<PAGE>
PAGE 1
- ---------------------------------------------------------
EVERGREEN TAX FREE FUND (FORMERLY KEYSTONE TAX FREE FUND) February 1998
Dear Shareholders:
While stocks captured headlines for investors seeking growth
(Photograph of over the past year, municipal bonds continued to reward
William M. income-oriented investors with both attractive total return and
Ennis) tax-advantaged income. The Lehman Brothers Municipal Bond Index
produced a total return of 9.19% for the twelve months ended on
December 31, 1997. Further, the average AAA-rated municipal
bond yielded approximately 5.00%-- 85% of that of U.S.
WILLIAM M. Treasuries with comparable maturities-- also as of that date. A
ENNIS taxable investment would need to yield 7.25% for investors in
the 31% federal income tax bracket to match the yield provided
by a AAA-rated municipal bond, a tall order in an environment
where the benchmark 30-year U.S. Treasury yields under 6%.
These returns are especially attractive when one considers that
inflation, measured by the consumer price index, stood at 1.7%
for all of 1997.
The U.S. experienced an extremely favorable investment
environment throughout most of last year. Steady economic
growth combined with minimal inflation pressures, a declining
federal budget deficit and strong
foreign demand stimulated a rally in the fixed-income market that drove interest
rates to their lowest levels in 20 years. Foreign investors, in particular,
sought the U.S. as a safe haven from the upheaval taking place in the Asian
financial markets.
In the tax-exempt sector, state and local governments reaped higher tax
revenues from this steady economic growth. Improved cash flows strengthened
municipalities from a credit standpoint. These improved financial operations
also reduced the need to issue municipal bonds, lowering supply and helping
support prices.
As we head into 1998, many of the trends we witnessed over the last year still
appear to be in place. High levels of consumer confidence and brisk employment
growth suggest that the economy can continue to grow at a healthy pace and there
is an increasing confidence among many investors that worldwide improvements in
technology and productivity can enable further economic expansion with few
inflationary pressures. We believe this backdrop bodes well for fixed income
investors.
Despite the economic health we are enjoying in the U.S., however, the
situation in Asia continues to be unsettled. A slowdown in Asia could have a
significant effect on our domestic economy, reducing growth in the U.S. and
lowering inflation from the minimal levels we have experienced to date. We
expect that much of the outlook for the U.S. economy, as well as the direction
of interest rates, will depend on the resolution of the Asian crisis.
The events in the world's markets have served as a reminder of the value of an
income-oriented, high quality investment. The importance of an income-oriented
investment to a well rounded portfolio grows further when one stops to think
about the stage in life that baby-boomers are reaching. As retirement
approaches, investors typically prefer securities that generate a stable income
over riskier, more volatile investments.
On an administrative note, we are pleased to report that shareholders of the
Keystone Tax Free Fund and the Evergreen Tax Free Income Fund have approved a
proposal to reorganize these funds into a new fund, the Evergreen Tax Free Fund.
The new fund's investment objective is substantially the same as that of the
former funds and will be managed by Betsy Hutchings. The reorganization of these
funds took place on January 23, 1998.
A discussion with your fund manager follows this letter, providing a detailed
account of the market conditions and strategies that shaped your fund's
performance. We wish you all a healthy and prosperous 1998.
Sincerely,
/s/William M. Ennis
William M. Ennis
MANAGING DIRECTOR
<PAGE>
PAGE 2
- ---------------------------------------------------------
EVERGREEN TAX FREE FUND (FORMERLY KEYSTONE TAX FREE FUND)
A Discussion With
Your Fund's Manager
(Photgraph of Betsy A. Hutchings)
BETSY A. HUTCHINGS, A SENIOR VICE PRESIDENT AND HEAD OF THE MUNICPAL BOND
TEAM OF KEYSTONE INVESTMENT MANAGEMENT COMPANY, IS PORTFOLIO MANAGER OF
THE FUND. MS. HUTCHINGS HAS MORE THAN 15 YEARS OF EXPERIENCE IN INVESTMENT
MANAGEMENT AND HAS MANAGED THE FUND SINCE 1990.
Q WHAT WAS THE ENVIRONMENT LIKE FOR MUNICIPAL BONDS OVER THE LAST TWELVE MONTHS?
A The environment was favorable for most of the period. Interest rates fell, as
moderate economic growth continued to be accompanied by low inflation. The
federal budget deficit declined and foreign demand for U.S. government
securities was strong. For state and local governments, the economy's strength
produced higher tax revenues. Improved cash flows strengthened municipal balance
sheets and reduced the need to issue tax-exempt bonds.
These positive market conditions contrasted dramatically with the investment
environment that prevailed in the early part of last year. Concerned that
stronger economic growth would revive inflationary pressures, investors forced
interest rates higher and bond prices lower, at that time. In March 1997, the
Federal Reserve Board raised the federal funds rate--the rate at which banks
lend to each other overnight and the benchmark for short-term interest
rates--from 5 1/4% to 5 1/2%, in an attempt to prevent a rise in price
pressures.
Although municipal bond and U.S. Treasury yields experienced similar trends
over the past twelve months, there were times when supply and demand factors in
the respective markets caused the yields in each sector to move in different
directions. One of these periods occurred in the fourth quarter when heavier
municipal supply combined with lackluster demand, putting downward pressure on
tax-exempt bond prices. At the same time, a "flight to quality" in the U.S.
Treasury market--stemming from the Asian currency crisis--caused the prices of
comparable U.S. Treasuries to rise. At that point, municipal bonds became very
"cheap" compared to U.S. Treasuries, based on historical standards. Typically
providing approximately 85% of the yield of U.S. Treasuries with comparable
maturities, the yields of AAA-rated municipal bonds offered as much as 88% of
those of their U.S. government counterparts.
Q HOW DID THE FUND PERFORM DURING THAT TIME?
A We were satisfied with the Fund's performance. Evergreen Tax Free Fund
generated an attractive level of tax-exempt income and a solid total return over
the past year. We attribute these results to careful security selection and the
implementation of conservative, interest-rate-sensitive strategies.
Q WHAT STRATEGIES DID YOU USE IN MANAGING THE FUND?
A We emphasized quality, income and relative value. We also adjusted the
portfolio's sensitivity to interest rate changes.
We increased the Fund's investment in AAA-rated bonds from 46% on December 31,
1996, to 58% on December 31, 1997, believing that AAA-rated bonds provided the
best relative value. During the year, the additional yield provided by
lower-rated bonds compared to their higher-rated counterparts sunk to
historically
<PAGE>
PAGE 3
- ---------------------------------------------------------
low levels. The changing yield relationship between higher-rated bonds and
lower-rated bonds enabled us to increase the Fund's holdings in higher-rated
securities, while giving up only minimal yield.
As part of our emphasis on quality, we increased the Fund's holdings in
higher-rated general obligation bonds. General obligation bonds benefited from
the economy's strength, with rising state and local tax revenues improving many
municipalities from a credit standpoint. We also scaled back on the Fund's New
York holdings as the year progressed. We had increased the Fund's investment in
New York municipal bonds when heavy supply had driven their prices lower and
yields higher than alternative investments. Their yields fell to the point where
we could take attractive profits and we believed we could find better value in
other bonds. As of December 31, 1997, the average quality of the Fund was AA+.
We adjusted the Fund's maturity structure, actively managing its duration.
Duration measures a portfolio's sensitivity to interest rate changes. The longer
a portfolio's duration, the greater its sensitivity to changes in interest
rates. We increased the Fund's duration after interest rates rose to enhance
total return when interest rates later declined. We did this by selling
positions in the 5-10 year maturity range and reinvesting the proceeds in bonds
with 15-20 year maturities. We also invested in lower-coupon bonds and
zero-coupon bonds as part of this strategy.
Later in the year, we shortened the Fund's duration--enhancing its price
stability--when market sentiment became negative and municipal bond prices
began to fluctuate. At that time, we reduced the Fund's holdings in bonds with
25-year maturities. We reinvested assets in pre-refunded bonds, which were rated
"AAA" because they were fully backed by U.S. government securities. They mature
in 2-10 years. The high quality and shorter maturities of pre-refunded bonds
make them one of the safest and most stable securities in the municipal bond
market.
In the fourth quarter, we extended the Fund's duration when price volatility
subsided and our outlook for municipal bonds became more positive. We sold bonds
with 10-12 year maturities which, in our opinion, had become overvalued and
reinvested in bonds in the 22-25 year maturity range. We focused on zero coupon
bonds to enhance total return and on bonds with 5 3/4% to 6% coupons, which we
believed provided attractive relative value. As of December 31, 1997, the Fund's
average maturity was 19.1 years and its duration was 8.5 years.
Q WHAT IS YOUR OUTLOOK OVER THE NEXT SIX MONTHS?
A Our outlook is positive, although we are closely monitoring developments in
the Asian crisis. We expect many of the trends that drove interest rates lower
over the past year to continue. These include low inflation, a declining federal
budget deficit and strong foreign demand for U.S. government securities. We
believe, however, that turmoil in the Asian economies could have a substantial
effect on the U.S. economy and that will play an important role in determining
the future course of interest rates.
<PAGE>
PAGE 4
- ---------------------------------------------------------
EVERGREEN TAX FREE FUND (FORMERLY KEYSTONE TAX FREE FUND)
Your Fund's Performance
- -----------------------
Comparison of change in value of a $10,000 investment in Evergreen Tax Free
Fund, the Lehman Municipal Bond Index and the Consumer Price Index.
In Thousands December 31, 1987 through December 31, 1997
(Graph appears here with the following plot points)
12/87 12/89 12/91 12/93 12/95 12/97
Fund 10.000 12.048 14.146 16.735 17.832 20.610
CPI 10.000 10.926 11.949 12.632 13.299 13.955
LMBI 10.000 12.202 14.682 17.939 19.982 22.521
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 Lehman Municipal Bond Index is an
unmanaged market index. This index does not include transaction costs associated
with buying and selling securities nor any management fees. The Consumer Price
Index, a measure of inflation, is through December 31, 1997.
HISTORICAL RECORD
- --------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
1 year w/o sales charge 8.15%
1 year w/sales charge* 5.15%
5 years 6.03%
10 years 7.50%
CUMULATIVE TOTAL RETURN
5 years 33.99%
10 years 106.06%
*ADJUSTED FOR MAXIMUM CONTINGENT DEFERRED SALES CHARGE OF 3.0% FOR THOSE
INVESTORS WHO SOLD FUND SHARES AFTER ONE CALENDAR YEAR.
<PAGE>
PAGE 5
- ---------------------------------------------------------
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
LONG-TERM MUNICIPAL OBLIGATIONS--98.9%
<S> <C> <C>
ALABAMA--0.6%
$ 2,035,000 Alabama Agricultural and
Mechanic University
6.50%, 11/1/25, (MBIA)..... $ 2,306,571
2,065,000 Alabama Housing Finance
Authority, Single Family,
Collateralized Home
Mortgage, Series D1
6.00%, 10/1/16............. 2,192,844
3,500,000 Mobile, Alabama, Industrial
Development Board, Solid
Waste Disposal, Mobile
Energy Service Company
Project
6.95%, 1/1/20.............. 3,869,005
--------------
8,368,420
--------------
ALASKA--1.3%
15,000,000 Alaska Energy Authority,
Utilities Revenue, Linked
Bulls/Bears Floaters (c)
6.60%, 7/1/15, (FGIC)...... 17,526,000
130,000 Alaska State Housing Finance
Corporation, Collateralized
Home Mortgage, Series A
8.00%, 12/1/13............. 133,738
--------------
17,659,738
--------------
ARIZONA--1.3%
850,000 Chandler, Arizona, Water and
Sewer Revenue
6.75%, 7/1/06, (FGIC)...... 926,670
Maricopa County, Arizona,
Elementary School District:
2,000,000 #008, Osborn Refunding
7.50%, 7/1/07, (MBIA)...... 2,482,880
3,750,000 #068, Series A
6.75%, 7/1/14, (AMBAC)..... 4,244,325
6,000,000 Maricopa County, Arizona,
Unified School District
8.13%, 1/1/10, (MBIA)...... 7,762,740
370,000 Pima County, Arizona,
Industrial Development
Authority, Health Care
Corporation Revenue
8.00%, 7/1/13, (MBIA)...... 384,985
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
LONG-TERM MUNICIPAL OBLIGATIONS--CONTINUED
ARIZONA--CONTINUED
<S> <C> <C>
$ 2,030,000 Pima County, Arizona, Unified
School District, Tucson
Refunding
7.50%, 7/1/03, (FGIC)...... $ 2,375,405
--------------
18,177,005
--------------
ARKANSAS--0.1%
1,630,000 Arkansas State Development
Finance Authority, Single
Family Mortgage Revenue
8.00%, 8/15/11............. 1,765,942
--------------
CALIFORNIA--5.9%
7,000,000 California State Educational
Facilities Authority
Revenue, Stanford
University, Series M
5.25%, 12/1/26............. 7,083,720
1,990,000 California State Housing
Finance Agency, Revenue
Bonds, Home Mortgage,
Series H
6.25%, 8/1/27.............. 2,109,917
11,290,000 California State Pollution
Control Financing
Authority, Solid Waste
Disposal Revenue, Keller
Canyon Landfill Company
Project
6.88%, 11/1/27............. 12,487,869
3,700,000 California State Public Works
Board, Lease Department
Correctional State Prison,
Series E
5.50%, 6/1/15.............. 3,895,249
350,000 California State Public Works
Board, Various California
University Projects,
Series B
5.50%, 6/1/19.............. 358,302
California State, General
Obligation:
5,000,000 5.13%, 10/1/27............. 4,922,000
2,500,000 Series BH
5.50%, 12/1/18............. 2,506,150
3,350,000 East Bay, California,
Municipal Utility Water
Systems Revenue
5.00%, 6/1/26, (FGIC)...... 3,266,183
</TABLE>
<PAGE>
PAGE 6
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EVERGREEN TAX FREE FUND (FORMERLY KEYSTONE TAX FREE FUND)
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
LONG-TERM MUNICIPAL OBLIGATIONS--CONTINUED
CALIFORNIA--CONTINUED
<S> <C> <C>
$ 5,615,000 Eden Township, California,
Hospital District Revenue
7.40%, 11/1/19............. $ 5,978,066
7,700,000 Los Angeles, California,
Transportation Commission,
Series A
6.25%, 7/1/13, (MBIA)...... 8,312,535
1,090,000 Lucia Mar, California Unified
School District, Capital
Appreciation, Series A
(effective yield 5.35%) (b)
0.00%, 8/1/10, (FGIC)...... 595,434
6,015,000 Oakland, California, Revenue
Refunding, Series A
7.60%, 8/1/21, (FGIC)...... 6,258,307
2,750,000 Palm Desert, California,
Financing Authority, Tax
Allocation Revenue, Project
Area #1
5.63%, 4/1/23, (MBIA)...... 2,804,890
Riverside County, California,
Asset Leasing Corporation,
Leasehold Revenue,
Riverside County Hospital
Project:
1,750,000 (effective yield 5.80%) (b)
0.00%, 6/1/15, (MBIA)...... 707,980
1,395,000 (effective yield 5.85%) (b)
0.00%, 6/1/16, (MBIA)...... 531,927
4,555,000 San Mateo County, California,
Transportation District,
Series A
5.75%, 6/1/18, (MBIA)...... 5,019,929
6,635,000 Southern California Public
Power Authority, Power
Project Revenue, Mead
Adelanto Project, Revenue
Refunding, Series A
5.00%, 7/1/17, (AMBAC)..... 6,537,200
10,000,000 Southern California Public
Power Authority,
Transmission Project
Revenue,
(effective yield 5.93%) (b)
0.00%, 7/1/15, (FGIC)...... 4,154,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
LONG-TERM MUNICIPAL OBLIGATIONS--CONTINUED
CALIFORNIA--CONTINUED
<S> <C> <C>
Victor Valley, California,
Joint Unified High School
District, Capital
Appreciation:
$ 2,635,000 (effective yield 6.20%) (b)
0.00%, 9/1/10, (MBIA)...... $ 1,439,000
3,780,000 (effective yield 6.25%) (b)
0.00%, 9/1/11, (MBIA)...... 1,947,154
2,000,000 (effective yield 6.35%) (b)
0.00%, 9/1/13, (MBIA)...... 917,920
--------------
81,833,732
--------------
COLORADO--7.6%
4,000,000 Araphoe County, Colorado,
Single Family Mortgage
Revenue, Capital
Appreciation, Series A,
(effective yield 6.00%) (b)
0.00%, 9/1/10.............. 2,125,520
7,100,000 City and County of Denver,
Colorado, Airport System,
Series D
7.75%, 11/15/13............ 9,002,729
City and County of Denver,
Colorado, Airport System,
Prerefunded Balance:
Series A:
1,145,000 7.50%, 11/15/23.............. 1,362,550
140,000 8.00%, 11/15/25.............. 158,224
670,000 8.50%, 11/15/23.............. 758,674
6,320,000 8.75%, 11/15/23.............. 7,429,160
715,000 Series B:
7.25%, 11/15/12............ 814,778
2,550,000 Series D:
7.75%, 11/15/21............ 2,902,767
City and County of Denver,
Colorado, Airport System,
Unrefunded Balance:
Series A:
520,000 7.25%, 11/15/25.............. 597,506
5,480,000 7.50%, 11/15/23.............. 6,324,084
385,000 8.00%, 11/15/25.............. 430,184
7,080,000 8.50%, 11/15/23.............. 7,957,708
17,510,000 8.75%, 11/15/23.............. 20,569,172
2,785,000 Series B:
7.25%, 11/15/12............ 3,116,777
9,700,000 Series D:
7.75%, 11/15/21............ 10,912,500
</TABLE>
<PAGE>
PAGE 7
- ---------------------------------------------------------
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
LONG-TERM MUNICIPAL OBLIGATIONS--CONTINUED
COLORADO--CONTINUED
<S> <C> <C>
$ 9,795,000 Colorado State East 470
Public Highway Authority
Revenue, Capital
Appreciation, Senior
Series B,
(effective yield 5.30%) (b)
0.00%, 9/1/13, (MBIA)...... $ 4,447,518
Colorado State East 470
Public Highway Authority
Revenue, Senior Series A:
9,000,000 5.00%, 9/1/21, (MBIA)........ 8,804,700
5,000,000 5.00%, 9/1/26, (MBIA)........ 4,859,800
1,880,000 Colorado State Health
Facilities Authority,
Sisters Charity Health
Care, Series A
6.25%, 5/15/09, (MBIA)..... 2,182,153
El Paso County, Colorado,
School District #11,
Colorado Springs:
2,310,000 6.50%, 12/1/12............... 2,721,596
2,000,000 7.10%, 12/1/13............... 2,492,180
1,000,000 7.10%, 12/1/16............... 1,260,670
2,250,000 Larimer County, Colorado,
School District
7.00%, 12/15/16, (MBIA).... 2,888,100
--------------
104,119,050
--------------
CONNECTICUT--0.2%
1,375,000 Connecticut State Resources
Recovery Authority,
Bridgeport Project,
Series B
8.50%, 1/1/00.............. 1,417,611
1,600,000 Connecticut State Special Tax
Obligation, Series B
6.50%, 10/1/12............. 1,907,264
--------------
3,324,875
--------------
DELAWARE--0.1%
1,600,000 Delaware State Health
Facilities Authority,
Medical Center of Delaware
7.00%, 10/1/15, (MBIA)..... 1,701,648
--------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
LONG-TERM MUNICIPAL OBLIGATIONS--CONTINUED
<S> <C> <C>
DISTRICT OF COLUMBIA--0.2%
$ 1,765,000 District of Columbia Hospital
Revenue, Medlantic
Healthcare Group, Series A
6.00%, 8/15/11, (MBIA)..... $ 1,968,787
1,500,000 District of Columbia Revenue,
American Association for
the Advancement of Science
5.25%, 1/1/16, (AMBAC)..... 1,503,405
--------------
3,472,192
--------------
FLORIDA--8.3%
9,000,000 Broward County, Florida,
Resource Recovery, South
Project
7.95%, 12/1/08............. 9,797,220
10,600,000 Dade County, Florida, Special
Obligation, Revenue
Refunding, Series B
5.00%, 10/1/35............. 10,270,976
Florida State Board of
Education, Capital Outlay,
Public Education:
Series A:
3,500,000 5.00%, 1/1/11................ 3,556,175
4,750,000 5.00%, 6/1/27................ 4,622,415
10,000,000 Series B:
5.75%, 6/1/17.............. 10,630,400
Florida State Department of
Transportation, Right Of
Way:
16,500,000 Series A:
5.00%, 7/1/22.............. 16,249,860
5,750,000 Series B:
5.00%, 7/1/27.............. 5,595,612
540,000 Florida State Housing Finance
Agency, GNMA Collateralized
Home Mortgage
8.00%, 12/1/20............. 564,905
Gainesville, Florida,
Utilities Systems Revenue:
Series B:
435,000 7.50%, 10/1/08............... 542,871
695,000 7.50%, 10/1/09............... 872,378
</TABLE>
<PAGE>
PAGE 8
- ---------------------------------------------------------
EVERGREEN TAX FREE FUND (FORMERLY KEYSTONE TAX FREE FUND)
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
LONG-TERM MUNICIPAL OBLIGATIONS--CONTINUED
FLORIDA--CONTINUED
<S> <C> <C>
$ 495,000 Hillsborough County, Florida,
Housing Finance Agency,
Single Family Mortgage
Revenue
7.30%, 4/1/22.............. $ 520,290
3,000,000 Indian Trace, Florida,
Community Development
District, Water Management,
Special Benefit Assessment
5.00%, 5/1/17, (MBIA)...... 2,996,010
1,800,000 Jacksonville, Florida, Health
Facilities Authority, New
Children's Hospital
7.00%, 6/1/21, (MBIA)...... 1,998,522
3,580,000 Jacksonville, Florida,
Transportation Authority
9.20%, 1/1/15.............. 5,102,467
300,000 Lee County, Florida, Solid
Waste System, Series B
7.00%, 10/1/11............. 334,206
4,000,000 Miami-Dade County, Florida,
Special Obligation,
Subordinated Series B
5.00%, 10/1/37, (MBIA)..... 3,868,000
Orange County, Florida,
Tourist Development Tax
Revenue:
10,370,000 5.00%, 10/1/17, (MBIA)....... 10,291,914
5,000,000 5.00%, 10/1/18, (MBIA)....... 4,929,800
Orlando-Orange County,
Florida, Expressway
Authority:
3,000,000 8.25%, 7/1/14................ 4,170,210
2,960,000 8.25%, 7/1/15, (FGIC)........ 4,137,991
2,910,000 Palm Beach County, Florida,
Health Revenue, John F.
Kennedy Hospital
9.50%, 8/1/13.............. 3,884,559
3,250,000 St. Petersburg, Florida,
Health Facilities Authority
7.00%, 12/1/15, (MBIA)..... 3,628,267
500,000 Tampa, Florida, Allegheny
Health Systems Revenue
6.50%, 12/1/23............. 560,710
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
LONG-TERM MUNICIPAL OBLIGATIONS--CONTINUED
FLORIDA--CONTINUED
<S> <C> <C>
$ 2,980,000 Tampa, Florida, Guaranteed
Entitlement, Series A
8.38%, 10/1/08............. $ 3,079,949
1,825,000 Tampa, Florida, Subordinate
Guaranteed Entitlement,
Prerefunded Balance,
Series B
8.50%, 10/1/18............. 1,887,853
500,000 Tarpon Springs, Florida,
Health Facilities
Authority, Hospital
Revenue, Tarpon Springs
Hospital
8.75%, 5/1/12.............. 516,220
--------------
114,609,780
--------------
GEORGIA--4.1%
3,000,000 Forsyth County, Georgia,
School District
6.75%, 7/1/16.............. 3,649,440
3,245,000 Fulton County, Georgia,
Development Authority
Revenue Georgia Tech
Foundation Facilities,
Series A
5.00%, 9/1/27.............. 3,182,599
Georgia State Municipal
Electric Authority Power
Revenue, Series B:
3,000,000 6.25%, 1/1/17, (FGIC)........ 3,513,540
9,800,000 6.38%, 1/1/16................ 11,348,498
Georgia State, General
Obligation:
10,000,000 Series B
6.80%, 3/1/11.............. 12,051,400
10,700,000 Series C
5.25%, 4/1/11.............. 11,282,508
1,500,000 Series D
6.70%, 8/1/10.............. 1,791,435
2,595,000 Henry County, Georgia, Water
and Sewer Authority Revenue
5.00%, 2/1/26, (AMBAC)..... 2,568,453
4,255,000 Metropolitan Atlanta Rapid
Transit Authority, Georgia,
Sales Tax Revenue, Series P
6.25%, 7/1/11, (AMBAC)..... 4,893,676
</TABLE>
<PAGE>
PAGE 9
- ---------------------------------------------------------
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
LONG-TERM MUNICIPAL OBLIGATIONS--CONTINUED
GEORGIA--CONTINUED
<S> <C> <C>
$ 2,370,000 Private Colleges and
University Facilities
Authority Revenue, Georgia,
Mercer University Project
6.40%, 11/1/11, (MBIA)..... $ 2,767,662
--------------
57,049,211
--------------
HAWAII--0.8%
Hawaii State Department of
Budget and Finance, Special
Purpose Revenue, Hawaiian
Electric Company
Incorporated:
8,000,000 7.38%, 12/1/20, (MBIA)....... 8,791,680
2,000,000 Series A
5.65%, 10/1/27, (MBIA)..... 2,088,840
--------------
10,880,520
--------------
IDAHO--0.1%
1,005,000 Idaho Housing Finance
Authority, Single Family
Mortgage Bonds, Series D-1
8.00%, 1/1/20.............. 1,135,298
--------------
ILLINOIS--4.7%
15,860,000 Chicago, Illinois, Gas Supply
Revenue, People's Gas Light
and Coke Company, Series A
8.10%, 5/1/20.............. 17,425,699
2,000,000 Chicago, Illinois, General
Obligation, Series A2
6.00%, 1/1/11, (AMBAC)..... 2,223,320
2,000,000 Chicago, Illinois, Single
Family Mortgage Revenue,
Series B
6.95%, 9/1/28.............. 2,245,100
4,000,000 Illinois State Development
Finance Authority,
Pollution Control Revenue
Refunding, Commonwealth
Edison Company Project,
Series D
6.75%, 3/1/15.............. 4,540,040
9,000,000 Illinois State, Sales Tax,
Series P
6.50%, 6/15/22............. 10,895,310
2,965,000 Kankakee, Illinois, Sewer
Revenue
6.88%, 5/1/11, (FGIC)...... 3,327,175
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
LONG-TERM MUNICIPAL OBLIGATIONS--CONTINUED
ILLINOIS--CONTINUED
<S> <C> <C>
$ 3,000,000 Metropolitan Fair and
Exposition Authority,
Illinois, Series A
5.00%, 6/1/15.............. $ 2,938,020
10,000,000 Northern Illinois University
Revenues, Auxiliary
Facilities Systems
5.75%, 4/1/22, (FGIC)...... 10,543,500
4,950,000 Quincy, Illinois, Blessing
Hospital Revenue
6.00%, 11/15/18............ 5,131,566
4,485,000 Regional Transportation
Authority, Illinois,
Transportation Revenue
6.00%, 6/1/18, (FGIC)...... 5,073,432
--------------
64,343,162
--------------
KANSAS--0.2%
2,000,000 Burlington, Kansas, Pollution
Control, Kansas Gas and
Electric Company
7.00%, 6/1/31, (MBIA)...... 2,207,760
--------------
KENTUCKY--1.6%
8,000,000 Carroll County, Kentucky,
Kentucky Utility Company,
Series A
7.45%, 9/15/16............. 9,173,280
6,000,000 Jefferson County, Kentucky,
Hospital Revenue, Linked
ACEs/INFLOs (c)
6.44%, 10/1/14, (MBIA)..... 6,494,400
3,795,000 Kentucky State Housing
Corporation, Housing
Revenue Bond, Series C
7.90%, 1/1/21.............. 3,999,588
2,725,000 Trimble County, Kentucky,
Pollution Control,
Louisville Gas and Electric
Company
7.63%, 11/1/20............. 3,008,182
--------------
22,675,450
--------------
LOUISIANA--1.1%
1,750,000 Louisiana State Public
Facilities Authority,
Hospital Revenue, Woman
Hospital Foundation Project
7.25%, 10/1/22............. 1,993,478
</TABLE>
<PAGE>
PAGE 10
- ---------------------------------------------------------
EVERGREEN TAX FREE FUND (FORMERLY KEYSTONE TAX FREE FUND)
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
LONG-TERM MUNICIPAL OBLIGATIONS--CONTINUED
LOUISIANA--CONTINUED
<S> <C> <C>
New Orleans, Louisiana,
Capital Appreciation:
$ 6,960,000 (effective yield 6.05%) (b)
0.00%, 9/1/14, (AMBAC)..... $ 3,014,724
2,800,000 (effective yield 7.10%) (b)
0.00%, 9/1/15, (AMBAC)..... 1,147,468
3,755,000 (effective yield 7.15%) (b)
0.00%, 9/1/17, (AMBAC)..... 1,377,634
5,175,000 Orleans Parish, Louisiana,
School Board Revenue
9.05%, 2/1/10, (MBIA)...... 7,188,696
--------------
14,722,000
--------------
MAINE--0.5%
4,000,000 Maine State Housing
Authority, Mortgage
Purchase, Series C2
6.05%, 11/15/28............ 4,159,920
2,500,000 Regional Waste System, Maine,
Solid Waste Resources
Recovery Revenue
8.15%, 7/1/11.............. 2,656,025
--------------
6,815,945
--------------
MARYLAND--0.0%
115,000 Maryland State Community
Development Administration,
Multi-Family Housing
8.75%, 5/15/12............. 115,439
--------------
MASSACHUSETTS--8.4%
450,000 Lawrence, Massachusetts,
General Obligation
6.25%, 2/15/09, (AMBAC).... 498,942
Massachusetts Bay
Transportation Authority:
7,550,000 Series A
6.25%, 3/1/12.............. 8,596,506
2,125,000 Series B
6.20%, 3/1/16.............. 2,437,885
Massachusetts Bay
Transportation Authority,
General Transportation
Systems:
Series A:
7,000,000 5.00%, 3/1/19, (FGIC)........ 6,900,810
6,110,000 7.00%, 3/1/11, (MBIA)........ 7,489,210
5,000,000 Series C
5.00%, 3/1/24.............. 4,844,350
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
LONG-TERM MUNICIPAL OBLIGATIONS--CONTINUED
MASSACHUSETTS--CONTINUED
<S> <C> <C>
Massachusetts State Health
and Educational Facilities
Authority:
$ 1,700,000 Brigham & Women's Hospital
6.75%, 7/1/24, (MBIA)...... $ 1,874,454
2,000,000 Capital Asset Program
7.30%, 10/1/18, (MBIA)..... 2,177,160
600,000 McLean Hospital Issue,
Series C
6.50%, 7/1/10.............. 662,232
600,000 Milton Hospital, Series B
7.25%, 7/1/05.............. 655,380
New England Deaconess
Hospital:
1,000,000 6.88%, 4/1/22................ 1,099,770
2,980,000 6.88%, 4/1/22, (AMBAC)....... 3,304,105
13,750,000 Massachusetts State
Industrial Finance Agency,
Harvard Community Health
Plan, Incorporated, Series B
8.13%, 10/1/17............. 14,434,475
8,000,000 Massachusetts State
Industrial Finance Agency,
Solid Waste Disposal
Revenue, Senior Lien,
Massachusetts Recycling
Association, Series A (d)
9.00%, 8/1/16.............. 3,000,000
14,000,000 Massachusetts State Municipal
Wholesale Electric Copower
Supply Systems Revenue,
Linked PARs and INFLOs (c)
5.45%, 7/1/18.............. 14,161,420
4,325,000 Massachusetts State Port
Authority Revenue, Series B
5.38%, 7/1/27.............. 4,325,043
Massachusetts State Special
Obligation Revenue,
Consolidated Loan, Series A:
2,000,000 5.50%, 6/1/12................ 2,152,580
1,500,000 5.50%, 6/1/13................ 1,601,295
Massachusetts State Turnpike
Authority, Metropolitan
Highway Systems Revenue,
Senior Series A:
2,000,000 5.00%, 1/1/27, (MBIA)........ 1,943,760
30,910,000 5.00%, 1/1/37, (MBIA)........ 29,892,752
</TABLE>
<PAGE>
PAGE 11
- ---------------------------------------------------------
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
LONG-TERM MUNICIPAL OBLIGATIONS--CONTINUED
MASSACHUSETTS--CONTINUED
<S> <C> <C>
$ 235,000 Massachusetts State Water
Pollution Abatement Trust,
Pooled Loan Program,
Series 2
6.13%, 2/1/08.............. $ 269,448
3,500,000 Massachusetts State, General
Obligation, Consolidated
Loan, Series C
5.00%, 8/1/17.............. 3,465,280
--------------
115,786,857
--------------
MICHIGAN--1.2%
2,500,000 Detroit, Michigan, Sewage
Disposal Revenue, Series A
5.00%, 7/1/22, (MBIA)...... 2,451,825
Michigan State Building
Authority Revenue,
Facilities Program, Series II:
1,000,000 (effective yield 5.10%) (b)
0.00%, 10/15/09, (AMBAC)... 574,760
1,000,000 (effective yield 5.20%) (b)
0.00%, 10/15/10, (AMBAC)... 542,260
1,000,000 (effective yield 5.25%) (b)
0.00%, 10/15/11, (AMBAC)... 510,010
1,000,000 (effective yield 5.30%) (b)
0.00%, 10/15/12, (AMBAC)... 481,510
9,500,000 Monroe County, Michigan,
Economic Development
Corporation, Detroit Edison
Company
6.95%, 9/1/22, (FGIC)...... 12,095,590
--------------
16,655,955
--------------
MINNESOTA--0.2%
1,120,000 Dakota County, Minnesota,
Single Family Mortgage
8.10%, 9/1/12.............. 1,165,035
1,280,000 Minnesota State Housing
Finance Agency, Single
Family Mortgage, Series D
8.00%, 1/1/23.............. 1,345,370
--------------
2,510,405
--------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
LONG-TERM MUNICIPAL OBLIGATIONS--CONTINUED
<S> <C> <C>
MISSISSIPPI--0.1%
$ 1,000,000 Harrison County, Mississippi,
Wastewater Treatment
Management
8.50%, 2/1/13.............. $ 1,407,080
--------------
MISSOURI--0.2%
1,500,000 Joplin, Missouri Industrial
Development Authority
Revenue, Catholic Health
Initiatives, Series A
5.13%, 12/1/15............. 1,495,425
945,000 Missouri State Housing
Development Commission,
Mortgage Revenue, Single
Family, Series B
6.45%, 9/1/27.............. 1,015,781
Sikeston, Missouri, Electric
Revenue :
300,000 6.00%, 6/1/13, (MBIA)........ 338,835
200,000 6.00%, 6/1/14, (MBIA)........ 225,796
--------------
3,075,837
--------------
MONTANA--0.9%
11,000,000 Forsyth, Montana, Pollution
Control Revenue Montana
Power Company, Series A
6.13%, 5/1/23, (AMBAC)..... 11,871,090
--------------
NEVADA--1.5%
9,000,000 Clark County, Nevada,
Passenger Facilities
Revenue, Las Vegas McCarran
International Airport,
Series A
6.00%, 7/1/22, (AMBAC)..... 9,584,190
3,000,000 Clark County, Nevada, School
District, Series A
6.75%, 3/1/07, (MBIA)...... 3,247,950
6,000,000 Clark County, Nevada, Series A
7.50%, 6/1/09, (AMBAC)..... 7,516,560
--------------
20,348,700
--------------
</TABLE>
<PAGE>
PAGE 12
- ---------------------------------------------------------
EVERGREEN TAX FREE FUND (FORMERLY KEYSTONE TAX FREE FUND)
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
LONG-TERM MUNICIPAL OBLIGATIONS--CONTINUED
<S> <C> <C>
NEW HAMPSHIRE--0.3%
New Hampshire State Higher
Education & Health
Facilities Authority,
Frisbie Memorial Hospital,
Revenue Bonds:
$ 3,155,000 6.13%, 10/1/13............... $ 3,293,820
Gloucester County Project,
Series A
1,000,000 8.13%, 7/1/10................ 1,016,340
--------------
4,310,160
--------------
NEW JERSEY--0.8%
8,750,000 New Jersey State Economic
Development Authority,
Water Facilities Revenue,
New Jersey American Water
Company Incorporated
Project
6.50%, 4/1/22, (FGIC)...... 9,480,538
1,000,000 New Jersey State Health Care
Facilities Financing
Authority, Jersey Shore
Medical Center
6.13%, 7/1/12, (AMBAC)..... 1,081,300
--------------
10,561,838
--------------
NEW MEXICO--0.6%
1,500,000 Albuquerque, New Mexico,
Hospital System Revenue,
Series A
6.38%, 8/1/07, (MBIA)...... 1,649,985
1,000,000 Albuquerque, New Mexico,
Joint Water and Sewer
System Revenue, Series A
(effective yield 6.90%) (b)
0.00%, 7/1/08, (FGIC)...... 613,750
5,000,000 Farmington, New Mexico,
Pollution Control Revenue,
Southern California Edison
Company, Series A
5.88%, 6/1/23, (MBIA)...... 5,338,800
--------------
7,602,535
--------------
NEW YORK--13.2%
7,000,000 Housing, New York, Corporate
Revenue, Series A,
(effective yield 6.17%) (b)
0.00%, 11/1/10............. 6,359,150
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
LONG-TERM MUNICIPAL OBLIGATIONS--CONTINUED
NEW YORK--CONTINUED
<S> <C> <C>
$ 400,000 Metropolitan Transportation
Authority, New York,
Commuter Facilities
Revenue, Series A
6.13%, 7/1/14, (MBIA)...... $ 445,488
Metropolitan Transportation
Authority, New York,
Transportation Facilities
Revenue:
10,000,000 Series A
5.70%, 7/1/17, (MBIA)...... 10,691,200
6,395,000 Series C-1
5.63%, 7/1/27, (AMBAC)..... 6,681,496
5,225,000 Nassau County, New York,
General Obligation, Series A
6.00%, 7/1/10, (FGIC)...... 5,875,565
New York City, New York,
General Obligation:
2,980,000 Prerefunded, Series A
7.75%, 8/15/15............. 3,379,797
400,000 Refunding, Series A
5.75%, 8/1/10, (FGIC)...... 420,244
Unrefunded Balance,
Series A:
615,000 7.75%, 8/15/08............... 688,043
335,000 7.75%, 8/15/14............... 375,026
270,000 7.75%, 8/15/15............... 301,782
New York City, New York,
General Obligation, Capital
Appreciation, Series F:
7,905,000 (effective yield 5.05%) (b)
0.00%, 8/1/08, (FGIC)...... 4,853,037
1,500,000 (effective yield 5.05%) (b)
0.00%, 8/1/08.............. 899,220
New York City, New York,
Municipal Water Finance
Authority, Water and Sewer
Systems Revenue:
4,565,000 Series A:
7.00%, 6/15/15, (FGIC)..... 4,994,658
Series B:
10,500,000 5.25%, 6/15/29............... 10,390,695
3,000,000 5.50%, 6/15/27, (MBIA)....... 3,094,800
5,000,000 5.75%, 6/15/26, (MBIA)....... 5,312,450
5,000,000 5.75%, 6/15/29............... 5,241,750
</TABLE>
<PAGE>
PAGE 13
- ---------------------------------------------------------
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
LONG-TERM MUNICIPAL OBLIGATIONS--CONTINUED
NEW YORK--CONTINUED
<S> <C> <C>
$ 6,790,000 New York State Dormitory
Authority Revenue, Series A
5.25%, 5/15/15............. $ 6,992,410
New York State Dormitory
Authority Revenue, City
University Educational
Facilities:
4,480,000 7.00%, 7/1/09, (FGIC)........ 5,434,330
1,000,000 Series 1995A
5.38%, 7/1/14, (FGIC)...... 1,016,960
10,600,000 New York State Dormitory
Authority Revenue, Mental
Health Services, Series B
5.38%, 2/15/26, (FSA)...... 10,705,576
New York State Dormitory
Authority Revenue, State
University Educational
Facilities:
3,000,000 5.25%, 5/15/15, (AMBAC)...... 3,135,780
4,000,000 5.50%, 5/15/13, (FSA)........ 4,319,160
Series A:
7,000,000 5.25%, 5/15/15, (FSA)........ 7,316,820
4,140,000 5.50%, 5/15/10............... 4,422,265
Series B:
9,500,000 5.25%, 5/15/13, (FSA)........ 10,001,220
10,500,000 7.50%, 5/15/11............... 13,150,830
1,100,000 Series C
7.38%, 5/15/10............. 1,348,677
New York State Environmental
Facilities Corporation,
Pollution Control Revenue,
State Water Revolving Fund:
4,455,000 Prerefunded Balance, Series E
6.88%, 6/15/10............. 4,925,403
545,000 Unrefunded Balance, Series E
6.88%, 6/15/10............. 599,217
2,000,000 New York State Local
Government Assistance
Corporation, Series C
5.50%, 4/1/17.............. 2,132,800
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
LONG-TERM MUNICIPAL OBLIGATIONS--CONTINUED
NEW YORK--CONTINUED
<S> <C> <C>
New York State Medical Care
Facilities, Finance Agency
Revenue:
$ 2,900,000 6.38%, 8/15/14, (FGIC)....... $ 3,233,123
2,255,000 6.38%, 11/15/19, (AMBAC)..... 2,505,440
Health Center Projects,
Series A
1,250,000 6.38%, 11/15/19.............. 1,375,000
New York State Medical Care
Facilities, Finance Agency
Revenue, New York Hospital,
Series A:
2,000,000 6.75%, 8/15/14............... 2,271,440
3,500,000 6.80%, 8/15/24,
(AMBAC/FHA)................ 3,985,485
4,000,000 New York State Mortgage
Agency, Homeowner Mortgage,
Series 27
6.90%, 4/1/15.............. 4,371,640
1,125,000 New York State Power
Authority, Revenue and
General Purpose Revenue
7.00%, 1/1/18.............. 1,356,334
5,000,000 New York State Thruway
Authority, General Revenue,
Series D
5.38%, 1/1/27.............. 5,057,850
3,000,000 New York State Thruway
Authority, Service Contract
Revenue, Local Highway and
Bridge
5.00%, 4/1/17.............. 2,902,320
575,000 New York State Urban
Development Corporation
Revenue, Correctional
Facilities, Series A
6.50%, 1/1/09.............. 653,292
7,725,000 New York State, General
Obligation, Series B
5.70%, 8/15/10............. 8,222,722
500,000 Niagara Falls, New York,
Public Improvement
7.50%, 3/1/14, (MBIA)...... 644,565
--------------
182,085,060
--------------
</TABLE>
<PAGE>
PAGE 14
- ---------------------------------------------------------
EVERGREEN TAX FREE FUND (FORMERLY KEYSTONE TAX FREE FUND)
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
LONG-TERM MUNICIPAL OBLIGATIONS--CONTINUED
OHIO--1.6%
<S> <C> <C>
$ 2,000,000 Adams County, Ohio Valley
Local School District
7.00%, 12/1/15............. $ 2,513,560
Cleveland, Ohio, Public Power
Systems, First Mortgage:
1,000,000 7.00%, 11/15/24, (MBIA)...... 1,173,760
7,000,000 Series A
7.00%, 11/15/16, (MBIA).... 8,148,420
1,285,000 Columbus, Ohio, General
Obligation
12.38%, 2/15/06............ 1,967,990
1,500,000 Montgomery County, Ohio,
Hospital Revenue, Kettering
Medical Center
6.25%, 4/1/20, (MBIA)...... 1,743,465
1,000,000 Ohio State Higher Educational
Facility Commission
6.13%, 11/15/17, (MBIA).... 1,088,550
5,750,000 Ohio State Water Development
Authority, Pollution
Control Facilities Revenue,
Water Control Loan Fund
5.00%, 6/1/16, (MBIA)...... 5,735,625
--------------
22,371,370
--------------
OKLAHOMA--0.2%
2,250,000 Oklahoma State Industrial
Authority, Baptist Medical
Center
7.00%, 8/15/14............. 2,459,003
--------------
PENNSYLVANIA--8.8%
Allegheny County,
Pennsylvania, Airport
Revenue, Pittsburgh
International Airport,
Series B:
11,500,000 5.00%, 1/1/17, (MBIA)........ 11,360,390
11,500,000 5.00%, 1/1/19, (MBIA)........ 11,338,310
2,500,000 Allegheny County,
Pennsylvania, Sewer Revenue
(effective yield 6.10%) (b)
0.00%, 6/1/15, (FGIC)...... 1,035,775
4,390,000 Beaver County, Pennsylvania,
Ohio Edison
7.00%, 6/1/21, (FGIC)...... 4,764,291
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
LONG-TERM MUNICIPAL OBLIGATIONS--CONTINUED
PENNSYLVANIA--CONTINUED
<S> <C> <C>
$ 2,000,000 Lebanon County, Pennsylvania,
Good Samaritan Hospital
Authority, Project Revenue
6.00%, 11/15/18............ $ 2,081,300
2,000,000 McKeesport, Pennsylvania,
Area School District,
Capital Appreciation,
Series B
(effective yield 6.25%) (b)
0.00%, 10/1/15, (FSA)...... 814,760
2,060,000 Millcreek Township,
Pennsylvania, School
District, Capital
Appreciation, Series A
(effective yield 6.38%) (b)
0.00%, 9/15/09, (FGIC)..... 1,183,223
900,000 Montgomery County,
Pennsylvania, Industrial
Development and Pollution
Control, Philadelphia
Electric Company
7.60%, 4/1/21.............. 981,531
2,500,000 North Penn, Pennsylvania,
Water Authority
6.88%, 11/1/19, (FGIC)..... 2,895,500
7,500,000 Northumberland County,
Pennsylvania, Commonwealth
Lease Revenue, Capital
Appreciation
(effective yield 7.10%) (b)
0.00%, 10/15/10, (MBIA).... 4,066,950
2,650,000 Penn Hills Township,
Pennsylvania, General
Obligation, Series B,
(effective yield 6.79%) (b)
0.00%, 6/1/13, (AMBAC)..... 1,220,352
4,000,000 Pennsylvania State Higher
Educational Facilities
Authority, Allegheny
General Hospital, Series A
7.13%, 9/1/07.............. 4,377,960
Pennsylvania State Housing
Finance Agency:
8,000,000 Multi-Family, Section 8
8.20%, 7/1/24.............. 8,677,200
5,545,000 Residential Development,
Section 8, Series A
7.60%, 7/1/13.............. 6,000,411
</TABLE>
<PAGE>
PAGE 15
- ---------------------------------------------------------
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
LONG-TERM MUNICIPAL OBLIGATIONS--CONTINUED
PENNSYLVANIA--CONTINUED
<S> <C> <C>
Pennsylvania State Housing
Finance Agency:
Single Family Mortgage:
$ 4,000,000 Series T
7.75%, 10/1/09............. $ 4,186,080
3,950,000 Series V
7.80%, 4/1/16.............. 4,074,346
1,260,000 Pennsylvania State
Intergovernmental
Cooperative Authority,
Philadelphia Funding
6.75%, 6/15/21, (FGIC)..... 1,450,436
Philadelphia, Pennsylvania,
Hospital and Higher
Education Facilities
Authority Revenue:
Albert Einstein Medical
Center:
3,000,000 7.00%, 10/1/21............... 3,250,680
2,350,000 7.63%, 4/1/11................ 2,483,903
2,500,000 Temple University Hospital
5.50%, 11/15/15............ 2,529,325
7,360,000 Philadelphia, Pennsylvania,
Municipal Authority
Revenue, Municipal Services
Building Lease, Capital
Appreciation,
(effective yield 7.50%) (b)
0.00%, 3/15/14, (FSA)...... 3,242,080
14,100,000 Philadelphia, Pennsylvania,
Water and Wastewater
Revenue
5.00%, 6/15/16, (FSA)...... 13,898,088
3,175,000 Pittsburgh, Pennsylvania,
Urban Redevelopment
Authority, Multi-Family
Housing Mortgage, 1985
Series A
9.25%, 12/1/27............. 3,356,483
5,000,000 Pittsburgh, Pennsylvania,
Water and Sewer Systems
Revenue, Subordinated,
Series B
5.75%, 9/1/25, (FSA)....... 5,252,100
6,350,000 Sayre, Pennsylvania, Health
Care Facilities Authority,
Guthrie Healthcare, Series A
7.10%, 3/1/17.............. 6,955,853
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
LONG-TERM MUNICIPAL OBLIGATIONS--CONTINUED
PENNSYLVANIA--CONTINUED
<S> <C> <C>
Shaler, Pennsylvania, Area
School District, Capital
Appreciation, Series A:
$ 2,000,000 (effective yield 5.55%) (b)
0.00%, 11/15/17, (FGIC).... $ 726,100
2,000,000 (effective yield 5.60%) (b)
0.00%, 11/15/18, (FGIC).... 689,980
2,000,000 (effective yield 5.60%) (b)
0.00%, 11/15/19, (FGIC).... 654,240
5,000,000 University of Pittsburgh,
Pennsylvania, University
Revenue, Series B
5.00%, 6/1/21, (MBIA)...... 4,939,100
5,000,000 Westmoreland County,
Pennsylvania, Municipal
Authority, Capital
Appreciation, Series C
(effective yield 5.69%) (b)
0.00%, 8/15/15............. 2,050,100
--------------
120,536,847
--------------
RHODE ISLAND--0.4%
5,710,000 Rhode Island State Health and
Educational Building
Corporation, Hospital
Financing Revenue, Roger
Williams General Hospital
9.50%, 7/1/16.............. 5,863,199
--------------
SOUTH CAROLINA--1.4%
5,000,000 Piedmont Municipal Power
Agency, South Carolina
Electric Revenue
5.38%, 1/1/25, (MBIA)...... 5,246,900
1,610,000 South Carolina State Housing
Finance and Development
Authority, Homeownership
Mortgage Purchase, Series B
7.90%, 7/1/32, (FHA)....... 1,695,620
12,300,000 South Carolina State Public
Service Authority Revenue,
Series A
5.00%, 1/1/19, (MBIA)...... 12,049,449
--------------
18,991,969
--------------
</TABLE>
<PAGE>
PAGE 16
- ---------------------------------------------------------
EVERGREEN TAX FREE FUND (FORMERLY KEYSTONE TAX FREE FUND)
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
LONG-TERM MUNICIPAL OBLIGATIONS--CONTINUED
TENNESSEE--2.6%
<S> <C> <C>
$ 5,465,000 Bristol, Tennessee, Health
and Education Authority,
Bristol Memorial Hospital
6.75%, 9/1/10, (FGIC)...... $ 6,534,501
Knox County, Tennessee,
Health and Educational
Facilities, Fort Sanders
Hospital Alliance:
8,000,000 Series B
7.25%, 1/1/10.............. 9,826,560
3,500,000 Series C
5.25%, 1/1/15.............. 3,639,825
9,000,000 Metro Government, Nashville
and Davidson Counties,
Tennessee, Step Bond
(effective yield 4.92%) (b)
0.00%, 1/1/12, (FGIC)...... 10,775,700
4,555,000 Tennessee Housing Development
Authority, Home Ownership
Program, Issue H
7.83%, 7/1/15.............. 4,712,193
--------------
35,488,779
--------------
TEXAS--10.9%
Austin, Texas, Utility
Systems Revenue, Refunding:
5,000,000 5.75%, 5/15/24, (FGIC)....... 5,229,500
2,000,000 Series B
5.70%, 11/15/21, (MBIA).... 2,106,800
5,150,000 Bexar, Texas, Health
Facilities Development
Corporation, Baptist Health
Systems, Revenue Refunding,
Series A
5.38%, 11/15/22, (MBIA).... 5,204,023
25,000 Bexar, Texas, Metropolitan
Water District Waterworks
Systems, Unrefunded Balance
6.63%, 5/1/14, (AMBAC)..... 27,309
8,500,000 Brazos River Authority, Texas
Revenue Refunding, Houston
Light and Power Company,
Project C
8.10%, 5/1/19.............. 8,782,880
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
LONG-TERM MUNICIPAL OBLIGATIONS--CONTINUED
TEXAS--CONTINUED
<S> <C> <C>
$ 2,400,000 Brownsville, Texas, Utility
System Revenue
6.25%, 9/1/14, (MBIA)...... $ 2,792,736
Fort Bend County, Texas,
Levee Improvement:
1,165,000 6.90%, 9/1/20, (MBIA)........ 1,312,676
District #11:
1,245,000 6.90%, 9/1/18, (MBIA)........ 1,402,816
1,000,000 6.90%, 9/1/19, (MBIA)........ 1,126,760
7,000,000 Harris County, Texas, Flood
Control District
(effective yield 7.20%) (b)
0.00%, 10/1/06............. 4,085,130
3,270,000 Harris County, Texas, General
Obligation, Permanent
Improvement
5.75%, 10/1/13............. 3,590,787
Harris County, Texas, Health
Facilities Development
Corporation:
5,000,000 6.60%, 6/1/14................ 5,683,400
2,480,000 Hermann Hospital Project
6.38%, 10/1/17, (MBIA)..... 2,720,238
Memorial Hospital Project:
2,525,000 7.13%, 6/1/15................ 2,833,908
3,215,000 Series A
6.00%, 6/1/09.............. 3,631,150
10,000,000 Harris County, Texas, Health
Facilities Development
Corporation Revenue, School
Health Care Systems, Series B
5.75%, 7/1/27, (MBIA)...... 10,663,800
Harris County, Texas, Toll
Road:
3,000,000 7.00%, 8/15/10............... 3,666,240
4,000,000 Senior Lien, Series A
6.38%, 8/15/24, (MBIA)..... 4,520,840
10,500,000 Subordinated Lien
5.00%, 8/15/21............. 10,300,605
4,565,000 Houston, Texas, Airport
System Revenue, Senior Lien
8.20%, 7/1/17.............. 4,771,658
</TABLE>
<PAGE>
PAGE 17
- ---------------------------------------------------------
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
LONG-TERM MUNICIPAL OBLIGATIONS--CONTINUED
TEXAS--CONTINUED
<S> <C> <C>
$ 2,700,000 Houston, Texas, Water and
Sewer System Revenue,
Refunding, Junior Lien,
Series C
(effective yield 6.85%) (b)
0.00%, 12/1/10............. $ 1,444,203
3,000,000 North Texas Health Facilities
Development Corporation,
United Regional Health Care
Systems Revenue
5.00%, 9/1/14, (MBIA)...... 2,982,630
5,670,000 North Texas Thruway
Authority, Dallas North
Thruway Systems Revenue,
Series A
5.00%, 1/1/20, (FGIC)...... 5,573,667
7,005,000 Plano, Texas, Health
Facilities Development
Corporation Revenue, Texas
Health Resources Systems,
Series C
5.00%, 2/15/22, (MBIA)..... 6,823,360
3,175,000 Port Arthur, Texas, General
Obligation
5.00%, 2/15/21, (MBIA)..... 3,111,119
1,085,000 Rio Grande Valley, Texas,
Health Facilities
Corporation, Hospital
Revenue, Baptist Medical
Project
8.00%, 8/1/17.............. 1,130,234
6,415,000 Tarrant County, Texas,
Housing Finance Corporation
Revenue, Single Family
Mortgage, Series A
(effective yield 11.00%) (b)
0.00%, 9/15/16, (MBIA)..... 2,352,252
3,785,000 Texas Housing Agency,
Residential Development,
Series D
8.40%, 1/1/21.............. 3,944,235
2,165,000 Texas Housing Agency, Single
Family Mortgage
8.20%, 3/1/16.............. 2,222,502
175,000 Texas Municipal Power Agency,
Refunding Bonds
5.25%, 9/1/12, (MBIA)...... 178,021
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
LONG-TERM MUNICIPAL OBLIGATIONS--CONTINUED
TEXAS--CONTINUED
<S> <C> <C>
$ 130,000 Texas Municipal Power Agency,
Revenue Bonds
6.10%, 9/1/09.............. $ 145,766
Texas State Public Finance
Authority Revenue:
13,050,000 (effective yield 5.23%) (b)
0.00%, 10/1/14............. 5,693,976
8,500,000 (effective yield 5.28%) (b)
0.00%, 10/1/13............. 3,896,995
7,800,000 Texas State Turnpike
Authority, Dallas North
Thruway Revenue, President
George Bush Turnpike
5.00%, 1/1/16.............. 7,708,038
5,000,000 Texas State, General
Obligation, Linked
RIBs/SAVRs (c)
6.20%, 9/30/11............. 5,788,200
9,000,000 Titus County, Texas, Water
District #1, Southwest
Electric Power
8.20%, 8/1/11.............. 10,271,970
1,475,000 University of Texas,
University Revenues,
Unrefunded Balance, Series B
6.75%, 8/15/13............. 1,616,688
--------------
149,337,112
--------------
UTAH--0.4%
6,500,000 Intermountain Power Agency,
Utah, Power Supply, Series C
(effective yield 6.80%) (b)
0.00%, 7/1/20.............. 1,102,595
3,500,000 Utah State Building Ownership
Authority, Lease Revenue,
State Facilities Master
Lease Program, Series A
5.75%, 5/15/18, (AMBAC).... 3,668,840
235,000 Utah State Housing Finance
Agency, Single Family
Mortgage, Series C2
7.95%, 7/1/10.............. 249,323
--------------
5,020,758
--------------
</TABLE>
<PAGE>
PAGE 18
- ---------------------------------------------------------
EVERGREEN TAX FREE FUND (FORMERLY KEYSTONE TAX FREE FUND)
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
LONG-TERM MUNICIPAL OBLIGATIONS--CONTINUED
<S> <C> <C>
VERMONT--0.1%
$ 1,485,000 Vermont Housing Finance
Agency,
Single Family, Series 1
8.15%, 5/1/25.............. $ 1,552,003
--------------
VIRGINIA--1.1%
9,355,000 Fairfax County, Virginia,
Industrial Development
Authority
5.00%, 8/15/23............. 9,329,367
Winchester, Virginia,
Industrial Development
Hospital Revenue,
Winchester Medical Center:
2,300,000 6.15%, 1/1/15, (AMBAC)....... 2,346,644
3,200,000 6.30%, 1/1/15, (AMBAC)....... 3,261,280
--------------
14,937,291
--------------
WASHINGTON--2.1%
12,685,000 Chelan County, Washington,
Public Utility District #1,
Capital Appreciation,
Series A,
(effective yield 5.80%) (b)
0.00%, 6/1/14.............. 5,635,819
15,000,000 King County, Washington,
General Obligation, Series C
6.25%, 1/1/32.............. 16,678,350
4,000,000 Washington Public Power
Supply System, Nuclear
Project #3
(effective yield 10.09%) (b)
0.00%, 7/1/12.............. 1,904,560
1,300,000 Washington State Health Care
Facilities Authority,
Multi-Care Medical Center
of Tacoma
7.88%, 8/15/11, (FGIC)..... 1,357,616
3,000,000 Washington State, General
Obligation, Series A
5.00%, 1/1/23.............. 2,949,930
--------------
28,526,275
--------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
LONG-TERM MUNICIPAL OBLIGATIONS--CONTINUED
<S> <C> <C>
WISCONSIN--0.0%
$ 585,000 Wisconsin Housing and
Economic Development
Authority, Home Ownership
8.00%, 3/1/21.............. $ 616,385
--------------
PUERTO RICO--3.2%
Puerto Rico Commonwealth
Highway and Transportation
Authority Revenue:
400,000 Series Y
5.25%, 7/1/15, (FSA)....... 409,876
5,000,000 Series Z
6.00%, 7/1/18, (FSA)....... 5,742,150
Puerto Rico Commonwealth,
General Obligation:
Linked BPO (c):
12,800,000 7.00%, 7/1/10, (MBIA)........ 15,730,048
5,000,000 7.00%, 7/1/10, (AMBAC)....... 6,144,550
3,000,000 Refunding
6.45%, 7/1/17.............. 3,337,920
1,400,000 Puerto Rico Industrial,
Tourist, Educational,
Medical, Environmental
Control Facilities, Finance
Authority
6.25%, 7/1/24, (MBIA)...... 1,542,016
5,000,000 Puerto Rico Public Buildings
Authority Revenue,
Government Facilities,
Series B
5.00%, 7/1/27, (AMBAC)..... 4,888,000
6,250,000 Puerto Rico Public Buildings
Authority Revenue,
Guaranteed Public Education
and Health Facilities, Step
Bond, Series M,
(effective yield 5.74%)
3.75%, 7/1/16.............. 6,275,813
--------------
44,070,373
--------------
TOTAL LONG-TERM MUNICIPAL
OBLIGATIONS
(COST $1,279,693,540)...... 1,360,964,048
--------------
</TABLE>
<PAGE>
PAGE 19
- ---------------------------------------------------------
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
<S> <C> <C>
SHORT-TERM MUNICIPAL OBLIGATIONS--0.9%
CALIFORNIA--0.1%
$ 600,000 California State Health
Facilities Financing
Revenue, St. Joseph Health,
Series A
4.90%, 7/1/13 (a).......... $ 600,000
300,000 Irvine Ranch, California,
Water District Revenue,
Consolidated Bonds
5.00%, 10/1/10 (a)......... 300,000
59,000 Tustin, California,
Improvement Bond Act of
1915, Reassessment District
Number 95 2 A
5.00%, 9/2/13 (a).......... 59,000
--------------
959,000
--------------
FLORIDA--0.1%
155,000 Dade County, Florida, Health
Facilities Authority,
Hospital Revenue, Miami
Children's Hospital
Project, Series 1990
5.20%, 9/1/20 (a).......... 155,000
1,775,000 Dade County, Florida, Water
and Sewer Systems Revenue
3.65%, 10/5/22 (a)......... 1,775,000
--------------
1,930,000
--------------
MASSACHUSETTS--0.1%
1,070,000 Massachusetts State Health
and Educational Facilities
Authority, Capital Assets
Program, Series D
5.00%, 1/1/35 (a).......... 1,070,000
--------------
MISSISSIPI--0.2%
Jackson County, Mississippi,
Pollution Control Revenue:
300,000 5.00%, 12/1/16 (a)........... 300,000
500,000 5.00%, 6/1/23 (a)............ 500,000
2,700,000 Perry County, Mississippi,
Pollution Control Revenue
5.00%, 3/1/02 (a).......... 2,700,000
--------------
3,500,000
--------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------
SHORT-TERM MUNICIPAL
OBLIGATIONS--CONTINUED
<S> <C> <C>
MISSOURI--0.2%
Kansas City, Missouri,
Industrial Development,
Hospital Revenue:
$ 700,000 5.00%, 4/15/15 (a)........... $ 700,000
300,000 5.00%, 10/15/15 (a).......... 300,000
Insured Research Health
Services Systems
400,000 5.00%, 10/15/14 (a).......... 400,000
1,555,000 Missouri State Health and
Educational Facilities
Authority Revenue
3.60%, 11/1/14 (a)......... 1,555,000
--------------
2,955,000
--------------
NEW YORK--0.1%
1,040,000 New York City, New York,
Municipal Water Finance
Authority, Water and Sewer
Systems Revenue
5.00%, 6/15/24 (a)......... 1,040,000
--------------
WYOMING--0.1%
Uinta County, Wyoming,
Pollution Control Revenue:
400,000 5.00%, 8/15/20 (a)........... 400,000
775,000 5.00%, 12/1/22 (a)........... 775,000
--------------
1,175,000
--------------
TOTAL SHORT-TERM MUNICIPAL
OBLIGATIONS
(COST $12,629,000)......... 12,629,000
--------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS--
(COST $1,292,322,540)................... 99.8% 1,373,593,048
OTHER ASSETS AND
LIABILITIES--NET....................... 0.2 2,136,565
------ --------------
NET ASSETS............................... 100.0% $1,375,729,613
------ --------------
</TABLE>
(a) Security is a variable or floating rate instrument with periodic demand
features. The Fund is entitled to full payment of principal and accrued
interest upon surrendering the security to the issuing agent.
(b) Effective yield (calculated at date of purchase) is the annual yield at
which the bond accretes until its maturity date.
(c) At the discretion of the portfolio manager, these securities may be
separated into securities with interest or principal payments that are
linked to another rate or index and therefore would be considered
derivative securities.
(d) Effective February 4, 1998, the Fund stopped accruing income on this
security.
<PAGE>
PAGE 20
- ---------------------------------------------------------
EVERGREEN TAX FREE FUND (FORMERLY KEYSTONE TAX FREE FUND)
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997
LEGEND OF PORTFOLIO ABBREVIATIONS:
<TABLE>
<S> <C>
ACEs Auction Rate Securities
AMBAC American Municipal Bond Assurance Corp.
BPO Bond Payment Obligation
FGIC Federal Guaranty Insurance Co.
FHA Federal Housing Authority
FSA Federal Security Assurance
INFLOs Inverse Floating Rate Securities
MBIA Municipal Bond Investors Assurance Corp.
PARs Periodic Auction Reset Securities
RIBs Residual Interest Bonds
SAVRs Select Auction Variable Rate Securities
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 21
- ---------------------------------------------------------
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE BEGINNING OF YEAR $ 7.71 $ 7.86 $ 7.10 $ 8.12 $ 8.04
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.38 0.41 0.41 0.37 0.39
Net realized and unrealized gain (loss) on investments and
closed futures contracts 0.23 (0.17) 0.74 (0.96) 0.48
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.61 0.24 1.15 (0.59) 0.87
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.40) (0.39) (0.39) (0.37) (0.39)
In excess of net investment income 0 0 0 (0.06) (0.06)
Net realized gain on investments (0.10) 0 0 0 (0.33)
In excess of net realized gain on investments 0 0 0 0 (0.01)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.50) (0.39) (0.39) (0.43) (0.79)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE END OF YEAR $ 7.82 $ 7.71 $ 7.86 $ 7.10 $ 8.12
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (b) 8.15% 3.15% 16.61% (7.34%) 11.15%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses 0.96% 0.87% 0.95% 1.55% 1.66%
Total expenses excluding indirectly paid expenses 0.96% 0.86% 0.94% -- --
Net investment income 4.97% 5.34% 5.41% 4.92% 4.72%
PORTFOLIO TURNOVER RATE 126% 69% 56% 84% 76%
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS END OF YEAR (THOUSANDS) $1,375,730 $1,557,886 $1,204,468 $1,197,727 $1,548,503
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE BEGINNING OF YEAR $ 8.07 $ 7.90 $ 8.06 $ 8.18 $ 8.09
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.46 0.46 0.52(a) 0.57 0.55
Net realized and unrealized gain (loss) on investments and
closed futures contracts 0.12 0.36 (0.01) 0.15 0.30
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.58 0.82 0.51 0.72 0.85
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.46) (0.46) (0.52) (0.60) (0.63)
In excess of net investment income (0.04) (0.07) (0.03) 0 0
Net realized gain on investments (0.11) (0.12) (0.12) (0.24) (0.13)
In excess of net realized gain on investments 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.61) (0.65) (0.67) (0.84) (0.76)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE END OF YEAR $ 8.04 $ 8.07 $ 7.90 $ 8.06 $ 8.18
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (b) 7.55% 10.80% 6.66% 9.11% 10.89%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS
Total expenses 1.38% 1.75% 1.18% 1.23% 1.79%
Total expenses excluding indirectly paid expenses -- -- -- -- --
Net investment income 5.71% 5.78% 6.54% 6.94% 6.74%
PORTFOLIO TURNOVER RATE 78% 77% 64% 69% 61%
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS END OF YEAR (THOUSANDS) $1,453,199 $1,146,185 $1,060,826 $ 901,912 $ 903,132
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Calculation based on average shares outstanding.
(b) Excluding applicable sales charges.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 22
- ---------------------------------------------------------
EVERGREEN TAX FREE FUND (FORMERLY KEYSTONE TAX FREE FUND)
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
- -------------------------------------------------------------
ASSETS:
Investments at market value (identified
cost--$1,292,322,540) $1,373,593,048
Cash 98,709
Interest receivable 22,313,651
Receivable for investments sold 7,532,994
Receivable for Fund shares sold 908,877
Prepaid expenses 166,675
- -------------------------------------------------------------
Total assets 1,404,613,954
- -------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 22,858,216
Dividends payable 2,853,326
Payable for Fund shares redeemed 2,002,810
Due to related parties 516,843
Distribution fee payable 346,780
Accrued Trustees' fees and expenses 15,748
Accrued expenses and other liabilities 290,618
- -------------------------------------------------------------
Total liabilities 28,884,341
- -------------------------------------------------------------
NET ASSETS $1,375,729,613
- -------------------------------------------------------------
NET ASSETS REPRESENTED BY:
Paid-in capital $1,288,490,670
Undistributed net investment income 467,027
Accumulated net realized gain on
investments and closed futures contracts 5,501,408
Net unrealized appreciation on investments 81,270,508
- -------------------------------------------------------------
Total net assets $1,375,729,613
- -------------------------------------------------------------
NET ASSET VALUE PER SHARE
Net asset value of $1,375,729,613 (divided by)
175,817,106 outstanding shares of
beneficial interest $ 7.82
- -------------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
- -------------------------------------------------------------
INVESTMENT INCOME
Interest $ 84,530,908
EXPENSES
Management fee $ 6,029,348
Distribution Plan expenses 5,338,174
Transfer agent fees 1,342,638
Custodian fees 453,948
Reimburseable accounting
expenses 215,018
Trustees' fees and expenses 124,253
Other 193,385
- -------------------------------------------------------------
Total expenses 13,696,764
Less: Indirectly paid
expenses (20,193)
- -------------------------------------------------------------
Net expenses 13,676,571
- -------------------------------------------------------------
Net investment income 70,854,337
- -------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS AND
CLOSED FUTURES CONTRACTS
Net realized gain (loss) on:
Investments 44,775,459
Closed futures contracts (7,678,397)
- -------------------------------------------------------------
Net realized gain on
investments and closed
futures contracts 37,097,062
- -------------------------------------------------------------
Net change in unrealized
appreciation (depreciation)
on investments 2,027,467
- -------------------------------------------------------------
Net realized and unrealized
gain on investments and
closed futures contracts 39,124,529
- -------------------------------------------------------------
Net increase in net assets
resulting from operations $109,978,866
- -------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 23
- ---------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 70,854,337 $ 84,167,379
Net realized gain on investments and closed futures contracts 37,097,062 15,476,735
Net change in unrealized appreciation (depreciation) on investments 2,027,467 (48,955,108)
- --------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 109,978,866 50,689,006
- --------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (73,811,844) (79,617,449)
In excess of net investment income (160,951) 0
Net realized gain on investments (17,063,591) 0
- --------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (91,036,386) (79,617,449)
- --------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 39,118,274 107,614,922
Shares issued in connection with the acquisition of
Keystone Tax Exempt Trust 0 658,278,376
Net asset value of shares issued in reinvestment of distributions 53,790,716 41,011,255
Payment for shares redeemed (294,007,649) (424,558,360)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from capital share
transactions (201,098,659) 382,346,193
- --------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (182,156,179) 353,417,750
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 1,557,885,792 1,204,468,042
- --------------------------------------------------------------------------------------------------------------------------
End of year [including undistributed net investment income as follows:
1997--$467,027 and 1996--$2,957,507] $ 1,375,729,613 $ 1,557,885,792
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 24
- ---------------------------------------------------------
EVERGREEN TAX FREE FUND (FORMERLY KEYSTONE TAX FREE FUND)
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Evergreen Tax Free Fund (the "Fund") (formerly, Keystone Tax Free Fund), a
Massachusetts business trust, is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as a diversified, open-end management
investment company.
The following is a summary of significant accounting policies consistently
followed 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 herein. 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, including
restricted securities, are valued at fair value as determined in good faith
according to procedures established by the Board of Trustees.
Short-term investments with remaining maturities of 60 days or less are
carried at amortized cost, which approximates market value.
B. 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
transaction is subsequently adjusted by daily payments or receipts 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
illiquid 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 under the contract. Futures contracts also
involve elements of market risk in excess of the amount reflected in the
statement of assets and liabilities.
C. DERIVATIVE SECURITIES
The Fund may invest in derivative securities. A derivative security is any
investment that derives its value from an underlying security, asset or market
index. Greater market fluctuations may result if these securities are leveraged.
The Fund invests in these types of securities when it is consistent with its
investment objectives.
D. 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.
E. FEDERAL TAXES
The Fund has qualified and intends to continue to qualify as a regulated
investment 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
distributions under the Code. Accordingly, no provision for federal income 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.
<PAGE>
PAGE 25
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F. DISTRIBUTIONS
Distributions from net investment income for the Fund are declared daily 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.
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. The significant differences between financial statement
amounts available for distributions and distributions made in accordance with
income tax regulations are primarily due to differing treatment of market
discount on securities.
2. CAPITAL SHARE TRANSACTIONS
The Fund has an unlimited number of shares of beneficial interest with no par
value authorized. Transactions in shares of the Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996
<S> <C> <C>
- ----------------------------------------------------------
Shares sold 5,057,416 14,063,760
Shares issued in
connection with the
acquisition of Keystone
Tax Exempt Trust 0 84,656,452
Shares issued in reinvestment
of distributions 6,963,866 5,361,695
Shares redeemed (38,141,778) (55,439,349)
- ----------------------------------------------------------
Net increase (decrease) (26,120,496) 48,642,558
- ----------------------------------------------------------
</TABLE>
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) for the year ended December 31, 1997 were $1,774,258,295
and $1,991,612,017, respectively.
On December 31, 1997, the federal tax cost of investment securities was
$1,292,335,986. The composition of gross unrealized appreciation, depreciation
and net unrealized appreciation was $87,693,203, ($6,436,141) and $81,257,062,
respectively.
As of December 31, 1997, the Fund has no capital loss carryover for federal
income tax purposes.
4. DISTRIBUTION PLAN
Evergreen Distributor, Inc. ("EDI") (formerly, Evergreen Keystone Distributor,
Inc.), a wholly-owned subsidiary of The BISYS Group Inc. ("BISYS"), serves as
principal underwriter to the Fund.
The Fund has adopted a Distribution Plan (the "Plan") as allowed by Rule 12b-1
of the 1940 Act. The Plan permits the Fund to reimburse 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 services
fees to broker-dealers who sell shares of the Fund, are paid by shareholders
through expenses called "Distribution Plan expenses". Under the Distribution
Plan, the Fund pays a distribution fee which may not exceed 1.00% of the Fund's
average daily net assets, of which 0.75% is used to pay distribution expenses
and 0.25% may be used to pay shareholder service fees.
The principal underwriter may pay distribution fees greater than the allowable
amounts the Fund is permitted to pay under the Plan. The Fund may reimburse EDI
for such excess amounts in later years with annual interest at prime plus 1%.
EDI intends to seek full payment of such distribution costs from the Fund at
such time in the future as, and to the extent that, payment thereof by the Fund
would be within permitted limits.
The Plan may be terminated at any time by vote of the Independent Trustees or
by vote of a majority of the outstanding voting shares. However, after the
termination of the Plan, and subject to the discretion of the Independent
Trustees, payments to EDI may continue as compensation for services which had
been provided while the Plan was in effect.
<PAGE>
PAGE 26
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EVERGREEN TAX FREE FUND (FORMERLY KEYSTONE TAX FREE FUND)
5. INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT AND OTHER AFFILIATED
TRANSACTIONS
Keystone Investment Management Company ("Keystone"), a subsidiary of First Union
Corporation ("First Union"), serves as the investment advisor and manager to the
Fund. In return for providing investment management and administrative services
to the Fund, the Fund pays Keystone a management fee that is calculated daily
and paid monthly. The management fee is computed at an annual rate of 2.00% of
the Fund's gross investment income plus an amount determined by applying
percentage rates, starting at 0.50% and declining to 0.25% per annum as net
assets increase, to the average daily net asset value of the Fund. Effective
January 1, 1997, BISYS became sub-administrator to the Fund and is paid by
Keystone for its services.
In providing or obtaining additional operating services, facilities and
supplies to the Fund, Keystone had incurred other expenses which consisted of
transfer agent fees, custodian fees and other fees and expenses for the amounts
shown on the statement of operations. Keystone has been reimbursed for these
expenses by the Fund.
Evergreen Investment Services, Inc. ("EIS") (formerly, Evergreen Keystone
Investment Services, Inc.), a wholly-owned subsidiary of First Union National
Bank, serves as the administrator to the Fund. The Fund reimbursed EIS for
accounting services provided on its behalf.
Evergreen Service Company ("ESC") (formerly, Evergreen Keystone Service
Company), a wholly-owned subsidiary of Keystone, serves as the transfer and
dividend disbursing agent for the Fund.
Officers of the Fund and affiliated Trustees receive
no compensation directly from the Fund. As sub-administrator, BISYS compensates
the officers of the Fund.
6. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an expense offset arrangement with its custodian. The
assets deposited with the custodian under this expense offset arrangement could
have been invested in income-producing assets.
7. FUND REORGANIZATION
On February 29, 1996, the Fund acquired the net assets of Keystone Tax Exempt
Trust in exchange for shares of the Fund pursuant to a plan of reorganization
approved by the shareholders of Keystone Tax Exempt Trust on February 29, 1996.
The acquisition was accomplished by a tax-free exchange of shares of the Fund
for the net assets of Keystone Tax Exempt Trust. The net assets of Keystone Tax
Exempt Trust on that date, including $40,609,975 of unrealized appreciation on
investments, were combined with the Fund. The aggregate net assets of the Fund
and Keystone Tax Exempt Trust immediately before the acquisition were
$1,142,691,716 and $658,278,376, respectively. The net assets of the Fund
immediately after the acquisition were $1,800,970,092.
8. FINANCING AGREEMENT
On December 22, 1997, a financing agreement among all of the Evergreen Funds,
State Street Bank & Trust ("State Street") and a group of Banks (collectively,
the "Banks") became effective. Under this agreement, the Banks provide an
unsecured credit facility in the aggregate amount of $400 million ($275 million
committed and $125 million uncommitted). The credit facility is allocated, under
the terms of the financing agreement, among the Banks. The credit facility is to
be accessed by the Funds for temporary or emergency purposes only and is subject
to each fund's borrowing restrictions. Borrowings under this facility bear
interest at 0.50% per annum above the Federal Funds rate. A commitment fee of
0.065% per annum will be incurred on the unused portion of the committed
facility, which will be allocated to all funds. For its assistance in arranging
this financing agreement, the Capital Market Group of First Union was paid a one
time arrangement fee of $27,500. State Street serves as administrative agent for
the Banks, and as administrative agent is entitled to
<PAGE>
PAGE 27
- ---------------------------------------------------------
a fee of $20,000 per annum which is allocated to all of the funds.
During the year ended December 31, 1997, the Fund had no borrowings under this
agreement.
9. SUBSEQUENT EVENTS
Effective January 9, 1998, the Fund added two classes of shares designated as
Class A and Class C and designated the existing class of shares as Class B.
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 distribution fee than Class A. Class B shares are sold subject to a
contingent deferred sales charge that is payable upon redemption and decreases
depending on how long the shares have been held. Class C shares are sold subject
to a contingent deferred sales charge payable on shares redeemed within one year
after the month of purchase. Shareholders of the Fund who, on January 16, 1998,
held Class B shares purchased before January 1, 1995 and certain other
non-commissionable Class B shares had such shares converted to Class A shares
having an aggregate value equal to that of the shareholder's Class B shares
prior to the conversion.
At a shareholder meeting on January 6, 1998, the shareholders of the Fund
approved the acquisition of substantially all assets and certain liabilities of
the Fund by Evergreen Tax Free Fund ("Evergreen Tax Free"), a series of
Evergreen Municipal Trust, a Delaware business trust, in exchange for Class A,
Class B and Class C shares of Evergreen Tax Free. Also at a meeting on January
6, 1998, the shareholders of Evergreen Tax Free Income Fund ("Tax Free Income"),
a Massachusetts business trust, approved the acquisition of substantially all of
its assets and certain liabilities by Evergreen Tax Free in exchange for Class
A, Class B and Class C shares of Evergreen Tax Free. Tax Free Income had net
assets of approximately $103 million at December 31, 1997. On January 23, 1998,
this acquisition was accomplished by a tax-free exchange of the respective
shares of the Funds.
<PAGE>
PAGE 28
- ---------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
THE TRUSTEES AND SHAREHOLDERS
EVERGREEN TAX FREE FUND
We have audited the accompanying statement of assets and liabilities of
Evergreen Tax Free Fund (formerly, Keystone Tax Free Fund), including the
schedule of investments, as of December 31, 1997, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended and the financial highlights
for each of the years in the ten-year period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1997 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Evergreen Tax Free Fund, as of December 31, 1997, the results of its operations
for the year then ended, the changes in its net assets for each of the years in
the two-year period then ended, and the financial highlights for each of the
years in the ten-year period then ended in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
January 30, 1998
<PAGE>
PAGE 29
- ---------------------------------------------------------
EVERGREEN TAX FREE FUND (FORMERLY KEYSTONE TAX FREE FUND)
ADDITIONAL INFORMATION (UNAUDITED)
Shareholders of the Fund considered and acted upon the proposal listed below at
a special meeting of shareholders held on January 6, 1998.
To approve the acquisition of all the assets and certain liabilities of the Fund
by a new fund, Evergreen Tax Free Fund,
a series of Evergreen Municipal Trust. On November 10, 1997, the record date for
the meeting, the Fund had 176,622,551 shares outstanding, of which 102,832,834
shares (58.22% of record date shares) were represented at the meeting. The
results of the meeting were as follows:
<TABLE>
<S> <C>
Affirmative 95,351,700
Against 2,328,122
Abstain 5,153,012
</TABLE>
FEDERAL TAX STATUS--FISCAL 1997 DISTRIBUTIONS (UNAUDITED)
99.29% of the dividends distributed by the Fund for the year ended December 31,
1997 are exempt from federal income tax.
<PAGE>
(This Page Left Blank Intentionally)
<PAGE>
This report was prepared primarily for the information of the Fund's
shareholders. It is authorized for distribution if preceded or accompanied by
the Fund's current prospectus. The prospectus contains important information
about the Fund including fees and expenses. Read it carefully before you invest
or send money. For a free prospectus on other Evergreen Funds, contact your
financial advisor or call Evergreen Funds.
NOT
FDIC MAY LOSE VALUE
INSURED NO BANK GUARANTEE
EVERGREEN DISTRIBUTOR, INC.
Evergreen is a Service Mark of Evergreen
Investment Services, Inc. Copyright 1997.
KTFF-R RV02 (Recyle Logo)
EVERGREEN
(graphic appears here)
TAX FREE
FUND
(FORMERLY KEYSTONE
TAX FREE FUND)
(Evergreen Funds Logo appears here)
SINCE 1932
ANNUAL REPORT
DECEMBER 31, 1997
