<PAGE>
EVERGREEN
TOTAL RETURN
FUND
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SEMIANNUAL
REPORT
JULY 31, 1996
(Evergreen tree logo)
EVERGREEN(sm)
FUNDS
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EVERGREEN TOTAL RETURN FUND
TABLE OF CONTENTS
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<C> <S> <C>
(Photo of calculator, Economic Overview......................................................... 1
pen and money) TOTAL RETURN A Report From Your Portfolio Manager...................................... 3
FUND Statement of Investments.................................................. 7
Statement of Assets and Liabilities....................................... 11
Statement of Operations................................................... 12
Statement of Changes in Net Assets........................................ 13
Financial Highlights...................................................... 14
Notes to Financial Statements............................................. 17
Trustees and Officers.........................................Inside Back Cover
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EVERGREEN TOTAL RETURN FUND
ECONOMIC OVERVIEW
BY EVERGREEN ASSET MANAGEMENT CHAIRMAN
STEPHEN A. LIEBER
Throughout the first half of 1996, there has been an (Photo of
increasing and unusually intense investment markets Stephen A. Lieber)
preoccupation with the risk of inflation. Such concern
is, at first glance, remarkable considering that the
inflation rate, as measured by
the Producer Price Index and the Consumer Price Index, remained approximately
constant through the entire six months, and still is 2.8% on the Consumer Price
Index. Further, inflation at this approximate rate has been relatively constant
for over five years. However, a most widely held economic view is that the
economy cannot enjoy significant growth within a stable, low inflation
environment. Thus, each sign of growth, and particularly of employment and wage
strength, is viewed as a trend which implies a resurgence of inflation. This
broad apprehension is not merely the anxiety of a society which has, in the past
decades, seen the erosion of financial assets caused by inflation; it is also a
reaction to recent economic forecasts which under-estimated the economy's growth
rate.
The recently published semi-annual survey of over 50 business economists by
Blue Chip Economic Indicators published by Capitol Publication in Alexandria,
Virginia, contrasts economic trends at mid-year with expectations six months
before. At the beginning of the year, most of these "blue chip" economists
anticipated a slowing of the economy with increased unemployment. The opposite
happened. Economic growth accelerated to an expected 4.2% for the June quarter,
and official unemployment statistics show that unemployment has gone from 5.6%
to 5.4%. Many influential economists expect that, as the economy approaches full
employment, a wage price spiral will ensue which will touch off inflation. The
fear of such a spiral has strongly impacted the financial markets. Consequently,
the real rate of return (the rate of return on long-term U.S. Treasury
obligations, net of the inflation rate) has risen from 3%, to a recent peak of
4.3%. Rising real returns have also accounted for a sizable strengthening of the
dollar, as compared with other currencies, up 11% on the yen and 7% on the
German mark and 9% on the pound sterling.
The jump in interest rates tended to accelerate a flight of domestic savings
into equities for growth, as the bond alternative seemed threatened by inflation
and, thus, bond prices were in a declining trend. A flood of savings into the
equity markets, stimulated by the increasing prevalence of 401k retirement plans
using mutual funds, also increased the divergence between the trajectories of
stock prices and bond prices. Several sectors of the stock market, particularly
in technology enterprises, moved to levels of valuation seldom seen and, most
infrequently, if ever, sustained. With this massive increase of public savings
participation in the stock market, it became increasingly argued that the
"wealth effect" in the rising stock market was stimulating consumer purchases
beyond expected levels, and might itself be a source of accelerating growth and,
ultimately, inflation.
In the midst of widespread debate about the impact and durability of growth
trends, press discussion began to question the theory that low unemployment
rates trigger inflation.
Recently, this questioning has been advanced to explain why the Federal
Reserve did not raise interest rates at mid-year, despite the strength of the
economy. It promises to be the subject of much public debate. But, there will
also be much debate over the sustainability of economic growth through the
balance of the year. There is now some doubt that consumer spending will be
sustained, given the fact that credit card losses have been increasing since
December. Credit card issuers, who are suffering from an extraordinary loss
rate, will have to cut back too easy credit in the interests of their own
prudent financial management. Consumer buying strength was also supported by tax
refunds in the second quarter. There will be no recurrence of this flow of funds
for the balance of the year. It is also noted that if the "wealth effect" played
a role, then any sustained fall in the stock market is likely to reduce that
source of consumer spending.
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EVERGREEN TOTAL RETURN FUND
ECONOMIC OVERVIEW -- (CONTINUED)
On the external side, the strength of the dollar suggests both a reduction in
export competitiveness, and a decline in U.S. competitiveness against imports.
The Chairman of Chrysler Corporation has already publicly decried the rally of
the dollar, suggesting that it will increase imports and put pressure on the
pricing of domestic manufacturers. Former Federal Reserve Chairman, Paul Volker
has publicly stated that it is important that the dollar not rise further.
Finally, the fact that interest rates have risen over the first half of the year
suggests that they will be a slowing influence in the months ahead. Historical
studies indicate that it usually takes about six months for higher interest
rates to begin to dampen business and consumer borrowing. The sum of these
factors suggests that the recently improved growth rate of the economy may prove
unsustainable in the near-term.
The stock market, at this writing, has gone through its first broad scale
contraction since the beginning of the year. The major fall, to-date, was in the
shares of technology and, especially, computer related companies which
encountered a slowdown in domestic demand, together with a decline in European
demand. This caused a reappraisal of the values of many of the major companies
in the related industries. It has resulted in sizable declines, often 50% or
more, for the shares of smaller companies which had been boosted through widely
disseminated projections of extraordinarily high profits growth rates. This
setback may bring a reappraisal by individual investors and institutional
investors alike of the valuation structure of the stock market. We anticipate
that it will concentrate renewed focus on companies with well-established
franchises and well-supported growth programs, in contrast to newly competitive
and highly promotional businesses. Recognition that much of recent technological
leadership is turning into a hard fought, commodity-like competitive business,
should lead to an increasing number of mergers and combinations. With an
underlying high level of consumer income and extremely good corporate liquidity,
we expect few major corporate profits disappointments in the near-term.
Businesses which may have over-expanded in dreams of endless demand have, in
many cases, already been forced to cut back. Others, demand for whose parts or
services has been well sustained, but who are holding back on enlarged working
capital and capital investments, are already increasing their stock buy-back
programs. These factors of management restraint, high levels of liquidity,
conservative expansion planning, readiness for business combinations and
corporate buy-backs will, we believe, sustain an environment of opportunity for
equity investors in the months ahead.
The fixed income markets should benefit from these same factors. A slowed
growth trend should reduce the fear of inflation and, thus, the real return
premium over the inflation rate.
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EVERGREEN TOTAL RETURN FUND
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A REPORT FROM YOUR
PORTFOLIO MANAGER
NOLA M. FALCONE
Evergreen Total Return Fund seeks to provide a sizable (Photo of
current income flow and competitive long-term growth. The Nola M. Falcone)
Fund's consistent quarterly stream of dividends (Class Y,
no-load shares) has provided an annual payout rate
significantly higher than that of the S&P 500 Reinvested
Index*. This Fund was originally intended to provide an
inflation-hedging substitute for bond investing. During the
six-month period under review, the Fund (Class Y no-load
shares) sustained its high and continuous income flow (more
than double that of the S&P 500). The Fund (Class Y, no-load
shares) has paid a minimum quarterly cash distribution of $.27
per share for each of the last ten years**.
The Fund focuses on the market's equity yield sector, which includes
convertibles and common stocks with above-average dividend income which, we have
observed, tends to act as a buffer against volatility. This is suggested by the
Fund's low beta of .6. Beta is a measure of the market risk of a fund's
portfolio, illustrating the volatility of the net asset value per share of a
mutual fund as compared with the market as a whole (as measured by S&P 500
Reinvested Index which is assigned a beta of one). A beta of less than one
indicates that a fund would fluctuate less than the market and greater than one
indicates it would fluctuate more than the market.
INVESTMENTS
In view of the highly volatile trends in the recent stock market, we have
positioned the portfolio in many investments, which provide values not
necessarily related to market trends. These usually offer defensive qualities.
Our focus has been primarily on 1) merger and acquisition prospects within
several industries; 2) the restructuring of large, undervalued conglomerates,
including not only domestic companies but also large foreign issues; and 3)
opportunities to make timely purchases of stocks which have become temporarily
depressed. The Fund looks for values where the stock's potential may be
misperceived by the marketplace. We also believe in investing in companies with
implicit stability of earnings trends, established dividend policies, and
increasing dividend trends. These characteristics should help provide a lower
level of downside volatility in weaker markets.
MERGERS AND ACQUISITIONS
Since the inception of the Fund on September 7, 1978, a total of 28
investment positions in the banking industry have been merged or acquired, with
average gains of 57.6%. For some time, we have been investing in regional bank
issues to benefit from the consolidation in the industry. Since our annual
report, Meridian Bancorp Inc. (purchased August 22, 1994) was taken over by
CoreStates Financial Corp. for a 30% gain to the portfolio.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
* THE S&P 500 IS AN UNMANAGED INDEX OF COMMON STOCKS IN INDUSTRY,
TRANSPORTATION, FINANCE, AND PUBLIC UTILITIES, DENOTING GENERAL MARKET
PERFORMANCE AS MONITORED BY STANDARD & POOR'S CORP. AN INVESTMENT CAN NOT BE
MADE IN AN INDEX.
** THE FUND HAS PAID A MINIMUM QUARTERLY CASH DISTRIBUTION FOR ITS CLASS A
SHARES, CLASS B SHARES, AND CLASS C SHARES OF $.258, $.224, AND $.222 PER
SHARE, RESPECTIVELY, SINCE THEIR INCEPTIONS ON 1/3/95.
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EVERGREEN TOTAL RETURN FUND
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A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
Consolidations are occurring this year in many industries such as
telecommunications, computer software, utilities, health, real estate and retail
companies, often to provide synergistic earnings benefits for the acquirer.
Since it appears the U.S. is entering a slower growth phase for the economy in
the last half of 1996 and since interest rates are historically reasonable, we
believe there will be more mergers and acquisitions announced in the second half
of 1996 than the first half. Companies will probably maneuver to improve growth
through controlling more of their industry position to improve earnings through
accretive acquisitions. Recent merger and acquisition holdings announcements for
the portfolio include: Simon Property Group, Inc.'s takeover bid for Debartolo
Realty Corp., Bradley Real Estate for Tucker Properties Corp., and Republic
Industries for ADT Ltd. One of our long-term holdings, FHP International Corp.,
has a pending takeover by Pacificare Health, which was announced subsequent to
the end of the quarter. Since inception of the Fund, there have been a total of
99 completed mergers and acquisitions for an average gain of 52.2%.
In the rapidly evolving telecommunications field, we added U.S. West
Communications Group and Frontier Corp. as two possible takeover values which
also have good growth outlooks. The deregulation of the electric industry is
prompting major structural changes in the industry as companies maneuver to
control more of their potential market. Electric companies are beginning to
realize the possible synergistic benefits of acquiring a gas company in their
same territory, and an oil and gas producer-pipeline company is bidding for an
electric utility.
RESTRUCTURING
We have seen the benefits of restructuring among U.S. companies, especially
those aiming to become more competitive globally, through improved productivity.
We purchased American Home Products Corp. because of 1) the improvement in
earnings from the synergies from their acquisition of American Cyanamid Corp.;
2) the pipeline of new products; and 3) a restructuring which might entail a
spin-off or rationalization of their businesses. In the gas distribution
business, we purchased Questar Corp. and the recently issued convertibles of MCN
Corp. Both companies are restructuring from a corporate structure that is
primarily regulated, to a business which will derive its income 50/50 from
regulated and non-regulated areas. The latter category will probably be
predominately exploration and production of oil and gas. Other domestic
restructuring issues which we have purchased included Corning, Dun & Bradstreet,
Reader's Digest Association and Torchmark Corp. Foreign companies, particularly
in Europe, are now joining this restructuring trend since they have seen its
benefits in U.S companies. Internationally, we invested in Rhone Poulenc,
Imperial Chemical Industries Plc, and Tompkins Plc, all of which have been
successfully restructuring and offer possibilities for improved earnings***.
Recently, we sold Westinghouse Electric Corp. which has been in the process
of extensive restructuring. As we began to realize capital appreciation in
recognition of some of their bold moves, we sold a portion of the Fund's
holdings for a 20.3% gain for a holding period of a little over one year.
VALUE TIMING
One of the Fund's strategies has been to invest in issues that we view have
become undervalued temporarily due to Wall Street's overreaction to adverse
news, We call this a value timing strategy. Illustrative is our
*** INTERNATIONAL INVESTING MAY INVOLVE CERTAIN ADDITIONAL RISKS SUCH AS
CURRENCY FLUCTUATIONS, ECONOMIC AND POLITICAL INSTABILITY, AND DIFFERENCES
IN ACCOUNTING STANDARDS.
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EVERGREEN TOTAL RETURN FUND
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purchase of the shares of Comsat Corp. We bought these shares in February, 1996,
because of analysts' concerns about this quasi-Government company's ability to
compete in the rapidly changing satellite industry and its weak earnings from
athletic team investments. We reasoned the stock was oversold, in view of
sizable assets, particularly satellites currently in operation. We sold it one
month later for a gain of 30% to the portfolio.
Convertibles in the technology arena also offered some opportunities for us.
The technology equity investment arena is particularly volatile. We have
observed that at points of temporary weakness, where the underlying growth
trends of companies are still in place, it makes sense to buy these
convertibles. Conversely, one must be nimble to take profits. We realized gains
of over 29% on three technology convertibles: Seagate Technology Convertible
6-3/4% due 5/01/12, Altera Corp. Convertible 5-3/4% due 6/15/02 and 3Com Corp.
Convertible 10-1/4% due 11/01/01.
Internationally, we extended our search for value timing opportunities,
buying Telecom Corp. of New Zealand, Ltd. when the stock price was under
pressure due to fear about upcoming elections. More recently, we have bought
Scottish Power which has lagged the overall British market and has good earnings
potential.
PORTFOLIO PERFORMANCE
The best performing groups were related to consumer spending, including
consumer products and services, retailing, and healthcare. Banks and thrifts
continue to provide strength for the portfolio. Gas and telephone utilities were
also positive during this period of time.
Cyclical issues, which include industrial commercial goods and services, and
a few technology issues were particularly hard hit in the market drop during
July. They were a drag on the portfolio performance. We also found that
convertible bonds and convertible preferreds did not provide as strong a support
as we had anticipated in the market decline, and a number of specialty insurance
companies were also weak during this period.
Evergreen Total Return Fund's total return for the six months ended July 31,
1996, was -0.2%+ for Class Y, no-load shares. The six-month total returns at net
asset value for the Fund's Class A shares, Class B shares, and Class C shares
were -0.3%, -0.6%, and -0.6%, respectively++.
The Fund's strategy continues to focus on companies with increasing dividends
or with the high probabilities of increases. Fifty-five percent of the companies
represented in the portfolio increased their dividends during the preceding
twelve months. The increases ranged up to 50% for First Essex Bancorp and 40%
for IBM.
+ PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN
DISTRIBUTIONS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE.
INVESTORS' SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
++ CLASS A SHARES ARE SUBJECT TO A MAXIMUM 4.75% FRONT END SALES CHARGE, CLASS B
SHARES ARE SUBJECT TO A MAXIMUM 5% CONTINGENT DEFERRED SALES CHARGE, AND
CLASS C SHARES ARE SUBJECT TO A 1% CONTINGENT DEFERRED SALES CHARGE WITHIN
THE FIRST YEAR OF PURCHASE. SALES CHARGES ARE NOT REFLECTED IN THE FIGURES
ABOVE, AND IF REFLECTED, PERFORMANCE WOULD BE LOWER.
5
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EVERGREEN TOTAL RETURN FUND
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A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
OUTLOOK
We believe we are in a period of continuing price volatility due to upcoming
elections, concerns about the direction of the economy and Federal Reserve
policy, and consumer indebtedness. We experienced a very turbulent market from
June 5 to July 23 when the S&P 500 declined 7.6% and the NASDAQ Composite
declined 16.0%. For this reason, we think it more important than ever to focus
on value yield investing which we believe offers defensive benefits.
More recently, the economic announcements indicate that inflation is largely
under control and growth is slowing in the U.S., which will probably mean the
Federal Reserve will not have to tighten interest rates near-term. This slower
growth does suggest some clouds on the horizon for corporate earnings. Long-term
though, we see some very strong positive growth trends in the U.S., particularly
in the technology, financial services, and health care industries. By investing
in sectors that have strong underlying growth trends plus merger and acquisition
possibilities, we believe that the effects of market volatility will probably be
reduced. By complementing this type of investing with value timing
opportunities, restructuring benefits and yield investing, we anticipate a
steadier long-term growth trend and income flow.
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EVERGREEN TOTAL RETURN FUND
STATEMENT OF INVESTMENTS
JULY 31, 1996
(UNAUDITED)
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<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- 73.5%
AUTOMOTIVE EQUIPMENT &
MANUFACTURING -- .7%
200,000 Chrysler Corp...................... $ 5,675,000
BANKS -- 12.1%
11,900 AmSouth Bancorp.................... 438,813
142,000 BancorpSouth, Inc.................. 3,106,250
178,300 Bankers Trust New York Corp........ 12,815,312
1,352 Barnett Banks, Inc................. 82,979
192,500 +CB Bancshares, Inc................ 5,390,000
24,850 CCB Financial Corp................. 1,285,988
52,000 Citizens Banking Corp.............. 1,534,000
1,908,000 Commonwealth Bank of
Australia**........................ 9,371,026
40,000 Deposit Guaranty Corp.............. 1,830,000
60,606 F&M National Corp.................. 1,053,029
25,000 First Essex Bancorp, Inc........... 265,625
7,000 First of America Bank Corp......... 317,625
20,000 First Tennessee National Corp...... 590,000
80,500 First Virginia Banks, Inc.......... 3,240,125
7,500 Firstbank of Illinois Co........... 221,250
229,100 FirstMerit Corp.................... 6,873,000
424,700 Fleet Financial Group, Inc......... 17,200,350
30,501 Hudson Chartered Bancorp, Inc...... 655,772
141,960 Interchange Financial
Services Corp...................... 2,697,240
120,000 +Jacksonville Bancorp, Inc......... 1,230,000
203,251 Jefferson Bankshares, Inc.......... 4,623,960
175,900 Magna Group, Inc................... 3,957,750
12,000 Mercantile Bancorporation, Inc..... 550,500
180,000 National Australia Bank Ltd........ 8,212,500
10,000 One Valley Bancorp of West
Virginia, Inc...................... 346,250
39,627 Second Bancorp, Inc................ 1,238,344
49,500 Susquehanna Bancshares, Inc........ 1,367,438
3,500 United Bankshares, Inc............. 98,000
107,320 USBancorp, Inc..................... 3,548,267
400,000 Westpac Banking Corp. Ltd.......... 8,950,000
103,091,393
BUSINESS EQUIPMENT &
SERVICES -- 3.9%
272,500 Dun & Bradstreet Corp. (The)....... 15,668,750
160,000 International Business
Machines Corp...................... 17,260,000
32,928,750
CHEMICAL & AGRICULTURAL
PRODUCTS -- 2.7%
230,000 Dow Chemical Co. (The)............. 17,106,250
<CAPTION>
SHARES VALUE
<C> <S> <C>
CHEMICAL & AGRICULTURAL
PRODUCTS -- CONTINUED
129,500 Imperial Chemical Industries
Plc, ADR........................... $ 6,037,938
23,144,188
CONSUMER PRODUCTS &
SERVICES -- .3%
150,640 Knape & Vogt Manufacturing Co...... 2,033,640
DIVERSIFIED COMPANIES -- 5.5%
2,160,700 Hanson Plc, ADR.................... 27,548,925
95,000 Tenneco, Inc....................... 4,678,750
924,500 Tomkins Plc, ADR................... 14,792,000
47,019,675
ELECTRICAL EQUIPMENT &
SERVICES -- .6%
100,000 AMP, Inc........................... 3,862,500
41,400 Thomas & Betts Corp................ 1,511,100
5,373,600
ENERGY -- 2.5%
10,000 Amoco Corp......................... 668,750
27,500 Atlantic Richfield Co.............. 3,184,907
10,000 Elf Aquitaine, ADR................. 360,000
436,000 Enron Global Power &
Pipelines LLC...................... 10,954,500
8,100 Equitable Resources, Inc........... 205,538
182,800 Questar Corp....................... 5,758,200
21,131,895
FINANCE & INSURANCE -- 2.5%
17,500 American General Corp.............. 648,375
200,000 GCR Holdings, Ltd.................. 4,575,000
105,200 Hartford Steam Boiler Inspection &
Insurance Co. (The)................ 4,589,350
100,000 LaSalle Re Holdings, Ltd........... 2,250,000
10,000 Marsh & McLennan Cos., Inc......... 906,250
71,600 Provident Cos., Inc................ 2,613,400
135,000 Torchmark Corp..................... 5,754,375
21,336,750
FOREST PRODUCTS -- .3%
60,000 Union Camp Corp.................... 2,880,000
HEALTHCARE PRODUCTS &
SERVICES -- 5.8%
428,000 ADAC Laboratories.................. 8,292,500
100,000 American Home Products Corp........ 5,675,000
164,700 Bristol-Myers Squibb Co............ 14,267,138
200,000 Rhone Poulenc SA, ADR.............. 5,172,241
</TABLE>
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EVERGREEN TOTAL RETURN FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
JULY 31, 1996
(UNAUDITED)
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<CAPTION>
SHARES VALUE
COMMON STOCKS -- CONTINUED
HEALTHCARE PRODUCTS &
SERVICES -- CONTINUED
30,000 Schering-Plough Corp............... $ 1,653,750
52,500 Shared Medical Systems Corp........ 2,887,500
98,000 SmithKline Beecham Plc, ADR........ 5,267,500
107,200 Warner-Lambert Co.................. 5,842,400
3,900 Zeneca Group Plc, ADR.............. 252,525
49,310,554
INDUSTRIAL SPECIALTY PRODUCTS
& SERVICES -- 1.9%
100,000 Cooper Industries, Inc............. 3,937,500
488,000 McDermott International, Inc....... 8,845,000
50,000 Snap-On, Inc....................... 2,218,750
30,000 Timken Co. (The)................... 1,098,750
16,100,000
INFORMATION SERVICES &
TECHNOLOGY -- .8%
476,499 *National Semiconductor Corp....... 6,730,548
OFFICE EQUIPMENT &
SUPPLIES -- .0%(a)
3,400 Pitney Bowes, Inc.................. 164,900
PUBLISHING, BROADCASTING &
ENTERTAINMENT -- 1.3%
274,000 Reader's Digest Assn., Inc. (The).. 11,336,750
REAL ESTATE -- 6.2%
250,184 Bradley Real Estate, Inc........... 3,627,668
155,000 Burnham Pacific Properties, Inc.... 1,801,875
140,000 CarrAmerica Realty Corp............ 3,360,000
43,600 Chelsea GCA Realty, Inc............ 1,258,950
257,200 Columbus Realty Trust.............. 4,951,100
220,000 Crown American Realty Trust........ 1,815,000
9,000 Evans Withycombe
Residential, Inc................... 183,375
75,000 Glimcher Realty Trust.............. 1,246,875
484,512 Horizon Group, Inc................. 10,053,624
611,700 +Kranzco Realty Trust.............. 9,634,275
272,000 Patriot American
Hospitality, Inc................... 7,718,000
139,500 Post Properties, Inc............... 4,830,187
187,500 South West Property Trust, Inc..... 2,390,625
52,871,554
RETAILING & WHOLESALE -- 1.9%
115,000 J. C. Penney Co., Inc.............. 5,721,250
55,500 Jacobson Stores, Inc............... 610,500
200,000 Mercantile Stores Co., Inc......... 9,800,000
16,131,750
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SHARES VALUE
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TELECOMMUNICATION SERVICES
& EQUIPMENT -- 1.8%
100,000 Cable & Wireless Plc, ADR.......... $ 1,887,500
5,000 *Portugal Telecom SA, ADS.......... 128,125
151,900 Telecom Argentina STET - France
Telecom SA, ADR.................... 5,772,200
30,400 Telecom Corp. Of New Zealand Ltd.
ADS................................ 2,238,200
220,000 Telefonica del Peru SA, ADS........ 4,812,500
14,838,525
TEXTILE & APPAREL -- .3%
51,900 Kellwood Co........................ 830,400
93,500 Oxford Industries, Inc............. 1,402,500
2,232,900
THRIFT INSTITUTIONS -- .5%
78,840 CFX Corp........................... 1,064,340
30,800 Eagle Financial Corp............... 739,200
99,000 +People's Savings Financial
Corp............................... 2,153,250
7,755 Washington Federal, Inc............ 164,794
4,121,584
TRANSPORTATION -- 1.3%
350,000 KLM Royal Dutch Air Lines.......... 11,025,000
UTILITIES -- ELECTRIC -- 14.4%
455,400 Atlantic Energy, Inc............... 7,741,800
100,000 Carolina Power & Light Co.......... 3,600,000
3,800 Commonwealth Energy System......... 87,400
73,500 Dominion Resources, Inc............ 2,765,438
10,633 Eastern Utilities Associates....... 168,799
352,500 FPL Group, Inc..................... 15,994,687
122,600 General Public Utilities Corp...... 3,984,500
763,300 Houston Industries, Inc............ 17,269,662
220,000 Illinova Corp...................... 5,665,000
121,300 Northern State Power Corp.......... 5,428,175
100,000 Portland General Corp.............. 3,550,000
100,000 Potomac Electric Power Co.......... 2,412,500
835,000 Public Service Enterprise
Group, Inc......................... 21,814,375
2,150,000 Scottish Power Plc, ADR............ 10,534,298
191,300 Texas Utilities Co................. 8,034,600
515,000 TNP Enterprises, Inc............... 13,454,375
122,505,609
UTILITIES -- GAS -- .4%
110,400 CMS Energy Corp. Cl. G............. 2,028,600
65,000 Energen Corp....................... 1,470,625
3,499,225
</TABLE>
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EVERGREEN TOTAL RETURN FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
JULY 31, 1996
(UNAUDITED)
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<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS -- CONTINUED
<C> <S> <C>
UTILITIES -- TELEPHONE -- 4.1%
20,000 Bell Atlantic Corp................. $ 1,182,500
311,800 Frontier Corp...................... 8,769,375
50,000 GTE Corp........................... 2,062,500
50,000 NYNEX Corp......................... 2,243,750
17,900 Southern New England
Telecommunications Corp............ 686,912
657,400 U.S. West Communications Group,
Inc................................ 19,968,525
34,913,562
OTHER SECURITIES -- 1.7%........... 14,509,878
TOTAL COMMON STOCKS
(COST $640,298,607)................ 624,907,230
CONVERTIBLE PREFERRED STOCKS -- 18.8%
BANKS -- 1.8%
112,500 Firstar Corp.
$1.75, Series D.................... 5,407,032
351,971 ONBANCorp, Inc.
6.75%, Series B.................... 9,503,217
14,910,249
CHEMICAL & AGRICULTURAL
PRODUCTS -- 1.1%
423,000 Atlantic Richfield Co.
9.0%, DECS......................... 9,676,125
CONSUMER PRODUCTS &
SERVICES -- 1.1%
175,000 Corning, Inc.
6.0%, MIPS......................... 9,493,750
ELECTRICAL EQUIPMENT &
SERVICES -- .7%
400,000 Westinghouse Electric Corp. $1.30,
Series C, PEPS..................... 6,328,000
ENERGY -- 3.2%
49,200 Ashland, Inc.
$3.125............................. 2,927,400
50,000 Callon Petroleum Co.
8.50%, Series A.................... 1,537,500
1,101,200 Santa Fe Energy Resources, Inc.
8.25%, DECS........................ 11,287,300
200,000 Unocal Corp.
7.00%.............................. 11,250,000
27,002,200
FINANCE & INSURANCE -- 2.2%
5,000 Allstate Corp. (The)
6.76%, due 1998, DECS.............. 213,125
<CAPTION>
SHARES VALUE
<C> <S> <C>
CONVERTIBLE PREFERRED STOCKS -- CONTINUED
FINANCE & INSURANCE -- CONTINUED
61,600 American General Corp.
$3.00, Series A, MIPS.............. $ 3,080,000
29,100 Aon Corp. Cl. A
6.25%.............................. 1,746,000
239,600 Integon Corp.
$3.875............................. 13,747,050
18,786,175
FOREST PRODUCTS -- .1%
18,600 Boise Cascade Corp.
$1.58, Series G, ACES.............. 504,525
HEALTHCARE PRODUCTS &
SERVICES -- .5%
165,000 FHP International Corp.
5.00%, Series A.................... 4,006,406
METAL PRODUCTS & SERVICES -- 4.1%
Freeport McMoRan Copper &
Gold, Inc.
812,800 5.0%, EDS
Series A........................... 21,437,600
473,100 7.0%, EDS.......................... 13,601,625
35,039,225
PUBLISHING, BROADCASTING &
ENTERTAINMENT -- 2.3%
88,000 AMC Entertainment, Inc.
$1.75.............................. 3,014,000
425,000 TCI Communications, Inc.
$2.125, Series A................... 16,096,875
19,110,875
REAL ESTATE -- .3%
150,000 Wellsford Residential Property
Trust
7.0%, Series A..................... 2,925,000
UTILITIES -- 1.4%
105,000 Enron Corp.
6.25%, ACES........................ 2,467,500
100,600 MCN Corp.
8.75%, PRIDES...................... 2,577,875
121,000 Philippine Long Distance Telephone
Co., GDS
7.00%, Series III.................. 6,639,875
11,685,250
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $165,342,534)................ 159,467,780
</TABLE>
9
<PAGE>
EVERGREEN TOTAL RETURN FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
JULY 31, 1996
(UNAUDITED)
(Photo of calculator, pen and money)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CONVERTIBLE DEBENTURES -- 6.2%
BANKS -- .2%
$ 1,500,000 Magna Group, Inc.
8.75%, 11/1/98.................... $ 1,522,500
ELECTRICAL EQUIPMENT &
SERVICES -- .8%
6,750,000 Analog Devices, Inc.
3.50%, 12/1/00.................... 6,901,875
ENERGY -- .3%
2,500,000 Key Energy Group, Inc.
7.00%, 7/1/03..................... 2,512,500
FINANCE & INSURANCE -- .8%
115,000 Merrill Lynch & Co., Inc.
STRYPES
7.25%, due 6/15/99
(Exchangeable for
Sun America, Inc. common stock)... 6,540,625
HEALTHCARE PRODUCTS &
SERVICES -- 2.8%
Beverly Enterprises, Inc.
22,220,000 5.50%, 8/1/18..................... 20,775,700
1,335,000 7.625%, 3/15/03................... 1,261,575
1,369,000 Maxxim Medical, Inc.
6.75%, 3/1/03..................... 1,416,915
23,454,190
INDUSTRIAL SPECIALTY PRODUCTS
& SERVICES -- .4%
3,500,000 Magna International, Inc.
5.00%, 10/15/02................... 3,522,050
INFORMATION SERVICES &
TECHNOLOGY -- .2%
2,000,000 Conner Peripherals, Inc.
6.50%, 3/1/02..................... 2,130,000
METAL PRODUCTS &
SERVICES -- .6%
5,000,000 Altera Corp.
5.75%, 6/15/02.................... 5,175,000
PUBLISHING, BROADCASTING &
ENTERTAINMENT -- .1%
55,000 Merrill Lynch & Co., Inc.
STRYPES
6.0%, due 6/1/99
(Exchangeable for Cox
Communications, Inc. common
stock)............................ 1,100,000
TOTAL CONVERTIBLE DEBENTURES
(COST $59,255,570)................ 52,858,740
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM INVESTMENTS -- 1.6%
COMMERCIAL PAPER -- .0% (a)
$ 300,000 Golden Managers Acceptance Corp.
5.37%, 8/7/96..................... $ 299,731
GOVERNMENT AGENCY NOTES &
BONDS -- 1.6%
2,100,000 Federal Farm Credit Bank
5.22%, 8/26/96.................... 2,092,388
Federal Home Loan Mortgage
5.22%, 8/29/96.................... 3,386,196
3,400,000
800,000 5.23%, 8/19/96.................... 797,908
500,000 5.25%, 8/15/96.................... 498,979
Federal National Mortgage Assn.
500,000 5.26%, 8/29/96.................... 497,954
6,000,000 5.27%, 8/29/96.................... 5,975,407
13,248,832
TOTAL SHORT-TERM INVESTMENTS
(COST $13,548,563)................ 13,548,563
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS --
(COST $878,445,274)....... 100.1% 850,782,313
OTHER ASSETS AND
LIABILITIES -- NET........ (0.1%) (1,060,708)
NET ASSETS --............. 100.0% $849,721,605
</TABLE>
Summary of abbreviations:
ACES -- Automatically Convertible Equity Securities
ADR -- American Depositary Receipts
ADS -- American Depositary Shares
DECS -- Dividend Enhanced Convertible Stock
EDS -- Exchangeable Depository Shares
GDS -- Global Depositary Shares
MIPS -- Monthly Income Preferred Shares
PEPS -- Participating Equity Preferred Shares
PRIDES -- Preferred Redeemable Increased Dividend Equity Securities
STRYPES -- Structured Yield Product Exchangeable for Stock securities.
* Non-income producing securities.
+ Investment in non-controlled affiliates-holdings over 5% of outstanding
voting securities. During the six months ended July 31, 1996, the Fund
recognized $771,807 in dividend income from these investments.
** Beneficial interest in these shares is represented by Installment Receipts.
The Installment Receipts will become Ordinary Shares upon the second and
final installment payment in November 1997.
(a) Less than one tenth of one percent.
See accompanying notes to financial statements.
10
<PAGE>
EVERGREEN TOTAL RETURN FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1996
(UNAUDITED)
(Photo of calculator, pen and money)
<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $878,445,274)........................................................... $850,782,313
Cash.......................................................................................................... 71,977
Dividends and interest receivable............................................................................. 3,229,965
Receivable for investments sold............................................................................... 2,939,635
Receivable for Fund shares sold............................................................................... 419,882
Prepaid expenses.............................................................................................. 33,506
Total assets............................................................................................ 857,477,278
LIABILITIES:
Payable for investments purchased............................................................................. 5,999,839
Accrued Advisory fee.......................................................................................... 724,609
Accrued expenses.............................................................................................. 596,733
Payable for Fund shares repurchased........................................................................... 411,829
Distribution fee payable...................................................................................... 22,663
Total liabilities....................................................................................... 7,755,673
NET ASSETS....................................................................................................... $849,721,605
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................... $885,382,809
Undistributed net investment income........................................................................... 949,269
Accumulated net realized loss on investment transactions...................................................... (8,947,276)
Net unrealized depreciation of investments.................................................................... (27,663,197)
Net assets.............................................................................................. $849,721,605
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($6,990,477/357,083 shares of beneficial interest outstanding)................................. $19.58
Sales charge -- 4.75% of offering price....................................................................... .98
Maximum offering price.................................................................................. $ 20.56
Class B Shares ($24,581,935/1,260,662 shares of beneficial interest outstanding).............................. $ 19.50
Class C Shares ($869,603/44,603 shares of beneficial interest outstanding).................................... $ 19.50
Class Y Shares ($817,279,590/41,700,098 shares of beneficial interest outstanding)............................ $ 19.60
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
EVERGREEN TOTAL RETURN FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JULY 31, 1996
(UNAUDITED)
(Photo of calculator, pen and money)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $735,554)................................. $ 25,274,487
Interest................................................................................. 2,459,087
Total investment income............................................................... 27,733,574
EXPENSES:
Advisory fee............................................................................. $ 4,470,943
Distribution fee -- Class A Shares....................................................... 7,463
Distribution fee -- Class B Shares....................................................... 75,542
Shareholder services fee -- Class B Shares............................................... 25,181
Distribution fee -- Class C Shares....................................................... 2,816
Shareholder services fee -- Class C Shares............................................... 939
Transfer agent fee....................................................................... 491,400
Custodian fee............................................................................ 100,100
Reports and notices to shareholders...................................................... 91,000
Professional fees........................................................................ 57,694
Trustees' fees and expenses.............................................................. 33,670
Registration and filing fees............................................................. 27,300
Insurance................................................................................ 14,935
Miscellaneous............................................................................ 25,984
Total operating expenses.............................................................. 5,424,967
Interest expense......................................................................... 3,708
Net expenses....................................................................... 5,428,675
Net investment income.......................................................................... 22,304,899
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCY TRANSACTIONS AND
COVERED CALL OPTIONS:
Net realized gain on:
Investment transactions.................................................................. 20,775,149
Foreign currency transactions............................................................ 19,692
Covered call options..................................................................... 639,208
Net realized gain on investments......................................................... 21,434,049
Net change in unrealized depreciation of investments........................................ (43,848,954)
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................... $ (110,006)
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
EVERGREEN TOTAL RETURN FUND
STATEMENT OF CHANGES IN NET ASSETS
(Photo of calculator, pen and money)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
JULY 31, 1996 ENDED
(UNAUDITED) JANUARY 31, 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................................................... $ 22,304,899 $ 53,831,619
Net realized gain on investments, foreign currency transactions and covered call
options............................................................................... 21,434,049 18,456,772
Net change in unrealized appreciation (depreciation) of investments..................... (43,848,954) 126,889,047
Net increase (decrease) in net assets resulting from operations...................... (110,006) 199,177,438
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A Shares.......................................................................... (161,796) (115,623)
Class B Shares.......................................................................... (480,501) (338,493)
Class C Shares.......................................................................... (18,132) (10,937)
Class Y Shares.......................................................................... (23,105,773) (53,434,290)
Total distributions to shareholders.................................................. (23,766,202) (53,899,343)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold............................................................... 34,917,088 52,666,229
Proceeds from reinvestment of distributions............................................. 21,229,947 48,433,865
Payment for shares redeemed............................................................. (116,690,497) (254,625,686)
Net decrease resulting from Fund share transactions............................... (60,543,462) (153,525,592)
Net decrease in net assets........................................................ (84,419,670) (8,247,497)
NET ASSETS:
Beginning of period..................................................................... 934,141,275 942,388,772
End of period (including undistributed net investment income of $949,269 and $2,410,572,
respectively)......................................................................... $ 849,721,605 $ 934,141,275
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
EVERGREEN TOTAL RETURN FUND --
CLASS A AND B SHARES
FINANCIAL HIGHLIGHTS
(Photo of calculator, pen and money)
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED JANUARY 3, 1995* ENDED YEAR ENDED
JULY 31, 1996 JANUARY 31, THROUGH JULY 31, 1996 JANUARY 31,
(UNAUDITED) 1996 JANUARY 31, 1995 (UNAUDITED) 1996
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period....... $ 20.15 $17.28 $ 17.09 $ 20.08 $ 17.28
Income from investment operations:
Net investment income.................... .49 1.01 .02 .43 .91
Net realized and unrealized gain (loss)
on investments......................... (.54) 2.94 .17 (.55) 2.87
Total from investment operations....... (.05) 3.95 .19 (.12) 3.78
Less distributions to shareholders from net
investment income........................ (.52) (1.08) -- (.46) (.98)
Net asset value, end of period............. $ 19.58 $20.15 $ 17.28 $ 19.50 $ 20.08
TOTAL RETURN+.............................. (.3%) 23.4% 1.1% (.6%) 22.4%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted).......................... $6,990 $4,412 $119 $24,582 $ 14,750
Ratios to average net assets:
Expenses................................. 1.44%++ 1.36%** 1.45%++ 2.19%++ 2.11%**
Net investment income.................... 4.81%++ 5.39%** 4.09%++ 4.05%++ 4.69%**
Portfolio turnover rate.................... 79% 138% 151% 79% 138%
Average commission paid per share.......... $.0495 N/A N/A $.0495 N/A
<CAPTION>
JANUARY 3, 1995*
THROUGH
JANUARY 31, 1995
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period....... $17.09
Income from investment operations:
Net investment income.................... .02
Net realized and unrealized gain (loss)
on investments......................... .17
Total from investment operations....... .19
Less distributions to shareholders from net
investment income........................ --
Net asset value, end of period............. $17.28
TOTAL RETURN+.............................. 1.1%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted).......................... $599
Ratios to average net assets:
Expenses................................. 2.23%++
Net investment income.................... 3.23%++
Portfolio turnover rate.................... 151%
Average commission paid per share.......... N/A
</TABLE>
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charge or contingent deferred
sales charge is not reflected.
++ Annualized.
** Net of expense reimbursements. If the Fund had borne all expenses that were
assumed by the investment adviser, the annualized ratios of expenses and net
investment income to average net assets, exclusive of any applicable state
expense limitations, would have been the following:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY
31, 1996
CLASS A CLASS B
SHARES SHARES
<S> <C> <C>
Expenses.............................................................................................. 2.50% 2.25%
Net investment income................................................................................. 4.25% 4.55%
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
EVERGREEN TOTAL RETURN FUND --
CLASS C SHARES
FINANCIAL HIGHLIGHTS -- (CONTINUED)
(Photo of calculator, pen and money)
<TABLE>
<CAPTION>
CLASS C SHARES
SIX MONTHS
ENDED YEAR ENDED
JULY 31, 1996 JANUARY 31,
(UNAUDITED) 1996
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period................................................... $ 20.08 $17.27
Income from investment operations:
Net investment income................................................................ .42 .90
Net realized and unrealized gain (loss) on investments............................... (.54) 2.89
Total from investment operations................................................... (.12) 3.79
Less distributions to shareholders from net investment income.......................... (.46) (.98)
Net asset value, end of period......................................................... $ 19.50 $20.08
TOTAL RETURN+.......................................................................... (.6%) 22.4%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted)...................................................................... $870 $523
Ratios to average net assets:
Expenses............................................................................. 2.19%++ 2.11%**
Net investment income................................................................ 4.02%++ 4.67%**
Portfolio turnover rate................................................................ 79% 138%
Average commission paid per share...................................................... $.0495 N/A
<CAPTION>
JANUARY 3, 1995*
THROUGH
JANUARY 31, 1995
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period................................................... $ 17.09
Income from investment operations:
Net investment income................................................................ .01
Net realized and unrealized gain (loss) on investments............................... .17
Total from investment operations................................................... .18
Less distributions to shareholders from net investment income.......................... --
Net asset value, end of period......................................................... $ 17.27
TOTAL RETURN+.......................................................................... 1.1%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted)...................................................................... $24
Ratios to average net assets:
Expenses............................................................................. 2.22%++
Net investment income................................................................ 2.68%++
Portfolio turnover rate................................................................ 151%
Average commission paid per share...................................................... N/A
</TABLE>
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Contingent deferred sales charge is not
reflected.
++ Annualized.
** Net of expense reimbursements. If the Fund had borne all expenses that were
assumed by the investment adviser, the annualized ratios of expenses and net
investment loss to average net assets, exclusive of any applicable state
expense limitations, would have been the following:
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31, 1996
CLASS C
SHARES
<S> <C>
Expenses............................................................................................... 13.03%
Net investment loss.................................................................................... (6.25%)
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
EVERGREEN TOTAL RETURN FUND --
CLASS Y SHARES
FINANCIAL HIGHLIGHTS -- (CONTINUED)
(Photo of calculator, pen and money)
<TABLE>
<CAPTION>
CLASS Y SHARES
YEAR
SIX MONTHS ENDED
ENDED YEAR ENDED TEN MONTHS MARCH
JULY 31, 1996 JANUARY 31, ENDED 31,
(UNAUDITED) 1996 JANUARY 31, 1995* 1994
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period........................... $20.16 $ 17.28 $ 18.29 $20.90
Income (loss) from investment operations:
Net investment income........................................ .52 1.10 .87 1.08
Net realized and unrealized gain (loss) on investments....... (.54) 2.87 (.55) (1.41)
Total from investment operations........................... (.02) 3.97 .32 (.33)
Less distributions to shareholders from:
Net investment income........................................ (.54) (1.09) (1.08) (1.08)
Net realized gain on investments............................. -- -- (.25) (1.20)
Total distributions...................................... (.54) (1.09) (1.33) (2.28)
Net asset value, end of period................................. $19.60 $ 20.16 $ 17.28 $18.29
TOTAL RETURN+.................................................. (.2%) 23.5% 1.9% (2.1%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(in millions)................................................ $817 $914 $942 $1,065
Ratios to average net assets:
Expenses..................................................... 1.18%++ 1.19% 1.24%++ 1.18%
Net investment income........................................ 4.99%++ 5.70% 5.70%++ 5.29%
Portfolio turnover rate........................................ 79% 138% 151% 106%
Average commission paid per share.............................. $.0495 N/A N/A N/A
<CAPTION>
1993 1992
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period........................... $18.82 $18.12
Income (loss) from investment operations:
Net investment income........................................ 1.11 1.08
Net realized and unrealized gain (loss) on investments....... 2.51 .70
Total from investment operations........................... 3.62 1.78
Less distributions to shareholders from:
Net investment income........................................ (1.08) (1.08)
Net realized gain on investments............................. (.46) --
Total distributions...................................... (1.54) (1.08)
Net asset value, end of period................................. $20.90 $18.82
TOTAL RETURN+.................................................. 20.2% 10.2%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(in millions)................................................ $1,142 $1,032
Ratios to average net assets:
Expenses..................................................... 1.18% 1.21%
Net investment income........................................ 5.65% 5.73%
Portfolio turnover rate........................................ 164% 137%
Average commission paid per share.............................. N/A N/A
</TABLE>
* The Fund changed its fiscal year end from March 31 to January 31.
+ Total return is calculated for the periods indicated and is not annualized.
++ Annualized.
See accompanying notes to financial statements.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS
The Evergreen Total Return Fund (the "Fund") is an open-end management
company registered under the Investment Company Act of 1940, as amended (the
"Act"). The Fund's investment objective is to achieve a return consisting of
current income and capital appreciation.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. These policies are in
conformity with generally accepted accounting principles.
SECURITY VALUATIONS -- Investments in securities traded on a national
securities exchange or included on the NASDAQ National Market System ("NMS") are
valued at the last reported sales price. Securities traded on an exchange or NMS
for which there has been no sale and securities traded in the over-the-counter
market are valued at the mean between the last reported bid and asked price.
Unlisted securities for which market quotations are not readily available are
valued at a price quoted by one or more brokers. Debt securities (other than
short-term obligations) are valued on the basis of valuations provided by a
pricing service. Securities for which market quotations are not readily
available are valued at their respective fair value as determined in good faith
by the Fund's Trustees. Short-term investments are valued at amortized cost,
which approximates market value.
SECURITY TRANSACTIONS -- Security transactions are accounted for on the
date purchased or sold. Net realized gains or losses are determined on the
identified cost basis.
INVESTMENT INCOME AND EXPENSES -- Dividend income is recorded on the
ex-dividend date. Interest income and expenses are accrued daily.
INCOME TAXES -- It is the Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable net income and net realized capital
gains to its shareholders. Accordingly, no provisions for Federal income or
excise taxes are necessary. To the extent that realized capital gains can be
offset by capital loss carryforwards, it is the Fund's policy not to distribute
such gains. At January 31, 1996, the Fund's most recent fiscal year end, the
Fund had a capital loss carryover of $30,344,063, of which $22,833,382 expires
on 1/31/03 and $7,510,681 expires on 1/31/04.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
are distributed quarterly. Distributions from net realized capital gains on
investments, if any, will be distributed at least annually. Income and capital
gain distributions are determined in accordance with income tax regulations
which may differ from amounts available under generally accepted accounting
principles. To the extent these differences are permanent in nature, such
amounts are reclassified within the components of net assets.
ALLOCATION OF EXPENSES -- Expenses specifically identifiable to a class of
shares are charged to that class. Investment income, net of expenses (other than
class specific expenses) and realized and unrealized gains and losses are
allocated daily to each class of shares based upon the relative proportion of
net assets of each class.
USE OF ESTIMATES -- The preparation of financial statements in accordance
with generally accepted accounting principles required management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AGREEMENTS -- Pursuant to an agreement with the Fund's
investment adviser, Evergreen Asset Management Corp. ("Evergreen Asset"), a
wholly owned subsidiary of First Union National Bank of North Carolina ("First
Union"), Evergreen Asset is entitled to an annual fee based on the Fund's
average daily net assets in accordance with the following schedule:
<TABLE>
<S> <C>
First $750 million 1.00%
Next $250 million 0.90%
Over $1 billion 0.80%
</TABLE>
Lieber & Company, an affiliate of First Union, is the investment
sub-adviser to the Fund and also provides brokerage services with respect to
substantially all security transactions effected on the New York or American
Stock Exchanges. For transactions executed during the six-month period ended
July 31, 1996, the Fund incurred brokerage commissions of $1,287,300 with Lieber
& Company. Lieber & Company is reimbursed by Evergreen Asset, at no additional
expense to the Fund, for its cost of providing investment advisory services.
ADMINISTRATION AGREEMENT -- Evergreen Asset furnishes the Fund with
administrative services as part of its advisory agreement and accordingly, the
Fund does not pay a separate administration fee. Furman Selz LLC ("Furman Selz")
is the Fund's sub-administrator. As sub-administrator, Furman Selz provides the
officers of the Fund. Furman Selz' fee is paid by Evergreen Asset and is not a
fund expense.
PLANS OF DISTRIBUTION -- The Fund has adopted for its Class A Shares, Class
B Shares, and Class C Shares, Distribution Plans (the "Plans") pursuant to Rule
12b-1 under the Act (see note 4). Under the terms of the Plans, the Fund may
incur distribution-related and shareholder servicing expenses which may not
exceed an annual fee of .75 of 1% of Class A Share's average daily net assets
and an annual fee of 1% of Class B and Class C Share's average daily net assets.
The payments for Class A were voluntarily limited to .25 of 1% of average daily
net assets. Rule 12b-1 fees are accrued daily and paid monthly.
In connection with its plans, the Fund has entered into a distribution
agreement with Evergreen Funds Distributor, Inc. ("EFD"), a subsidiary of Furman
Selz, whereby the Fund will compensate EFD for its services at a rate which may
not exceed an annual fee of .25 of 1% of Class A Shares average daily net assets
and an annual fee of 1% of Class B and Class C Share's average daily net assets.
A portion of the payments for Class B and C Shares, up to .25 of 1%, may
constitute a shareholder services fee. EFD has entered into a Shareholder
Services Agreement with First Union Brokerage ("FUBS"), an affiliate of First
Union, whereby they will compensate FUBS for certain services provided to
shareholders and/or maintenance of shareholder accounts relating to the Fund's
Class B and Class C Shares.
SALES CHARGES -- EFD has advised the Fund that it has retained $11,942 from
front-end sales charges resulting from sales of Class A Shares during the
six-month period ended July 31, 1996.
NOTE 4 -- SHARES OF BENEFICIAL INTEREST
The Fund has an unlimited number of $0.001 par value shares of beneficial
interest authorized. The shares are divided into classes which are designated
Class A, Class B, Class C, and Class Y Shares. Class A Shares are sold with a
front-end sales charge of up to 4.75%. Class B Shares are sold with a contingent
deferred sales charge which declines from 5% to zero depending on the period of
time the shares are held. Class B Shares will automatically convert to Class A
Shares seven years after the date of purchase. Class C Shares are sold with a
contingent deferred sales charge of 1% during the first year after the date of
purchase. Class Y Shares are sold without a sales charge and are available only
to investment advisory clients of First Union and its affiliates, certain
institutional investors or Class Y shareholders of record of certain other funds
managed by First Union and its affiliates as of December 30, 1994. The classes
have identical voting, dividend, liquidation and other
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 4 -- SHARES OF BENEFICIAL INTEREST -- continued
rights, except that Class A, Class B and Class C Shares bear distribution
expenses (see Note 3) and have exclusive voting rights with respect to their
distribution plans.
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JULY 31, 1996 YEAR ENDED
(UNAUDITED) JANUARY 31, 1996
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold................................................... 175,272 $ 3,545,988 228,841 $ 4,349,310
Shares issued on reinvestment of distributions................ 7,139 144,379 5,285 101,915
Shares redeemed............................................... (44,321) (888,549) (22,041) (423,996)
Net increase.................................................. 138,090 2,801,818 212,085 4,027,229
CLASS B
Shares sold................................................... 555,198 11,196,499 719,805 13,730,445
Shares issued on reinvestment of distributions................ 20,360 410,397 15,667 302,547
Shares redeemed............................................... (49,374) (992,489) (35,675) (692,877)
Net increase.................................................. 526,184 10,614,407 699,797 13,340,115
CLASS C
Shares sold................................................... 22,634 456,099 24,468 469,424
Shares issued on reinvestment of distributions................ 639 12,879 445 8,587
Shares redeemed............................................... (4,712) (95,438) (262) (4,731)
Net increase.................................................. 18,561 373,540 24,651 473,280
CLASS Y
Shares sold................................................... 978,287 19,718,502 1,829,669 34,117,050
Shares issued on reinvestment of distributions................ 1,021,591 20,662,292 2,547,340 48,020,816
Shares redeemed............................................... (5,665,444) (114,714,021) (13,511,557) (253,504,082)
Net decrease.................................................. (3,665,566) (74,333,227) (9,134,548) (171,366,216)
Total net decrease resulting from
Fund share transactions..................................... (2,982,731) ($ 60,543,462) (8,198,015) ($153,525,592)
</TABLE>
NOTE 5 -- INVESTMENT TRANSACTIONS
The cost of purchases and proceeds from sales of investments, excluding
short-term securities for the six-month period ended July 31, 1996 were
$695,094,602 and $686,152,480, respectively.
The aggregate cost of investments owned at July 31, 1996 for Federal income
tax purposes was $878,445,274. Gross unrealized appreciation and depreciation of
securities was $40,564,637 and $68,237,598, respectively, resulting in net
unrealized depreciation for Federal income tax purposes of $27,672,961.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 6 -- FINANCING AGREEMENT
Effective July 3, 1996, a financing agreement was put in place with all the
Evergreen Funds and the custodian, State Street Bank and Trust Company (the
"Bank"). Under the agreement, the Bank is providing an unsecured line of credit
facility, in the aggregate amount of $100 million ($50 million committed and $50
million uncommitted), to be accessed by the Funds for temporary or emergency
purposes only and is subject to each participating Fund's borrowing
restrictions. Borrowings under this facility bear interest at .75% per annum
above the Bank's cost of funds as set periodically by the Bank. A commitment fee
of .10% per annum will be incurred on the unused portion of the committed
facility which will be allocated to all participating funds. Prior to July 3,
1996, the Fund had a financing agreement with the Bank which provided the Fund
with a line of credit, in the aggregate amount of the lesser of $50 million or
5% of the value of the Fund's net assets. During the six-month period ended July
31, 1996, the Fund had borrowings outstanding for 27 days under these lines of
credit and incurred $3,708 in interest charges related to these borrowings. The
Fund's average amount of debt outstanding during the period aggregated $930,769
at a weighted average interest rate of 6.42%. The Fund had no outstanding
borrowings at July 31, 1996.
NOTE 7 -- OPTIONS WRITTEN
Investment activity in covered call option contracts for the period ended
July 31, 1996, was as follows:
<TABLE>
<CAPTION>
NUMBER
OF CONTRACTS PREMIUMS
<S> <C> <C>
Open option contracts written at January 31, 1996 2,639 $ 865,850
Option contracts closed (2,639) (865,850)
</TABLE>
20
<PAGE>
TRUSTEES AND OFFICERS
TRUSTEES:
Laurence B. Ashkin
Foster Bam
James S. Howell, Chairman
Robert J. Jeffries+
Gerald M. McDonnell
Thomas L. McVerry
William W. Pettit
Russell A. Salton, III M.D.
Michael S. Scofield
OFFICERS:
John J. Pileggi
President and Treasurer
Joan V. Fiore
Secretary
Sheryl Hirschfeld
Assistant Secretary
Donald E. Brostrom
Assistant Treasurer
Stephen W. St. Clair
Assistant Treasurer
+Trustee Emeritus
<PAGE>
This brochure must be preceeded or accompanied by a prospectus for Evergreen
Total Return Fund. The prospectus contains more complete information,
including fees and expenses, and should be read carefully before investing
or sending money.
NOT
FDIC May lose value
INSURED No bank guarantee
Evergreen Funds Distributor, Inc.
44881 539567
9/96
