<PAGE>
Semiannual Report
as of March 31, 2000
Evergreen
Tax-Free High Income Fund
[LOGO OF EVERGREEN FUNDS]
<PAGE>
--------------------------------------------------------------------------------
Table of Contents
--------------------------------------------------------------------------------
Letter to Shareholders .................................................... 1
Evergreen Tax-Free High Income Fund
(formerly the Davis Tax-Free High Income Fund)
Fund at a Glance ..................................................... 2
Portfolio Manager Interview .......................................... 3
Financial Highlights ...................................................... 5
Schedule of Investments ................................................... 7
Statement of Assets and Liabilities ....................................... 15
Statement of Operations ................................................... 16
Statements of Changes in Net Assets ....................................... 17
Notes to Financial Statements ............................................. 18
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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: ARE 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
----------------------
May 2000
[PHOTO]
William M. Ennis
President and CEO
Dear Evergreen Shareholders,
We are pleased to provide the Evergreen Tax-Free High Income Fund semiannual
report, which covers the six-month period ended March 31, 2000.
U.S. Bond Markets Experience Volatility
The bond market environment 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 counteractive forces have caused the yield on the bellwether 30-year
Treasury bond to decrease 0.22%, while the 10-Year Treasury yield increased
approximately 0.10% by the end of the period. 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 should assist you in choosing 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.
1
<PAGE>
EVERGREEN
Tax-Free High Income Fund
Fund at a Glance as of March 31, 2000
Portfolio
Characteristics
---------------
(as of 3/31/2000)
Total Net Assets $340,775,932
--------------------------------------------------------------------------------
Average Credit Quality AA
--------------------------------------------------------------------------------
Effective Maturity 17.8 years
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE1
--------------------------------------------------------------------------------
[STYLE BOX]
Morningstars Style Box is based on a portfolio date as of 3/31/2000.
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
(1)Source: 2000 Morningstar, Inc.
(2)Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. The performance of each class may vary
based on differences in loads, fees and expenses paid by the shareholders
investing in each class. Performance includes the reinvestment of income
distributions and capital gain distributions.
Historical performance shown for classes A, C and Y prior to their inception is
based on the performance of Class B, the original class offered. These
historical returns for Classes A, C and Y have not been adjusted to eliminate
the effect of the higher 12b-1 fees applicable to Class B. These fees are 0.25%
for Class A and 1.00% for Classes B and C. Class Y does not pay a 12b-1 fee. If
actual 12b-1 fees applicable to Class A had been used, returns for Class A would
have been higher.
Funds that invest in high yield, lower-rated bonds may contain more risks due to
the increased possibility of default.
The Fund's yield will fluctuate, and there can be no guarantee that the Fund
will achieve its objective or any particular tax-exempt yield. Income may be
subject to alternative minimum tax.
All data is as of 3/31/2000 and subject to change.
--------------------------------------------------------------------------------
PERFORMANCE AND RETURNS2
--------------------------------------------------------------------------------
Portfolio Inception Date: 3/21/1985 Class A Class B Class C Class Y
Class Inception Date 12/1/1994 3/21/1985 8/18/1997 10/6/1997
--------------------------------------------------------------------------------
Average Annual Returns*
6 month with sales charge -3.09% -3.53% -0.67% n/a
--------------------------------------------------------------------------------
6 month w/o sales charge 1.72% 1.39% 1.29% 1.73%
--------------------------------------------------------------------------------
1 year with sales charge -4.84% -5.53% -2.76% n/a
--------------------------------------------------------------------------------
1 year w/o sales charge -0.11% -0.83% -0.88% -0.11%
--------------------------------------------------------------------------------
5 years 3.92% 3.81% 4.13% 4.56%
--------------------------------------------------------------------------------
10 years 5.60% 5.69% 5.69% 5.91%
--------------------------------------------------------------------------------
Maximum Sales Charge 4.75% 5.00% 2.00% n/a
--------------------------------------------------------------------------------
Front End CDSC CDSC
30-day SEC yield 6.20% 5.45% 5.43% 6.49%
--------------------------------------------------------------------------------
Taxable Equivalent Yield** 10.26% 9.02% 8.99% 10.75%
--------------------------------------------------------------------------------
6-month income dividends
per share $ 0.28 $ 0.25 $ 0.25 $ 0.29
--------------------------------------------------------------------------------
* Adjusted for maximum applicable sales charge.
** Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
The Fund's yield will fluctuate and there can be no guarantee the Fund will
achieve its investment objectives or any particular tax-exempt yield.
--------------------------------------------------------------------------------
LONG TERM GROWTH
--------------------------------------------------------------------------------
[GRAPH]
Tax-Free High Income B LB Muni CPI
--------------------------------------------------------------------------------
3/31/90 10,000 10,000 10,000
3/31/91 10,485 10,923 10,490
3/31/92 11,640 12,013 10,824
3/31/93 12,719 13,518 11,158
3/31/94 13,350 13,832 11,437
3/31/95 14,209 14,859 11,764
3/31/96 14,927 16,105 12,098
3/31/97 15,869 16,982 12,432
3/31/98 16,933 18,802 12,603
3/31/99 17,540 19,967 12,821
3/31/00 17,392 19,917 13,219
Comparison of a $10,000 investment in Evergreen Tax-Free High Income Fund, Class
B shares(2), versus a similar investment in the Lehman Brothers Municipal Bond
Index (LBMBI) and the Consumer Price Index (CPI).
The LBMBI is an unmanaged market index and 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.
2
<PAGE>
EVERGREEN
Tax-Free High Income Fund
Portfolio Manager Interview
Portfolio Management
--------------------
[PHOTO]
B. Clark Stamper
Tenure:June 1990
How did the Fund perform?
The Fund's Class B shares returned 1.39% for the six-month period ended March
31, 2000, outpacing the -1.32% average return produced by the tax-free high
income funds followed by Lipper, Inc. Lipper, Inc. is an independent monitor of
mutual fund performance. Performance is before the deduction of any applicable
sales charges. The Fund's benchmark, the Lehman Brothers Municipal Bond Index,
returned 2.12% for the same period. According to Lipper Inc., the Fund's Class B
shares ranked third out of a competitive group of 57 funds for the six-month
period and placed second out of 56 funds for the twelve-month period ended March
31, 2000. We attribute the strong relative performance to the Fund's emphasis on
bonds with larger coupons and lower price volatility.
--------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
--------------------------------------------------------------------------------
(as a percentage of 3/31/2000 portfolio assets)
[GRAPH]
Health Care -- 21.6%
Housing -- 17.0%
Community Development -- 7.5%
Industrial Development -- 6.7%
Education -- 6.6%
Transportation -- 6.3%
Residential Care -- 6.3%
General Obligation -- 5.3%
Water & Sewer -- 4.4%
Utility -- 2.2%
Other 16.1%
What was the investment environment like for high yield municipal bonds?
The environment was challenging. While 30-year "AAA"-rated municipal bond rates
fell, pushing prices modestly higher, the tax-exempt sector as a whole faced
redemptions. Higher-yielding, lower-rated municipal bonds incurred the heaviest
outflows, as investors seeking higher risk redirected their assets to the
loftier returns of stocks. As a result, the prices of lower-rated municipal
bonds fell, causing them to underperform their higher-rated counterparts. Yield
relationships also shifted. For most of the period, lower-rated bonds provided
minimal yield advantages over higher-rated bonds. As their prices fell, however,
lower-rated bonds began to offer increasing yield advantages over bonds with
higher-ratings.
3
<PAGE>
EVERGREEN
Tax-Free High Income Fund
Portfolio Manager Interview
With high yield prices falling, what strategies did you use to build the Fund's
return?
We managed the Fund based on our long-term objective of maximizing tax-free
income and total return relative to the level of risk undertaken. This approach
involves evaluating bonds based on individual security characteristics such as
coupon, price, call and sinking fund features, and then determining how a
security would perform in various market environments. We also focus on credit
characteristics and relative value. We actively manage the portfolio, adjusting
positions with changes in market conditions.
Our strategies focused on selecting bonds with higher than average coupons,
shorter maturities and shorter durations. Expressed in years, duration measures
a bond's sensitivity to interest rate changes. A shorter duration results in
less interest rate sensitivity and conversely, a longer duration produces
greater sensitivity to changes in interest rates. Investing in bonds with
shorter maturities and shorter durations helped preserve capital when bond
prices fell. A key part of this strategy was our emphasis on "cushion bonds",
bonds with higher than average coupons that trade at relatively low prices
because many investors expect them to be called away by the issuer long before
maturity. For various reasons, we did not think they would be called. Cushion
bonds benefited the Fund because their already lower prices provided a cushion
when prices fell. As prices fell and some of these bonds lost their cushion, we
sold them. We also reduced the Funds position in lower-quality bonds. Gradually,
we reinvested assets in higher-quality securities with greater potential for
price appreciation, such as "AAA"-rated bonds with lower prices and lower
coupons. We emphasized higher-rated bonds because, with lower-rated bonds
offering little yield advantage, higher-rated bonds offered better relative
value, in our opinion. The Fund's emphasis on higher-rated bonds benefited
performance during the period, when higher-rated bonds outperformed securities
with lower-ratings. As of March 31, 2000, the Fund's average quality was "AA".
Also, with over 300 holdings, the Fund remained extremely well-diversified.
--------------------------------------------------------------------------------
PORTFOLIO QUALITY
--------------------------------------------------------------------------------
[GRAPH]
AAA -- 56.7%
AA -- 13.2%
A -- 14.4%
BBB -- 5.1%
BB -- 0.9%
B -- 1.3%
Not Rated -- 8.4%
What is your outlook for the Fund over the next six months?
We expect higher-rated bonds to continue outperforming lower-rated securities,
with on-going increases in the yield advantages offered by lower-rated bonds. We
believe the economy could begin to cool off as a result of the stock market
remaining volatile and ultimately, equity prices falling. Typically, investors
demand greater yield advantages for riskier securities during periods of slower
economic growth. In that environment, we intend to maintain a disciplined
strategy of seeking attractive risk-adjusted returns. We expect to keep an
emphasis on quality, however we also may take advantage of shifting yield
relationships by adding some lower-rated positions if their yield advantages
present solid long-term value.
4
<PAGE>
EVERGREEN (formerly
Tax-Free High Income Fund the Davis
Financial Highlights Tax-Free
(For a share outstanding throughout each period) High Income
Fund)
<TABLE>
<CAPTION>
Six Months Ended Year Ended September 30,
March 31, 2000 -------------------------------------------------
(Unaudited) (b) 1999 1998 1997 1996 1995(a)
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Net asset value,
beginning of period $ 8.66 $ 9.19 $ 9.22 $ 9.15 $ 9.19 $ 8.90
-------- -------- -------- -------- -------- --------
Income from investment
operations
Net investment income 0.20 0.47 0.54 0.57 0.61 0.40
Net realized and
unrealized gains or
losses on securities (0.06) (0.52) 0.04 0.11 (0.05) 0.30
-------- -------- -------- -------- -------- --------
Total from investment
operations 0.14 (0.05) 0.58 0.68 0.56 0.70
-------- -------- -------- -------- -------- --------
Distributions to
shareholders from
Net investment income (0.28) (0.48) (0.56) (0.59) (0.54) (0.40)
Net realized gains 0 0 (0.05) (0.02) (0.06) (0.01)
-------- -------- -------- -------- -------- --------
Total distributions to
shareholders (0.28) (0.48) (0.61) (0.61) (0.60) (0.41)
-------- -------- -------- -------- -------- --------
Net asset value, end of
period $ 8.52 $ 8.66 $ 9.19 $ 9.22 $ 9.15 $ 9.19
-------- -------- -------- -------- -------- --------
Total return* 1.72% (0.61%) 6.53% 7.66% 6.33% 7.93%
Ratios and supplemental
data
Net assets, end of
period (thousands) $128,003 $174,441 $243,878 $ 92,020 $ 44,828 $ 45,461
Ratios to average net
assets
Expenses++ 1.06%+ 1.06% 1.04% 1.26% 1.36% 1.43%+
Net investment income 5.80%+ 5.30% 5.37% 6.60% 6.64% 5.95%+
Portfolio turnover rate 21% 73% 126% 113% 107% 128%
<CAPTION>
Six Months Ended Year Ended September 30,
March 31, 2000 -------------------------------------------------
(Unaudited) (b) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value,
beginning of period $ 8.63 $ 9.16 $ 9.19 $ 9.12 $ 9.17 $ 9.09
-------- -------- -------- -------- -------- --------
Income from investment
operations
Net investment income 0.21 0.41 0.49 0.53 0.54 0.48
Net realized and
unrealized gains or
losses on securities (0.09) (0.53) 0.02 0.08 (0.05) 0.10
-------- -------- -------- -------- -------- --------
Total from investment
operations 0.12 (0.12) 0.51 0.61 0.49 0.58
-------- -------- -------- -------- -------- --------
Distributions to
shareholders from
Net investment income (0.25) (0.41) (0.49) (0.52) (0.48) (0.49)
Net realized gains 0 0 (0.05) (0.02) (0.06) (0.01)
-------- -------- -------- -------- -------- --------
Total distributions to
shareholders (0.25) (0.41) (0.54) (0.54) (0.54) (0.50)
-------- -------- -------- -------- -------- --------
Net asset value, end of
period $ 8.50 $ 8.63 $ 9.16 $ 9.19 $ 9.12 $ 9.17
-------- -------- -------- -------- -------- --------
Total return* 1.39% (1.39%) 5.74% 6.89% 5.51% 6.64%
Ratios and supplemental
data
Net assets, end of
period (thousands) $181,710 $228,440 $255,300 $132,934 $109,488 $126,727
Ratios to average net
assets
Expenses++ 1.82%+ 1.82% 1.80% 2.02% 2.10% 2.14%
Net investment income 5.06%+ 4.54% 4.62% 5.87% 5.89% 5.37%
Portfolio turnover rate 21% 73% 126% 113% 107% 128%
</TABLE>
(a) For the period from December 1, 1994 (commencement of class operations) to
September 30, 1995.
(b) On March 17, 2000, Evergreen Tax-Free High Income Fund acquired the net as-
sets of the Davis Tax-Free High Income Fund. The Davis Tax-Free High Income
Fund was the accounting and performance survivor in this transaction. The
above financial highlights for the the periods prior to March 17, 2000 are
those of the Davis Tax-Free High Income Fund.
* Excluding applicable sales charges.
+ Annualized.
++ The ratio of expenses to average net assets includes fee waivers and ex-
cludes expense reductions.
See Notes to Financial Statements.
5
<PAGE>
EVERGREEN (formerly
Tax-Free High Income Fund the Davis
Financial Highlights Tax-Free
(For a share outstanding throughout each period) High Income
Fund)
<TABLE>
<CAPTION>
Six Months Ended Year Ended September 30,
March 31, 2000 ---------------------------
(Unaudited) (c) 1999 1998 1997 (a)
<S> <C> <C> <C> <C>
CLASS C SHARES
Net asset value, beginning of
period $ 8.69 $ 9.22 $ 9.25 $ 9.20
------- ------- ------- ------
Income from investment
operations
Net investment income 0.22 0.42 0.49 0.04
Net realized and unrealized
gains or losses on securities (0.11) (0.54) 0.03 0.03
------- ------- ------- ------
Total from investment operations 0.11 (0.12) 0.52 0.07
------- ------- ------- ------
Distributions to shareholders
from
Net investment income (0.25) (0.41) (0.50) (0.02)
Net realized gains 0 0 (0.05) 0
------- ------- ------- ------
Total distributions to
shareholders (0.25) (0.41) (0.55) (0.02)
------- ------- ------- ------
Net asset value, end of period $ 8.55 $ 8.69 $ 9.22 $ 9.25
------- ------- ------- ------
Total return* 1.29% (1.34%) 5.74% 0.77%
Ratios and supplemental data
Net assets, end of period
(thousands) $30,851 $41,642 $36,594 $2,430
Ratios to average net assets
Expenses++ 1.79%+ 1.83% 1.77% 2.03%+
Net investment income 5.08%+ 4.53% 4.65% 5.85%+
Portfolio turnover rate 21% 73% 126% 113%
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended September 30,
March 31, 2000 -----------------------------
(Unaudited) (c) 1999 1998 (b)
<S> <C> <C> <C>
CLASS Y SHARES
Net asset value, beginning of
period $8.66 $ 9.19 $ 9.20
----- ------------ -----------
Income from investment
operations
Net investment income 0.27 0.48 0.54
Net realized and unrealized
gains or losses on securities (0.13) (0.52) 0.03
----- ------------ -----------
Total from investment
operations 0.14 (0.04) 0.57
----- ------------ -----------
Distributions to shareholders
from
Net investment income (0.29) (0.49) (0.53)
Net realized gains 0 0 (0.05)
----- ------------ -----------
Total distributions to
shareholders (0.29) (0.49) (0.58)
----- ------------ -----------
Net asset value, end of period $8.51 $ 8.66 $ 9.19
----- ------------ -----------
Total return 1.73% (0.51%) 6.34%
Ratios and supplemental data
Net assets, end of period
(thousands) $ 212 $ 1,292 $ 883
Ratios to average net assets
Expenses++ 0.87%+ 0.93% 0.93%+
Net investment income 5.93%+ 5.43% 5.49%+
Portfolio turnover rate 21% 73% 126%
</TABLE>
(a) For the period from August 18, 1997 (commencement of class operations) to
September 30, 1997.
(b) For the period from October 6, 1997 (commencement of class operations) to
September 30, 1998.
(c) On March 17, 2000, Evergreen Tax-Free High Income Fund acquired the net
assets of the Davis Tax-Free High Income Fund. The Davis Tax-Free High
Income Fund was the accounting and performance survivor in this
transaction. The above financial highlights for the the periods prior to
March 17, 2000 are those of the Davis Tax-Free High Income Fund.
* Excluding applicable sales charges.
+ Annualized.
++ The ratio of expenses to average net assets includes fee waivers and
excludes expense reductions.
See Notes to Financial Statements.
6
<PAGE>
EVERGREEN (formerly
Tax-Free High Income Fund the Davis
Schedule of Investments Tax-Free
March 31, 2000 (Unaudited) High Income
Fund)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MUNICIPAL OBLIGATIONS - 98.2%
Alabama - 2.2%
$ 3,670,000 Birmingham Med. Ctr. East AL Spl. RB, Med Ctr. East
Inc., (Insd. by MBIA),
7.25%, 7/1/2015................................... $ 3,677,597
295,000 Houston Cnty., AL Hosp. Board RB, Southeast AL Med.
Ctr. Proj., 7.625%, 4/1/2007...................... 296,705
990,000 Mobile, AL Hsg. Assistance Corp. RRB, (Insd. by
MBIA),
7.625%, 8/1/2023.................................. 1,013,622
500,000 Pell City, AL Spl. Care Facs. RB, Ser. A,
8.50%, 7/1/2018................................... 526,395
770,000 Selma, AL Indl. Dev. Board RB, Hammermill Plant
Proj.,
6.875%, 4/1/2004.................................. 776,152
935,000 West Jefferson Amusement & Pub. Park Auth. RB,
7.50%, 12/1/2008.................................. 1,032,988
------------
7,323,459
------------
Alaska - 0.3%
885,000 Alaska Indl. Dev. & Export Auth. RB, Ser. A, AMT,
7.95%, 4/1/2010................................... 915,249
------------
Arizona - 0.6%
610,000 Casa Grande, AZ IDA RB, 8.25%, 12/1/2015........... 608,719
230,000 Coconino & Mohave Cnty., AZ GO,
0.00%, 7/1/2002 (a) .............................. 204,194
260,000 Pima Cnty., AZ IDA Hlth. Care Corp. RB,
8.00%, 7/1/2013................................... 262,285
400,000 Pima Cnty., AZ MHRB, (Insd. by FHA),
8.15%, 12/1/2025.................................. 435,252
500,000 Sierra Vista, AZ Dev. Auth. RRB, 8.50%, 8/1/2010... 515,430
------------
2,025,880
------------
California - 7.3%
1,140,000 California Hlth. Facs. Auth. RB,
9.875%, 7/1/2012.................................. 1,154,936
California Hlth. Facs. Financing RB:
3,980,000 Ser. A,
8.00%, 10/1/2018.................................. 4,030,148
135,000 Cnty. Program,
Ser. B,
7.20%, 1/1/2012................................... 135,240
California Hsg. Fin. Agcy. RB:
585,000 Ser. B,
8.625%, 8/1/2015.................................. 589,230
650,000 Ser. C, (Insd. by FHA), AMT,
7.60%, 8/1/2030................................... 655,395
155,000 Ser. D, AMT,
0.00%, 8/1/2020 (a) .............................. 31,964
1,300,000 Ser. G,
7.25%, 8/1/2017................................... 1,333,215
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MUNICIPAL OBLIGATIONS - continued
California - continued
$ 420,000 California Pub. Capital Impt. RB, 8.10%, 3/1/2018.. $ 425,397
Elk Grove, CA Unified Sch. Dist. Spl. Tax, (Insd.
by MBIA):
2,145,000 0.00%, 12/1/2017 (a)............................... 781,187
2,790,000 0.00%, 12/1/2018 (a)............................... 949,242
Lancaster, CA Sch. Dist. COP,
(Insd. by FSA):
1,730,000 0.00%, 4/1/2019 (a)................................ 578,426
1,730,000 0.00%, 4/1/2022 (a)................................ 476,269
785,000 Loma Linda, CA Collateralized RB,
7.375%, 6/1/2009.................................. 787,645
930,000 Los Angeles, CA Community Redev. Agcy. Tax
Allocation,
Ser. G,
6.75%, 7/1/2010.................................... 937,133
360,000 Los Angeles, CA Home Mtge. RB, (Coll. by GNMA),
8.10%, 5/1/2017................................... 360,025
Los Angeles, CA MHRB:
(Coll. by GNMA), AMT,
175,000 7.30%, 7/20/2011................................... 178,035
100,000 Ser. A, (Coll. by FNMA),
7.00%, 5/1/2006.................................... 101,445
2,690,000 Menlo Park, CA Community Dev. Agcy. MFHRB, Ser. A,
(Insd by FHA),
8.25%, 12/1/2028.................................. 2,745,629
725,000 Napa, CA Indl. RRB,
8.50%, 12/1/2007.................................. 725,355
New Haven, CA Unified Sch. Dist. GO, Capital
Appreciation, Ser. B,
(Insd. by FGIC):
900,000 0.00%, 8/1/2013 (a)................................ 438,282
985,000 0.00%, 8/1/2014 (a)................................ 447,554
1,200,000 0.00%, 8/1/2015 (a)................................ 509,160
1,400,000 0.00%, 8/1/2016 (a)................................ 556,402
1,650,000 0.00%, 8/1/2017 (a)................................ 612,464
Palmdale, CA Sch. Dist. COP,
(Insd. by FSA):
1,390,000 0.00%, 10/1/2018 (a)............................... 482,664
1,580,000 0.00%, 10/1/2022 (a)............................... 422,397
575,000 San Diego, CA MHRB,
9.50%, 10/20/2020................................. 577,398
San Francisco, CA City & Cnty. Tax Allocation:
3,915,000 0.00%, 8/1/2017 (a)................................ 1,424,160
3,910,000 0.00%, 8/1/2018 (a)................................ 1,327,484
1,400,000 Santa Maria, CA Wastewater COP, (Insd. by AMBAC),
0.00%, 8/1/2027 (a)............................... 1,021,314
245,000 University, CA RB,
7.20%, 9/1/2012................................... 245,519
------------
25,040,714
------------
Colorado - 0.2%
530,000 Colorado Student Obl. Bond Loan RB, Ser. A, AMT,
7.25%, 9/1/2005................................... 536,578
</TABLE>
7
<PAGE>
EVERGREEN (formerly
Tax-Free High Income Fund the Davis
Schedule of Investments (continued) Tax-Free
March 31, 2000 (Unaudited) High Income
Fund)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MUNICIPAL OBLIGATIONS - continued
Colorado - continued
$ 180,000 Hamilton Creek, CO Metro Dist. GO,
11.25%, 12/1/2004................................. $ 102,346
------------
638,924
------------
Connecticut - 0.4%
100,000 Bristol, CT GO,
7.40%, 6/15/2003.................................. 101,751
600,000 Connecticut Dev. Hlth. Care RB, Independent Living
Proj., Ser. B,
8.00%, 7/1/2017................................... 663,150
635,000 Connecticut Higher Ed. Loan RB, AMT,
7.375%, 11/15/2005................................ 642,258
------------
1,407,159
------------
Delaware - 1.3%
195,000 Delaware Economic Dev. Commission RB, (Coll. by
GNMA),
9.75%, 7/20/2020.................................. 205,210
16,825,000 Delaware Economic Dev. MHRB,
0.00%, 12/20/2027 (a)............................. 1,741,388
Delaware EDA RB, (Insd. by MBIA)
AMT,
1,500,000 7.60%, 3/1/2020................................... 1,533,375
Supermarkets Gen. Corp., (Coll. by GNMA),
830,000 10.875%, 12/1/2003................................ 833,361
------------
4,313,334
------------
Florida - 4.5%
380,000 Broward Cnty., FL HFA RB,
0.00%, 4/1/2014 (a)............................... 94,008
385,000 Charlotte Cnty., FL IDA RB,
10.00%, 6/1/2011.................................. 407,800
215,000 Dade Cnty., FL HFA Mtge. RB, Ser. H, (HUD Sect. 8),
10.50%, 6/1/2000.................................. 216,256
260,000 Dade Cnty., FL Hlth. Facility Hosp. RB, Miami
Children's Hosp., (Insd. by FGIC),
6.875%, 8/15/2017................................. 260,460
7,080,000 Duval Cnty., FL HFA SFMRB, AMT,
0.00%, 10/1/2032 (a).............................. 788,216
Florida Hsg. Fin. Agcy. RB:
565,000 0.00%, 7/15/2016 (a).............................. 81,338
900,000 8.10%, 10/1/2002.................................. 864,846
Florida Hsg. Fin. Corp. RB:
(Insd. by FSA) AMT,
5,545,000 0.00%, 12/1/2029 (a).............................. 778,185
17,500,000 0.00%, 7/1/2030 (a)............................... 2,344,925
555,000 Gulf Breeze, FL RB, (Insd. by FGIC, MBIA-IBC),
7.75%, 12/1/2015.................................. 556,487
90,000 Highlands Cnty., FL IDA RB, Beverly Enterprises
Florida Proj.,
9.25%, 7/1/2007................................... 96,283
Jacksonville, FL Hlth. Facs. Hosp. RB: Ser. A,
460,000 8.00%, 10/1/2015.................................. 430,436
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MUNICIPAL OBLIGATIONS - continued
Florida - continued
$ 280,000 Ser. B,
8.00%, 10/1/2015.................................. $ 262,004
123,680 Manatee Cnty., FL HFA Mtge. RB,
0.00%, 10/1/2015 (a).............................. 22,035
Miami Dade Cnty. FL Spl. Obl. RB:
4,320,000 Ser. C, (Insd. by MBIA),
0.00%, 10/1/2013 (a).............................. 2,033,511
Ser. B, (Insd. by MBIA),
1,000,000 0.00%, 10/1/2028 (a).............................. 175,060
13,010,000 0.00%, 10/1/2033 (a).............................. 1,660,727
2,990,000 Miami Dade Cnty., FL Spl. Obl. RRB, Ser. A, (Insd.
by MBIA),
0.00%, 10/1/2024 (a).............................. 673,079
290,000 Miami, FL Spl. Obl. RB, Ser. A,
(Insd. by MBIA),
7.375%, 7/1/2006.................................. 292,207
460,000 Orange Cnty., FL Hsg. Fin. Mtge. RRB, Ser. A, AMT,
7.25%, 9/1/2019................................... 471,886
745,000 Orange Cnty., FL IDA RB,
9.25%, 8/1/2010................................... 785,416
80,000 Pinellas Park, FL Wtr. & Swr. RB, (Insd. by MBIA),
10.00%, 10/1/2002................................. 80,374
175,000 South Indian River Wtr. Ctl. Dist. FL Spl. Assmt.,
8.00%, 11/1/2018.................................. 184,518
750,000 St. Petersburg, FL Hlth. Facs. Auth. RB, (Insd. by
MBIA),
7.00%, 12/1/2015.................................. 787,275
2,785,000 Tampa, FL Home Mtge. RB,
(Insd. by FHA),
0.00%, 10/1/2014 (a).............................. 537,004
470,000 Winter Garden, FL IDA RB, Beverly Enterprises,
8.75%, 7/1/2012................................... 497,984
------------
15,382,320
------------
Georgia - 1.5%
1,270,000 Atlanta, GA, RB,
Delta Airlines, AMT,
7.90%, 12/1/2018.................................. 1,292,873
200,000 Gainesville, GA Redev. Auth. RB, First Mtge. Autumn
Breeze, Ser. A, AMT,
8.00%, 4/1/2026................................... 205,860
200,000 Liberty Cnty., GA IDRB, AMT,
7.875%, 12/1/2014................................. 208,298
750,000 Macon Cnty. GA Med.
Foundation Inc. RRB, Flint River
Community Hosp.,
9.00%, 3/1/2011................................... 751,305
1,000,000 Savannah, GA EDA RB, AMT,
7.75%, 9/1/2027................................... 860,000
8,000,000 Washington Georgia Wilkes
Payroll RB,
0.00%, 12/1/2021 (a) ............................. 1,779,200
------------
5,097,536
------------
</TABLE>
8
<PAGE>
EVERGREEN (formerly
Tax-Free High Income Fund the Davis
Schedule of Investments (continued) Tax-Free
March 31, 2000 (Unaudited) High Income
Fund)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MUNICIPAL OBLIGATIONS - continued
Hawaii - 4.0%
$10,000,000 Hawaii Arpts. Sys. RB, AMT,
7.00%, 7/1/2018................................... $ 10,371,900
170,000 Hawaii Dept. Trans.
Spl. Facility, RB,
Continental Airlines, Inc., AMT,
9.60%, 6/1/2008................................... 174,221
3,000,000 Honolulu, HI City & Cnty. MHRB,
(Coll. by GNMA), AMT,
6.90%, 6/20/2035.................................. 3,092,220
------------
13,638,341
------------
Illinois - 15.7%
Bolingbrook, IL GO:
Ser. B, (Insd. by MBIA),
1,500,000 0.00%, 1/1/2029 (a)................................ 254,955
2,500,000 0.00%, 1/1/2030 (a)................................ 398,375
2,500,000 0.00%, 1/1/2031 (a)................................ 374,525
1,500,000 0.00%, 1/1/2032 (a)................................ 210,600
2,500,000 0.00%, 1/1/2033 (a)................................ 328,925
Chicago, IL Board Of Ed. GO:
11,225,000 Ser. A, (Insd. by FGIC),
0.00%, 12/1/2015 (a)............................... 4,534,675
10,000,000 Capital Appreciation Sch.
Reform, B 1,
0.00%, 12/1/2014 (a)............................... 4,323,300
6,000,000 Chicago, IL Pub. Bldg. Commerce RB, Ser. A, (Insd.
by MBIA),
7.125%, 1/1/2015.................................. 6,148,980
250,000 Chicago, IL Sch. Fin. Auth. GO, Ser. B, (Insd. by
MBIA),
7.60%, 6/1/2001................................... 251,348
75,000 Cook Cnty., IL SFMRB,
0.00%, 7/1/2015 (a) .............................. 14,693
3,975,000 Illinois Dedicated Tax RB,
(Insd. by AMBAC),
7.00%, 12/15/2010................................. 4,124,301
7,000,000 Illinois Edl. Facs. Auth. RB,
5.00%, 6/1/2018................................... 6,252,680
500,000 Illinois Edl. Facs. Auth. RRB:
5.50%, 11/15/2019................................. 400,890
1,000,000 Silver Cross Hosp. & Med.,
5.50%, 8/15/2019................................... 867,850
6,535,000 Illinois Edl. Facs. Auth., RB,
Alexian Brothers Hlth. Sys.,
5.125%, 1/1/2028.................................. 5,683,032
Illinois Hlth. Facs. Auth. RB:
10,160,000 9.00%, 11/15/2015.................................. 10,664,642
2,970,000 9.50%, 11/15/2019.................................. 3,126,519
395,000 Ser. A, (Insd. by MBIA),
7.90%, 8/15/2003................................... 396,161
115,000 Illinois Hsg. Dev. Auth. RB,
0.00%, 7/1/2025 (a) .............................. 682,931
111,000 Sauget, IL IDRB, Pillsbury Co. Proj., 8.375%,
5/1/2005.......................................... 111,220
Sherman, IL RB,
Ser. A:
550,000 7.75%, 10/1/2022................................... 600,881
500,000 8.375%, 7/1/2025................................... 519,575
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MUNICIPAL OBLIGATIONS - continued
Illinois - continued
Southern, IL Univ. RB,
(Insd. by MBIA):
$ 2,975,000 0.00%, 4/1/2025 (a)................................ $ 662,354
2,000,000 0.00%, 4/1/2028 (a)................................ 370,620
2,000,000 0.00%, 4/1/2029 (a)................................ 348,180
1,000,000 St. Clair Cnty., IL Pub. Bldg. GO, (Insd. by MBIA),
8.00%, 12/1/2005.................................. 1,006,390
1,000,000 Wataga, IL Hlth. Facility RB,
10.00%, 9/1/2016.................................. 720,000
------------
53,378,607
------------
Indiana - 4.0%
450,000 Carmel, IN Retirement
Rental Hsg. RB,
8.75%, 12/1/2008.................................. 478,751
2,000,000 Dyer, IN Redev. Auth.
Economic RB,
6.625%, 1/15/2024................................. 1,997,360
82,936 Elwood, IN EDRB,
Steamships Kresge Co.,
8.50%, 10/15/2000................................. 83,054
6,000,000 Indiana Hlth. Facility Financing Auth. Hosp. RB,
Refunding, Sisters St. Francis Hlth., Ser. A,
(Insd. by MBIA),
5.00%, 11/1/2029.................................. 5,129,640
4,125,000 Indiana Hlth. Facility Hosp. RB,
6.85%, 7/1/2022................................... 4,349,111
1,585,000 Madison Cnty. IN
Hosp. Auth. Facility RB,
8.00%, 1/1/2014................................... 1,589,184
------------
13,627,100
------------
Iowa - 0.0%
88,363 Creston, IA IDRB,
Steamships Kresge Co.,
8.50%, 8/1/2000................................... 88,476
------------
Kansas - 0.1%
305,000 Liberal, KS Swr. Util. Sys. RB,
(Insd. by AMBAC),
8.90%, 4/1/2000................................... 305,000
------------
Kentucky - 0.0%
15,000 Jefferson Oldham & Bullitt, KY RB, 10.75%,
11/1/2014......................................... 15,177
------------
Louisiana - 1.9%
23,045,000 East Baton Rouge, LA SFHRB,
(Coll. by GNMA/FNMA),
0.00%, 10/1/2030 (a).............................. 3,426,100
1,000,000 Lake Charles, LA Non Profit Hsg. RB, (Insd. by
FSA),
7.875%, 2/15/2025................................. 1,000,970
500,000 Louisiana Pub. Facs. Auth. Hosp. RB, Ser. A, (Insd.
by MBIA),
7.00%, 11/1/2002.................................. 511,075
1,333,333 Louisiana Pub. Facs. Auth. RB,
8.00%, 10/1/2009.................................. 1,066,667
</TABLE>
9
<PAGE>
EVERGREEN (formerly
Tax-Free High Income Fund the Davis
Schedule of Investments (continued) Tax-Free
March 31, 2000 (Unaudited) High Income
Fund)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MUNICIPAL OBLIGATIONS - continued
Louisiana - continued
$ 335,000 New Orleans, LA Hsg. Dev. Corp. RB,
Tulane Avenue Proj., Sec. 8,
7.875%, 6/1/2010.................................. $ 335,512
------------
6,340,324
------------
Maryland - 2.0%
700,000 Allegany Cnty., MD IDRB, Morgan Manor Care Ctr.,
(Insd. by FHA),
12.45%, 2/1/2027.................................. 806,911
310,000 Maryland Indl. Financing Auth. RB,
7.125%, 7/1/2006.................................. 310,642
460,000 Montgomery Cnty., MD EDRB, Brink Reservoir
Facility,
10.375%, 12/15/2014............................... 467,438
Montgomery Cnty., MD Hsg. Opportunities RB:
220,000 8.10%, 7/1/2008................................... 221,813
2,310,000 Ser. A,
8.25%, 7/1/2019................................... 2,335,479
2,710,000 Upper Potomac River Commission
MD RB, Westvaco Corp. Proj.,
9.125%, 8/1/2015.................................. 2,804,850
------------
6,947,133
------------
Massachusetts - 3.8%
205,000 Lawrence MA IDRB,
10.00%, 10/1/2003................................. 205,867
165,000 Massachusetts Ed. Loan Auth.
RB, Ser. A,
7.65%, 1/1/2007................................... 166,899
Massachusetts Hlth. & Ed. Facility RB: Brockton
Hosp.,
Ser. B:
1,705,000 8.00%, 7/1/2007................................... 1,709,825
2,280,000 8.10%, 7/1/2013................................... 2,286,111
New England Sch. Law:
125,000 8.30%, 7/1/2003................................... 125,390
125,000 8.30%, 7/1/2004................................... 125,390
Massachusetts Hlth. Edl. Facs. RB: Caregroup Issue,
2,000,000 Ser. A,
4.75%, 7/1/2020................................... 1,694,480
1,750,000 Southcoast Hlth. Sys., Ser. A,
(Insd. by MBIA),
4.75%, 7/1/2027................................... 1,429,505
180,000 Massachusetts Indl. Fin. Agcy.
RB, Ser. A,
8.75%, 7/15/2009.................................. 180,220
Rail Connections Inc., MA RB:
3,855,000 0.00%, 7/1/2023 (a)............................... 796,250
4,000,000 0.00%, 7/1/2024 (a)............................... 768,400
4,140,000 0.00%, 7/1/2025 (a)............................... 741,184
4,195,000 0.00%, 7/1/2026 (a)............................... 701,572
4,430,000 0.00%, 7/1/2027 (a)............................... 690,283
4,495,000 0.00%, 7/1/2028 (a)............................... 654,202
4,640,000 0.00%, 7/1/2029 (a)............................... 628,998
------------
12,904,576
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MUNICIPAL OBLIGATIONS - continued
Michigan - 1.0%
$ 310,000 Kentwood, MI Economic
Dev. Corp. RB,
7.85%, 9/1/2001................................... $ 310,775
545,000 Michigan Muni. Bond Auth. RB,
8.625%, 11/1/2016................................. 552,118
600,000 Michigan Strategic Fund RB, NSF Intl.
Proj., Ser. A,
5.75%, 8/1/2019................................... 582,918
500,000 Michigan Strategic Ltd. Obl. RRB, Welch Foods Inc.,
6.75%, 7/1/2001................................... 503,375
100,000 Oakland Cnty., MI Clint & Oak Sewage RB,
7.00%, 5/1/2001................................... 101,217
100,000 River Dist., MI Community Hosp. Auth. RRB,
7.40%, 5/1/2001................................... 100,080
1,090,000 Westland, MI Economic Dev. Corp.
RB, Weyerhauser Co. Proj.,
9.80%, 12/1/2000.................................. 1,096,376
------------
3,246,859
------------
Minnesota - 0.1%
St. Paul, MN Port Auth. IDRB,
(Insd. by FGIC):
235,000 9.50%, 12/1/2014.................................. 241,458
250,000 10.00%, 12/1/2014................................. 254,592
------------
496,050
------------
Mississippi - 0.7%
1,500,000 Amory, MS Dock & Wharf RB, Weyerhauser Co. Proj.,
9.50%, 9/1/2000................................... 1,505,220
200,000 Hinds Community College Dist.,
MS COP,
6.50%, 9/1/2014................................... 205,218
850,000 Mississippi Business Fin. Corp. PCRRB,
5.90%, 5/1/2022................................... 756,049
------------
2,466,487
------------
Missouri - 0.8%
150,000 Kansas City, MO EDA RB,
8.00%, 12/1/2002.................................. 153,132
Missouri Hsg. Dev. Commission RB,
(Insd. by FHA):
635,000 0.00%, 9/1/2012 (a)............................... 266,700
430,000 7.00%, 9/15/2021 (a).............................. 436,231
450,000 7.00%, 9/15/2022 (a).............................. 456,561
210,000 8.00%, 7/1/2017 (a)............................... 212,816
235,000 9.375%, 4/1/2016 (a).............................. 239,615
105,000 Missouri Sch. Boards Assn. COP,
7.375%, 3/1/2006.................................. 105,989
1,500,000 St. Louis, MO Muni Fin. Corp. RB,
(Insd. by AMBAC),
0.00%, 7/15/2014 (a).............................. 625,155
250,000 West Plains, MO IDA RB,
8.75%, 8/1/2007................................... 250,638
------------
2,746,837
------------
</TABLE>
10
<PAGE>
EVERGREEN (formerly
Tax-Free High Income Fund the Davis
Schedule of Investments (continued) Tax-Free
March 31, 2000 (Unaudited) High Income
Fund)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MUNICIPAL OBLIGATIONS - continued
Montana - 1.1%
$ 4,900,000 Lewis & Clark Cnty., MT Environmental
RB, AMT,
5.85%, 10/1/2033.................................. $ 3,730,174
------------
Nebraska - 0.2%
1,700,000 Nebhelp Inc. NE RB,
(Insd. by MBIA), AMT,
0.00%, 12/15/2015 (a)............................. 606,288
------------
Nevada - 2.1%
4,250,000 Clark Cnty., NV IDRB, AMT,
7.80%, 6/1/2020................................... 4,355,443
2,000,000 Clark Cnty., NV PCRB,
So. CA Edison Co.,
7.125%, 6/1/2009.................................. 2,067,880
Nevada GO:
500,000 8.40%, 9/1/2001.................................... 526,385
105,000 8.50%, 9/1/2005.................................... 106,139
------------
7,055,847
------------
New Hampshire - 2.7%
Manchester, NH
Hsg. & Redev. Auth. RB,
Ser. B, (Insd. by ACA):
5,140,000 0.00%, 1/1/2016 (a)................................ 1,790,211
5,140,000 0.00%, 1/1/2017 (a)................................ 1,660,734
5,110,000 0.00%, 1/1/2018 (a)................................ 1,530,190
2,570,000 0.00%, 1/1/2019 (a)................................ 712,558
3,140,000 0.00%, 1/1/2020 (a)................................ 808,393
500,000 New Hampshire Higher
Edl. & Hlth. RB,
8.40%, 8/1/2011................................... 537,970
2,225,000 New Hampshire IDA RB, AMT, 7.65%, 5/1/2021......... 2,283,050
------------
9,323,106
------------
New Jersey - 1.1%
1,350,000 New Jersey EDA RB,
9.95%, 12/1/2003.................................. 1,358,114
1,000,000 New Jersey EDA RRB,
8.40%, 12/15/2015................................. 1,004,340
590,000 New Jersey Hlth. Care Facs. Financing RB,
Muhlenberg Regl. Med. Ctr.,
Ser. B, (Insd. by MBIA-IBC),
8.00%, 7/1/2018.................................... 594,820
Muhlenberg Regl. Med. Ctr., Ser. B, (Insd. by
AMBAC):
300,000 7.60%, 7/1/2002.................................... 302,442
605,000 8.00%, 7/1/2018.................................... 609,943
------------
3,869,659
------------
New Mexico - 0.0%
120,000 Albuquerque, NM Hlth. Care Sys. RB, Lovelace Med.
Foundation Proj., 12.00%, 3/1/2011................ 120,708
------------
New York - 9.4%
300,000 Battery Park City Auth., NY RB,
(Insd. by FHA),
10.00%, 6/1/2023.................................. 301,437
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MUNICIPAL OBLIGATIONS - continued
New York - continued
$ 8,000,000 New York City, NY Muni. Wtr. Fin. RB, Ser. A,
(Insd. by FSA),
6.25%, 6/15/2021.................................. $ 8,119,280
200,000 New York Dormitory Auth. RB, 5.30%, 7/1/2017....... 193,400
4,250,000 New York Energy Research & Dev. RB, (Insd. by
AMBAC), AMT,
7.50%, 1/1/2026................................... 4,301,892
785,000 New York Local Govt. Assistance Corp. RB, Ser. A,
(Insd. by FGIC), 4.375%, 4/1/2018................. 660,271
New York Med. Care Facs.
Fin. Agcy. RB:
965,000 Ser. A,
8.875%, 8/15/2007................................. 989,608
2,000,000 Beth Israel Med. Ctr., Ser. A,
(Insd. by MBIA),
7.40%, 11/1/2004................................... 2,025,060
700,000 Long Term Hlth. Care, Ser. B,
(Insd. by FSA),
7.375%, 11/1/2011.................................. 715,575
1,755,000 New York Mtge. Agcy. RB,
(Insd. by FHA), AMT,
7.85%, 4/1/2022................................... 1,792,294
400,000 Otsego Cnty. NY Indl. Dev. Agcy. RB, Bassett
Healthcare Proj.,
Ser. A, (Insd. by MBIA),
5.35%, 11/1/2020.................................. 378,604
Port Auth. NY & NJ, RB:
7,000,000 7.125%, 6/1/2025................................... 7,100,240
5,000,000 7.35%, 10/1/2027................................... 5,344,950
------------
31,922,611
------------
North Carolina - 1.0%
500,000 Brevard, NC Hsg. Auth. RB,
7.50%, 3/1/2028................................... 439,865
500,000 Charlotte NC Hsg. Auth. RB,
7.50%, 3/1/2028................................... 439,865
2,500,000 North Carolina Med. Care Commission RB,
4.75%, 12/1/2028.................................. 2,068,725
500,000 Piedmont Hlth. Dev.
NC First Mtge. RRB,
8.00%, 1/1/2013................................... 503,490
------------
3,451,945
------------
North Dakota - 0.3%
900,000 Ward Cnty., ND Hlth. Care Facility RB, St. Joseph
Hosp. Corp. Proj., 8.875%, 11/15/2014............. 1,052,388
------------
Ohio - 1.2%
2,200,000 Belmont Cnty., OH Hlth. Sys. RB, 5.80%, 1/1/2018... 1,769,856
1,120,000 Hamilton Cnty., OH Hosp. Facs. RB,
(Insd. by MBIA-IBC),
7.00%, 1/1/2009.................................... 1,126,899
500,000 Mahoning Cnty. OH San Sewage Sys. RB, (Insd. by
MBIA),
7.50%, 2/1/2009................................... 511,305
</TABLE>
11
<PAGE>
EVERGREEN (formerly
Tax-Free High Income Fund the Davis
Schedule of Investments (continued) Tax-Free
March 31, 2000 (Unaudited) High Income
Fund)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MUNICIPAL OBLIGATIONS - continued
Ohio - continued
$ 515,000 Montgomery Cnty., OH Hosp. RRB, 7.40%, 4/1/2009.... $ 521,381
285,000 Ohio Hsg. Fin. Agcy. Single Family Mtge. RB,
0.00%, 1/15/2015 (a) ............................. 68,463
------------
3,997,904
------------
Oklahoma - 1.3%
530,000 Oklahoma Dev. Fin. Auth. RRB, Hillcrest Healthcare
Sys.,
5.625%, 8/15/2019................................. 430,662
23,085,000 Oklahoma Hsg. Fin. Agcy. SFHRB,
0.00%, 3/1/2029 (a)................................ 3,852,678
200,000 Oklahoma Inds. Auth. RB, Hlth. Sys. Baptist Ctr.,
Ser. C,
7.00%, 8/15/2003.................................. 212,192
------------
4,495,532
------------
Pennsylvania - 3.5%
1,560,000 Berks Cnty., PA IDA RB, Supermarkets Gen. Corp.,
10.50%, 11/1/2003................................. 1,528,613
500,000 Clarion Cnty., PA IDA RB,
5.875%, 5/1/2007.................................. 465,455
400,000 Columbia Cnty., PA IDA RB,
9.00%, 12/1/2012.................................. 395,348
1,000,000 Delaware Cnty., PA Auth. RB, 4.875%, 11/15/2018.... 877,850
635,000 Luzerne Cnty., PA Hsg. Corp. RB, 8.125%,
12/1/2008......................................... 636,149
200,000 Mckean Cnty., PA IDA RB, Corning Glass Works Proj.,
7.75%, 6/1/2005................................... 200,676
920,000 Mercer Cnty., PA IDA RB, Kroger Co, 13.00%,
6/1/2007.......................................... 948,216
250,000 Montgomery Cnty., PA Ed. & Hlth. RB, Sacred Heart
Hosp., (Insd. by MBIA-IBC),
6.80%, 2/1/2013................................... 251,708
2,025,000 Montgomery Cnty., PA IDA RB, 7.50%, 1/1/2012....... 2,081,862
Pennsylvania Hsg. Fin. Agcy. RB, AMT:
11,000,000 0.00%, 4/1/2030 (a)................................ 1,761,430
45,000 9.00%, 8/1/2001.................................... 45,479
45,000 Pittsburgh, PA Urban Redev. Auth. RB, (Insd. by
FHA),
7.125%, 8/1/2004.................................. 45,531
5,000,000 Pittsburgh, PA Wtr. & Swr. Sys. RB, (Insd. by
FGIC),
0.00%, 9/1/2028 (a)............................... 902,350
750,000 Sayre, PA Hlth. Care Facs. Auth. RB, (Insd. by
AMBAC/MBIA),
7.70%, 12/1/2015.................................. 763,717
750,000 Sharon, PA Regl. Hlth. Sys. Auth. RB, (Insd. by
MBIA),
5.00%, 12/1/2018.................................. 673,395
250,000 Warren Cnty., PA IDA RRB,
9.00%, 11/1/2012.................................. 263,743
------------
11,841,522
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MUNICIPAL OBLIGATIONS - continued
South Carolina - 2.1%
$ 100,000 Clemson University, SC COP,
6.90%, 12/1/2007.................................. $ 100,215
5,165,000 Piedmont Muni. Pwr. Agcy. SC Elec. RB, Ser. A,
(Insd. by MBIA),
5.00%, 1/1/2014................................... 4,841,826
South Carolina Ports Auth. RB: (Insd. by AMBAC),
AMT,
1,110,000 6.625%, 7/1/2011................................... 1,159,262
495,000 6.75%, 7/1/2021.................................... 517,710
380,000 Sumter Cnty., SC Sch. Dist. Number 2 RB,
8.125%, 4/1/2010.................................. 388,288
------------
7,007,301
------------
South Dakota - 0.1%
250,000 Aberdeen, SD GO, (Insd. by MBIA), 6.90%, 7/1/2004.. 251,600
------------
Tennessee - 0.4%
500,000 Crossville, TN Hlth. & Edl. Board RB, 7.75%,
6/1/2013.......................................... 513,005
285,000 Dover, TN Hlth. & Edl. Facs. RB, 9.50%, 9/1/2011... 285,502
106,497 Dyer Cnty., TN Indl. Dev. Board RB, 8.10%,
11/1/2000......................................... 106,572
90,000 McMinnesota Cnty., TN IDA RB, 8.00%, 11/1/2000..... 90,089
430,000 New Tazewell, TN Hlth. Edl. RB, 10.00%, 6/1/2017... 431,096
------------
1,426,264
------------
Texas - 10.7%
7,335,000 Austin, TX Hsg. Fin. Corp Single Family Mtge. RB,
0.00%, 2/1/2016 (a) .............................. 696,825
1,550,000 Baytown Area Wtr. Auth., TX Wtr. RB, 6.375%,
5/1/2002.......................................... 1,551,643
Bexar, TX Metropolitan Wtr. Dist. Wtrwks. RB,
(Insd. by FHA):
6,305,000 0.00%, 5/1/2032.................................... 882,700
6,305,000 0.00%, 5/1/2034.................................... 778,541
20,000 Coastal Wtr. Auth., TX Conveyance RB, (Insd. by
FGIC),
7.50%, 12/15/2016................................. 20,237
Coppell, TX Independent Sch. Dist. GO:
5,205,000 0.00%, 8/15/2016 (a)............................... 2,002,624
5,205,000 0.00%, 8/15/2017 (a)............................... 1,873,227
5,205,000 0.00%, 8/15/2018 (a)............................... 1,750,546
5,200,000 0.00%, 8/15/2019 (a)............................... 1,632,748
625,000 Dallas Cnty., TX Utility & Reclamation GO, (Insd.
by MBIA)
0.00%, 2/15/2014 (a).............................. 282,850
10,110,000 Dallas, TX Civic Ctr. Convention RB, (Insd. by
MBIA),
4.875%, 8/15/2023................................. 8,746,667
11,185,000 Harris Cnty. Houston, TX Spl. RB, Ser. B, (Insd. by
MBIA)
0.00%, 11/15/2018 (a)............................. 3,706,373
</TABLE>
12
<PAGE>
EVERGREEN (formerly
Tax-Free High Income Fund the Davis
Schedule of Investments (continued) Tax-Free
March 31, 2000 (Unaudited) High Income
Fund)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MUNICIPAL OBLIGATIONS - continued
Texas - continued
$ 125,000 Houston, TX Hsg. Fin. Corp. RB, Ser. A,
8.00%, 6/1/2014................................... $ 130,226
10,000,000 Houston, TX Independent Sch. Dist. GO, Ser. A,
0.00%, 2/15/2013 (a).............................. 4,869,000
500,000 Matagorda Cnty, TX Navigation Dist. 1 RRB, (Insd.
by MBIA), AMT
5.25%, 11/1/2029.................................. 444,570
1,000,000 Panhandle, TX Regl. Hsg. Fin. Corp. RB, Ser. C,
8.125%, 3/1/2031.................................. 1,005,190
Panhandle, TX Regl. Hsg. Fin. RB: Ser. A,
1,000,000 6.625%, 3/1/2020................................... 977,790
1,000,000 6.75%, 3/1/2031.................................... 977,110
1,000,000 Pearlland, TX GO,
0.00%, 3/1/2009 (a)............................... 534,320
720,000 Redeemable River Auth.,
TX Indl. Dev. RB,
7.90%, 4/1/2007................................... 728,546
1,000,000 Richardson, TX Hosp. Auth. RB, 5.625%, 12/1/2028... 786,470
1,250,000 San Antonio, TX Hlth. Facs. RRB, Encore Nursing
Ctr. Partner,
8.25%, 12/1/2019.................................. 1,317,963
120,000 Texas Higher Ed. Board College RB, AMT,
7.20%, 4/1/2002................................... 124,288
235,000 Texoma Hsg. Fin. Corp., TX SFHRB, (Coll. by
GNMA/FNMA), AMT, 5.80%, 9/1/2028.................. 220,801
Tomball, TX Independent Sch. Dist. GO,
1,000,000 0.00%, 2/15/2013 (a).............................. 411,376
------------
36,452,631
------------
Utah - 0.3%
1,000,000 Utah Hsg. Fin. Agcy. RB,
6.875%, 7/1/2027.................................. 935,930
------------
Virginia - 4.0%
Chesapeake, VA IDA RB,
Nursing Home Revenue Sentara Life:
1,000,000 7.875%, 11/1/2008................................. 1,012,690
4,000,000 8.00%, 11/1/2018.................................. 4,050,400
140,000 Covington Alleghany Cnty., VA RB,
9.375%, 9/1/2001.................................. 142,258
110,000 Montgomery Cnty., VA GO,
6.70%, 4/1/2007................................... 110,757
Norfolk, VA IDA RB,
Nursing Home Revenue Sentara Life:
1,000,000 7.875%, 11/1/2008................................. 1,012,690
2,000,000 7.90%, 11/1/2018.................................. 2,024,860
500,000 Peninsula Ports Auth. VA Hosp. RB, (Insd. by FHA),
8.70%, 8/1/2023................................... 536,250
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MUNICIPAL OBLIGATIONS - continued
Virginia - continued
Virginia Hsg. Dev. Auth. RB, Cmwlth. Mtge.,
Ser. A:
$ 600,000 7.10%, 1/1/2017................................... $ 613,326
1,000,000 7.10%, 1/1/2022................................... 1,018,880
3,000,000 7.10%, 1/1/2025................................... 3,055,140
215,000 Virginia Resources Auth. Wtr. & Swr. RB, Ser. A,
7.50%, 11/1/2017.................................. 215,520
------------
13,792,771
------------
Washington - 1.0%
500,000 Chelan Cnty., WA Pub. Utility Dist. RB, Ser. A,
AMT,
5.60%, 7/1/2032................................... 478,545
1,000,000 Port Seattle Passenger Facs. RB, Ser. A,
5.00%, 12/1/2023.................................. 881,270
2,300,000 Washington Nonprofit Hsg. RB, Seattle Univ.
Auxilliary Svcs. Proj.,
5.30%, 7/1/2031................................... 2,012,293
------------
3,372,108
------------
West Virginia - 2.2%
375,000 Beverly, WV Hsg. Corp. Mtge. RB, (Insd. by FHA),
11.00%, 11/15/2022................................ 416,663
135,000 Glasgow, WV Hlth. Facs. RB,
9.50%, 9/1/2001................................... 137,487
West Virginia GO,
(Insd. by FGIC):
8,700,000 0.00%, 11/1/2022 (a).............................. 2,304,456
4,400,000 0.00%, 11/1/2023 (a).............................. 1,096,348
5,750,000 0.00%, 11/1/2025 (a).............................. 1,267,127
2,310,000 West Virginia Hsg. Dev. Fund RB, Ser. B, (Insd. by
FHA), AMT,
7.20%, 11/1/2020.................................. 2,363,684
------------
7,585,765
------------
Wisconsin - 0.9%
300,000 Clear Lake Village, WI Sewage Sys. RB, AMT,
8.00%, 8/1/2011................................... 307,539
1,595,000 Wisconsin Hlth. & Edl. RB,
7.375%, 7/15/2027................................. 1,419,550
1,435,000 Wisconsin Hsg. & EDA. RB, Home Ownership, Ser. 2,
AMT,
6.875%, 9/1/2024.................................. 1,459,295
------------
3,186,384
------------
Puerto Rico - 0.2%
780,000 Puerto Rico Cmnwlth. Infrastructure RB, Ser. A,
7.75%, 7/1/2008................................... 786,162
------------
Total Municipal Obligations
(cost $345,112,183)............................... 334,610,142
------------
</TABLE>
13
<PAGE>
EVERGREEN (formerly
Tax-Free High Income Fund the Davis
Schedule of Investments (continued) Tax-Free
March 31, 2000 (Unaudited) High Income
Fund)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
MUTUAL FUND SHARES - 2.1%
7,197,000 State Street Global Advisers
Tax Free Money Market Fund (cost $7,197,000) ....... $ 7,197,000
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -
(cost $352,309,183).......................... 100.3% 341,807,142
Other Assets and Liabilities - net............ (0.3) (1,031,210)
----- ------------
Net Assets.................................... 100.0% $340,775,932
===== ============
</TABLE>
(a) Security issued in zero coupon form. Any discount on the purchase of this
security is amortized to income over the life of the security.
The Fund invests primarily in debt securities issued by municipalities. The
ability of the issuers of debt securities to meet their obligations may be af-
fected by economic developments in a specific industry or municipality. In or-
der to reduce risk associated with such economic developments, at March 31,
2000, 34.88% of the securities, as a percentage of net assets, are backed by
bond insurance of various financial institutions and financial guaranty assur-
ance agencies. At March 31, 2000, the Fund had securities backed by bond insur-
ance through MBIA, which represented 17.5% of net assets.
Summary of Abbreviations:
ACA American Capital Access
AMBAC American Municipal Bond Assurance Corporation
AMT Income may be subject to alternative minimum tax
COP Certificates of Participation
EDA Economic Development Authority
EDRB Economic Development Revenue Bond
FGIC Financial Guaranty Insurance Corporation
FHA Federal Housing Authority
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
FSA Financial Security Assurance, Corporation
GNMA Government National Mortgage Association
GO General Obligation
HFA Housing Finance Authority
IBC Insured Bond Certification
IDA Industrial Development Authority
IDRB Industrial Development Revenue Bond
MBIA Municipal Bond Investors Assurance Corporation
MHRB Multi-family Housing Revenue Bond
MHRRB Multi-family Housing Refunding Revenue Bond
PCRRB Pollution Control Refunding Revenue Bond
RB Revenue Bond
RRB Refunding Revenue Bond
SFMRB Single Family Mortgage Revenue Bond
See Notes to Financial Statements.
14
<PAGE>
EVERGREEN (formerly
Tax-Free High Income Fund the Davis
Statement of Assets and Liabilities Tax-Free
March 31, 2000 (Unaudited) High Income
Fund)
--------------------------------------------------------------------------------
Assets
Identified cost of securities.................................... $352,309,183
Net unrealized gains or losses on securities.................... (10,502,041)
--------------------------------------------------------------------------------
Market value of securities...................................... 341,807,142
Cash............................................................ 148
Receivable for securities sold.................................. 3,113,137
Receivable for Fund shares sold................................. 2,204,798
Interest receivable............................................. 5,627,224
Receivable from investment advisor.............................. 53,849
Prepaid expenses and other assets............................... 60,910
--------------------------------------------------------------------------------
Total assets.................................................. 352,867,208
--------------------------------------------------------------------------------
Liabilities
Distributions payable........................................... 1,008,879
Payable for securities purchased................................ 10,154,287
Payable for Fund shares redeemed................................ 774,895
Distribution Plan expenses payable.............................. 20,081
Due to other related parties.................................... 2,796
Accrued expenses and other liabilities.......................... 130,338
--------------------------------------------------------------------------------
Total liabilities............................................. 12,091,276
--------------------------------------------------------------------------------
Net assets....................................................... $340,775,932
--------------------------------------------------------------------------------
Net assets represented by
Paid-in capital................................................. $372,398,046
Overdistributed net investment income........................... (1,376,881)
Accumulated net realized losses on securities................... (19,743,192)
Net unrealized losses on securities............................. (10,502,041)
--------------------------------------------------------------------------------
Total net assets................................................. $340,775,932
--------------------------------------------------------------------------------
Net assets consists of
Class A......................................................... $128,003,431
Class B......................................................... 181,709,762
Class C......................................................... 30,850,764
Class Y......................................................... 211,975
--------------------------------------------------------------------------------
Total net assets................................................. $340,775,932
--------------------------------------------------------------------------------
Shares outstanding
Class A......................................................... 15,017,656
Class B......................................................... 21,384,019
Class C......................................................... 3,607,032
Class Y......................................................... 24,895
--------------------------------------------------------------------------------
Net asset value per share
Class A......................................................... $ 8.52
--------------------------------------------------------------------------------
Class A--Offering price (based on sales charge of 4.75%)........ $ 8.94
--------------------------------------------------------------------------------
Class B......................................................... $ 8.50
--------------------------------------------------------------------------------
Class C......................................................... $ 8.55
--------------------------------------------------------------------------------
Class Y......................................................... $ 8.51
--------------------------------------------------------------------------------
See Notes to Financial Statements.
15
<PAGE>
EVERGREEN (formerly
Tax-Free High Income Fund the Davis
Statement of Operations Tax-Free
Six Months Ended March 31, 2000 (Unaudited) (a) High Income
Fund)
--------------------------------------------------------------------------------
Investment income
Interest........................................................ $ 13,315,587
--------------------------------------------------------------------------------
Expenses
Advisory fee.................................................... 1,218,908
Distribution Plan expenses...................................... 1,383,727
Administrative services fees.................................... 21,842
Transfer agent fee.............................................. 176,191
Trustees' fees and expenses..................................... 14,115
Printing and postage expenses................................... 38,051
Custodian fee................................................... 53,714
Registration and filing fees.................................... 7,581
Professional fees............................................... 63,164
Other........................................................... 58,248
--------------------------------------------------------------------------------
Total expenses................................................ 3,035,541
Less: Expense reductions...................................... (5,749)
Fee waivers................................................. (68,853)
--------------------------------------------------------------------------------
Net expenses.................................................... 2,960,939
--------------------------------------------------------------------------------
Net investment income........................................... 10,354,648
--------------------------------------------------------------------------------
Net realized and unrealized gains or losses on securities
Net realized losses on securities............................... (14,803,238)
--------------------------------------------------------------------------------
Net change in unrealized gains or losses on securities.......... 8,367,186
--------------------------------------------------------------------------------
Net realized and unrealized losses on securities................ (6,436,052)
--------------------------------------------------------------------------------
Net increase in net assets resulting from operations............ $ 3,918,596
--------------------------------------------------------------------------------
(a) On March 17, 2000, Evergreen Tax-Free High Income Fund acquired the net as-
sets of the Davis Tax-Free High Income Fund. The Davis Tax-Free High Income
Fund was the accounting and performance survivor in this transaction.
See Notes to Financial Statements.
16
<PAGE>
EVERGREEN (formerly
Tax-Free High Income Fund the Davis
Statements of Changes in Net Assets Tax-Free
March 31, 2000 (Unaudited) High Income
Fund)
<TABLE>
<CAPTION>
Six Months Ended
March 31, 2000 Year Ended
(Unaudited) (a) September 30, 1999
-------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income.................... $ 10,354,648 $ 24,207,519
Net realized losses on securities........ (14,803,238) (4,702,920)
Net change in unrealized gains or losses
on securities........................... 8,367,186 (24,020,731)
-------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations............. 3,918,596 (4,516,132)
-------------------------------------------------------------------------------
Distributions to shareholders from net
investment income
Class A................................ (4,795,504) (11,085,707)
Class B................................ (5,877,492) (11,311,322)
Class C................................ (1,037,765) (1,940,285)
Class Y................................ (20,768) (67,634)
-------------------------------------------------------------------------------
Total distributions to shareholders.... (11,731,529) (24,404,948)
-------------------------------------------------------------------------------
Capital share transactions
Proceeds from shares sold................ 28,868,029 105,307,443
Payment for shares redeemed.............. (130,482,718) (177,098,255)
Net asset value of shares issued in
reinvestment of distributions........... 4,388,753 9,872,090
-------------------------------------------------------------------------------
Net decrease in net assets resulting
from capital share transactions....... (97,225,936) (61,918,722)
-------------------------------------------------------------------------------
Total decrease in net assets........ (105,038,869) (90,839,802)
Net assets
Beginning of period...................... 445,814,801 536,654,603
-------------------------------------------------------------------------------
End of period............................ $340,775,932 $445,814,801
-------------------------------------------------------------------------------
Overdistributed net investment income..... $ (1,376,881) 0
-------------------------------------------------------------------------------
</TABLE>
(a) On March 17, 2000, Evergreen Tax-Free High Income Fund acquired the net
assets of the Davis Tax-Free High Income Fund. The Davis Tax-Free High
Income Fund was the accounting and performance survivor in this transaction.
See Notes to Financial Statements.
17
<PAGE>
Notes to Financial Statements (Unaudited)
1. ORGANIZATION
The Evergreen Tax-Free High Income Fund (the "Fund") (formerly the Davis Tax-
Free High Income Fund) is a diversified series of Evergreen Municipal Trust
(the "Trust"), a Delaware business trust organized on September 18, 1997. The
Trust is an open-end management investment company registered under the Invest-
ment Company Act of 1940, as amended (the "1940 Act").
The Fund offers Class A, Class B, Class C and Class Y shares. Class A shares
are sold with a maximum front-end sales charge of 4.75%. Class B and Class C
shares are sold without a front-end sales charge, but pay a higher ongoing dis-
tribution fee than Class A. Class B shares are sold subject to a contingent de-
ferred sales charge that is payable upon redemption and decreases depending on
how long the shares have been held. Class B shares purchased after January 1,
1997 will automatically convert to Class A shares after seven years. Class B
shares purchased prior to January 1, 1997 follow the conversion rights at the
time the shares were initially purchased. Class C shares are sold subject to a
2.00% contingent deferred sales charge payable on shares redeemed within one
year after the month of purchase and a 1.00% contingent deferred sales charge
if such shares are redeemed within two years after the month of purchase. Class
C shares purchased prior to February 1, 2000 follow the contingent deferred
sales charge schedule at the time the shares were initially purchased. Class Y
shares are sold at net asset value and are not subject to contingent deferred
sales charges or distribution fees. Class Y shares are sold only to investment
advisory clients of First Union Corporation ("First Union") and its affiliates,
certain institutional investors or Class Y shareholders of record of certain
other funds managed by First Union and its affiliates as of December 30, 1994.
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
An independent pricing service values the Fund's municipal bonds at fair value
using a variety of factors which may include yield, liquidity, interest rate
risk, credit quality, coupon, maturity and type of issue. Securities 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 simi-
lar characteristics. Otherwise, securities for which valuations are not avail-
able from an independent pricing service (including restricted securities) are
valued at fair value as determined in good faith according to procedures estab-
lished by the Board of Trustees.
Mutual fund shares held in the Fund are valued at the net asset value of the
mutual fund.
Short-term investments with remaining maturities of 60 days or less are carried
at amortized cost, which approximates market value.
B. When-issued and Delayed Delivery Transactions
The Fund records when-issued or delayed delivery transactions on trade date and
will segregate with the custodian qualifying assets having a value sufficient
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 per-
form under the contract.
C. 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.
18
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
D. 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,
net tax-exempt income and net capital gains, if any, to its shareholders. The
Fund also intends to avoid any excise tax liability by making the required dis-
tributions under the Code. Accordingly, no provision for federal taxes is re-
quired. 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.
E. Distributions
Distributions from net investment income for the Fund are declared and paid
monthly. 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.
F. 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 each class.
3. INVESTMENT ADVISORY AGREEMENT AND OTHER AFFILIATED TRANSACTIONS
Evergreen Investment Management Company ("EIMC"), a subsidiary of First Union,
is the investment adviser to the Fund and is paid a management fee that is com-
puted and paid daily by applying percentage rates, starting at 0.55% and de-
clining to 0.45% per annum as net assets increase, to the average daily net as-
sets of the Fund. Prior to March 17, 2000, Davis Selected Advisers, L.P. ("Da-
vis") was the investment adviser to the Fund and was paid a management fee that
was computed by applying percentage rates, starting at 0.65% and declining to
0.55% per annum as net assets increased, to the average daily net assets of the
Fund.
During the six months ended March 31, 2000, the amount of investment advisory
fees waived by the investment adviser was $68,853 and the impact on the Fund's
annualized expense ratio represented as a percentage of its average daily net
assets was 0.04%.
Prior to March 17, 2000, the Fund reimbursed Davis for registering Fund shares
for sale in various states, certain transfer agent services and certain ac-
counting services. For the period from October 1, 1999 through March 17, 2000,
these fees amounted to $6,079, $13,290 and $8,815, respectively.
Stamper Capital & Investments, Inc. ("Stamper") is the sub-adviser of the Fund
and is paid by EIMC. The Fund pays no fees directly to Stamper. Prior to March
17, 2000, Davis Selected Advisers-NY, Inc. ("DSA-NY"), a wholly-owned subsidi-
ary of Davis, was also the investment sub-adviser to the Fund. The Fund paid no
fees directly to DSA-NY.
Evergreen Investment Services ("EIS"), an indirect, wholly owned subsidiary of
First Union, is the administrator to the Fund. As administrator, EIS provides
the Fund with facilities, equipment and personnel. For its services, the Fund
pays the administrator a fee at the annual rate of 0.10% of the Fund's average
daily net assets. Officers of the Fund and affiliated Trustees receive no com-
pensation directly from the Fund.
During the six months ended March 31, 2000, the Fund paid or accrued to EIS ad-
ministrative services of $21,842.
Evergreen Service Company ("ESC"), an indirect, wholly owned subsidiary of
First Union, is the transfer and dividend disbursing agent for the Fund. Prior
to March 17, 2000, State Street Bank and Trust served as the Fund's primary
transfer and dividend disbursing agent.
19
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
4. DISTRIBUTION PLANS
Evergreen Distributor, Inc. ("EDI"), a wholly owned subsidiary of BISYS Group
Inc. ("BISYS") serves as principal underwriter to the Fund. Prior to March 17,
2000, Davis Distributors, LLC, ("Davis Distributors") served as the principal
underwriter and distributor to the Fund.
The Fund has adopted Distribution Plans, as allowed by Rule 12b-1 of the 1940
Act, for each class of shares, except Class Y. 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 Distribu-
tion Plans, Class A incurs distributions fees equal to 0.25% of the average
daily net assets of the class, all of which is used to pay for shareholder
service fees. Class B and Class C shares incur distribution fees equal to 1.00%
of the average daily net assets of each class. Of this amount, 0.25% is used to
pay for shareholder service fees and 0.75% is used to pay for distribution-re-
lated costs. Distribution Plan expenses are calculated and paid daily.
During the six months ended March 31, 2000, amounts paid or accrued to EDI and
Davis Distributors pursuant to the Fund's Class A, Class B and Class C Distri-
bution Plans were as follows:
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
--------------------------
EDI................................. $ 12,972 $ 74,924 $ 12,418
Davis............................... $153,894 $960,286 $169,233
</TABLE>
With respect to Class B and Class C shares, the principal underwriter may pay
distribution fees greater than the allowable annual amounts each Fund is per-
mitted to pay under the Distribution Plans.
Each of the Distribution Plans may be terminated at any time by vote of the In-
dependent Trustees or by vote of a majority of the outstanding voting shares of
the respective class.
5. ACQUISITION
Effective on the close of business on March 17, 2000, the Fund acquired sub-
stantially all the assets and assumed certain liabilities of Davis Tax-Free
High Income Fund ("Davis Fund"), an open-end management investment company reg-
istered under the 1940 Act, through a tax-free exchange of shares. Shareholders
of Class A, B, C and Y of Davis Fund became owners of that number of full and
fractional shares of Class A, B, C, and Y, respectively, of the Fund having an
aggregate net asset value equal to the aggregate net asset value of their
shares of Davis Fund immediately prior to close of business on March 17, 2000.
The Fund had no operations prior to the acquisition. Since the Fund and the Da-
vis Fund were similar funds and the Davis Fund contributed the majority of the
net assets and shareholders, its basis of accounting for assets and liabili-
ties, and its operating results for prior periods are carried forward as the
accounting survivor.
20
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
6. 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 Funds are currently
divided into Class A, Class B, Class C and Class Y. Transactions in shares of
the Fund were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, 2000 September 30, 1999
------------------------ --------------------------
Shares Amount Shares Amount
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold............. 1,824,669 $ 15,391,802 5,092,150 $ 45,945,933
Shares redeemed......... (7,192,931) (60,857,814) (12,047,128) (108,692,234)
Shares issued in
reinvestment of
distributions.......... 246,349 2,087,183 564,534 5,078,931
------------------------------------------------------------------------------
Net decrease............ (5,121,913) (43,378,829) (6,390,444) (57,667,370)
------------------------------------------------------------------------------
Class B
Shares sold............. 1,086,880 9,191,981 4,239,576 38,228,135
Shares redeemed......... (6,399,468) (53,852,610) (6,090,773) (54,563,766)
Shares issued in
reinvestment of
distributions.......... 225,941 1,906,584 444,771 3,985,404
------------------------------------------------------------------------------
Net decrease............ (5,086,647) (42,754,045) (1,406,426) (12,350,227)
------------------------------------------------------------------------------
Class C
Shares sold............. 500,234 4,264,293 2,125,712 19,312,493
Shares redeemed......... (1,732,426) (14,690,433) (1,388,222) (12,483,845)
Shares issued in
reinvestment of
distributions.......... 45,134 383,475 86,645 780,258
------------------------------------------------------------------------------
Net increase
(decrease)............. (1,187,058) (10,042,665) 824,135 7,608,906
------------------------------------------------------------------------------
Class Y
Shares sold............. 2,370 19,953 200,923 1,820,882
Shares redeemed......... (127,922) (1,081,861) (151,024) (1,358,410)
Shares issued in
reinvestment of
distributions.......... 1,348 11,511 3,093 27,497
------------------------------------------------------------------------------
Net increase
(decrease)............. (124,204) (1,050,397) 52,992 489,969
------------------------------------------------------------------------------
Net increase
(decrease)............. $(97,225,936) $ (61,918,722)
------------------------------------------------------------------------------
</TABLE>
7. SECURITIES TRANSACTIONS
During the six months ended March 31, 2000, cost of purchases and proceeds from
sales of investment securities (excluding short-term securities) were
$79,713,576 and $178,255,244, respectively.
8. EXPENSE REDUCTIONS
The Fund has entered into expense offset arrangements with ESC and its 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. The amount of expense reductions received
by the Fund was $5,749 and the impact of the total expense reductions on the
Fund's annualized expense ratio represented as a percentage of its average net
assets was 0.00%.
9. DEFERRED TRUSTEES' FEES
Each Independent Trustee of the 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.
21
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
10. DISTRIBUTIONS TO SHAREHOLDERS
On April 28, 2000, the Fund declared the following distribution from net in-
vestment income payable on May 1, 2000 to shareholders on record on April 27,
2000. These distributions are not reflected in the accompanying financial
statements.
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
<S> <C> <C> <C>
----------------------------------------------------------------------------------------
$0.043 $0.038 $0.038 $0.045
</TABLE>
11. SPECIAL MEETING OF SHAREHOLDERS
A special meeting of the Davis Tax-Free High Income Fund shareholders was held
on March 17, 2000. Shareholders of record on January 10, 2000 were entitled to
notice of and to vote at the meeting and any adjournments thereof. The record
date NAV and the total NAV voted and represented at the meeting was as follows:
<TABLE>
<CAPTION>
Total NAV Voted as
NAV Percentage of
Eligible NAV Voted Total NAV
<S> <C> <C>
------------------------------------------------------------------------------
366,372,269 215,129,868 58.7189%
</TABLE>
During the special meeting the shareholders voted the following:
1. To consider and act upon the Agreement and Plan of Reorganization (the
"Plan") providing for the acquisition of all of the assets of the Fund by
Evergreen Tax-Free High Income Fund ("Evergreen Tax Free Fund"), a series of
Evergreen Municipal Trust, in exchange for shares of Evergreen Tax Free Fund
and the assumption by Evergreen Tax Free Fund of the identified liabilities
of the Fund. The Plan also provides for distribution of these shares of
Evergreen Tax Free Fund to shareholders of the Fund in liquidation and
subsequent termination of the Fund. A vote in favor of the Plan is a vote in
favor of the liquidation and termination of the Fund.
2. To transact any other business which may properly come before the Meeting or
any adjournment or adjournments thereof.
The results were as follows:
<TABLE>
<CAPTION>
Vote 1. NAV Voted % Voted
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------
FOR 199,782,891 54.53%
AGAINST 7,288,788 1.98%
ABSTAIN 8,058,188 2.19%
TOTAL 215,129,868 58.70%
Vote 2. NAV Voted % Voted
-----------------------------------------------------------------------------------------
FOR 197,148,051 53.81%
AGAINST 8,061,925 2.20%
ABSTAIN 9,919,893 2.71%
TOTAL 215,129,868 58.72%
</TABLE>
22
<PAGE>
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800.346.3858
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www.evergreen-funds.com
84365 554578 5/2000
-------------------
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