shares of beneficial interest
outstanding) $17.28
OFFERING PRICE PER SHARE:
Class A Shares (100/95.25 of $17.28) $18.14
Class B Shares $17.28
Class C Shares $17.27
Class Y Shares $17.28
REDEMPTION PROCEEDS PER SHARE:
Class A Shares $17.28
Class B Shares (95/100 of $17.28) $16.42
Class C Shares (99/100 of $17.27) $17.10
Class Y Shares $17.28
======================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
================================================================================
STATEMENT OF OPERATIONS
For The Ten Months Ended January 31, 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Income:
<S> <C> <C>
Dividends (net of foreign withholding taxes of $1,076,895) $56,728,888
Interest 2,621,203
- ----------------------------------------------------------------------------------------------------------------------
Total income 59,350,091
Expenses:
Advisory fee $8,542,289
Transfer agent fee 927,701
Interest 502,544
Reports and notices to shareholders 224,356
Custodian fee 170,295
Professional fees 101,308
Trustees' fees and expenses 47,700
Registration and filing fees 28,928
Insurance 24,169
Distribution and servicing fees 185
Other 51,032
------
Total expenses 10,620,507
- ----------------------------------------------------------------------------------------------------------------------
Net investment income 48,729,584
- ----------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (47,796,906)
Net decrease in unrealized depreciation of investments 18,363,029
- ----------------------------------------------------------------------------------------------------------------------
Net loss on investments (29,433,877)
- ----------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $19,295,707
======================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
================================================================================
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
TEN MONTHS ENDED YEAR ENDED
JANUARY 31, 1995 MARCH 31, 1994
- ----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
<S> <C> <C>
Net investment income $ 48,729,584 $ 61,484,535
Net realized gain (loss) on investments (47,796,906) 58,044,023
Net change in unrealized appreciation (depreciation) of investments 18,363,029 (141,862,738)
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 19,295,707 (22,334,180)
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income--Class Y shares (60,967,416) (60,835,916)
Net realized gains on investments--Class Y shares (13,895,906) (68,450,269)
- ----------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (74,863,322) (129,286,185)
- ----------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net increase (decrease) resulting from Fund share transactions (66,784,811) 74,005,451
- ----------------------------------------------------------------------------------------------------------------------
Net decrease in net assets (122,352,426) (77,614,914)
NET ASSETS:
Beginning of period 1,064,741,198 1,142,356,112
- ----------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of
$2,478,296 and $14,411,834, respectively) $ 942,388,772 $1,064,741,198
======================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 1995
NOTE 1--CHANGE IN ACCOUNTING AND TAX YEAR
The Evergreen Total Return Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. On September 21, 1994, the Fund's
Trustees approved a change in the Fund's accounting and tax year from March 31
to January 31. Accordingly, the financial information being reported for the
current fiscal year relates to the period from April 1, 1994 through January 31,
1995.
NOTE 2--APPROVAL AND ISSUANCE OF MULTIPLE
CLASSES OF SHARES
On December 13, 1994, the Fund's shareholders, among other things, approved
amendments to the Declaration of Trust to permit the issuance of additional
classes of shares. On December 27, 1994, the Securities and Exchange Commission
approved the application to issue additional classes of shares. In connection
with the adoption of the multiple class distribution program, the Trustees have
designated the existing shares of the Fund as Class Y (no-load) shares and have
created three new classes of shares designated Class A, Class B and Class C
shares. Class A shares are offered with a front-end sales charge of 4.75% which
will be reduced on purchases in excess of $100,000. Class B shares are offered
with a 5% contingent deferred sales charge payable when shares are redeemed
which charge would decline to zero over a seven year period. Class C shares are
offered with a 1% contingent deferred sales charge on shares redeemed during the
first year of sale. All four classes of shares have identical voting, dividend,
liquidation and other rights, except that each class bears different
distribution expenses and has exclusive voting rights with respect to its
distribution plan.
NOTE 3--SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
SECURITY VALUATION:
Portfolio securities are valued at the last reported sales price on an
exchange which is the primary market for such securities, or if no sales were
reported, as in the case of most securities traded over-the-counter, the mean
between the last reported bid and asked prices. Unlisted securities for which
market quotations are readily available are valued at a price quoted by one or
more brokers. Securities for which no quotations are readily available are
valued at fair value as determined in good faith by the Trustees. Short-term
obligations are stated at amortized cost which approximates market value. Cost
of securities is determined and gains and losses are based upon the specific
identification method for both financial statement and Federal income tax
purposes.
FOREIGN CURRENCY TRANSLATIONS:
Assets and liabilities of the Fund denominated in foreign currencies are
translated into U.S. dollar amounts daily at the mean of the buying and selling
market rates for such currencies. Purchases and sales of foreign securities and
income derived from foreign securities are converted at the prevailing rates of
exchange on the respective dates of such transactions. Gains and losses
attributable to foreign currency exchange rates on sales of securities are
reported as a component of net realized gains and losses on investments. That
portion of both realized and unrealized gains and losses on investments that
results from fluctuations in foreign currency exchange rates is not separately
disclosed.
Net realized foreign exchange gains of $304,294 arising from foreign currency
transactions, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the amounts of
dividends and foreign withholding taxes recorded on the Fund's books and the
U.S. dollar equivalent amounts actually received or paid are reported as a
component of net realized loss on investments.
FEDERAL INCOME TAXES:
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
timely, all of its taxable income to its shareholders. Therefore, no Federal
income tax provision is required.
At January 31, 1995 the Fund had a net capital loss carryover of approximately
$22,833,000 which will be available through January 31, 2003 to offset future
capital gains, if any, to the extent provided by the Treasury regulations. To
the extent that this carryover is used to offset future capital gains, it is
<PAGE>
================================================================================
probable that the gains so offset will not be distributed to shareholders.
Capital losses incurred after October 31, within the Fund's fiscal year are
deemed to arise on the first business day of the following fiscal year for tax
purposes. The Fund incurred and will elect to defer such capital losses of
approximately $25,617,000 when it files its returns for the year ended January
31, 1995.
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions to shareholders are recorded on the ex-distribution date. The
amount of distributions from net investment income and net realized capital
gains are determined in accordance with Federal income tax regulations, which
may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their Federal tax-basis treatment;
temporary differences do not require reclassification. Distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as distributions in
excess of net investment income or net realized capital gains. To the extent
distributions exceed current and accumulated earnings and profits for Federal
income tax purposes, they are reported as distributions of paid-in capital. As
of January 31, 1995 the Fund increased undistributed net investment income by
$304,294 and increased accumulated net realized loss by $304,267 with offsetting
adjustments made to paid-in capital. This adjustment was made primarily to
reclass net foreign currency income from capital gains to ordinary income.
OTHER:
Security transactions are accounted for on the trade date, the date the order
to buy or sell is executed. Dividend income is recorded on the ex-dividend date
and interest income is recorded on the accrual basis.
NOTE 4--ADVISORY FEE AND RELATED PARTY
TRANSACTIONS
Evergreen Asset Management Corp. (the "Adviser"), an affiliate of Lieber &
Company, is the investment adviser to the Fund and also furnishes the Fund with
administrative services. The Adviser, which is an indirect, wholly-owned
subsidiary of First Union Corporation, succeeded on June 30, 1994, to the
advisory business of the same name, but under different ownership. The Adviser
is entitled to a fee, accrued daily and paid monthly, for the performance of its
services at an annual rate of 1% of the daily net assets of the Fund. Total
operating expenses of the Fund, exclusive of taxes, interest, brokerage fees and
extraordinary expenses (to the extent permitted by applicable state securities
laws and regulations), are subject to the most restrictive of expense
limitations, as may be amended from time to time, under the rules and
regulations of states where the Fund is authorized to sell its shares. If in any
fiscal year such operating expenses exceed the most restrictive expense
limitation then in effect, the Adviser will reimburse the Fund for the amount of
such excess. Such amount, if any, will be calculated daily and credited on a
monthly basis. For the ten months ended January 31, 1995, the Fund's expenses
did not exceed the most restrictive limitation in effect.
Lieber & Company is the investment sub-adviser to the Fund and also provides
brokerage services with respect to substantially all security transactions of
the Fund effected on the New York and American Stock Exchanges. For transactions
executed during the ten months ended January 31, 1995, the Fund incurred
brokerage commissions of $3,465,900 with Lieber & Company. Lieber & Company is
reimbursed by the Adviser, at no additional expense to the Fund, for its cost of
providing investment advisory services to the Adviser.
NOTE 5--DISTRIBUTION AND SHAREHOLDER
SERVICES FEES
The Fund has adopted for each of its Class A, Class B, and Class C shares, a
Distribution Plan (the "Plans") pursuant to Rule 12b-1 under the Act. Under the
terms of the Plans, the Fund may incur distribution-related and shareholder
servicing-related expenses which may not exceed, as a percentage of average
daily net assets on an annual basis, .75 of 1% of Class A shares and 1% for both
Class B and Class C shares. The payments under the Class A Plan will be
voluntarily limited to .25 of 1%.
In connection with the Plans, the Fund has entered into a distribution
agreement with Evergreen Funds Distributor, Inc. ("EFD"), a subsidiary of Furman
Selz Incorporated, whereby the Fund will compensate EFD for its services at a
<PAGE>
================================================================================
rate which may not exceed, as a percentage of average daily net assets on an
annual basis, .25 of 1% for Class A shares and .75 of 1% for both Class B and
Class C shares. Such fees are accrued daily and paid monthly. The Agreement
provides that EFD will use such fees to finance activities that promote the sale
of Class A, Class B and Class C shares.
A portion of the payments under the Class B and Class C Plans up to .25 of 1%
of average daily net assets may constitute a shareholder service fee. The Fund
has entered into a Shareholder Services Agreement with First Union Brokerage
Services ("FUBS"), an affiliate of the Adviser, whereby the Fund will compensate
FUBS for certain services provided to shareholders and/or for the maintenance of
shareholders accounts relating to the Fund's Class B and Class C shares. Such
fees are accrued daily and paid monthly.
NOTE 6--PORTFOLIO TRANSACTIONS
Cost of purchases and proceeds from sales of investments, other than
short-term obligations, aggregated $1,510,672,668 and $1,642,384,311,
respectively, for the ten months ended January 31, 1995.
The aggregate cost of investments owned at January 31, 1995, for Federal
income tax purposes is $1,071,411,837 due to sales of certain portfolio
securities on which losses are deferred for Federal income tax purposes. Gross
unrealized appreciation and depreciation of securities was $12,720,179 and
$123,810,438, respectively, resulting in net unrealized depreciation for Federal
income tax purposes of $111,090,259.
NOTE 7--FINANCING AGREEMENT
The Fund has a financing agreement with State Street Bank and Trust Company
(the "Bank"), which provides the Fund with a line of credit, in the aggregate
amount of the lesser of $50,000,000 or 5% of the value of the Fund's net assets,
to be accessed for temporary or emergency purposes. Borrowings under the line
bear interest at 1% above the Bank's cost of funds as set periodically by the
Bank and are secured by securities pledged by the Fund. During the ten months
ended January 31, 1995, the Fund had borrowings outstanding for 161 days under
the line of credit and incurred $502,544 in interest charges related to these
borrowings. The Fund's average amount of debt outstanding during the period
aggregated $18,359,441 at a weighted average interest rate of 6.21%. The Fund
had no outstanding borrowings at January 31, 1995.
NOTE 8--SHARES OF BENEFICIAL INTEREST
There is an unlimited number of $.001 par value shares of beneficial interest
authorized, divided into four classes, designated Class A, Class B, Class C and
Class Y. Transactions in shares of beneficial interest were as follows:
TEN MONTHS ENDED
JANUARY 31, 1995
- --------------------------------------------------------------------------------
SHARES DOLLARS
- --------------------------------------------------------------------------------
CLASS A*
Shares sold 6,908 $119,191
Shares redeemed -- --
- --------------------------------------------------------------------------------
Net increase 6,908 $119,191
================================================================================
CLASS B*
Shares sold 34,681 $598,442
Shares redeemed -- --
- --------------------------------------------------------------------------------
Net increase 34,681 $598,442
================================================================================
CLASS C*
Shares sold 1,391 $23,953
Shares redeemed -- --
- --------------------------------------------------------------------------------
Net increase 1,391 $23,953
================================================================================
CLASS Y
Shares sold 2,744,616 $ 49,305,685
Shares issued on reinvestments
of distributions 3,880,023 68,046,447
Shares redeemed (10,340,626) (184,878,529)
- --------------------------------------------------------------------------------
Net increase (decrease) (3,715,987) $ (67,526,397)
================================================================================
Total net increase (decrease)
resulting from Fund share
transactions (3,673,007) $ (66,784,811)
================================================================================
YEAR ENDED
MARCH 31, 1994
- --------------------------------------------------------------------------------
SHARES DOLLARS
- --------------------------------------------------------------------------------
CLASS Y
Shares sold 7,932,941 $ 160,781,811
Shares issued on reinvestments
of distributions 5,951,305 119,101,941
Shares redeemed (10,330,879) (205,878,301)
- --------------------------------------------------------------------------------
Net increase (decrease) 3,553,367 $ 74,005,451
================================================================================
Total net increase (decrease)
resulting from Fund share
transactions 3,553,367 $ 74,005,451
================================================================================
* For Class A, Class B and Class C, the Fund share transaction activity reflects
the period January 3, 1995 (commencement of distribution) to January 31, 1995.
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD JANUARY 3, 1995*
THROUGH JANUARY 31, 1995
--------------------------------------------
PER SHARE DATA CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $17.09 $17.09 $17.09
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .02 .02 .01
Net realized and unrealized gain on investments .17 .17 .17
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations .19 .19 .18
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.28 $17.28 $17.27
========================================================================================================================
TOTAL RETURN+ 1.1% 1.1% 1.1%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $119 $599 $24
Ratios to average net assets:
Expenses++ 1.45% 2.23% 2.22%
Net investment income++ 4.09% 3.23% 2.68%
Portfolio turnover rate** 151% 151% 151%
========================================================================================================================
</TABLE>
*Commencement of distribution.
**Portfolio turnover rate is calculated for the ten month period ended January
31, 1995.
+Total return is calculated on net asset value per share for the period
indicated and is not annualized. Initial sales charges or contingent deferred
sales charges are not reflected.
++Annualized.
See accompanying notes to financial statements.
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
CLASS Y SHARES
<TABLE>
<CAPTION>
TEN MONTHS YEAR ENDED MARCH 31,
ENDED ---------------------------------------------------------------
PER SHARE DATA JANUARY 31, 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $18.29 $20.90 $18.82 $18.12 $18.26 $17.92
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .87 1.08 1.11 1.08 1.02 1.07
Net realized and unrealized gain (loss)
on investments (.55) (1.41) 2.51 .70 (.08) .36
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .32 (.33) 3.62 1.78 .94 1.43
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income (1.08) (1.08) (1.08) (1.08) (1.08) (1.09)
Net realized gains (.25) (1.20) (.46) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.33) (2.28) (1.54) (1.08) (1.08) (1.09)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.28 $18.29 $20.90 $18.82 $18.12 $18.26
====================================================================================================================================
TOTAL RETURN 1.9%+ (2.1)% 20.2% 10.2% 5.8% 7.9%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period (in millions) $942 $1,065 $1,142 $1,032 $1,151 $1,292
Ratios to average net assets:
Expenses 1.24%* 1.18% 1.18% 1.21% 1.23% 1.18%
Net investment income 5.70%* 5.29% 5.65% 5.73% 5.90% 5.64%
Portfolio turnover rate 151% 106% 164% 137% 137% 89%
====================================================================================================================================
</TABLE>
+Total return calculated for the ten month period ended January 31, 1995 is
not annualized.
*Annualized.
See accompanying notes to financial statements.
<PAGE>
================================================================================
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Shareholders and Trustees
Evergreen Total Return Fund
We have audited the accompanying statement of assets and liabilities of the
Evergreen Total Return Fund, including the statement of investments, as of
January 31, 1995, and the related statement of operations for the ten month
period then ended, the statement of changes in net assets for the ten month
period then ended and for the year ended March 31, 1994 and the financial
highlights for the ten months then ended and for each of the five years in the
period ended March 31, 1994. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
January 31, 1995 by correspondence with the custodian and brokers or other
appropriate auditing procedures where replies from brokers were not received. 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 the
Evergreen Total Return Fund as of January 31, 1995, the results of its
operations for the ten months then ended, the changes in its net assets for the
ten month period then ended and for the year ended March 31, 1994, and the
financial highlights for the ten months then ended and each of the five years in
the period ended March 31, 1994, in conformity with generally accepted
accounting principles.
/S/Ernst & Young LLP
Boston, Massachusetts
March 24, 1995
------------------------------------------------------
FEDERAL INCOME TAX STATUS
OF DISTRIBUTIONS (UNAUDITED)
Class Y Shares
During the ten months ended January 31, 1995, the
Evergreen Total Return Fund paid the following
distributions per share:
NET LONG-TERM
INVESTMENT SHORT-TERM CAPITAL
Payable Date INCOME GAINS GAINS
----------- --------- ---------- ---------
April 22, 1994 $ .27 $.055 --
July 20, 1994 .27 -- --
October 19, 1994 .27 -- --
December 27, 1994 .27 .003 $.194
----- ----- ----
Total $1.08 $.058 $.194
===== ===== ====
Net investment income and short-term gains are
considered ordinary income for Federal income tax
purposes.
For corporate taxpayers, 85.3% of the ordinary income
distributions paid during the ten months ended
January 31, 1995, qualified for the corporate
dividends received deduction.
------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
EVERGREEN FAMILY OF FUNDS
GROWTH FUNDS ____________________________________
EVERGREEN FUND seeks capital appreciation by investing in securities of little
known or relatively small companies and companies with entrepreneurial
management.
GLOBAL REAL ESTATE EQUITY FUND seeks capital appreciation by investing in
securities of companies involved in various aspects of the real estate industry
throughout the world.
LIMITED MARKET FUND seeks capital appreciation by investing in securities of
little-known, small or special situation companies.
U.S. REAL ESTATE EQUITY FUND seeks long-term capital growth by investing in
equity securities of U.S. companies which are principally engaged in the real
estate industry or which own significant real estate assets.
GROWTH & INCOME FUNDS _________________________
AMERICAN RETIREMENT FUND seeks conservation of capital, reasonable income and
capital growth by investing in a diversified and balanced portfolio of equity
and fixed income securities.
EVERGREEN FOUNDATION FUND seeks reasonable income, conservation of capital and
growth by investing in common and preferred stocks, convertibles and fixed
income securities.
GROWTH & INCOME FUND seeks capital appreciation and current income by investing
in securities of companies undervalued in the marketplace due to temporary
adverse circumstances or misperceptions of underlying values.
SMALL CAP EQUITY INCOME FUND seeks a return consisting of current income and
capital appreciation by investing primarily in companies with market
capitalizations of less than $500 million.
TAX STRATEGIC FOUNDATION FUND seeks to maximize the after tax total return on
its portfolio investments by investing in common and preferred stocks and
securities convertible into or exchangeable for common stocks, and municipal
securities.
GROWTH & INCOME FUNDS (continued)
TOTAL RETURN FUND seeks a total return consisting of current income and capital
appreciation by investing in common and preferred stocks, securities convertible
or exchangeable for common stocks and fixed income securities.
INCOME FUND _____________________________________
U.S. GOVERNMENT SECURITIES FUND seeks a high level of return from a combination
of current income and capital appreciation through investment in obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
TAX-FREE FUNDS___________________________________
NATIONAL TAX-FREE FUND seeks a high level of current income, exempt from Federal
income tax, by investing at least 80% of its portfolio in insured long-term
municipal securities.
SHORT-INTERMEDIATE MUNICIPAL FUND seeks as high a level of current income,
exempt from Federal income tax (other than the alternative minimum tax), as is
consistent with preserving capital and providing liquidity by investing in short
and intermediate-term municipal securities.
SHORT-INTERMEDIATE MUNICIPAL FUND-CALIFORNIA seeks as high a level of current
income, exempt from Federal and California state income taxes, as is consistent
with preserving capital and providing liquidity by investing in short and
intermediate-term municipal securities.
MONEY MARKET FUNDS _________________________
MONEY MARKET TRUST seeks as high a level of current income as is consistent with
preserving capital and providing liquidity.
TAX EXEMPT MONEY MARKET FUND seeks as high a level of current income exempt from
Federal income taxes as is consistent with preserving capital and providing
liquidity.
THE PROSPECTUS(ES) CONTAIN MORE COMPLETE INFORMATION AND SHOULD BE READ
CAREFULLY PRIOR TO INVESTING.
<PAGE>
TRUSTEES
Laurence B. Ashkin
Foster Bam
James S. Howell
Robert J. Jeffries
Gerald M. McDonnell
Thomas L. McVerry
William Walt Pettit
Russell A. Salton, III, M.D.
Michael S. Scofield
INVESTMENT ADVISER
Evergreen Asset Management Corp.
2500 Westchester Avenue
Purchase, New York 10577
CUSTODIAN & TRANSFER AGENT
State Street Bank and Trust Company
LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman
INDEPENDENT AUDITORS
Ernst & Young LLP
DISTRIBUTOR
Evergreen Funds Distributor, Inc.
The investment adviser to the Evergreen Funds is Evergreen Asset Management
Corp., which is wholly-owned by First Union National Bank of North Carolina.
Investments in the Evergreen Funds are not endorsed or guaranteed by First Union
or any subsidiaries of First Union, are not deposits or other obligations of
First Union or any subsidiaries of First Union, are not insured or otherwise
protected by the Federal Deposit Insurance Corporation, the Federal Reserve
Board, or any other government agency, and involve investment risks, including
possible loss of
principal.
The Evergreen Funds are sponsored and distributed by Evergreen Funds
Distributor, Inc., which is independent of Evergreen and First Union.
EVERGREEN TOTAL RETURN FUND
2500 Westchester Avenue
Purchase, New York 10577-2555
(800) 235-0064
<PAGE>
