EVERGREEN SELECT FIXED INCOME FUNDS
EVERGREEN SELECT FIXED-INCOME FUND II
(FORMERLY MENTOR FIXED-INCOME PORTFOLIO)
[Evergreen Logo]
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
PROSPECTUS, MARCH 1, 1999, AS AMENDED OCTOBER 15, 1999
The Securities and Exchange Commission has not determined that the information
in this prospectus is accurate or complete, nor has it approved or disapproved
these securities. Anyone who tells you otherwise is committing a crime.
<PAGE>
TABLE OF CONTENTS
PAGE
Summary Information............................................... 1
Fund Performance.................................................. 2
Expense Summary................................................... 3
Principal Investment Strategies and Risks......................... 4
Other Investments and Risks....................................... 6
Management........................................................ 8
Calculating the Share Price....................................... 8
How To Choose An Evergreen Fund................................... 9
How to Choose the Share Class That Best Suits You................. 9
How To Buy Shares.................................................10
How To Redeem Shares..............................................11
Other Services....................................................12
The Tax Consequences of Investing in the Fund.....................12
Fees and Expenses of the Fund.....................................13
Financial Highlights..............................................14
RISK FACTORS FOR ALL MUTUAL FUNDS
Please remember that mutual fund shares are:
o not guaranteed to achieve their investment goal
o not a deposit with a bank
o not insured, endorsed or guaranteed by the FDIC or any government agency
o subject to investment risks, including possible loss of your original
investment
Like most investments, your investment in the Fund could fluctuate significantly
in value over time and could result in a loss of money.
<PAGE>
SUMMARY INFORMATION
The following summary describes the Fund's investment objective and
principal investment strategies and identifies the principal risks of investing
in the Fund. Below the Fund's description is a bar chart which provides some
indication of the risks of investing in the Fund by showing how the investment
returns of the Fund's Institutional shares have varied in the years since they
were first offered. The table following the bar chart shows how that Fund's
average annual returns for the last year and for the life of the Fund compared
to returns of a comparable index, generally a broad-based securities market
index. PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF FUTURE PERFORMANCE.
INVESTMENT OBJECTIVES. To seek a high level of long-term total return.
Preservation of capital is a secondary objective to the extent consistent with
the Fund's primary objective of seeking a high level of long-term total return.
PRINCIPAL INVESTMENT STRATEGIES. The Fund seeks to maintain relatively high
average credit quality but may vary its maturity. To this end, it will seek to
maintain a dollar-weighted average credit quality of at least A. Mentor
Investment Advisors, LLC ("Mentor Advisors") will adjust the maturity of the
Fund in response to changing market conditions. The Fund normally invests at
least 90% of its assets (determined at the time of investment) in securities of
investment grade but may invest up to 10% in lower-rated securities known as
junk bonds. A security will be deemed to be of "investment grade" if, at the
time of investment, the security is rated at least Baa3 by Moody's Investors
Service, Inc. ("Moody's") or BBB- by Standard & Poor's Ratings Service
("Standard & Poor's"), or determined by Mentor Advisors to be of comparable
quality. The Fund may invest up to 25% of its assets in foreign securities. The
Fund may also engage in strategies making use of interest rate swaps and other
interest rate transactions. The Fund invests mainly in U.S. Government
securities, corporate bonds, bonds of other private issuers, mortgage-backed
securities, other asset-backed securities, and income-producing equity
securities, such as preferred stocks, convertible securities, and
dividend-paying common stocks.
PRINCIPAL RISKS.
DEBT SECURITIES. The Fund invests in debt securities, which are subject
to market risk (the fluctuation of market value in response to changes
in interest rates) and to credit risks (the risk that the issuer may
become unable or unwilling to make timely payments of principal and
interest). When interest rates rise, the values of fixed income
securities held by the Fund decline. The longer the maturity of a
security, the more its value will decline when interest rates rise.
Although the Fund will only purchase securities which meet its credit
guidelines at the time of purchase, it will not necessarily sell
securities which are downgraded after purchase.
MORTGAGE-BACKED SECURITIES AND OTHER ASSET-BACKED SECURITIES.
Mortgage-backed securities have yield and maturity characteristics that
are dependent on the mortgages underlying them, and the returns on
investments in such securities will depend on, among other things, the
rate at which the mortgages may be prepaid under various market
conditions. "Residual" interests in which the Fund may invest generally
represent the right to any excess cash flow remaining after payments to
all other interest-holders in a pool of mortgages. The values of
residuals are extremely sensitive to changes in interest rates. When
interest rates fall, prepayments of mortgages tend to rise, shortening
the average maturity of the Fund when it is least desirable. In certain
circumstances, there may be little or no excess cash flow payable to
residual holders. Other asset-backed securities are subject to many of
the same risks as mortgage-backed securities.
LOWER-RATED SECURITIES ("JUNK BONDS"). Securities rated Baa or BBB lack
outstanding investment characteristics and have speculative
characteristics and are subject to greater credit and market risks than
higher-rated securities. The ratings of securities rated below
investment grade ("junk bonds") reflect a greater possibility that
adverse changes in the financial condition of the issuer or in general
economic conditions, or an unanticipated rise in interest rates, may
impair the ability of the issuer to make payments of interest and
principal. If this were to occur, the values of securities held by the
Fund may become more volatile.
FOREIGN SECURITIES. Investments in foreign securities entail risks not
present in domestic investments including, among other things, risks
related to political or economic instability, currency exchange and
taxation.
INTEREST RATE TRANSACTIONS. The Fund may enter into interest rate swaps
and other interest rate transactions, typically to adjust the
interest-rate sensitivity of the Fund. Many of these transactions have
the effect of providing investment leverage. They may result in losses
to the Fund if Mentor Advisors' judgement as to prevailing interest
rates is wrong or if these transactions affect the sensitivity of the
Fund in a manner different from that
expected by Mentor Advisors.
FUND PERFORMANCE
YEAR-BY-YEAR TOTAL RETURN FOR INSTITUTIONAL SHARES (%)
1995 1996 1997 1998
------ ----- ----- -----
19.70% 2.40% 8.06% 7.70%
During the periods shown above, the highest quarterly return was 6.70%
for the quarter ended June 30, 1995, and the lowest was (2.49)% for the quarter
ended March 31, 1996.
INCEPTION PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS DATE SINCE
(FOR PERIODS ENDING DECEMBER 31, 1998)* OF CLASS 1 YEAR 12/6/94
- --------------------------------------- ----------- ------ -----------
Institutional............................ 12/6/94 7.70% 9.13%
Institutional Service.................... 10/18/99 7.70% 9.13%
Lehman Brothers Aggregate Bond Index**... 8.69% 9.95%
*Historical performance shown for Class IS prior to its inception is based on
the performance of Class I, the original class offered. The historical returns
for Class IS have not been adjusted to reflect the effect of the Class' 0.25%
12b-1 fee. Class I does not pay a 12b-1 fee. If these fees had been reflected,
returns would have been lower.
** The Lehman Brothers Aggregate Bond Index is commonly used to compare
performance of income-oriented funds and is made up of the Government/Corporate
Index, the Mortgage-Backed Securities Index, and the Asset-Backed Securities
Index. Investors cannot invest in the Index.
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing in the
Fund. Expenses shown are based on actual expenses incurred by the Institutional
shares of the Fund for the fiscal year ended October 31, 1998 and estimated
expenses expected to be incurred by the Institutional Service shares of the Fund
for the fiscal year ending October 31, 1999.
FEES AND EXPENSES OF THE FUND. This table describes the fees and expenses that
you may pay if you buy and hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT): None
ANNUAL FUND OPERATING EXPENSES INSTITUTIONAL INSTITUTIONAL SERVICE
(AS A PERCENTAGE OF AVERAGE NET ASSETS) SHARES SHARES
- ------------------------------------------ -------- --------
Management Fees........................... 0.00% 0.00%
12b-1 Fee................................. 0.00% 0.25%
Other Expenses............................ 0.10% 0.10%
----- -----
Total Annual Fund Operating Expenses...... 0.10% 0.35%
EXAMPLES. The Examples are intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Fund for the time periods indicated and then
redeem all of your shares at the end of those periods. The Examples also assume
that your investment has a 5% return each year and that the Fund's operating
expenses remain the same as the Total Annual Fund Operating Expenses shown
above. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
Institutional Institutional Service
Shares Shares
-------- ---------
After 1 year $10 $36
After 3 years $32 $113
After 5 years $57 $197
After 10 years $128 $443
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
The Fund may not achieve its objective and you could lose money by
investing. The following provides more detail about the Fund's principal
strategies and risks.
MORTGAGE-BACKED SECURITIES AND OTHER ASSET-BACKED SECURITIES. The Fund may
invest in mortgage-backed certificates and other securities representing
ownership interests in mortgage pools, including collateralized mortgage
obligations. Interest and principal payments on the mortgages underlying
mortgage-backed securities are passed through to the holders of the
mortgage-backed securities. Mortgage-backed securities may offer yields higher
than those available from many other types of fixed-income securities, but
because of their prepayment aspects, their price volatility and yield
characteristics will change based on changes in prepayment rates. Generally,
prepayment rates increase if interest rates fall and decrease if interest rates
rise. For many types of mortgage-backed securities, this can result in
unfavorable changes in price and yield characteristics in response to changes in
interest rates and other market conditions. For example, as a result of their
prepayment aspects, the Fund's mortgage-backed securities have less potential
for capital appreciation during periods of declining interest rates than other
fixed-income securities of comparable maturities, although such obligations may
have a comparable or greater risk of decline in market value during periods of
rising interest rates.
Mortgage-backed securities have yield and maturity characteristics that
are dependent on the mortgages underlying them. Thus, unlike traditional debt
securities, which may pay a fixed rate of interest until maturity when the
entire principal amount comes due, payments on the securities include both
interest and a partial payment of principal. In addition to scheduled loan
amortization, payments of principal may result from the voluntary prepayment,
refinancing, or foreclosure of the underlying mortgage loans. Such prepayments
may significantly shorten the effective durations of mortgaged-backed
securities, especially during periods of declining interest rates. Similarly,
during periods of rising interest rates, a reduction in the rate of prepayments
may significantly lengthen the effective durations of such securities.
The Fund may also invest in other types of mortgage-related securities,
including any securities that directly or indirectly represent a participation
in, or are secured by and payable from, mortgage loans or real property,
including collateralized mortgage obligation "residual" interests. Residual
interests are derivative mortgage securities issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans. The cash flow generated by the mortgage assets
underlying a series of mortgage securities is applied first to make required
payments of principal of and interest on the mortgage securities and second to
pay the related administrative expenses of the issuer. The residual generally
represents the right to any excess cash flow remaining after making the
foregoing payments. Each payment of such excess cash flow to a holder of the
related residual represents income and/or a return of capital. The amount of
residual cash flow resulting from a series of mortgage securities will depend
on, among other things, the characteristics of the mortgage assets, the coupon
rate of each class of the mortgage securities, prevailing interest rates, the
amount of administrative expenses, and the prepayment experience on the mortgage
assets. The values of residuals are extremely sensitive to changes in interest
rates. The yield to maturity on residual interests may be extremely sensitive to
prepayments on the related underlying mortgage assets in the same manner as an
interest-only class of stripped mortgaged-backed securities. In addition, if a
series of mortgage securities includes a class that bears interest at an
adjustable rate, the yield to maturity on the related residual interest may also
be extremely sensitive to changes in the level of the index upon which interest
rate adjustments are based. In certain circumstances, there may be little or no
excess cash flow payable to residual holders. The Fund may fail to recoup fully
its initial investment in a residual.
Residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The
residual interest market has only recently developed and residuals currently may
not have the liquidity of other more established securities trading in other
markets. Residuals also may be subject to certain restrictions on
transferability. As a result, the Fund may be unable to dispose of these
interests at prices approximating the values the Fund had previously assigned to
them.
The Fund may invest in securities representing interests in other types
of financial assets, such as automobile-finance receivables or credit-card
receivables. Such securities are subject to many of the same risks as are
mortgage-backed securities, including prepayment risks, refinancing risks, and
risks of foreclosure. They may or may not be secured by the receivables
themselves or may be unsecured obligations of their issuers.
FOREIGN SECURITIES. Investment in foreign securities entails certain risks.
Since foreign securities are normally denominated and traded in foreign
currencies, the value of a Fund's assets may be affected favorably or
unfavorably by currency exchange rates and exchange control regulations, foreign
withholding taxes and restrictions or prohibitions on the repatriation of
foreign currencies. There may be less information publicly available about a
foreign company than about a U.S. company, and foreign companies are not
generally subject to accounting, auditing, and financial reporting standards and
practices comparable to those in the United States.
The securities of some foreign companies are less liquid and at times more
volatile than securities of comparable U.S. companies. Foreign brokerage
commissions and other fees are also generally higher than in the United States.
Foreign settlement procedures and trade regulations may involve certain risks
(such as delay in payment or delivery of securities or in the recovery of the
Fund's assets held abroad) and expenses not present in the settlement of
domestic investments.
In addition, there may be a possibility of nationalization or
expropriation of assets, imposition of currency exchange controls, confiscatory
taxation, political or financial instability, and diplomatic developments which
could affect the value of the Fund's investments in certain foreign countries.
Legal remedies available to investors in certain foreign countries may be more
limited than those available with respect to investments in the United States or
in other foreign countries. In the case of securities issued by a foreign
governmental entity, the issuer may in certain circumstances be unable to
unwilling to meet its obligations on the securities in accordance with their
terms, and the Fund may have limited recourse available to it in the event of
default. The laws of some foreign countries may limit the Fund's ability to
invest in securities of certain issuers located in those foreign countries.
Special tax considerations apply to foreign securities. The Fund may buy or sell
foreign currencies and options and futures contracts on foreign currencies for
hedging purposes in connection with its foreign investments.
JUNK BONDS. Junk bonds are securities which are rated below Baa or BBB by
Moody's Investors Services or Standard & Poor's (or, if they are unrated, which
a Fund's investment adviser believes to be of comparable quality). See the
Statement of Additional Information for further descriptions of securities
ratings assigned by Moody's and Standard & Poor's. Junk bonds are considered to
be of poor standing and predominantly speculative, but have higher yields than
higher-rated bonds. The Fund will not invest in any securities rated, at the
time of purchase, below B by Moody's or Standard & Poor's, or in unrated
securities determined by Mentor Advisors to be of comparable quality.
The values of junk bonds will fluctuate in response to changes in
interest rates, just as the value of other bonds does. The values of junk bonds
will also be affected by general economic and business conditions affecting the
specific industries of their issuers. Because the risk of default on a junk bond
is greater than on a higher-rated bond, a worsening of the issuer's financial
condition (whether due to industry or other general conditions or for reasons
specific to the issuer) will tend to lower the value of a junk bond more than it
would lower the value of a higher-rated bond. If a credit agency downgrades the
bond's rating, its value will decrease.
You should carefully consider your ability to assume the risks of
owning shares of a Fund that invests in junk bonds. The lower credit ratings of
junk bonds mean a higher risk of default. Even without a default, the presence
of junk bonds in the Fund will increase the Fund's volatility. At times, there
might not be a liquid market for certain junk bonds. This would make it hard for
the Fund to value them correctly and it might not be able to sell them. Credit
agency ratings only attempt to assess the risk of default, not the volatility or
liquidity of a security. Any such determinations would therefore be made only by
a Fund's investment adviser.
INTEREST RATE TRANSACTIONS. The Fund may enter into interest rate swaps and
other interest rate transactions, such as interest rate caps, floors, and
collars, for hedging purposes or to realize a greater current return. Interest
rate swaps involve the exchange by the Fund with another party of different
types of interest-rate streams (e.g., and exchange of floating rate payments for
fixed rate payments with respect to a notional amount of principal). The
purchase of an interest rate cap entitles the purchaser to receive payments on a
notional principal amount from the party selling the cap to the extent that a
specified index exceeds a predetermined interest rate or amount. The purchase of
a floor entitles the purchaser to receive payments on a notional principal
amount from the party selling the floor to the extent that a specified index
falls below a predetermined interest rate or amount. A collar is a combination
of a cap and a floor that preserves a certain return within a predetermined
range of interest rates or values. The Fund's ability to engage in certain
interest rate transactions may be limited by tax considerations. The use of
interest rate swaps and other interest rate transactions is a highly specialized
activity which involves investment techniques and risks different from those
associated with ordinary Fund securities transactions. If the investment adviser
in question is incorrect in its forecasts of market values, interest rates, or
other applicable factors, the investment performance of the Fund would be less
favorable than it would have been if this investment technique were not used.
TEMPORARY DEFENSIVE STRATEGIES. The Fund's investment adviser may implement
temporary defensive strategies in order to reduce fluctuations in the value of
the Fund's assets. At those times, the Fund may invest any portion of its assets
in cash or cash equivalents, money market instruments, or other short-term,
high-quality investments the investment adviser considers consistent with such
defensive strategies. It is impossible to predict when, or for how long, the
Fund will use these defensive strategies.
PORTFOLIO TURNOVER. The length of time the Fund has held a particular security
is not generally a consideration in investment decisions. The investment
policies of the Fund may lead to frequent changes in the Fund's investments,
particularly in periods of volatile market movements. A change in the securities
held by the Fund is known as "portfolio turnover." Portfolio turnover generally
involves some expense to a Fund, including brokerage commissions or dealer
mark-ups and other transaction costs on the sale of securities and reinvestment
in other securities, and therefore will affect Fund performance. Such sales may
increase the amount of capital gains (and, in particular, short-term gains)
realized by the Fund, on which shareholders pay tax.
OTHER INVESTMENTS AND RISKS
The following provides more detail about the Fund's investments and
risks and other circumstances which could adversely affect the Funds' shares or
their total return or yield.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. The Fund may purchase securities
on a "when-issued" basis. The price of such securities is fixed at the time the
commitment to purchase is made, but delivery and payment for the when-issued
securities take place at a later date (normally within one month of purchase).
The Fund may also purchase securities for future delivery. "When-issued"
securities and forward commitments may increase the Fund's overall investment
exposure and may result in losses.
OPTIONS AND FUTURES. The Fund may buy and sell call and put options to hedge
against changes in net asset value or to realize a greater current return. In
addition, through the purchase and sale of futures contracts and related
options, the Fund may at times seek to hedge against fluctuations in net asset
value and, to the extent consistent with applicable law, to increase investment
return.
The Fund's ability to engage in options and futures strategies will
depend on the availability of liquid markets in such instruments. It is
impossible to predict the amount of trading interest that may exist in various
types of options of futures contracts. Therefore, there is no assurance that the
Fund will be able to utilize these instruments effectively for the purposes
stated above. Transactions in options and futures involve certain risks which
are described below and in the Statement of Additional Information. Transactions
in options and futures contracts involve brokerage costs and may require a Fund
to segregate assets to cover its outstanding positions. For more information,
see the Statement of Additional Information.
INDEX FUTURES AND OPTIONS. The Fund may buy and sell index futures contracts
("index futures") and options on index futures and on indices for hedging
purposes (or may purchase warrants whose value is based on the value from time
to time of one or more foreign securities indices). An "index future" is a
contract to buy or sell units of a particular bond or stock index at an agreed
price on a specified future date. Depending on the change in value of the index
between the time when the Fund enters into and terminates an index future or
option transaction, the Fund realizes a gain or loss. The Fund may also, to the
extent consistent with applicable law, buy and sell index futures and options to
increase its investment return.
RISKS RELATED TO OPTIONS AND FUTURES STRATEGIES. Options and futures
transactions involve costs and may result in losses. Certain risks arise because
of the possibility of imperfect correlations between movements in the prices of
futures and options and movements in the prices of the underlying security or
index or of the securities held by the Fund that are the subject of a hedge. The
successful use by the Fund of the strategies described above further depends on
the ability of its investment adviser to forecast market movements correctly.
Other risks arise from the Fund's potential inability to close out futures or
options positions. Although the Fund will enter into options or futures
transactions only if its investment adviser believes that a liquid secondary
market exists for such options or futures contracts, there can be no assurance
that the Fund will be able to effect closing transactions at any particular time
or at an acceptable price.
The Fund generally expects that its options transactions will be
conducted on recognized exchanges. The Fund may in certain instances purchase
and sell options in the over-the-counter markets. The Fund's ability to
terminate options in the over-the-counter markets may be more limited than for
exchange-traded options and may also involve the risk that securities dealers
participating in such transactions would be unable to meet their obligations to
the Fund. The Fund will, however, engage in over-the-counter transactions only
when appropriate exchange-traded transactions are unavailable and when, in the
opinion of its investment adviser, the pricing mechanism and liquidity of the
over-the-counter markets are satisfactory and the participants are responsible
parties likely to meet their obligations.
The Fund will not purchase futures or options on futures or sell
futures if as a result the sum of the initial margin deposits on the Fund's
existing futures positions and premiums paid for outstanding options on futures
contracts would exceed 5% of the Fund's assets. (For options that are
"in-the-money" at the time of purchase, the amount by which the option is
"in-the-money" is excluded from this calculation.)
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Fund may engage in foreign currency
exchange transactions to protect against uncertainty in the level of future
currency exchange rates. The Fund may engage in foreign currency exchange
transactions in connection with the purchase and sale of Fund securities
("transaction hedging") and to protect against changes in the value of specific
Fund positions ("position hedging").
The Fund also may engage in transaction hedging to protect against a
change in foreign currency exchange rates between the date on which it contracts
to purchase or sell and the settlement date, or to "lock in" the U.S. dollar
equivalent of a dividend or interest payment in a foreign currency. The Fund may
purchase or sell a foreign currency on a spot (or cash) basis at the prevailing
spot rate in connection with transaction hedging.
The Fund may also enter into contracts to purchase or sell foreign
currencies at a future date ("forward contracts") and may purchase and sell
foreign currency futures contracts, for hedging and not for speculation. A
foreign currency forward contract is a negotiated agreement to exchange currency
at a future time at a rate or rates that may be higher or lower than the spot
rate. Foreign currency futures contracts are standardized exchange-traded
contracts and have margin requirements. For transaction hedging purposes, the
Fund may also purchase and sell call and put options on foreign currency futures
contracts and on foreign currencies.
The Fund may engage in position hedging to protect against a decline in
value relative to the U.S. dollar of the currencies in which Fund securities are
denominated or quoted (or an increase in value of a currency in which securities
the Fund intends to buy are denominated). For position hedging purposes, the
Fund may purchase or sell foreign currency futures contracts and foreign
currency forward contracts, and may purchase and sell put and call options on
foreign currency futures contracts and on foreign currencies. In connection with
position hedging, the Fund may also purchase or sell foreign currencies on a
spot basis.
Although there is no limit to the amount of the Fund's assets that may
be invested in foreign currency exchange and foreign currency forward contacts,
the Fund will only enter into such transactions to the extent necessary to
effect the hedging transactions described above.
REPURCHASE AGREEMENTS AND SECURITIES LOANS. The Fund may enter into repurchase
agreements and securities loans. Under a repurchase agreement, the Fund
purchases a debt instrument for a relatively short period (usually not more than
one week), which the seller agrees to repurchase at a fixed time and price,
representing the Fund's cost plus interest. Under a securities loan, a Fund
lends Fund securities. The Fund will enter into repurchase agreements and
securities loans only with commercial banks and with registered broker-dealers
who are members of a national securities exchange or market makers in government
securities, and in the case of repurchase agreements, only if the debt
instrument is a U.S. Government security. Although Mentor Advisors will monitor
these transactions to ensure that they will be fully collateralized at all
times, the Fund bears a risk of loss if the other party defaults on its
obligation and the Fund is delayed or prevented from exercising its rights to
dispose of the collateral. If the other party should become involved in
bankruptcy or insolvency proceedings, it is possible that the Fund may be
treated as an unsecured creditor and be required to return the underlying
collateral to the other party's estate.
YEAR 2000. It is generally recognized that certain computer systems in use today
may not perform their intended functions adequately after the Year 1999 because
of the inability of the software to distinguish the Year 2000 from the Year
1900. The Fund receives services from a number of providers which rely on the
smooth functioning of their respective systems and the systems of others to
perform those services. In addition, the Fund's software and that of the issuers
of securities held by the Fund could be subject to problems caused by the "Year
2000" problem. Mentor Advisors is taking steps that they believe are reasonably
designed to address each of these potential "Year 2000" problems and to obtain
satisfactory assurances that comparable steps are being taken by the Fund's
other major service providers. There can be no assurance, however, that these
steps will be sufficient to avoid any adverse impact on the Fund from this
problem.
MANAGEMENT RISK. Although the Fund may have the flexibility to use some or all
of the investment strategies, securities and derivative instruments described in
this prospectus and in the Statement of Additional Information, Mentor Advisors
may choose not to use a particular strategy or type of security for a variety of
reasons. Also, in some market conditions some strategies and securities may not
be available for use. These choices may cause the Fund to miss opportunities,
lose money or not achieve its objective.
CHANGES IN INVESTMENT POLICY. Except for investment policies designated in this
prospectus or the Statement of Additional Information as fundamental, the
investment objective and policies described herein are not fundamental and may
be changed by the Trustees without shareholder approval. (Any such change could,
of course, result in a change in the nature of the securities in which the Fund
may invest and the risks involved in an investment in the Fund.)
MANAGEMENT
The Trustees of Evergreen Select Fixed Income Trust ("the Trust") are
responsible for generally overseeing the conduct of the Trust's business. They
have hired MENTOR INVESTMENT ADVISORS, LLC ("MENTOR ADVISORS"), located at 901
East Byrd Street, Richmond, Virginia 23219, to act as investment adviser to the
Fund. Mentor Advisors is a subsidiary of First Union Corporation, the sixth
largest bank holding company in the United States, with over $230 billion in
consolidated assets as of 6/30/99. First Union Corporation is located at 301
South College Street, Charlotte, North Carolina 28288-0013.
In 1998, Mentor Advisors received no compensation from the Funds for
its advisory services. Mentor Advisors may agree to bear certain expenses of the
Funds pursuant to voluntary expense limitations from time to time in effect.
The Fund's Portfolio Manager is P. Michael Jones, CFA. Mr. Jones joined
Mentor Advisors in 1993 and is currently a Managing Director and fixed-income
portfolio manger. He has 13 years of investment management experience.
CALCULATING THE SHARE PRICE
The value of one share of the Fund, also known as the net asset value,
or NAV, is calculated on each day the New York Stock Exchange is open as of the
time the Exchange closes (normally 4:00 p.m. Eastern time). The Fund calculates
its share price for each share by adding up its total assets, subtracting all
liabilities, then dividing the result by the total number of shares outstanding.
Each class of shares is calculated separately. Each security held by the Fund is
valued using the most recent market data for that security. If no market data is
available for a given security, the Fund will price that security at fair value
according to policies established by the Fund's Board of Trustees. Short-term
securities with maturities of 60 days or less will be valued on the basis of
amortized cost.
The price per share you pay for a Fund purchase or the amount you
receive for a Fund redemption is based on the next price calculated after the
order is received and all required information is provided. The value of your
account at any given time is the latest share price multiplied by the number of
shares you own. Your account balance may change daily because the share price
may change daily.
HOW TO CHOOSE AN EVERGREEN FUND
When choosing an Evergreen Fund, you should:
o Most importantly, read the prospectus to see if the Fund is suitable for
you.
o Consider talking to an investment professional. He or she is qualified to
give you investment advice based on your investment goals and financial
situation and will be able to answer questions you may have after reading
the Fund's prospectus. He or she can also assist you through all phases of
opening your account.
o Request any additional information you want about the Fund, such as the
Statement of Additional Information, Annual Report or Semi-annual Report by
calling 1-800-343-2898.
HOW TO CHOOSE THE SHARE CLASS THAT BEST SUITS YOU
After choosing a Fund, you select a share class. The Fund offers two
different institutional classes. Each institutional class of shares has its own
expenses. Pay particularly close attention to this fee structure so you know how
much you will be paying before you invest. Institutional shares are only offered
to investment advisory clients of an investment advisor of an Evergreen Fund (or
the advisor's affiliate). Each class of shares is sold without a front-end sales
charge or contingent deferred sales charge. Institutional Service shares pay an
ongoing service fee. Institutional shares do not pay a service fee. The minimum
initial investment in either class of shares is $1 million, which may be waived
in certain situations. There is no minimum amount required for subsequent
purchases.
The Fund has adopted for its Institutional Service shares a
distribution plan which provides for the payment of an annual service fee of up
to 0.25% of the average daily net assets of the class for personal services
rendered to shareholders and/or the maintenance of accounts. As a result, income
distributions paid by the Fund with respect to Institutional Service shares will
generally be less than those paid with respect to Institutional shares.
<PAGE>
HOW TO BUY SHARES
Institutional investors may buy shares through broker-dealers, banks
and certain other financial intermediaries, or directly through the Fund's
distributor, Evergreen Distributor, Inc. (EDI).
<TABLE>
<CAPTION>
- ------------------------ ----------------------------------------------------------- ------------------------------------------
Method Opening an Account Adding to an Account
- ------------------------ ----------------------------------------------------------- ------------------------------------------
- ------------------------ ----------------------------------------------------------- ------------------------------------------
<S> <C> <C>
By Phone o Call 1-800-343-2898 to set up an account number o Call the Evergreen Express
and get wiring instructions (call before 12 noon if you Line* at 1-800-346-3858 24 hours a day
want wired funds to be credited that day). or 1-800-343-2898 between 8 a.m. and 6
o Instruct your bank to wire or transfer your p.m. Eastern time, on any business day.
purchase (they may charge a wiring fee). o If your bank account is set up
o Complete the account application and mail to: on file, you can request either:
Evergreen Service Company OVERNIGHT ADDRESS: - Federal Funds Wire (offers
P.O. Box 2121 Evergreen Service Company immediate access to funds) or
Boston, MA 02106-2121 200 Berkeley St. - Electronic transfer through the
Boston, MA 02116 Automated Clearing House which
o Wires received after 4 p.m. Eastern time on avoids wiring fees.
market trading days will receive the next market day's
closing price.**
- ------------------------ ----------------------------------------------------------- ------------------------------------------
- ------------------------ ------------------------------------------------------------------------------------------------------
By Exchange o You can make an additional investment by
exchange from an existing Evergreen Funds account by
contacting your investment representative or calling
the Evergreen Express Line* at 1-800-346-3858.***
o You can only exchange shares within the same class.
o There is no sales charge or redemption fee when
exchanging Funds within the Evergreen Funds' family.
o Orders placed before 4 p.m. Eastern time on market
trading days will receive that day's closing share
price (if not, you will receive the next market day's
closing price).**
o Exchanges are limited to three per calendar quarter,
but in no event no more than five per calendar year.
o Exchanges between accounts that do not have identical
ownership must be in writing with a signature
guarantee (see below).
- ------------------------ ------------------------------------------------------------------------------------------------------
</TABLE>
*The Evergreen Express Line is only available to Institutional Service
shareholders.
** The Fund's shares may be made available through financial service firms which
are also investment dealers and which have a service agreement with the
Distributor. The Fund has approved the acceptance of purchase and repurchase
request orders effective as of the time of their receipt by certain authorized
financial intermediaries.
***Once you have authorized either the telephone exchange or redemption service,
anyone with a Personal Identification Number (PIN) and the required account
information (including your broker) can request a telephone transaction in your
account. All calls are recorded or monitored for verification, recordkeeping and
quality-assurance purposes. The Evergreen Funds reserve the right to terminate
the exchange privilege of any shareholder who exceeds the listed maximum number
of exchanges, as well as to reject any large dollar exchange if placing it
would, in the judgment of the portfolio manager, adversely affect the price of
the Fund.
<PAGE>
HOW TO REDEEM SHARES
We offer you several convenient ways to redeem your shares in any of
the Evergreen Funds:
<TABLE>
<CAPTION>
- ------------------------- -----------------------------------------------------------------------------------------------------
Methods Requirements
- ------------------------- -----------------------------------------------------------------------------------------------------
- ------------------------- -----------------------------------------------------------------------------------------------------
<S> <C>
Call Us o Call the Evergreen Express Line* at 1-800-346-3858 24 hours a day or 1-800-343-2898
between 8 a.m. and 6 p.m. Eastern time, on any business day.
o This service must be authorized ahead of time, and is only available for regular
accounts.***
o All authorized requests made before 4 p.m.
Eastern time on market trading days will be
processed at that day's closing price. Requests
after 4 p.m. will be processed the following
business day.**
o We can either:
- wire the proceeds into your bank account (service charges may apply)
- electronically transmit the proceeds to your bank account via the Automated Clearing House
service
- mail you a check.
o All telephone calls are recorded for your
protection. We are not responsible for acting on
telephone orders we believe are genuine.
o See exceptions list below for requests that must be made in writing.
- ------------------------- -----------------------------------------------------------------------------------------------------
- ------------------------- -----------------------------------------------------------------------------------------------------
Write Us o You can mail a redemption request to:
Evergreen Service Company OVERNIGHT ADDRESS:
P.O. Box 2121 Evergreen Service Company
Boston, MA 02106-2121 200 Berkeley St.
Boston, MA 02116
o Your letter of instructions must:
- list the Fund name and the account number
- indicate the number of shares or dollar value you wish to redeem
- be signed by the registered owner(s)
o See exceptions list below for requests that must be signature guaranteed.
- ------------------------- -----------------------------------------------------------------------------------------------------
Redeem Your Shares in o You may also redeem your shares through participating broker-dealers by delivering a
Person letter as described above to your broker-dealer.
o A fee may be charged for this service.
- ------------------------- -----------------------------------------------------------------------------------------------------
</TABLE>
*The Evergreen Express Line is only available to Institutional Service
shareholders.
** The Fund's shares may be made available through financial service firms which
are also investment dealers and which have a service agreement with the
Distributor. The Fund has approved the acceptance of purchase and repurchase
request orders effective as of the time of their receipt by certain authorized
financial intermediaries.
***Once you have authorized either the telephone exchange or redemption service,
anyone with a Personal Identification Number (PIN) and the required account
information (including your broker) can request a telephone transaction in your
account. All calls are recorded or monitored for verification, recordkeeping and
quality-assurance purposes. The Evergreen Funds reserve the right to terminate
the exchange privilege of any shareholder who exceeds the listed maximum number
of exchanges, as well as to reject any large dollar exchange if placing it
would, in the judgment of the portfolio manager, adversely affect the price of
the Fund.
TIMING OF PROCEEDS
Normally, we will send your redemption proceeds on the next business day after
we receive your request; however, we reserve the right to wait up to seven
business days to redeem any investments made by check and five business days for
investments made by Automated Clearing House transfer. We also reserve the right
to redeem in kind by paying you the proceeds of a redemption in securities
rather than in cash, and to redeem the remaining amount in the account if your
redemption brings the account balance below the initial minimum of $1,000,000.
EXCEPTIONS: REDEMPTION REQUESTS THAT REQUIRE A SIGNATURE GUARANTEE
To protect you and the Evergreen Funds against fraud, certain redemption
requests must be made in writing with your signature guaranteed. A signature
guarantee can be obtained at most banks and securities dealers. A notary public
is not authorized to provide a signature guarantee.
The following circumstances require signature guarantees:
o You want the proceeds transmitted to a bank account Who Can Provide A
not listed on the account Signature Guarantee:
o You want the proceeds payable to anyone other than o Commercial Bank
the registered owner(s) of the account o Trust Company
o Either your address or the address of your bank o Savings Association
account has been changed within 30 days o Credit Union
o Member of a U.S.
stock exchange
<PAGE>
OTHER SERVICES
EVERGREEN EXPRESS LINE. (Institutional Service shares only) Use our automated,
24-hour service to check the value of your investment in the Fund; purchase,
redeem or exchange Fund shares; find the Fund's price, yield or total return;
order a statement or duplicate tax form; or hear market commentary from
Evergreen portfolio managers.
AUTOMATIC REINVESTMENT OF DIVIDENDS. For the convenience of investors, all
dividends and capital gains distributions are automatically reinvested, unless
you request otherwise. Distributions can be made by check or electronic transfer
through the Automated Clearing House to your bank account. The details of your
dividends and other distributions will be included on your statement.
TELEPHONE INVESTMENT PLAN. You may make additional investments electronically in
an existing Fund account. Telephone requests received by 4:00 p.m. Eastern time
will be invested the day the request is received.
REINVESTMENT PRIVILEGES. Under certain circumstances, shareholders may, within
one year of redemption, reinstate their accounts at the current price (NAV).
THE TAX CONSEQUENCES OF INVESTING IN THE FUND
You may be taxed in two ways:
o On Fund distributions (dividends and capital gains)
o On any profit you make when you sell any or all of your shares.
FUND DISTRIBUTIONS. A mutual fund passes along to all of its shareholders the
net income or profits it receives from its investments. The shareholders of the
Fund then pay any taxes due, whether they receive these distributions in cash or
elect to have them reinvested. The Fund will distribute two types of taxable
income to you:
o DIVIDENDS. To the extent that the regular dividends are derived from
interest that is not tax exempt, or from short-term capital gains, you will
have to include them in your federal taxable income. The Fund pays a
monthly dividend from the dividends, interest and other income on the
securities in which it invests.
o CAPITAL GAINS. When a mutual fund sells a security it owns for a profit,
the result is a capital gain. The Fund generally distributes capital gains,
if any, at least once a year, near the end of the calendar year. Short-term
capital gains reflect securities held by the Fund for a year or less and
are considered ordinary income just like dividends. Profits on securities
held longer than 12 months are considered long-term capital gains and are
taxed at a special tax rate (20% for most taxpayers).
DIVIDEND AND CAPITAL GAIN REINVESTMENT. Unless you choose otherwise on the
account application, all dividend and capital gain payments will be reinvested
to buy additional shares. Distribution checks that are returned and distribution
checks that are uncashed when the shareholder has failed to respond to mailings
from the shareholder servicing agent will automatically be reinvested to buy
additional shares. No interest will accrue on amounts represented by uncashed
distribution or redemption checks. We will send you a statement each January
with the federal tax status of dividends and distributions paid by the Fund
during the previous calendar year.
PROFITS YOU REALIZE WHEN YOU REDEEM SHARES. When you sell shares in a mutual
fund, whether by redeeming or exchanging, you have created a taxable event. You
must report any gain or loss on your tax return unless the transaction was
entered into by a tax-deferred retirement plan. Investments in money market
funds typically do not generate capital gains. It is your responsibility to keep
accurate records of your mutual fund transactions. You will need this
information when you file your income tax return, since you must report any
capital gains or losses you incur when you sell shares. Remember, an exchange is
a purchase and a sale for tax purposes.
TAX REPORTING. Evergreen Service Company provides you with a tax statement of
your dividend and capital gains distributions for each calendar year on Form
1099 DIV. Proceeds from a sale are reported on Form 1099B. You must report these
on your tax return. Since the IRS receives a copy as well, you could pay a
penalty if you neglect to report them.
Evergreen Service Company will send you a tax information guide each year during
tax season, which may include a cost basis statement detailing the gain or loss
on taxable transactions you had during the year. Please consult your own tax
advisor for further information regarding the federal, state and local tax
consequences of an investment in the Fund.
FEES AND EXPENSES OF THE FUND
Every mutual fund has fees and expenses that are assessed either
directly or indirectly. This section describes each of those fees.
MANAGEMENT FEE. The management fee pays for the normal expenses of managing the
Fund, including portfolio manager salaries, research costs, corporate overhead
expenses and related expenses. This Fund pays no management fee to Mentor
Advisors.
12B-1 FEE. The Trustees of the Evergreen Funds have approved a policy to assess
12b-1 fees for Institutional Service shares. Up to 0.75% of the Institutional
Service shares' average daily net assets are payable as a 12b-1 fee. However,
currently the 12b-1 fees are limited to 0.25% of the Institutional Service
shares' average daily net assets. These fees will increase the cost of your
investment. The Fund may use this fee as a "service fee" to pay broker-dealers
for additional shareholder services and/or the maintenance of accounts.
OTHER EXPENSES. Other expenses include miscellaneous fees from affiliated and
outside service providers. These may include legal, audit, custodial and
safekeeping fees, the printing and mailing of reports and statements, automatic
reinvestment of distributions and other conveniences for which the shareholder
pays no transaction fees.
TOTAL FUND OPERATING EXPENSES. The total cost of running the Fund is called the
expense ratio. As a shareholder, you are not charged these fees directly;
instead they are taken out before the Fund's net asset value is calculated, and
are expressed as a percentage of the Fund's average daily net assets. The effect
of these fees is reflected in the performance results for that share class.
Because these fees are "invisible," investors should examine them closely in the
prospectus, especially when comparing the Fund with another fund in the same
investment category. There are three things to remember about expense ratios: 1)
your total return in the Fund is reduced in direct proportion to the fees; 2)
expense ratios can vary greatly between funds and fund families, from under
0.25% to over 3.00%; and 3) the Fund's investment advisor may waive a portion of
the Fund's expenses for a time, reducing its expense ratio.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights for the Fund's Institutional shares presented below
have been derived from the financial statements of Mentor Institutional Trust
("Mentor Trust") which were audited by KPMG LLP, the Mentor Trust's independent
auditors. Their report dated December 18, 1998 on the financial statements of
the Mentor Trust for the fiscal year ended October 31, 1998 is included in the
Fund's Annual Report to shareholders, which is incorporated into the Statement
of Additional Information by reference. Insitutional Service shares are offered
only as of the date of this prospectus. Therefore, no financial highlights are
currently available for those shares. A copy of the Annual Report may be
obtained free of charge from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
10/31/98 10/31/97 10/31/96 10/31/95 (C)
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD................. $13.11 $12.89 $13.71 $12.50
INCOME FROM INVESTMENT OPERATIONS
Net investment income.............................. 0.79 0.83 0.77 0.81
Net realized and unrealized gain (loss) on
investments...................................... 0.13 0.21 (0.16) 1.14
---- ---- ------ ----
Total from investment operations................... 0.92 1.04 0.61 1.95
---- ---- ---- ----
LESS DISTRIBUTIONS
From net investment income......................... (0.82) (0.82) (0.77) (0.74)
From capital gains................................. (0.06) -- (0.66) --
------ -- ------ --
Total distributions................................ (0.88) (0.82) (1.43) (0.74)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD....................... $13.15 $13.11 $12.89 $13.71
====== ====== ====== ======
Total Return (d)..................................... 7.21% 8.39% 4.87% 15.90%
===== ===== ===== ======
RATIOS / SUPPLEMENTAL DATA
Net assets, end of period (in thousands)............. $83,372 $61,738 $49,962 $34,053
Ratio of expenses to average net assets.............. 0.10% 0.10% 0.05% 0.05% (a)
Ratio of expenses to average net assets
excluding waiver................................... 0.10% 0.15% 0.17% 0.22%(a)
Ratio of net investment income to average net
assets............................................. 6.08% 6.52% 6.22% 6.75% (a)
Fund turnover rate................................... 137% 194% 226% 302%
==== ==== ==== ====
</TABLE>
(a) Annualized.
(c) For the period from December 6, 1994 (commencement of operations) to October
31, 1995.
(d) Total return does not reflect sales commission and is not annualized.
See notes to financial statements.
<PAGE>
EVERGREEN SELECT FUNDS
SELECT MONEY MARKET
Select Money Market Fund
Select Municipal Money Market Fund
Select Treasury Money Market Fund
Select 100% Treasury Money Market Fund
Select U.S. Government Money Market Fund
SELECT FIXED INCOME
Select Adjustable Rate Fund
Select Core Bond Fund
Select Fixed Income Fund
Select High Yield Bond Fund
Select Income Plus Fund
Select Intermediate Term Municipal Bond Fund
Select International Bond Fund
Select Limited Duration Fund
Select Total Return Bond Fund
Select Fixed Income Fund II
SELECT EQUITY
Select Balanced Fund
Select Core Equity Fund
Select Diversified Value Fund
Select Equity Income Fund
Select Equity Index Fund
Select Large Cap Blend Fund
Select Secular Growth Fund
Select Small Cap Growth Fund
Select Small Company Value Fund
Select Social Principles Fund
Select Special Equity Fund
Select Strategic Growth Fund
Select Strategic Value Fund
EXPRESS LINE
(Institutional Service shares only)
800.346.3858
INVESTOR SERVICES
800.343.2898
WWW.EVERGREEN-FUNDS.COM
<PAGE>
QUICK REFERENCE GUIDE
EVERGREEN EXPRESS LINE
(INSTITUTIONAL SERVICE SHARES ONLY)
CALL 1-800-346-3858
24 hours a day to
o check your account
o order a statement
o get a Fund's current price, yield and
total return
o buy, redeem or exchange Fund shares
INVESTOR SERVICES
CALL 1-800-343-2898
Each business day, 8 a.m. to 6 p.m. Eastern time to
o buy, redeem or exchange shares
o order applications
o get assistance with your account
INFORMATION LINE FOR HEARING AND SPEECH IMPAIRED (TTY/TDD)
CALL 1-800-343-2888
Each business day, 8 a.m. to 6 p.m. Eastern time
WRITE US A LETTER
Evergreen Service Company
P.O. Box 2121
Boston, MA 02106-2121
o to buy, redeem or exchange shares
o to change the registration on your account
o for general correspondence
FOR EXPRESS, REGISTERED, OR CERTIFIED MAIL:
Evergreen Service Company
200 Berkeley Street
Boston, MA 02116-5039
VISIT US ON-LINE:
www.evergreen-funds.com
REGULAR COMMUNICATIONS YOU WILL RECEIVE:
ACCOUNT STATEMENTS -- You will receive quarterly statements for each Fund you
own.
CONFIRMATION NOTICES -- We send a confirmation of any transaction you make
within five days of the transaction.
ANNUAL AND SEMI-ANNUAL REPORTS -- You will receive a detailed financial report
on your Fund(s) twice a year. TAX FORMS -- Each January you will receive any tax
forms you need to file your taxes as well as the Evergreen Tax Information
Guide.
For More Information About the Evergreen Select Fixed Income Fund II, Ask for:
THE STATEMENT OF ADDITIONAL INFORMATION (SAI), which contains more detailed
information about the policies and procedures of the Fund. The SAI has been
filed with the Securities and Exchange Commission (SEC) and its contents are
legally considered to be part of this prospectus.
For questions, other information, or to request a copy, without charge, of any
of the documents, call 1-800-343-2898 or ask your investment representative. We
will mail material within three business days.
Information about the Fund (including the SAI) is also available on the SEC's
Internet web site at http://www.sec.gov, or, for a duplication fee, by writing
the SEC Public Reference Section, Washington DC 20549-6009. This material can
also be reviewed and copied at the SEC's Public Reference Room in Washington,
DC. For more information, call the SEC at 1-800-SEC-0330.
Evergreen Distributor, Inc.
90 Park Avenue
New York, New York 10016
Sec File No.: 811-08365
