<PAGE>
April 30, 2000
Evergreen Select
Fixed Income Fund II
Semiannual Report
[LOGO OF EVERGREEN FUNDS(SM)]
[SEAL OF DALBAR MUTUAL FUND SERVICE AWARD]
<PAGE>
Table of Contents
Letter to Shareholders .................................................... 1
Select Fixed Income Fund II
Fund at a Glance ........................................................ 2
Portfolio Manager Interview ............................................. 3
Financial Highlights ...................................................... 5
Schedule of Investments ................................................... 6
Statement of Assets and Liabilities ....................................... 8
Statement of Operations ................................................... 9
Statement of Changes in Net Assets ........................................ 10
Notes to Financial Statements ............................................. 11
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Evergreen Funds
--------------------------------------------------------------------------------
Evergreen Funds is one of the nations fastest growing investment companies with
approximately $80 billion in assets under management.
With over 80 mutual funds to choose among and acclaimed service and operations
capabilities, investors enjoy a broad range of quality investment products and
services designed to meet their needs.
The Evergreen Funds employ intensive, research-driven investment strategies
executed by over 90 research analysts and portfolio managers. The fund company
remains dedicated to meeting the needs of investors and their advisors in a
global economy. Look to Evergreen Funds to provide a distinctive level of
service and excellence in investment management.
This semiannual report must be preceded or accompanied by a prospectus of an
Evergreen fund contained herein. The prospectus contains more complete
information, including fees and expenses, and should be read carefully before
investing or sending money.
---------------------------------------------------------
Mutual Funds: NOT FDIC INSURED MAY LOSE VALUE NOT BANK GUARANTEED
---------------------------------------------------------
Evergreen Distributor,Inc.
Evergreen Funds(SM) is a service mark of Evergreen Investment Services,Inc.
<PAGE>
Letter to Shareholders
----------------------
June 2000
Dear Evergreen Shareholders,
We are pleased to provide the Evergreen Select Fixed Income Fund II semiannual
report, which covers the six-month period ended April 30, 2000.
[PHOTO]
William M. Ennis
[PHOTO]
Dennis H. Ferro
U.S. Bond Markets Experience Volatility
The bond market environment has suffered a great deal of volatility and
unpredictability for the past six-month period. The Federal Reserve Board
increased interest rates three times during the period as a response to a
potential inflationary environment. In addition, the Treasury's announcement of
a plan to curtail new and existing supplies of long-term government bonds led
investors to seek longer-term issues in anticipation of possible shortages.
These factors are indicative of an abnormal investment environment where
longer-term bonds paid lower rates than short-term bonds, this is also known as
an "inverted yield curve". Amidst this volatile environment, we still believe
that bonds are relatively attractive over the long term.
We believe that sound investing is about taking steps to meet your long-term
financial needs and goals. We remind you to take advantage of your financial
advisor's expertise to develop and refine a financial plan that will enable you
to meet your objectives. Evergreen Funds offers a broad mix of stock, bond and
money market funds that could make it simple for you to choose the most
appropriate for your portfolio.
Website Enhancements
Please visit our enhanced website, evergreen-funds.com, for more information
about Evergreen Funds. The site offers an array of helpful information including
an investment education center, interactive calculators to assist your
investment planning and general information about Evergreen Funds.
Thank you for your continued investment in Evergreen Funds.
Sincerely,
/s/ William M. Ennis
William M. Ennis
President and CEO
Evergreen Investment Company, Inc.
/s/ Dennis H. Ferro
Dennis H. Ferro
Chief Investment Officer
First Union National Bank
Capital Management Group
1
<PAGE>
--------------------------------------------------------------------------------
EVERGREEN
Select Fixed Income Fund II
--------------------------------------------------------------------------------
Fund at a Glance as of April 30, 2000
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PORTFOLIO PROFILE
--------------------------------------------------------------------------------
Philosophy
The Evergreen Select Fixed Income Fund II seeks to achieve client fixed-income
objectives through a diversified portfolio of primarily high quality
fixed-income securities.
Process
Portfolio management emphasizes sector rotation, term structure allocation, high
credit quality, and individual security valuation. The manager uses a
combination of quantitatively driven security selection and regular portfolio
repositioning to enhance returns above those available from more passive
management approaches.
Benchmark
Lehman Brothers Aggregate Bond Index
--------------------------------------------------------------------------------
PERFORMANCE AND RETURNS1
--------------------------------------------------------------------------------
Portfolio Inception Date: 12/06/1994 Class I Class IS
Class Inception Date 12/06/1994 10/18/1999
--------------------------------------------------------------------------------
Average Annual Returns
--------------------------------------------------------------------------------
6 months 1.12% 0.90%
--------------------------------------------------------------------------------
1 year 1.24% 1.02%
--------------------------------------------------------------------------------
5 years 6.32% 6.28%
--------------------------------------------------------------------------------
Since Portfolio Inception 7.04% 7.00%
--------------------------------------------------------------------------------
30-day SEC Yield 7.30% 7.11%
--------------------------------------------------------------------------------
6-month income distributions per share $0.44 $0.42
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
LONG TERM GROWTH
--------------------------------------------------------------------------------
[GRAPH]
Lehman Brothers Select Fixed
Aggregate Bond Income Fund II CPI
12/6/94 1,000,000 1,000,000 1,000,000
Apr-95 1,065,115 1,062,455 1,014,696
Oct-95 1,151,098 1,159,294 1,026,720
Apr-96 1,157,190 1,157,345 1,044,088
Oct-96 1,218,408 1,215,475 1,057,448
Apr-97 1,239,174 1,234,698 1,070,140
Oct-97 1,326,760 1,317,577 1,079,492
Apr-98 1,374,330 1,349,553 1,085,504
Oct-98 1,450,574 1,412,839 1,095,524
Apr-99 1,460,437 1,425,875 1,110,220
Oct-99 1,458,209 1,427,741 1,123,580
4/30/00 1,478,796 1,443,609 1,146,381
Comparison of a $1,000,000 investment in Evergreen Select Fixed Income Fund II,
Class I shares, versus a similar investment in the Lehman Brothers Aggregate
Bond Index (LBABI) and the Consumer Price Index (CPI).
The LBABI is an unmanaged market index which does not include transaction costs
associated with buying and selling securities or any mutual fund expenses. The
CPI is a commonly used measure of inflation and does not represent an investment
return. It is not possible to invest directly in an index.
U.S. Government guarantees apply only to the underlying securities of the Funds
portfolio and not to the Funds shares.
Funds that invest in high yield, lower-rated bonds may contain more risks due to
the increased possibility of default.
1 Past performance is no guarantee of future results. The performance of each
class may vary based on differences in fees paid by the shareholders investing
in each class. The investment return and principal value will fluctuate so
that an investors shares, when redeemed, may be worth more or less than
original cost.
Historical performance shown for Class IS prior to inception is based on the
performance of Class I, the original class offered. These 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.
All data is as of April 30, 2000 and subject to change.
2
<PAGE>
--------------------------------------------------------------------------------
EVERGREEN
Select Fixed Income Fund II
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Portfolio Manager Interview
Portfolio Management
[PHOTO]
P.Michael Jones
Tenure: December 1995
Performance
The Funds Class I Shares returned 1.12% for the six-month period ended April 30,
2000, versus 1.42% produced by the Lehman Brothers Aggregate Bond Index. We
attribute the modest lag in performance to the Funds substantial position in
mortgage-backed securities. Typically, mortgage-backed securities are an
attractive investment alternative because of their extremely high quality and
generous income stream. During the period, however, bonds that generated more
income, such as mortgage-backed securities and corporate bonds, underperformed
U.S. Treasuries.
Portfolio
Characteristics
---------------
(as of 4/30/2000)
Total Net Assets $66,865,010
--------------------------------------------------------------------------------
Average Credit Quality AA
--------------------------------------------------------------------------------
Average Maturity 8.8 years
--------------------------------------------------------------------------------
Average Duration 5.0 years
--------------------------------------------------------------------------------
Environment
Bond prices fluctuated considerably over the past six months, causing sharp,
sudden swings in interest rates. The period also was characterized by a yield
curve in version two-year interest rates actually were higher than 30-year
interest rates. During the period, the yield on the two-year U.S. Treasury rose
0.89% to 6.67%, while the 30-year U.S. Treasury yield fell 0.20% to 5.96%.
30-year U.S. Treasuries benefited from a supply/demand imbalance that was unique
to that sector and maturity range. As January 2000 came to a close, the Treasury
announced plans to buy back as much as $30 billion in long-term U.S. Treasuries
and also reduce the size of future auctions. The announcement coincided with the
purchase of a huge block of Treasuries in the same maturity range by one of the
worlds largest money managers. Investors became concerned that a shortage would
develop, igniting a rally that sent the yield on the 30-year U.S. Treasury to
5.84% from a high of nearly 6.75% during the fiscal period.
In contrast, interest rates in all other maturities rose, forcing bond prices
lower. No longer concerned with Y2K, investors turned their attention to the
economys continued explosive growth and its implications for future inflation
and interest rate hikes. Stock prices soared for much of the period, enhancing
the wealth effect and adding to the economys momentum. For the most part,
however, inflation was well-contained. Commodity and oil prices rose, but with
the exception of oil prices, cost increases were not passed along to consumers.
3
<PAGE>
--------------------------------------------------------------------------------
EVERGREEN
Select Fixed Income Fund II
--------------------------------------------------------------------------------
Portfolio Manager Interview
Extraordinary demand and expectations of a continually lower supply of 30-year
U.S. Treasuries drove prices higher and yields lower. At the same time, demand
for income-oriented bonds fell, forcing their prices lower and yields higher.
The performance disparity that occurred between 30-year U.S.
Treasuries and income-oriented bonds changed yield relationships between the
sectors. Although 30-year U.S. Treasuries outperformed income-oriented
securities, the changes in their respective yields laid the groundwork for
longer-term opportunity. By the end of the period, many mortgage-backed
securities, corporate bonds and U.S. agency securities had begun to provide
yield advantages over U.S. Treasuries that were attractive by historical
standards.
--------------------------------------------------------------------------------
PORTFOLIO QUALITY
--------------------------------------------------------------------------------
(as a percentage of 04/30/2000 portfolio assets)
[GRAPH]
AAA 77.8%
AA 1.8%
A 10.6%
BBB 6.0%
BB 1.7%
B 2.1%
Strategy
We under-weighted the Fund relative to its benchmark in shorter-term U.S.
Treasuries and over-weighted the Funds position in the 30-year U.S. Treasury
bond. This structure benefited performance when longer-term U.S. Treasuries
rallied. The gains were offset somewhat by the Funds limited position in
corporate bonds and more substantial holdings in mortgage-backed securities. We
believe this was a temporary occurrence. We think the Funds positions in
income-oriented bonds represent attractive relative value; and that over the
longer term they will contribute significantly to the Funds returns.
--------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
--------------------------------------------------------------------------------
(as a percentage of 04/30/2000 portfolio assets)
[GRAPH]
Mortgage-Backed Securities 40.0%
U.S. Treasury Obligations 18.1%
Asset-Backed Securities 15.3%
Corporate Bonds 13.6%
Yankee Obligations 5.9%
Repurchase Agreements 5.3%
Collateralized Mortgage Obligations 1.8%
Outlook
We think 30-year U.S. Treasuries could continue to benefit from their unique
situation at least over the near-term; and that bond prices will continue to
fluctuate until the economy begins to cool. In our opinion, three factors could
slow economic growth: further tightening moves by the Federal Reserve Board,
moderating gains and/or continued significant volatility in stock prices and a
dramatic rise in oil and gas prices. We believe the future course of interest
rates depends on developments in each of these areas. The tug-of-war between
opposing forces within the areas makes the outcome too close to call.
Given the uncertainty with interest rates, we intend to build returns by
focusing on the attractive yield advantages offered by income-oriented
securities, particularly mortgage-backed securities. The price fluctuations that
occurred over the past few months laid the groundwork for opportunity in the
future. As an asset class, we think income-oriented securities offer attractive
relative value. We believe the yield advantages they offer over U.S. Treasuries
could begin to narrow in the months ahead, causing mortgage-backed securities
and corporate bonds to outperform their U.S. government counterparts. Even if
yield advantages do not return to their historical norms, we believe the
significant increase in yield associated with income-oriented securities should
generate solid future returns.
4
<PAGE>
EVERGREEN
Select Fixed Income Fund II
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended October 31,
April 30, 2000 --------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995 (b)
<S> <C> <C> <C> <C> <C> <C>
CLASS I (a)
Net asset value,
beginning of period $ 12.38 $ 13.15 $ 13.11 $ 12.89 $ 13.71 $ 12.50
------- ------- ------- ------- ------- -------
Income from investment
operations
Net investment income 0.43 0.78 0.79 0.83 0.77 0.81
Net realized and
unrealized gains or
losses on securities,
interest rate swaps
and futures contracts (0.29) (0.66) 0.13 0.21 (0.16) 1.14
------- ------- ------- ------- ------- -------
Total from investment
operations 0.14 0.12 0.92 1.04 0.61 1.95
------- ------- ------- ------- ------- -------
Distributions to
shareholders from
Net investment income (0.44) (0.77) (0.82) (0.82) (0.77) (0.74)
Net realized gains 0 (0.12) (0.06) 0 (0.66) 0
------- ------- ------- ------- ------- -------
Total distributions to
shareholders (0.44) (0.89) (0.88) (0.82) (1.43) (0.74)
------- ------- ------- ------- ------- -------
Net asset value, end of
period $ 12.08 $ 12.38 $ 13.15 $ 13.11 $ 12.89 $ 13.71
------- ------- ------- ------- ------- -------
Total return 1.12% 0.97% 7.21% 8.39% 4.87% 15.90%
Ratios and supplemental
data
Net assets, end of
period (thousands) $66,864 $77,470 $83,372 $61,738 $49,962 $34,053
Ratios to average net
assets
Expenses++ 0.11%+ 0.10% 0.10% 0.15% 0.17% 0.22%+
Net investment income 6.81%+ 6.16% 6.08% 6.52% 6.22% 6.75%+
Portfolio turnover rate 103% 209% 137% 194% 226% 302%
</TABLE>
<TABLE>
<CAPTION>
Six Months
Ended Period
April 30, 2000 Ended
(Unaudited) October 31, 1999 (c)
<S> <C> <C>
CLASS IS
Net asset value, beginning of period $12.38 $12.25
------ ------
Income from investment operations
Net investment income 0.38 0.03
Net realized and unrealized loss on
securities and futures contracts (0.27) 0.10
------ ------
Total from investment operations 0.11 0.13
------ ------
Distributions to shareholders from
Net investment income (0.42) 0
------ ------
Net asset value, end of period $12.07 $12.38
------ ------
Total return 0.90% 1.06%
Ratios and supplemental data
Net assets, end of period (thousands) $ 1 $ 1
Ratios to average net assets
Expenses++ 0.43%+ 0.39%+
Net investment income 7.47%+ 6.86%+
Portfolio turnover rate 103% 209%
</TABLE>
(a) Effective October 18, 1999, shareholders of Mentor Fixed Income Portfolio
became owners of that number of full and fractional shares of Class I of
Evergreen Select Fixed Income Fund II.
(b) For the period from December 6, 1994 (commencement of class operations) to
October 31, 1995.
(c) For the period from October 18, 1999 (commencement of class operations) to
October 31, 1999.
++ The ratio of expenses to average net assets excludes expense reductions.
+ Annualized.
See Notes to Financial Statements.
5
<PAGE>
EVERGREEN
Select Fixed Income Fund II
Schedule of Investments
April 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
ASSET-BACKED SECURITIES - 15.1% (d)
$ 421,701 Advanta Home Equity Loan Trust,
Ser. 1993-2, Class A2,
6.15%, 10/25/2009.................................... $ 407,458
141,424 Advanta Mtge. Loan Trust,
Ser. 1993-3, Class A3,
4.75%, 11/25/2009.................................... 140,050
AFG Receivables Trust:
437,825 Ser. 1997-A, Class A,
6.35%, 10/15/2002.................................... 436,010
108,246 Ser. 1997-B, Class B,
6.40%, 2/15/2003..................................... 107,627
216,493 Ser. 1997-B, Class C,
7.00%, 2/15/2003..................................... 215,654
1,000,000 Capital One Master Trust,
Ser. 1998-4, Class A,
5.43%, 1/15/2007..................................... 935,505
980,000 Credit Suisse First Boston Mtge. Secs. Corp.,
Ser. 1996-2, Class A6,
7.18%, 2/25/2018..................................... 937,590
711,000 EQCC Home Equity Loan Trust,
Ser. 1998-2, Class A6F,
6.159%, 4/15/2008.................................... 679,464
600,000 GE Capital Mtge. Funding Corp.,
Ser. 1999-HE3, Class A3,
7.11%, 7/25/2014..................................... 589,797
1,800,000 J.C. Penney Master Credit Card Trust,
Ser. E, Class A,
5.50%, 6/15/2007..................................... 1,693,341
994,628 Northwest Airlines Corp.,
Ser. 1999-2, Class B,
7.95%, 3/1/2015...................................... 1,011,124
Union Acceptance Corp.:
1,462,000 Ser. 1997-A, Class A3,
6.48%, 5/10/2004..................................... 1,439,112
1,500,000 Ser. 1998-D, Class A3,
5.75%, 6/9/2003...................................... 1,490,333
-----------
Total Asset-Backed Securities
(cost $10,316,688)................................... 10,083,065
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS - 1.8% (d)
238,778 Bank America Mtge. Secs., Inc.,
Ser. 1998-3, Class 2M,
6.50%, 7/25/2013..................................... 220,658
1,012,839 Prudential Home Mtge. Security,
Ser. 1996-3, Class M,
6.75%, 3/25/2011..................................... 961,797
-----------
Total Collateralized Mortgage Obligations
(cost $1,259,060).................................... 1,182,455
-----------
CORPORATE BONDS - 13.4%
Airlines - 1.3%
1,000,000 Delta Air Lines, Inc.,
8.30%, 12/15/2029.................................... 881,117
-----------
Cable/Other Video Distribution - 2.3%
500,000 Century Communications Corp.,
9.50%, 8/15/2000..................................... 503,755
200,000 Charter Communications,
8.625%, 4/1/2009..................................... 175,750
1,000,000 Time Warner, Inc.,
6.875%, 6/15/2018.................................... 876,573
-----------
1,556,078
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Communication Systems &
Services - 0.3%
$ 250,000 Nextel Communications, Inc.,
Step Bond,
0.00%, 9/15/2007 (a)................................ $ 190,625
-----------
Electronic Equipment & Services - 0.3%
200,000 Amkor Technology, Inc.,
9.25%, 5/1/2006..................................... 197,000
-----------
Finance & Insurance - 2.9%
1,000,000 ERAC USA Fin. Co.,
7.95%, 12/15/2009................................... 952,044
1,000,000 General Electric Capital Corp.,
7.25%, 2/1/2005..................................... 995,485
-----------
1,947,529
-----------
Oil/Energy - 1.9%
100,000 Eott Energy Partners LP,
11.00%, 10/1/2009................................... 100,750
200,000 Pride Petroleum Svcs., Inc.,
9.375%, 5/1/2007.................................... 197,250
1,000,000 Williams Gas Pipelines Co.,
7.375%, 11/15/2006.................................. 962,487
-----------
1,260,487
-----------
Printing, Publishing, Broadcasting &
Entertainment - 0.8%
550,000 Times Mirror Co.,
7.45%, 10/15/2009................................... 535,495
-----------
Retailing & Wholesale - 0.3%
200,000 K-Mart Corp.,
8.375%, 12/1/2004................................... 194,083
-----------
Telecommunication Services &
Equipment - 0.5%
150,000 Level 3 Communications, Inc.,
11.00%, 3/15/2008................................... 145,875
200,000 McLeod USA, Inc.,
9.25%, 7/15/2007.................................... 192,000
-----------
337,875
-----------
Utilities - Electric - 2.8%
900,000 Public Svcs. Electric & Gas Co.,
6.50%, 6/1/2000..................................... 899,682
1,000,000 Southern CA Edison Co.,
7.625%, 1/15/2010................................... 984,485
-----------
1,884,167
-----------
Total Corporate Bonds
(cost $9,331,826)................................... 8,984,456
-----------
MORTGAGE-BACKED SECURITIES - 39.5%
1,261,354 FHLMC,
8.50%, 9/1/2020..................................... 1,286,429
FNMA:
2,028,843 6.00%, 8/1/2006..................................... 1,945,397
1,302,723 6.50%, 11/1/2014.................................... 1,248,061
3,013,949 7.00%, 8/1/2029..................................... 2,884,831
3,767,635 7.50%, 10/1/2029.................................... 3,690,889
1,498,126 8.00%, 10/1/2014 - 11/1/2014........................ 1,514,426
5,085,532 8.50%, 5/1/2000 - 4/1/2025.......................... 5,168,915
</TABLE>
6
<PAGE>
EVERGREEN
Select Fixed Income Fund II
Schedule of Investments(continued)
April 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MORTGAGE-BACKED SECURITIES - continued
GNMA:
$3,857,070 6.50%, 4/15/2029..................................... $ 3,617,546
2,121,581 7.00%, 4/15/2024..................................... 2,047,580
2,031,798 7.50%, 5/15/2029 - 10/15/2029........................ 1,999,371
1,016,000 8.00%, 4/15/2030..................................... 1,019,993
-----------
Total Mortgage-Backed Securities
(cost $26,936,022)................................... 26,423,438
-----------
U.S. TREASURY OBLIGATIONS - 17.9%
U.S. Treasury Bonds:
5,200,000 5.25%, 2/15/2029..................................... 4,571,128
1,285,000 6.00%, 2/15/2026..................................... 1,250,065
1,388,000 7.25%, 5/15/2016..................................... 1,517,692
1,140,000 9.25%, 2/15/2016..................................... 1,468,462
3,500,000 U.S. Treasury Notes,
4.75%, 11/15/2008.................................... 3,127,033
-----------
Total U.S. Treasury Obligations
(cost $11,658,121)................................... 11,934,380
-----------
YANKEE OBLIGATIONS - 5.9%
Cable/Other Video Distribution - 0.9%
400,000 Rogers Cablesystems Ltd.,
Ser. B,
10.00%, 3/15/2005.................................... 418,000
200,000 Telewest Communications, Plc,
Step Bond,
0.00%, 10/1/2007 (a)................................. 189,000
-----------
607,000
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
YANKEE OBLIGATIONS - continued
Diversified Companies - 1.3%
$1,000,000 Rothmans Nederland Holdings BV,
6.875%, 5/6/2008................................ $ 854,637
-----------
Finance & Insurance - 1.5%
1,000,000 Principal Finl. Group, Australia,
8.20%, 8/15/2009 (b)............................ 999,327
-----------
Telecommunication Services &
Equipment - 2.2%
1,500,000 Cable & Wireless Communications,
6.625%, 3/6/2005................................ 1,467,973
-----------
Total Yankee Obligations
(cost $4,157,066)............................... 3,928,937
-----------
REPURCHASE AGREEMENT - 5.2%
3,498,992 State Street Bank & Trust Co.,
5.67%, dated 4/28/2000, due
5/1/2000, maturity value $3,500,645
(cost $3,498,992) (c)........................... 3,498,992
-----------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -
(cost $67,157,775)..................... 98.8% 66,035,723
Other Assets and
Liabilities - net...................... 1.2 829,287
----- -----------
Net Assets.............................. 100.0% $66,865,010
===== ===========
</TABLE>
(a) Security initially issued in zero coupon form, which converts to coupon
form at a specified rate and date. An effective interest rate is applied to
recognize interest income daily for the bond. This rate is based on total
expected interest to be earned over the life of the bond, which consists of
the aggregate coupon interest payments and discount at acquisition. The
rate shown is the stated rate at the current period end.
(b) Security that may be resold to "qualified institutional buyers" under Rule
144A of the Securities Act of 1933. This security has been determined to be
liquid under guidelines established by the Board of Trustees.
(c) Collateralized by $3,510,000 FNMA, 6.195%, 12/27/2000; value including ac-
crued interest - $3,569,719.
(d) The average maturity may be shorter than stated due to accelerated interim
principal payments.
Summary of Abbreviations:
FHLMC Federal Home Loan Mortgage Corp.
FNMA Federal National Mortgage Association
GNMA Government National Mortgage Association
See Notes to Financial Statements.
7
<PAGE>
EVERGREEN
Select Fixed Income Fund II
Statement of Assets and Liabilities
April 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Identified cost of securities.................................... $67,157,775
Net unrealized losses on securities.............................. (1,122,052)
-------------------------------------------------------------------------------
Market value of securities....................................... 66,035,723
Receivable for securities sold................................... 24,081
Receivable for Fund shares sold.................................. 6,123
Interest receivable.............................................. 805,939
Prepaid expenses and other assets................................ 66,047
-------------------------------------------------------------------------------
Total assets.................................................... 66,937,913
-------------------------------------------------------------------------------
Liabilities
Payable for Fund shares redeemed................................. 53,000
Accrued expenses and other liabilities........................... 19,903
-------------------------------------------------------------------------------
Total liabilities............................................... 72,903
-------------------------------------------------------------------------------
Net assets........................................................ $66,865,010
-------------------------------------------------------------------------------
Net assets represented by
Paid-in capital.................................................. $71,305,167
Undistributed net investment income.............................. 186,006
Accumulated net realized loss on securities and futures
contracts....................................................... (3,504,111)
Net unrealized loss on securities................................ (1,122,052)
-------------------------------------------------------------------------------
Total net assets.................................................. $66,865,010
-------------------------------------------------------------------------------
Net assets consists of
Class I.......................................................... $66,863,996
Class IS......................................................... 1,014
-------------------------------------------------------------------------------
Total net assets.................................................. $66,865,010
-------------------------------------------------------------------------------
Shares outstanding
Class I.......................................................... 5,536,082
Class IS......................................................... 84
-------------------------------------------------------------------------------
Net asset value per share
Class I.......................................................... $ 12.08
-------------------------------------------------------------------------------
Class IS......................................................... $ 12.07
-------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
EVERGREEN
Select Fixed Income Fund II
Statement of Operations
Six Months Ended April 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income
Interest......................................................... $ 2,482,138
-------------------------------------------------------------------------------
Expenses
Transfer agent fee............................................... 9,287
Trustees' fees and expenses...................................... 903
Printing and postage expenses.................................... 2,902
Custodian fee.................................................... 14,210
Registration and filing fees..................................... 2,099
Professional fees................................................ 8,840
Distribution Plan expenses....................................... 2
Other............................................................ 901
-------------------------------------------------------------------------------
Total expenses.................................................. 39,144
Less: Expense reductions........................................ (3,212)
-------------------------------------------------------------------------------
Net expenses.................................................... 35,932
-------------------------------------------------------------------------------
Net investment income............................................ 2,446,206
-------------------------------------------------------------------------------
Net realized and unrealized gains or losses on securities and
futures contracts
Net realized losses on:
Securities...................................................... (1,157,422)
Futures contracts............................................... (159,172)
-------------------------------------------------------------------------------
Net realized losses on securities and futures contracts.......... (1,316,594)
-------------------------------------------------------------------------------
Net change in unrealized gains or losses on securities and
futures contracts............................................... (369,832)
-------------------------------------------------------------------------------
Net realized and unrealized gains or losses on securities and
futures contracts............................................... (1,686,426)
-------------------------------------------------------------------------------
Net increase in net assets resulting from operations............. $ 759,780
-------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
EVERGREEN
Select Fixed Income Fund II
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Ended
April 30, 2000 Year Ended
(Unaudited) October 31, 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 2,446,206 $ 5,058,629
Net realized losses on securities and
futures contracts (1,316,594) (2,172,496)
Net change in unrealized gains or losses on
securities and futures contract (369,832) (2,191,118)
--------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 759,780 695,015
--------------------------------------------------------------------------------
Distributions to shareholders from
Net investment income
Class I (a) (2,482,506) (5,016,287)
Class IS (35) 0
Net realized gains
Class I (a) 0 (798,581)
Class IS 0 0
--------------------------------------------------------------------------------
Total distributions to shareholders (2,482,541) (5,814,868)
--------------------------------------------------------------------------------
Capital share transactions
Proceeds from shares sold 3,818,144 15,646,360
Payment for shares redeemed (14,915,216) (20,614,478)
Net asset value of shares issued in
reinvestment of distributions 2,243,570 4,156,912
--------------------------------------------------------------------------------
Net decrease in net assets resulting from
capital share transactions (8,853,502) (811,206)
--------------------------------------------------------------------------------
Total decrease in net assets (10,576,263) (5,931,059)
Net assets
Beginning of period 77,441,273 83,372,332
--------------------------------------------------------------------------------
End of period $ 66,865,010 $ 77,441,273
--------------------------------------------------------------------------------
Undistributed net investment income $ 186,006 $ 222,341
--------------------------------------------------------------------------------
</TABLE>
(a) Effective October 18, 1999 shareholders of Mentor Fixed Income Portfolio
became owners of that number of full and fractional shares of Class I of
Evergreen Select Fixed Income Fund II.
See Notes to Financial Statements.
10
<PAGE>
Notes to Financial Statements (Unaudited)
1. ORGANIZATION
Evergreen Select Fixed Income Fund II (the "Fund"), is a diversified series of
Evergreen Select Fixed Income Trust (the "Trust"), a Delaware business trust
organized on September 18, 1997. The Trust is an open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act").
The Fund offers Institutional shares ("Class I") and Institutional Service
shares ("Class IS"). Each class of shares is sold without front-end sales
charge or contingent deferred sales charge. Class IS shares pay an ongoing
service fee.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently fol-
lowed by the Fund in the preparation of its financial statements. The policies
are in conformity with generally accepted accounting principles, which require
management to make estimates and assumptions that affect amounts reported here-
in. Actual results could differ from these estimates.
A. Valuation of Securities
Corporate bonds, U.S. government obligations, mortgage and other asset-backed
securities and other fixed- income securities are valued at prices provided by
an independent pricing service. In determining a price for normal institution-
al-size transactions, the pricing service uses methods based on market transac-
tions for comparable securities and analysis of various relationships between
similar securities which are generally recognized by institutional traders. Se-
curities for which valuations are not available from an independent pricing
service may be valued by brokers which use prices provided by market makers or
estimates of market value obtained from yield data relating to investments or
securities with similar characteristics. Otherwise, securities for which valua-
tions are not readily available from an independent pricing service (including
restricted securities) are valued at fair value as determined in good faith ac-
cording to procedures established by the Board of Trustees.
Mutual fund shares held are valued at the net assets value of each mutual fund.
Short-term investments with remaining maturities of 60 days or less are carried
at amortized cost, which approximates market value.
B. Repurchase Agreements
The Fund may invest in repurchase agreements. Securities pledged as collateral
for repurchase agreements are held in a segregated account by the custodian on
the Fund's behalf. Collateral for certain tri-party repurchase agreements is
held at the counterparty's custodian in a segregated account for the benefit of
the Fund and the counterparty. The Fund monitors the adequacy of the collateral
daily and will require the seller to provide additional collateral in the event
the market value of the securities pledged falls below the carrying value of
the repurchase agreement, including accrued interest. The Fund will only enter
into repurchase agreements with banks and other financial institutions, which
are deemed by the investment advisor to be creditworthy pursuant to guidelines
established by the Board of Trustees.
C. Futures Contracts
In order to gain exposure to or protect against changes in security values, the
Fund may buy and sell futures contracts.
The initial margin deposited with a broker when entering into a futures trans-
action is subsequently adjusted by daily payments or receipts ("variation mar-
gin") as the value of the contract changes. Such changes are recorded as
unrealized gains or losses. Realized gains or losses are recognized on closing
the contract.
Risks of entering into futures contracts include (i) the possibility of an il-
liquid market for the contract, (ii) the possibility that a change in the value
of the contract may not correlate with changes in the value of the underlying
instrument or index, and (iii) the credit risk that the other party will not
fulfill their obligations
11
<PAGE>
Notes to Financial Statements (Unaudited)(continued)
under the contract. Futures contracts also involve elements of market risk in
excess of the amount reflected in the Statement of Assets and Liabilities.
D. When-issued and Delayed Delivery Transactions
The Fund records when-issued or delayed delivery transactions on the trade date
and will segregate with the custodian qualifying assets having a value suffi-
cient to make payment for the securities purchased. Securities purchased on a
when-issued or delayed delivery basis are marked-to-market daily and the Fund
begins earning interest on the settlement date. Losses may arise due to changes
in the market value of the underlying securities or if the counterparty does
not perform under the contract.
E. Securities Lending
In order to generate income and to offset expenses, the Fund may lend portfolio
securities to brokers, dealers and other qualified financial organizations. The
Fund's investment advisor will monitor the creditworthiness of such borrowers.
Loans of securities may not exceed 33 1/3% of the Fund's total assets and will
be collateralized by cash, letters of credit or U.S. Government securities that
are maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities, including accrued interest. The Fund
monitors the adequacy of the collateral daily and will require the borrower to
provide additional collateral in the event the value of the collateral falls
below 100% of the market value of the securities on loan. While such securities
are on loan, the borrower will pay the Fund any income accruing thereon, and
the Fund may invest any cash collateral received in portfolio securities,
thereby increasing its return. The Fund will have the right to call any such
loan and obtain the securities loaned at any time on five days' notice. Any
gain or loss in the market price of the loaned securities, which occurs during
the term of the loan, would affect the Fund and its investors. The Fund may pay
fees in connection with such loans.
F. Mortgage Dollar Roll Transactions
The Fund may engage in mortgage dollar roll transactions with respect to mort-
gage-backed securities issued by GNMA, FNMA and FHLMC. In a mortgage dollar
roll transaction, the Fund sells a mortgage-backed security to a financial in-
stitution, such as a bank or broker/dealer and simultaneously agrees to repur-
chase a substantially similar (i.e. same type, coupon and maturity) security
from the institution at a later date at an agreed upon price. The mortgage-
backed securities that are repurchased will bear the same interest rate as
those sold, but generally will be collateralized by different pools of mort-
gages with different prepayment histories. During the roll period the Fund
foregoes principal and interest paid on the securities. The Fund receives com-
pensation from the interest earned on the cash proceeds of the initial sale and
in the form of a fee which is recorded as deferred income and amortized to in-
come over the roll period, or alternatively, a lower price for the security
upon its repurchase. Mortgage dollar rolls may be renewed with a new purchase
and repurchase price and cash settlement made at each renewal without physical
delivery of the securities subject to the contract.
G. Security Transactions and Investment Income
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premiums.
H. Federal Taxes
The Fund has qualified and intends to continue to qualify as a regulated in-
vestment company under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Fund will not incur any federal income tax liability since
it is expected to distribute all of its net investment company taxable income
and net capital gains, if any, to its shareholders. The Fund also intends to
avoid any excise tax liability by making the required distributions under the
Code. Accordingly, no provision for federal taxes is required. 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.
12
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
I. Distributions
Distributions from net investment income for the Fund are declared daily and
paid quarterly. Distributions from net realized capital gains, if any, are paid
at least annually. Distributions to shareholders are recorded at the close of
business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in accor-
dance with income tax regulations, which may differ from generally accepted ac-
counting principles.
J. Class Allocations
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the rela-
tive net assets of each class. Currently, class specific expenses are limited
to expenses incurred under the Distribution Plans for Class IS.
3. INVESTMENT ADVISORY AGREEMENT AND OTHER AFFILIATED TRANSACTIONS
Mentor Investment Advisors, LLC ("Mentor Advisors"), a subsidiary of First
Union, is the investment advisor to the Fund. Mentor Advisors receives no com-
pensation for its services.
In order to limit the annual operating expenses of the Fund, Mentor Advisors
may bear certain expenses incurred in connection with the operation of the
Fund.
Evergreen Investment Services ("EIS"), an indirect, wholly owned subsidiary of
First Union National Bank ("FUNB"), is the administrator to the Fund. As admin-
istrator, EIS provides the Fund with facilities, equipment and personnel. EIS
receives no compensation for its services.
Evergreen Service Company ("ESC"), an indirect, wholly owned subsidiary of
FUNB, is the transfer and dividend disbursing agent for the Fund.
4. DISTRIBUTION PLAN
Evergreen Distributor, Inc. ("EDI"), a wholly owned subsidiary of the BISYS
Group, Inc., serves as principal underwriter to the Fund.
The Fund has adopted a Distribution Plan, as allowed by Rule 12b-1 of the 1940
Act, for its Class IS shares. Distribution plans permit a Fund to compensate
its principal underwriter for costs related to selling shares of the Fund and
for various other services. These costs, which consist primarily of commissions
and service fees to broker-dealers who sell shares of the Fund, are paid by the
Fund through "Distribution Plan expenses". Under the Distribution Plan, Class
IS shares incur distributions fees equal to 0.25% of the average daily net as-
sets of the class, all of which is used to pay for shareholder service fees.
Distribution Plan expenses are calculated daily and paid at least quarterly.
The Distribution Plan may be terminated at any time by vote of the Independent
Trustees or by vote of a majority of the outstanding voting shares of Class IS.
13
<PAGE>
Notes to Financial Statements(Unaudited)(continued)
5. CAPITAL SHARE TRANSACTIONS
The Fund has an unlimited number of shares of beneficial interest with $0.001
par value authorized. Shares of beneficial interest of the Fund are currently
divided into Class I and Class IS. Transactions in shares of the Fund were as
follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
April 30, 2000 (Unaudited) October 31, 1999
---------------------------- ------------------------
Shares Amount Shares Amount
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class I (a)
Shares sold 311,698 $ 3,818,144 1,220,609 $ 15,645,360
Shares redeemed (1,216,724) (14,915,216) (1,634,506) (20,614,478)
Shares issued in
reinvestment of
distributions 184,957 2,243,535 327,679 4,156,912
--------------------------------------------------------------------------------
Net decrease (720,069) (8,853,537) (86,218) (812,206)
--------------------------------------------------------------------------------
Class IS (b)
Shares sold 0 0 82 1,000
Shares redeemed 0 0 0 0
Shares issued in
reinvestment of
distributions 2 35 0 0
--------------------------------------------------------------------------------
Net increase 2 35 82 1,000
--------------------------------------------------------------------------------
Net decrease $ (8,853,502) $ (811,206)
--------------------------------------------------------------------------------
</TABLE>
(a) Effective October 18, 1999 shareholders of Mentor Fixed Income Portfolio
became owners of that number of full and fractional shares of class I of
Evergreen Select Fixed Income Fund II
(b) For the period from October 18, 1999 (commencement of class operations) to
October 31, 1999.
6. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities and mortgage dollar roll transactions) were $70,068,323
and $75,142,117 for the six months ended April 30, 2000.
The Fund loaned securities during the six months ended April 30, 2000 to cer-
tain brokers who paid the Fund a negotiated lenders' fee. These fees are in-
cluded in interest income. During the six months ended April 30, 2000, the Fund
earned $2,994 in income from securities lending. As of April 30, 2000, the Fund
had no securities on loan.
During the six months ended April 30, 2000, the Fund entered into mortgage dol-
lar roll transactions. During the six months ended April 30, 2000, the Fund
earned income on mortgage dollar roll transactions of $2,388 which is included
in interest income. At April 30, 2000, the Fund had no outstanding mortgage
dollar roll transactions.
As of October 31, 1999, the Fund had capital loss carryovers for federal income
tax purposes of $2,080,294 which expire on October 31, 2007.
7. EXPENSE REDUCTIONS
The Fund has entered into expense offset arrangements with ESC and their custo-
dian whereby credits realized as a result of uninvested cash balances were used
to reduce a portion of the Fund's related expenses. The assets deposited with
ESC and the custodian under these expense offset arrangements could have been
invested in income-producing assets. For the six months ended April 30, 2000,
the Fund earned $3,212 in expense reductions representing 0.01% of net assets.
8. DEFERRED TRUSTEES' FEES
Each Independent Trustee of each Fund may defer any or all compensation related
to performance of their duties as Trustees. The Trustees' deferred balances are
allocated to deferral accounts, which are included in the accrued expenses for
the Fund. The investment performance of the deferral accounts are based on the
investment performance of certain Evergreen Funds. Any gains earned or losses
incurred in the deferral accounts are reported in the Fund's Trustees' fees and
expenses. At the election of the Trustees, the deferral account will be paid
either in one lump sum or in quarterly installments for up to ten years.
14
<PAGE>
Notes to Financial Statements(Unaudited)(continued)
9. FINANCING AGREEMENT
On August 6, 1999, the Fund became party to a credit agreement between all of
the Evergreen Funds and a group of banks (the "Lenders"). Under this agreement,
the Lenders provide an unsecured revolving credit commitment in the aggregate
amount of $1.050 billion. The credit facility is allocated, under the terms of
the financing agreement, among the Lenders. The credit facility is accessed by
the Fund for temporary or emergency purposes to fund the redemption of their
shares or for general working capital purposes as permitted by the Fund's bor-
rowing restrictions. Borrowings under this facility bear interest at 0.75% per
annum above the Federal Funds rate (1.50% per annum above the Federal Funds
rate during the period from and including December 1, 1999 through and includ-
ing January 31, 2000). A commitment fee of 0.10% per annum is incurred on the
average daily unused portion of the revolving credit commitment. The commitment
fee is allocated to all funds. For its assistance in arranging this financing
agreement, First Union Capital Markets Corp. was paid a one-time arrangement
fee of $250,000. State Street serves as paying agent for the funds and as pay-
ing agent is entitled to a fee of $20,000 per annum which is allocated to all
the funds.
During the six months ended April 30, 2000, the Fund had no borrowings under
this agreement.
15
<PAGE>
Evergreen Select Funds(*)
Money Market
Money Market Fund
Treasury Money Market Fund
100% Treasury Money Market Fund
Municipal Money Market Fund
U.S. Government Money Market Fund
Municipal Fixed Income
Intermediate Term Municipal Bond Fund
Taxable Fixed Income
Fixed Income Fund II
International Bond Fund
Total Return Bond Fund
Income Plus Fund
Core Bond Fund
Fixed Income Fund
Adjustable Rate Fund
Limited Duration Fund
Growth and Income/Balanced
Balanced Fund
Growth
Special Equity Fund
Small Cap Growth Fund
Strategic Growth Fund
Core Equity Fund
Equity Index Fund
Strategic Value Fund
* Minimum investment in an Evergreen Select Fund is $1,000,000.
61680 555033 6/2000
[LOGO OF EVERGREEN FUNDS]
-----------------
PRSRT STD
200 Berkeley Street U.S. POSTAGE
Boston,MA 02116 PAID
HUDSON, MA
PERMIT NO. 19
-----------------
