<PAGE>
EVERGREEN
TOTAL RETURN
FUND
(Photo of calculator, pen and money)
(Photo of trees with a mountain and clouds behind)
1996 ANNUAL REPORT
(Evergreen tree logo)
EVERGREEN
FUNDS
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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
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
For corporate taxpayers 87.81% of the ordinary income
distributions paid during the fiscal year ended January 31, 1996
qualified for corporate dividends received deduction.
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EVERGREEN TOTAL RETURN FUND
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
(Photo of calculator, A Review of the Past Year
pen and money) and Prospects for the Future.............................................. 2
TOTAL RETURN A Report From Your Portfolio Manager...................................... 4
FUND Results to Date........................................................... 8
Statement of Investments.................................................. 9
Statement of Assets and Liabilities....................................... 13
Statement of Operations................................................... 14
Statement of Changes in Net Assets........................................ 15
Financial Highlights...................................................... 16
Notes to Financial Statements............................................. 18
Report of Ernst & Young LLP -- Independent Auditors....................... 22
</TABLE>
1
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EVERGREEN TOTAL RETURN FUND
A REVIEW OF THE PAST YEAR
AND PROSPECTS FOR THE FUTURE
BY STEPHEN A. LIEBER, CHAIRMAN
EVERGREEN ASSET MANAGEMENT CORP.
As 1995 ended, there was a general high level of (Photo of Stephen
confidence in the national ability to control A. Lieber)
inflation. In the broadest consensus on economic
matters that we had seen in decades, we found
expectations that the United States will
have no more than a 2.5% rate of inflation through 1996. Expectations of
controlled inflation allowed interest rates to fall, as measured by the 30-year
U.S. Treasury bond, from a peak of almost 8% at the beginning of 1995, to 6% in
December. Investors throughout the world normally expect a 3% real (net after
inflation) rate of return, and in some periods of greater volatility in the
inflation rate, up to a 4% real rate of return. Assuming a 2.5% inflation rate,
real returns at the end of 1995 calculated to be 3.5%. If the rate of inflation
remains steadily below 2.5%, or even trends downward in 1996, it is reasonable
to expect that long-term interest rates will range around current levels or,
move even lower, but with one caveat.
That caveat has to do with the value of the dollar relative to the currencies
of the other major trading nations. Since the beginning of the current major
decline in interest rates in August, the dollar has been gradually stronger
against the German mark and the Japanese yen. This has supported international
confidence in investing in dollar obligations, as has the decline in our
inflation rate. Thus, we must look at 1996 prospects for the dollar as well as
for our inflation rate. The dollar is subject to political risks as well as
economic trends.
The central political issue related to the dollar and, in the longer run, to
inflation prospects has to do with the United States budget deficit,
notwithstanding that its deficit as a percentage of Gross Domestic Product ranks
the U.S. comparative position as one of the lowest among major industrial
nations. If the current negotiations between the legislative and the executive
branches over budget legislation produce a program for deficit control which
will be widely considered likely to succeed, there should be broader foreign
confidence in our currency and less apprehension over the resurgence of
inflation.
The key challenge to the equity markets in this environment of preoccupation
with inflation control and deficit reduction is whether fiscal policy and
corporate strategies will permit sufficient growth to meet investor expectations
of increasing corporate earnings. Corporations are focused on tight cost control
to compete globally. Frequently, corporate productivity gains, particularly for
manufacturing and service industries, are obtained through employment reduction.
This has deflationary consequences that may prove positive to the bond market,
but inherently slows consumer demand and creates a drag effect on production
growth. Our conclusion is that the economic and political conditions likely to
prevail at least at the beginning of 1996, will tend to support expectations of
controlled inflation, but not allow rapid expansion of corporate profits. For
those equity investors who anticipate earnings growth from corporations
positively affected by sustained lower interest rates, the environment should be
offering satisfactory returns. For those who expect sizable growth in cyclical
industries, the likelihood is that such returns will only be obtained by
corporations with classical turnaround situations, restructuring, or the
introduction of new or higher profit-margin products. Outstanding profit gains
are likely to be readily achieved by companies with either innovative products
or services, or participation in exceptionally high-growth markets.
We see 1996 as a year of less widespread gains than those of 1995, as
optimism will likely be tempered by the realization that effective inflation
control and cost reduction by government and industry incurs the risk of slowed
growth. However, the real return-driven demand in a low-inflation environment
should support new opportunities in both bonds and equities.
2
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EVERGREEN TOTAL RETURN FUND
A REVIEW OF THE PAST YEAR AND
PROSPECTS FOR THE FUTURE -- (CONTINUED)
Investing for both income and growth could well prove particularly rewarding
in 1996 if the securities markets remain highly sensitive to changes in economic
direction. Frequent and sizable volatility is likely as consensus expectations
change regarding the prospects for specific industries and sectors within those
industries. Investment direction will be driven by the vast and continuing flows
of new savings into the equity markets from employee benefit plans, personal
savings, and institutional resources, all impacted by declining bond market
yield alternatives. Attention may well shift rapidly from industry to industry
as expectations change. Those companies with the implicit stability of earnings
trends to have established dividend policies and, even increasing dividend
trends, should have a lower level of downside volatility in weaker markets.
Currently, many companies which are oriented toward returns on equity,
increasingly choose to use excess cash flow to buy back their shares rather than
pay out only higher dividends. This, too, provides a support for equity prices
in volatile, downward phases of market fluctuation. We expect to see a sustained
pattern of corporate buy-backs in 1996. Our overall expectations are for a
continued slower economy in an environment of lower inflation where investors
and investment managers will have to concentrate both their new purchases and
their retention of long-term investments on those companies with superior growth
possibilities notwithstanding a possibly lackluster economy.
3
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EVERGREEN TOTAL RETURN FUND
(Photo of calculator, pen and money)
A REPORT FROM YOUR
PORTFOLIO MANAGER
NOLA M. FALCONE
Evergreen Total Return ended its eighteenth fiscal year on (Photo of Nola
January 31, 1996, with a total return (Class Y, no load M. Falcone)
shares)* of 23.5%. The Fund's average annual compound rate of
return since inception on September 7, 1978, through January
31, 1996, was 14.3% which means that a $10,000 investment in
the Fund would have grown to $102,376 during that time. The
Fund's average annual compound rates of return for the five-
and ten-year periods ended January 31, 1996, were 12.1%, and
9.3%, respectively. For our newer shareholders, the
twelve-month total returns through January 31, 1996, for the
Fund's Class A, Class B, and C shares, were 17.5%, 17.4%, and
21.4%, respectively. (Please see page 8 for additional performance
information).
INVESTMENT STRATEGY
The volatility level of the Fund has been substantially lower than that of
the general market for the past ten years, as measured by the Fund's beta (Class
Y, no-load shares) of .63 as of January 31, 1996. Beta is a measure of the
market risk of a fund's portfolio. It illustrates the volatility of the net
asset value per share of a mutual fund as compared with the market as a whole,
as measured by the S&P 500 Reinvested Index** which is assigned a beta of one.
Generally, 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. A beta is subject to change. The basic investment thesis of the Fund and
the heart of its strategy has been that high yielding stocks with capital
appreciation potential also offer downside protection. This thesis of reduced
volatility was generated by our observations of the performance of sizable
dividend-paying equities in some severe down markets in the 1960s and 1970s.
With the debate about the outlook for continuation of the current five-year
old bull market, which is the second longest running bull market in this
century, many are beginning to talk of defensive strategies. The fact that the
dividend yield of the S&P 500 of 2.1% (as of January 31, 1996) has fallen well
below 3%, is regarded by many stock market observers as a sign of increased
risk.
Steady income flow has also been an important goal since inception of this
Fund. In fiscal 1996, the Fund (Class Y, no-load shares) paid $.01 more than the
$1.08 per share income dividend ($.27 per quarter) which we strive for and have
maintained for eight successive years. Our goal for this year is to maintain the
$.27 per quarter dividend payout subject to the usual factors of economic
uncertainty+.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
* 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.
** UNMANAGED INDEX OF SELECTED SECURITIES. AN INVESTMENT CAN NOT BE MADE IN AN
INDEX.
+ THE FUND'S INVESTMENT OBJECTIVE IS TO ACHIEVE A RETURN CONSISTING OF CURRENT
INCOME AND CAPITAL APPRECIATION. THE FUND'S DIVIDEND WAS FUNDED ENTIRELY FROM
NET INVESTMENT INCOME AND DID NOT REPRESENT A RETURN OF CAPITAL TO
SHAREHOLDERS.
4
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EVERGREEN TOTAL RETURN FUND
(Photo of calculator, pen and money)
A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
MERGERS AND ACQUISITIONS
Mergers and acquisitions increased dramatically in both size and number in
1995, with U.S. companies announcing an unprecedented $458 billion in such
deals++. Banking consolidations particularly benefited from managements' desires
to cut costs and boost earnings. During this past fiscal year, acquisition
announcements were made for two of the Fund's bank holdings, one of which was
completed. University Bank & Trust Co. was acquired by Comerica Inc. for a gain
of 41.0% (held 1-1/2 years) and an offer was made for Meridian Bancorp by
CoreStates Financial Corp. The Fund sold its position of Meridian Bancorp (held
1 year, 4 months) after the acquisition was announced for a gain of 30.0%. Since
inception, the Fund has had 27 bank and thrifts among its holdings acquired with
an average gain of 58.6%. We believe the consolidation trend in banking will
continue throughout 1996 and have, therefore, invested a sizable portion of the
portfolio to benefit not only from this trend but also from strong banking
growth franchises.
The Fund also had a gain of 53.7% from the acquisition of Magma Copper Co.
(held two years) by Broken Hill Proprietary Company. Since inception, the Fund
has had a total of 97 completed acquisitions of its holdings, with an average
gain of 53%.
Although we do not expect the same level of mergers and acquisitions this
year, there are several reasons why we believe a healthy trend of mergers and
acquisitions should continue. The stock market strength has made the shares of
many companies a better currency for mergers. The recently passed
telecommunications bill has also fostered a climate conducive to deal making,
encouraging a greater consolidation of TV and radio broadcasting businesses.
Cost cutting and synergies from combinations will probably continue to fuel
deals in the utility, health, and retail industries.
PORTFOLIO SECTORS
Banks were the best performing group in the portfolio during the past year.
Gains included 56.1% in the shares of U.S. Bancorp, 54.4% in First Tennessee
National Corp., 47.6% in AmSouth Bancorporation, 44.1% in BancorpSouth and 41.2%
in Interchange Financial Services Corp. As many stocks moved up, we were
prompted to take profits and redirect the monies into other bank and thrift
issues which appeared to offer better values. Gains were realized on the sale of
shares of CFX Corp., 92.9% (held 2 years); Second Bancorp, 60.7% (held 3 years,
7 months); CCB Financial Corp., 60.0% (held 3 years, 5 months); and Fed One
Savings Bank FSB, 40.0% (held 5 months). We have also diversified the bank and
thrift portfolio across the U.S. in an effort to help protect the portfolio
against the effects of economic slowdown in any one area.
Late in 1995, we observed that convertible securities had lagged the market
and offered many interesting values. A number of technology company convertible
issues, purchased during this period, added to the performance of the Fund. The
timing of our purchases coincided with a dip in technology stock prices due to
temporary concerns about their growth outlook. Since the basic underlying trend
of technology growth is still strong, such temporary moments of fear or
weakness, we believe, offer good buying opportunities. The unrealized gains as
of fiscal year-end on our purchases included 32.0% from Seagate Technology,
6-3/4% Convertible Debentures due 5/1/12; 24.7% from Altera Corp., 5-3/4%
Convertible Debentures due 6/15/02;
++ Source: Securities Data Co. through the Wall Street Journal
5
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EVERGREEN TOTAL RETURN FUND
(Photo of calculator, pen and money)
A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
18.1% from Conner Peripherals, 6-1/2% Convertible Debentures due 3/1/02; 14.1%
from Xilinx Corp., 5-1/4% Convertible Debentures due 11/1/02; and 6.8% from
Analog Devices, 3.50% Convertible Debentures due 3/1/02.
Three of our older convertible holdings were among the leading performers in
the portfolio last year: AMC Entertainment, Inc., 54.2%; Firstar Corp., $1.75
Convertible Preferred, 48.6%; and Southdown, Inc., $2.875 Convertible Preferred,
38.7%.
Monies were raised from the sale of consumer-driven stocks as we observed the
weakening in purchasing patterns by consumers. A great deal has been written
about why the growth in consumer spending slowed in 1995, with explanations
ranging from a shift of consumer monies toward savings to buffer against the
uncertainties of the job market and possible social security changes, to an
increase of consumer debt to uncomfortable levels. Regardless of the reasons,
the slowed consumer spending pattern has hurt earnings and stock prices in
retailing and selected consumer products and services. Although we pared back
these groups on balance more heavily in the first part of our fiscal year, the
performance of our remaining holdings had a negative impact on overall
performance of the Fund. For example, our positions of Oxford Industries and
Kellwood Company had stock price declines of over 20% each.
This weakening consumer spending pattern also hurt the stock prices of
several of our mall and factory outlet center real estate investment trust
holdings. In a number of these issues, we calculate that the underlying real
estate values exceed the current stock prices and represent good long-term value
at current levels. Issues that fall into this category include Tucker Properties
Corp. which fell 18.9%, and HGI Realty, Inc., which fell 6.4% last year.
Conversely, our holdings of apartment REITS added positively to the portfolio's
performance reflecting an improving supply/demand balance for apartments in the
U.S.
The health care products and services group provided very strong performance
for the Fund and included the two best performing stocks in the portfolio for
the year -- ADAC Laboratories, 94.7% and Shared Medical Systems Corp., 69.5%.
Reflecting strong product lines and an improved pricing outlook, Bristol-Myers
Squibb Co. appreciated 46.3%, Zeneca Group P.L.C., 39.4%, and Schering-Plough
Corp., 36.6%, over the year.
Improved pricing and capital gains have helped the prices of our older
insurance holdings. In addition, our recent purchases of new reinsurance issues,
GCR Holdings Ltd. and LaSalle Re Holdings Ltd., appreciated 23.6% and 22.1%,
respectively.
We are still maintaining a relatively stable percent of assets in utility
issues. Last year, we decided to reduce our dependence on this industry as it
faces deregulation changes and resulting competitive pressures. There is still
the overhang of "stranded assets" issues as regulators move to deregulate the
marketplace. 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. In our last report, we gave as an example of our purchase of
TNP Enterprises, Inc. During this past fiscal year, TNP Enterprises appreciated
32.7%. We still believe this is one of our most attractive utility holdings
since it is selling approximately at book value and may prove to be an
attractive acquisition candidate.
6
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EVERGREEN TOTAL RETURN FUND
(Photo of calculator, pen and money)
A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
SUMMARY OF PORTFOLIO PERFORMANCE
As a summary, the banks and thrifts benefiting from the merger and
acquisition boom led the performance of the portfolio, followed closely by the
health issues. Further support for the performance was gained from insurance,
convertible debentures, and selected convertible preferreds. The slow consumer
spending pattern had a negative effect on our retail, consumer goods and
services, and real estate investment trust groups. As we proceed in this new
year, we are diversifying into the shares of a substantial number of
restructuring companies with good appreciation outlooks and into large ADR
issues+ located in economies experiencing stronger growth than in the U.S. Our
aim is to sustain sizable income and improved capital appreciation relative to
the market averages.
Securities with dividend increases continue to be a significant factor for
the Fund in providing distributable income and support for growth of values.
Over 58% of the common stocks held in the Fund's portfolio at year-end provided
dividend increases during the year. Chrysler and Ford Motor provided dividend
increases of 50.0% and 34.6%, respectively. We anticipate a continuation of
these trends in the new fiscal year.
OUTLOOK
We do not think that the recent large one-day drop in the stock market,
resulting from strong employment numbers being reported, indicates the end of
the current five-year bull market. Considering the existing high level of the
Dow Jones, the drop was minor. We still anticipate a growth trend in equities
due to the large inflows of monies into the hands of equity mutual fund
portfolio managers. We think we will experience increasing volatility, as
portfolio managers who are searching for fast gains will shift sector bets.
The economy is basically growing slowly with a low inflationary outlook,
which should portend well for further easing by the Federal Reserve in the first
half of this year. The strong export outlook and the wealth effect from the
ebullient stock market is serving to support growth in the economy. We have
chosen to invest the portfolio to benefit from trends which should produce
results that are not necessarily related to the market. These include, as we
have previously discussed in this letter, 1) the mergers and acquisition
prospects of several industries, 2) the restructuring of large undervalued
conglomerates which have announced spin-offs or rationalization in order to
realize more value for their shareholders and 3) value timing opportunities in
stocks which have become depressed, we believe temporarily. Our policy of
investing in strong dividend paying stocks, particularly ones with increasing
dividend trends, should help produce a lower level of downside volatility for
the Fund.
Our group is currently focused to sustain the Fund's long-term record of
significant capital appreciation, and will also strive to maintain a stable
income flow. Traditionally this Fund's performance has been highly related to
the trends of interest rates, but we have increasingly sought other forms of
investing such as growth convertibles, merger and acquisition candidates in
non-interest sensitive industries, and value timing opportunities to improve the
capital appreciation prospects for the Fund. We thank you for your support as
shareholders.
+ INTERNATIONAL INVESTING MAY INVOLVE CERTAIN ADDITIONAL RISKS SUCH AS CURRENCY
FLUCTUATIONS, ECONOMIC INSTABILITY, AND DIFFERENCES IN ACCOUNTING STANDARDS.
7
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EVERGREEN TOTAL RETURN FUND
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RESULTS TO DATE
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN TOTAL RETURN FUND
The graphs below compare a $10,000 investment in the Evergreen Total Return
Fund (Class A, Class B, Class C and Class Y Shares) with a similar investment in
the Wilshire 5000, Lipper Equity Income Funds Average and Lipper Income Funds
Average Indexes ("Indexes"). Lipper Analytical Services now ranks the Evergreen
Total Return Fund in its Income Funds category. The Fund was previously included
in the Lipper Analytical Services' Equity Income Funds category.
CLASS A
AVERAGE ANNUAL TOTAL RETURN
ONE YEAR=17.5%
SINCE INCEPTION-17.3%
(A line graph appears here with the following plot points.)
<TABLE>
<CAPTION>
1/3/95* 4/30/95 7/31/95 10/31/95 1/31/96
<S> <C> <C> <C> <C> <C>
EVERGREEN TOTAL RETURN FUND
WILSHIRE 5000 INDEX
UPPER EQUITY INCOME AVERAGE
UPPER INCOME AVERAGE
</TABLE>
CLASS B
AVERAGE ANNUAL TOTAL RETURN
ONE YEAR=17.4%
SINCE INCEPTION=18.2%
(A line graph appears here with the following plot points.)
<TABLE>
<CAPTION>
1/3/95* 4/30/95 7/31/95 10/31/95 1/31/96
<S> <C> <C> <C> <C> <C>
EVERGREEN TOTAL RETURN FUND
WILSHIRE 5000 INDEX
UPPER EQUITY INCOME AVERAGE
UPPER INCOME AVERAGE
</TABLE>
CLASS C
AVERAGE ANNUAL TOTAL RETURN
ONE YEAR=21.4%
SINCE INCEPTION=21.8%
(A line graph appears here with the following plot points.)
<TABLE>
<CAPTION>
1/3/95* 4/30/95 7/31/95 10/31/95 1/31/96
<S> <C> <C> <C> <C> <C>
EVERGREEN TOTAL RETURN FUND
WILSHIRE 5000 INDEX
UPPER EQUITY INCOME AVERAGE
UPPER INCOME AVERAGE
</TABLE>
CLASS Y
AVERAGE ANNUAL TOTAL RETURN
ONE YEAR=23.5%
FIVE YEAR=12.1%
TEN YEAR=9.4%
(A line graph appears here with the following plot points.)
<TABLE>
<CAPTION>
1/3/86 1/31/87 1/31/88 1/31/89 1/31/90 1/31/91 1/31/92 1/31/93 1/31/94 1/31/95 1/31/96
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EVERGREEN TOTAL RETURN FUND
WILSHIRE 5000 INDEX
UPPER EQUITY INCOME AVERAGE
UPPER INCOME AVERAGE
</TABLE>
* Commencement of class operations.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS
ARE
NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED.
For the purposes of the graphs and the accompanying tables, it has been
assumed that (a) the maximum sales charge of 4.75% was deducted from the initial
$10,000 investment in Class A Shares; (b) the maximum applicable contingent
deferred sales charge was deducted from the value of the investment in Class B
and Class C Shares, assuming full redemption on January 31, 1996; (c) all
recurring fees (including investment advisory fees), net of fee waivers and
reimbursements, were deducted; and (d) all dividends and distributions were
reinvested.
The Indexes are an unmanaged indexes and include the reinvestment of
income, but do not reflect the payment of transaction costs and advisory fees
associated with an investment in the Fund.
8
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EVERGREEN TOTAL RETURN FUND
(Photo of calculator, pen and money)
STATEMENT OF INVESTMENTS
JANUARY 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
<C> <C> <S> <C>
COMMON STOCKS -- 60.3%
AUTOMOTIVE EQUIPMENT &
MANUFACTURING -- 2.8%
218,000 Chrysler Corp........................ $ 12,589,500
452,600 Ford Motor Co........................ 13,408,275
25,997,775
BANKS -- 9.6%
61,900 AmSouth Bancorporation............... 2,452,788
142,000 BancorpSouth, Inc.................... 3,514,500
558,500 Bankers Trust New York Corp.......... 36,232,688
1,352 Barnett Banks, Inc................... 79,092
184,000 CB Bancshares, Inc.*................. 5,428,000
24,850 CCB Financial Corp................... 1,298,413
52,000 Citizens Bancorp..................... 1,677,000
90,000 Deposit Guaranty Corp................ 3,870,000
62,106 F & M National Corp.................. 1,164,488
37,000 First of America Bank Corp........... 1,600,250
10,000 First Tennessee National Corp........ 610,000
105,500 First Virginia Banks, Inc............ 4,074,938
7,500 Firstbank of Illinois Co............. 236,250
229,100 Firstmerit Corp...................... 6,615,263
135,200 Interchange Financial
Services Corp.*...................... 2,889,900
278,251 Jefferson Bankshares, Inc............ 5,947,615
160,000 Magna Group, Inc..................... 3,660,000
12,000 Mercantile Bancorporation, Inc....... 523,500
10,000 One Valley Bancorp of West Virginia,
Inc.................................. 312,500
78,827 Second Bancorp, Inc.................. 2,285,983
49,500 Susquehanna Bancshares, Inc.......... 1,348,875
3,500 United Bankshares, Inc............... 102,375
107,320 USBanCorp, Inc....................... 3,568,390
89,492,808
CONSUMER PRODUCTS & SERVICES -- 2.1%
452,772 + ADT, Ltd............................. 6,565,194
224,804 Flexsteel Industries, Inc............ 2,262,090
201,900 Kellwood Co.......................... 2,826,600
250,640 Knape & Vogt Manufacturing Co........ 3,477,630
279,300 Oxford Industries, Inc............... 4,608,450
19,739,964
ENERGY -- 3.0%
50,000 Amoco Corp........................... 3,518,750
214,800 CMS Energy Corp.
Class G.............................. 4,269,150
14,100 Elf Aquitaine, ADR................... 526,988
336,000 Enron Global Power &
Pipelines LLC........................ 8,442,000
172,700 Equitable Resources, Inc............. 4,900,363
<CAPTION>
SHARES VALUE
<C> <C> <S> <C>
ENERGY -- CONTINUED
302,400 YPF Sociedad Anonima, ADR............ $ 6,841,800
28,499,051
FINANCE & INSURANCE -- 1.6%
100,000 GCR Holdings Ltd..................... 2,287,500
164,800 Hartford Steam Boiler
Inspection & Insurance Co............ 8,610,800
100,000 + LaSalle Re Holdings Ltd.............. 2,350,000
71,600 Provident Companies, Inc............. 2,264,350
15,512,650
HEALTH CARE PRODUCTS &
SERVICES -- 4.7%
728,000 ADAC Laboratories.................... 10,283,000
164,700 Bristol-Myers Squibb Co.............. 14,575,950
80,000 Schering-Plough Corp................. 4,330,000
52,500 Shared Medical Systems Corp.......... 2,992,500
103,600 Warner-Lambert Co.................... 9,712,500
28,900 Zeneca Group Plc, ADR................ 1,687,038
43,580,988
INDUSTRIAL COMMERCIAL GOODS &
SERVICES -- 5.8%
284,000 Dun & Bradstreet Corp................ 18,460,000
850,000 Hanson Plc, ADR...................... 13,175,000
17,800 Lindberg Corp........................ 142,400
629,900 McDermott International, Inc......... 12,204,313
20,700 Thomas & Betts Corp.................. 1,627,538
150,000 Tomkins Plc, ADR..................... 2,587,500
300,000 Westinghouse Electric Corp........... 6,262,500
54,459,251
REAL ESTATE -- 9.1%
155,000 Burnham Pacific Properties, Inc...... 1,550,000
212,700 Chelsea GCA Realty, Inc.............. 6,168,300
383,300 Columbus Realty Trust................ 7,426,437
220,000 Crown American Realty Trust.......... 1,705,000
870,200 DeBartolo Realty Corp................ 11,203,825
178,800 Equity Residential
Properties Trust..................... 5,498,100
20,900 Evans Withycombe
Residential, Inc..................... 457,187
170,400 Factory Stores of America, Inc....... 1,959,600
100,200 Gables Residential Trust............. 2,317,125
75,000 Glimcher Realty Trust................ 1,153,125
484,512 HGI Realty Inc....................... 10,598,700
611,700 Kranzco Realty Trust*................ 9,710,737
200,000 Macerich Co. (The)................... 3,925,000
130,000 Patriot American
Hospitality, Inc..................... 3,575,000
</TABLE>
9
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EVERGREEN TOTAL RETURN FUND
(Photo of calculator, pen and money)
STATEMENT OF INVESTMENTS -- (CONTINUED)
JANUARY 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
<C> <C> <S> <C>
COMMON STOCKS -- CONTINUED
REAL ESTATE -- CONTINUED
239,500 Post Properties, Inc................. $ 7,454,438
236,000 South West Property Trust, Inc....... 3,304,000
119,500 Trinet Corporate Realty
Trust, Inc........................... 3,465,500
364,700 Tucker Properties Corp............... 3,464,650
84,936,724
RETAILING -- 1.7%
55,500 Jacobson Stores, Inc................. 492,562
217,600 Mercantile Stores Co., Inc........... 10,254,400
100,000 Penney (J.C.) Co., Inc............... 4,900,000
15,646,962
TECHNOLOGICAL PRODUCTS &
SERVICES -- 2.1%
1,072,299 + National Semiconductor Corp.......... 18,497,158
103,000 + VLSI Technology, Inc................. 1,442,000
19,939,158
THRIFT INSTITUTIONS -- .4%
78,840 CFX Corp............................. 1,182,605
30,800 Eagle Financial Corp................. 746,900
99,000 People's Savings Financial Corp.*.... 1,980,000
7,050 Washington Federal Savings
& Loan Association of Seattle........ 169,200
4,078,705
UTILITIES -- ELECTRIC -- 9.3%
455,400 Atlantic Energy, Inc................. 8,766,450
1,900 Commonwealth Energy System........... 88,825
101,737 Eastern Utilities Associates......... 2,416,253
132,300 Florida Progress Corp................ 4,696,650
402,500 FPL Group, Inc....................... 18,665,937
362,600 Houston Industries, Inc.............. 8,702,400
158,500 LG & E Energy Corp................... 6,835,312
335,000 Public Service Enterprise
Group, Inc........................... 10,468,750
291,300 Texas Utilities Co................... 11,906,887
515,000 TNP Enterprises, Inc................. 10,621,875
100,000 Unicom Corp.......................... 3,362,500
86,531,839
UTILITIES -- GAS -- 1.5%
239,700 National Fuel Gas Co................. 7,999,988
193,400 Nicor, Inc........................... 5,270,150
11,400 Santa Fe Pacific Pipeline
Partners, L.P........................ 423,225
13,693,363
<CAPTION>
SHARES VALUE
<C> <C> <S> <C>
UTILITIES -- TELEPHONE -- 4.2%
50,800 BCE, Inc............................. $ 1,835,150
175,000 GTE Corp............................. 8,050,000
358,800 Southern New England
Telecommunications, Corp............. 14,352,000
263,900 Telecom Argentina STET-
France Telecom S.A., ADR++........... 14,085,662
20,000 Telefonos de Mexico,
S.A. de C.V. -- ADR.................. 677,500
39,000,312
OTHER SECURITIES -- 2.4%............. 22,067,842
TOTAL COMMON STOCKS
(COST $582,536,053)............. 563,177,392
CONVERTIBLE PREFERRED STOCKS -- 21.0%
BANKS -- 1.6%
112,500 Firstar Corp.
$1.75 Cumulative Cv Pfd
Series D............................. 5,076,562
39,500 Hudson Charted Bancorp, Inc.
7.25% Cv Pfd Series B................ 543,125
351,971 ONBANCorp, Inc.
6.75% Cv Pfd Series B................ 9,635,206
15,254,893
BUILDING & CONSTRUCTION -- .3%
56,500 Southdown, Inc.
$2.875 Cumulative Cv Pfd
Series D............................. 2,542,500
CHEMICAL -- 1.2%
427,900 Atlantic Richfield Co.
9.00% Cumulative Cv Pfd.............. 10,750,987
CONSUMER PRODUCTS & SERVICES -- 1.0%
175,000 Corning, Inc.
6.00% Cumulative Cv Pfd.............. 9,012,500
ENERGY -- .6%
95,000 Unocal Corp.
7.00% Cumulative Cv Pfd.............. 5,201,250
FINANCE & INSURANCE -- 3.1%
182,200 American General Corp.
$3.00 Cumulative Cv Pfd
Series A............................. 10,157,650
201,700 Integon Corp.
$3.875 Cumulative Cv Pfd............. 12,505,400
100,000 SunAmerica, Inc.
$3.10 Cumulative Cv Pfd
Series E............................. 6,750,000
29,413,050
</TABLE>
10
<PAGE>
EVERGREEN TOTAL RETURN FUND
(Photo of calculator, pen and money)
STATEMENT OF INVESTMENTS -- (CONTINUED)
JANUARY 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
<C> <C> <S> <C>
CONVERTIBLE PREFERRED STOCKS -- CONTINUED
HEALTH CARE PRODUCTS &
SERVICES -- .5%
165,000 FHP International Corp.
5.00% Cumulative Cv Pfd
Series A............................. $ 4,475,625
INDUSTRIAL COMMERCIAL GOODS &
SERVICES -- 1.1%
500,000 Westinghouse Electric Corp.
$1.30 Cumulative Cv Pfd
Series C............................. 10,250,000
METAL PRODUCTS & SERVICES -- 5.0%
Freeport-McMoRan
Copper & Gold, Inc.
Cv Pfd Depositary Shares
812,800 5.00% Series A....................... 22,352,000
815,400 7.00% Cv Exchangeable................ 24,563,925
46,915,925
PUBLISHING, BROADCASTING &
ENTERTAINMENT -- 2.6%
88,000 AMC Entertainment, Inc.
$1.75 Cumulative Cv Pfd.............. 3,234,000
425,000 TCI Communications, Inc.
$2.125 Cumulative Cv Pfd
Series A............................. 21,356,250
24,590,250
REAL ESTATE -- .3%
150,000 Wellsford Residential Property
Trust 7.00% Cumulative Cv Pfd
Series A............................. 3,093,750
UTILITIES -- GAS -- 1.2%
50,000 Callon Petroleum Co.
8.50% Cumulative Cv Pfd
Series A............................. 1,362,500
405,000 Enron Corp.
6.25% ACES........................... 9,770,625
11,133,125
UTILITIES -- TELEPHONE -- 2.5%
31,600 Morgan Stanley Group, Inc.
6.00% Telmex PERQS, 10/1/97.......... 1,220,550
368,500 Philippine Long Distance Telephone
Co. 7.00% Series III Cumulative Cv
Pfd GDS.............................. 21,925,750
23,146,300
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $162,962,536)............. 195,780,155
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CONVERTIBLE DEBENTURES -- 10.0%
BANKS -- .2%
$ 1,500,000 Magna Group, Inc.
8.75%, 11/1/98..................... $ 1,537,500
BUILDING & CONSTRUCTION -- .1%
1,270,000 Medusa Corp.
6.00%, 11/5/03..................... 1,283,462
CONSUMER PRODUCTS &
SERVICES -- .1%
1,000,000 Alberto-Culver Co.
5.50%, 6/30/05..................... 1,180,000
FINANCE & INSURANCE -- .1%
1,000,000 Equitable Co., Inc.
6.125%, 12/15/24................... 1,165,000
HEALTH CARE PRODUCTS &
SERVICES -- 3.5%
Beverly Enterprises, Inc.
22,220,000 5.50%, 8/1/18...................... 22,220,000
1,335,000 7.625%, 3/15/03.................... 1,271,587
5,000,000 Integrated Health Services, Inc.
6.00%, 1/1/03...................... 4,987,500
1,369,000 Maxxim Medical, Inc.
6.75%, 3/1/03...................... 1,581,195
3,251,000 Regency Health Services, Inc.
6.50%, 7/15/03..................... 3,429,805
33,490,087
INDUSTRIAL COMMERCIAL GOODS &
SERVICES -- .9%
5,500,000 Exide Corp.
2.90%, 12/15/05.................... 3,465,000
3,500,000 General Signal Corp.
5.75%, 6/1/02...................... 3,640,000
1,000,000 Magna International, Inc.
5.00%, 10/15/02.................... 1,015,000
8,120,000
METAL PRODUCTS & SERVICES -- .9%
8,305,000 Quanex Corp.
6.88%, 6/30/07..................... 8,107,756
PUBLISHING, BROADCASTING &
ENTERTAINMENT -- 1.0%
8,650,050 Time Warner, Inc.
8.75%, 1/10/15..................... 8,931,177
TECHNOLOGICAL PRODUCTS &
SERVICES -- 3.2%
3,500,000 Altera Corp.
5.75%, 6/15/02..................... 4,987,500
2,250,000 Analog Devices, Inc.
3.50%, 12/1/00..................... 2,385,000
</TABLE>
11
<PAGE>
EVERGREEN TOTAL RETURN FUND
(Photo of calculator, pen and money)
STATEMENT OF INVESTMENTS -- (CONTINUED)
JANUARY 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CONVERTIBLE DEBENTURES -- CONTINUED
TECHNOLOGICAL PRODUCTS &
SERVICES -- CONTINUED
$10,000,000 Conner Peripherals, Inc.
6.50%, 3/1/02...................... $11,350,000
4,000,000 Seagate Technology, Inc.
6.75%, 5/1/12...................... 5,550,000
1,000,000 Telxon Corp.
7.50%, 6/1/12...................... 990,000
1,000,000 3Com Corp.
10.25%, 11/1/01.................... 1,590,000
1,100,000 VLSI Technology, Inc.
8.25%, 10/1/05..................... 995,500
2,000,000 Xilinx Inc.
5.25%, 11/1/02..................... 2,032,600
29,880,600
TOTAL CONVERTIBLE DEBENTURES
(COST $90,876,019)............ 93,695,582
SHORT-TERM INVESTMENTS -- 9.1%
COMMERCIAL PAPER -- 6.5%
4,800,000 American Home Food
Products, Inc.
5.45%, 2/29/96..................... 4,779,653
1,600,000 British Gas Capital, Inc.
5.45%, 2/22/96..................... 1,594,913
8,800,000 Columbia University
5.43%, 2/16/96..................... 8,780,090
8,400,000 Echlin, Inc.
5.48%, 2/23/96..................... 8,371,869
1,800,000 Eiger Capital Corp.
5.44%, 2/28/96..................... 1,792,656
10,700,000 Gannett, Inc.
5.47%, 2/9/96...................... 10,686,994
6,500,000 IES Utilities, Inc.
5.50%, 2/5/96...................... 6,496,028
7,000,000 Iowa Student Loan Liquidity Corp.
5.52%, 2/15/96..................... 6,984,974
4,600,000 Morgan (J.P.) & Co., Inc.
5.40%, 2/27/96..................... $ 4,582,060
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM INVESTMENTS -- CONTINUED
COMMERCIAL PAPER -- CONTINUED
$ 6,400,000 Receivables Capital Corp.
5.43%, 3/5/96...................... $ 6,368,144
60,437,381
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 2.6%
8,700,000 Federal Home Loan Bank
5.43%, 2/5/96...................... 8,694,751
16,000,000 Federal National Mortgage
Association
5.43%, 2/9/96...................... 15,980,693
24,675,444
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL SHORT-TERM INVESTMENTS
(COST $85,112,825)....... 85,112,825
TOTAL INVESTMENTS
(COST $921,487,433)...... 100.4 % 937,765,954
OTHER ASSETS AND
LIABILITIES -- NET....... (.4 ) (3,624,679)
NET ASSETS.................. 100.0 % $934,141,275
</TABLE>
ACES -- Automatically Convertible Equity Securities.
ADR -- American Depositary Receipts.
GDS -- Global Depositary Shares.
PERQS -- Performance Equity Linked Redemption Quarterly-Pay Securities. The
Fund's proceeds at maturity will be the average closing price of Telmex
American Depositary Shares for the ten business days prior to maturity.
+ Non-income producing.
* Investment in non-controlled affiliates-holding over 5% of outstanding voting
securities. During the year ended January 31, 1996, the Fund recognized
$1,089,058 in dividend income and realized net capital gains of $167,625 from
these investments.
++ Securities held in escrow in connection with open call options written.
<TABLE>
<CAPTION>
OPEN CALL OPTION CONTRACTS WRITTEN
SHARES
SUBJECT EXERCISE EXPIRATION
TO CALL PRICE DATE VALUE
<S> <C> <C> <C> <C>
Telecom Argentina
STET-
France Telecom
S.A. -- ADR
(premiums
received
$865,850)....... 263,900 $ 55 4/20/96 $957,957
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
EVERGREEN TOTAL RETURN FUND
(Photo of calculator, pen and money)
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $921,487,433)........................................................... $937,765,954
Cash.......................................................................................................... 90,077
Receivable for investment securities sold..................................................................... 10,510,100
Dividends and interest receivable............................................................................. 3,365,837
Receivable for Fund shares sold............................................................................... 677,747
Prepaid expenses.............................................................................................. 63,077
Total assets............................................................................................ 952,472,792
LIABILITIES:
Payable for investment securities purchased................................................................... 15,441,287
Covered call options written at value (premium received $865,850)............................................. 957,957
Accrued advisory fee.......................................................................................... 773,298
Payable for Fund shares repurchased........................................................................... 628,253
Accrued expenses.............................................................................................. 520,011
Distribution fee payable...................................................................................... 10,711
Total liabilities....................................................................................... 18,331,517
NET ASSETS....................................................................................................... $934,141,275
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................... $945,926,271
Accumulated net realized loss on investment transactions...................................................... (30,381,325)
Undistributed net investment income........................................................................... 2,410,572
Net unrealized appreciation of investments.................................................................... 16,185,757
Net assets.............................................................................................. $934,141,275
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($4,411,753 218,993 shares of beneficial interest outstanding)................................. $20.15
Sales charge -- 4.75% of offering price....................................................................... 1.00
Maximum offering price.................................................................................. $ 21.15
Class B Shares ($14,749,728 734,478 shares of beneficial interest outstanding)................................ $ 20.08
Class C Shares ($522,911 26,042 shares of beneficial interest outstanding).................................... $ 20.08
Class Y Shares ($914,456,883 45,365,664 shares of beneficial interest outstanding)............................ $ 20.16
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
EVERGREEN TOTAL RETURN FUND
(Photo of calculator, pen and money)
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Dividends (net of foreign withholding taxes of $663,968)................................. $ 58,733,071
Interest................................................................................. 6,449,221
Total investment income............................................................... 65,182,292
EXPENSES:
Advisory fee............................................................................. $ 9,343,195
Distribution fee -- Class A Shares....................................................... 4,915
Distribution fee -- Class B Shares....................................................... 46,636
Shareholder services fee -- Class B Shares............................................... 15,546
Distribution fee -- Class C Shares....................................................... 1,516
Shareholder services fee -- Class C Shares............................................... 505
Transfer agent fee....................................................................... 1,122,800
Custodian fee............................................................................ 245,250
Reports and notices to shareholders...................................................... 194,700
Professional fees........................................................................ 113,205
Registration and filing fees............................................................. 87,426
Trustees' fees and expenses.............................................................. 67,828
Insurance................................................................................ 30,180
Miscellaneous............................................................................ 52,082
Total operating expenses.............................................................. 11,325,784
Interest expense......................................................................... 78,465
Less: Expense reimbursement.............................................................. (53,576)
Net expenses....................................................................... 11,350,673
Net investment income.......................................................................... 53,831,619
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS AND COVERED CALL OPTIONS:
Net realized gain (loss) on:
Investment transactions.................................................................. 18,078,853
Covered call options..................................................................... 377,919
18,456,772
Net change in unrealized appreciation (depreciation) of:
Investments.............................................................................. 126,981,154
Covered call options..................................................................... (92,107)
126,889,047
Net gain on investment transactions and covered call options................................... 145,345,819
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................... $199,177,438
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
EVERGREEN TOTAL RETURN FUND
(Photo of calculator, pen and money)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED
JANUARY 31, 1996 JANUARY 31, 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................................................. $ 53,831,619 $ 48,729,584
Net realized gain (loss) on investment transactions and covered call options........... 18,456,772 (47,796,906)
Net change in unrealized appreciation (depreciation) of investments.................... 126,889,047 18,363,029
Net increase in net assets resulting from operations................................ 199,177,438 19,295,707
DISTRIBUTIONS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME:
Class A Shares......................................................................... (115,623) --
Class B Shares......................................................................... (338,493) --
Class C Shares......................................................................... (10,937) --
Class Y Shares......................................................................... (53,434,290) (60,967,416)
Total distributions to shareholders from net investment income...................... (53,899,343) (60,967,416)
NET REALIZED GAIN ON INVESTMENT TRANSACTIONS:
Class Y Shares......................................................................... -- (13,895,906)
Total distributions to shareholders................................................. (53,899,343) (74,863,322)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold.............................................................. 52,666,229 50,047,271
Proceeds from reinvestment of distributions............................................ 48,433,865 68,046,447
Payment for shares redeemed............................................................ (254,625,686) (184,878,529)
Net decrease resulting from Fund share transactions.............................. (153,525,592) (66,784,811)
Net decrease in net assets....................................................... (8,247,497) (122,352,426)
NET ASSETS:
Beginning of period.................................................................... 942,388,772 1,064,741,198
End of period (including undistributed net investment income of $2,410,572 and
$2,478,296, respectively)............................................................ $ 934,141,275 $ 942,388,772
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
EVERGREEN TOTAL RETURN FUND
(Photo of calculator, pen and money)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
YEAR ENDED JANUARY 3, 1995* YEAR ENDED JANUARY 3, 1995* YEAR ENDED
JANUARY 31, THROUGH JANUARY 31, THROUGH JANUARY 31,
1996 JANUARY 31, 1995 1996 JANUARY 31, 1995 1996
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period............................. $17.28 $ 17.09 $ 17.28 $17.09 $17.27
Income from investment operations:
Net investment income.............. 1.01 .02 .91 .02 .90
Net realized and unrealized gain on
investments...................... 2.94 .17 2.87 .17 2.89
Total from investment
operations..................... 3.95 .19 3.78 .19 3.79
Less distributions to shareholders
from net investment income......... (1.08) -- (.98) -- (.98)
Net asset value, end of period....... $20.15 $ 17.28 $ 20.08 $17.28 $20.08
TOTAL RETURN+........................ 23.4% 1.1% 22.4% 1.1% 22.4%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted).................... $4,412 $119 $ 14,750 $599 $523
Ratios to average net assets:
Expenses........................... 1.36%** 1.45%++ 2.11%** 2.23%++ 2.11%**
Net investment income.............. 5.39%** 4.09%++ 4.69%** 3.23%++ 4.67%**
Portfolio turnover rate.............. 138% 151% 138% 151% 138%
<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 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%
</TABLE>
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the period
indicated and is not annualized. Initial sales charge or contingent deferred
sales charges are 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 (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 A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
Expenses................................................................................... 2.50% 2.25% 13.03%
Net investment income (loss)............................................................... 4.25% 4.55% (6.25%)
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
EVERGREEN TOTAL RETURN FUND
(Photo of calculator, pen and money)
FINANCIAL HIGHLIGHTS -- CONTINUED
<TABLE>
<CAPTION>
CHASS Y SHARES
YEAR
ENDED
YEAR ENDED TEN MONTHS MARCH
JANUARY 31, ENDED 31,
1996 JANUARY 31, 1995* 1994
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period........................................ $ 17.28 $ 18.29 $20.90
Income (loss) from investment operations:
Net investment income..................................................... 1.10 .87 1.08
Net realized and unrealized gain (loss) on investments.................... 2.87 (.55) (1.41)
Total from investment operations........................................ 3.97 .32 (.33)
Less: distributions to shareholders from:
Net investment income..................................................... (1.09) (1.08) (1.08)
Net realized gain on investments.......................................... -- (.25) (1.20)
Total distributions................................................... (1.09) (1.33) (2.28)
Net asset value, end of period.............................................. $ 20.16 $ 17.28 $18.29
TOTAL RETURN+............................................................... 23.5% 1.9% (2.1%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(in millions)............................................................. $914 $942 $1,065
Ratios to average net assets:
Expenses.................................................................. 1.19% 1.24%++ 1.18%
Net investment income..................................................... 5.70% 5.70%++ 5.29%
Portfolio turnover rate..................................................... 138% 151% 106%
<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%
</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.
17
<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 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.
18
<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>
For the year ended January 31, 1996, Evergreen Asset voluntarily reimbursed
certain expenses amounting to $53,576. Evergreen Asset can modify or terminate
these voluntary waivers at any time.
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 year ended January 31,
1996, the Fund incurred brokerage commissions of $2,982,640 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 $10,733 from
front-end sales charges resulting from sales of Class A Shares during the year
ended January 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 Y, Class A, Class B, and Class C 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
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 4 -- SHARES OF BENEFICIAL INTEREST -- continued
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 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>
YEAR ENDED TEN MONTHS ENDED*
JANUARY 31, 1996 JANUARY 31, 1995
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold................................................... 228,841 $ 4,349,310 6,908 $ 119,191
Shares issued on reinvestment of distributions................ 5,285 101,915 -- --
Shares redeemed............................................... (22,041) (423,996) -- --
Net increase.................................................. 212,085 4,027,229 6,908 119,191
CLASS B
Shares sold................................................... 719,805 13,730,445 34,681 598,442
Shares issued on reinvestment of distributions................ 15,667 302,547 -- --
Shares redeemed............................................... (35,675) (692,877) -- --
Net increase.................................................. 699,797 13,340,115 34,681 598,442
CLASS C
Shares sold................................................... 24,468 469,424 1,391 23,953
Shares issued on reinvestment of distributions................ 445 8,587 -- --
Shares redeemed............................................... (262) (4,731) -- --
Net increase.................................................. 24,651 473,280 1,391 23,953
CLASS Y
Shares sold................................................... 1,829,669 34,117,050 2,744,616 49,305,685
Shares issued on reinvestment of distributions................ 2,547,340 48,020,816 3,880,023 68,046,447
Shares redeemed............................................... (13,511,557) (253,504,082) (10,340,626) (184,878,529)
Net decrease.................................................. (9,134,548) (171,366,216) (3,715,987) (67,526,397)
Total net decrease resulting from
Fund share transactions..................................... (8,198,015) ($153,525,592) (3,673,007) ($ 66,784,811)
</TABLE>
* For Class A, Class B and Class C shares, the Fund share transaction activity
reflects the period January 3, 1995, (commencement of class operations)
through January 31, 1995.
NOTE 5 -- INVESTMENT TRANSACTIONS
The cost of purchases and proceeds from sales of investments, excluding
short-term securities for the year ended January 31, 1996 were $1,252,035,524
and $1,435,263,567, respectively.
The aggregate cost of investments owned at January 31, 1996 for Federal
income tax purposes was $921,524,704. Gross unrealized appreciation and
depreciation of securities was $64,953,657 and $48,712,407, respectively,
resulting in net unrealized appreciation for Federal income tax purposes of
$16,241,250.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 6 -- FINANCING AGREEMENT
The Fund has a financing agreement with its custodian, 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 of credit 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 year ended January 31, 1996, the Fund had borrowings
outstanding for 50 days under the line of credit and incurred $78,465 in
interest charges related to these borrowings. The Fund's average amount of debt
outstanding during the period aggregated $1,130,685 at a weighted average
interest rate of 7.05%. The Fund had no outstanding borrowings at January 31,
1996.
NOTE 7 -- OPTIONS WRITTEN
Investment activity in covered call option contracts for the year ended
January 31, 1996 was as follows:
<TABLE>
<CAPTION>
NUMBER
OF CONTRACTS PREMIUMS
<S> <C> <C>
Open option contracts written at January 31, 1995 -- --
Option contracts written 5,545 $1,434,579
Option contracts expired (589) (113,526)
Option contracts closed (2,317) (455,203)
Open option contracts written at January 31, 1996 2,639 $ 865,850
</TABLE>
21
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND TRUSTEES OF
EVERGREEN TOTAL RETURN FUND
We have audited the accompanying statement of assets and liabilities of
Evergreen Total Return Fund, including the statement of investments, as of
January 31, 1996, and the related statement of operations for the year then
ended, the statement of changes in net assets for the year then ended and for
the ten month period ended January 31, 1995 and the financial highlights for
each of the years presented therein. These financial statements 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, 1996 by correspondence with the custodian and brokers or by 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
Evergreen Total Return Fund as of January 31, 1996, the results of its
operations for the year then ended, the changes in its net assets for the year
then ended and for the ten month period ended January 31, 1995, and the
financial highlights for each of the years presented therein, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
March 21, 1996
22
<PAGE>
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23
<PAGE>
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24
<PAGE>
NOT May lose value
FDIC No bank guarantee
INSURED
Evergreen Funds Distributor, Inc.
42420 538356
3/96
